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  • Writer's pictureZiggurat Realestatecorp

Requisites for a valid novation

According to the Article 1231 of the Civil Code, the following are modes of extinguishing obligations:


(1) By payment or performance;

(2) By the loss of the thing due;

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;

(5) By compensation; and

(6) By novation.

 

Obviously, one of the modes of extinguishment of obligations is novation. The next logical question then is: what is novation? 

 

Novation is defined as the extinguishment of an obligation by the  substitution or change of the obligation by a subsequent one which  terminates the first, either by changing the object or principal  conditions, or by substituting the person of the debtor, or subrogating  a third person in the rights of the creditor.


Article 1292 of the Civil Code on novation further provides:

 

...Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.


The cancellation of the old obligation by the new one is a necessary  element of novation which may be effected either expressly or impliedly.  While there is really no hard and fast rule to determine what might  constitute sufficient change resulting in novation, the touchstone,  however, is irreconcilable incompatibility between the old and the new  obligations.


Novation is never presumed, and the animus novandi, whether totally or  partially, must appear by express agreement of the parties, or by their  acts that are too clear and unequivocal to be mistaken.


According to the Supreme Court, in every novation there are four  essential requisites: (1) a previous valid obligation; (2) the agreement  of all the parties to the new contract; (3) the extinguishment of the  old contract; and (4) validity of the new one. There must be consent of  all the parties to the substitution, resulting in the extinction of the  old obligation and the creation of a valid new one. (G.R. No. 156162,  June 22, 2015)


The extinguishment of the old obligation by the new one is a necessary  element of novation which may be effected either expressly or impliedly.  The term "expressly" means that the contracting parties incontrovertibly  disclose that their object in executing the new contract is to  extinguish the old one. Upon the other hand, no specific form is  required for an implied novation, and all that is prescribed by law  would be an incompatibility between the two contracts. (G.R. No.  156162, June 22, 2015)


There are two ways which could indicate, in fine, the presence of  novation and thereby produce the effect of extinguishing an obligation  by another which substitutes the same.

The first is when novation has  been explicitly stated and declared in unequivocal terms.


The second is  when the old and the new obligations are incompatible on every point. 


The test of incompatibility is whether or not the two obligations can  stand together, each one having its independent existence. If they  cannot, they are incompatible and the latter obligation novates the  first. Corollarily, changes that breed incompatibility must be essential  in nature and not merely accidental. The incompatibility must take place  in any of the essential elements of the obligation, such as its object,  cause or principal conditions thereof; otherwise, the change would be  merely modificatory in nature and insufficient to extinguish the  original obligation. (G.R. No. 156162, June 22, 2015)


The Court expounded on the concept of novation in Reyes v. BPI Family  Savings Bank, Inc.[1]:


Novation is defined as the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which terminates the first, either by changing the object or principal conditions, or by substituting the person of the debtor, or subrogating a third person in the rights of the creditor.   


Article 1292 of the Civil Code on novation further provides:


Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.


The cancellation of the old obligation by the new one is a necessary  element of novation which may be effected either expressly or  impliedly. While there is really no hard and fast rule to determine what  might constitute sufficient change resulting in novation, the  touchstone, however, is irreconcilable incompatibility between the old  and the new obligations.   


In Garcia, Jr. v. Court of Appeals, we held that: 


In every novation there are four essential requisites: (1) a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and (4) validity of the new one.


There must be consent of all the parties to the substitution, resulting in the extinction of the old obligation and the creation of a valid new one.


It is well-settled that novation is never presumed - novatio non  praesumitur. The Court laid down guidelines in establishing novation, viz.:


Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.


The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other hand, no  specific form is required for an implied novation, and all that is prescribed by law would be an incompatibility between the two contracts.


While there is really no hard and fast rule to determine what might constitute to be a sufficient change that can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between the old and the new obligations.        


There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of extinguishing an obligation by another which substitutes the same.


The first is when novation has been explicitly stated and declared in unequivocal  terms.


The second is when the old and the new obligations are incompatible on every point.


The test of incompatibility is whether or not the two obligations can stand together, each one having its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that breed incompatibility must be essential in nature and not merely accidental.


The incompatibility must take place in any of the essential elements of the obligation, such as its object, cause or  principal conditions thereof; otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.


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