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Novation in Obligations and Contracts under Philippine Law

 What is Novation?

Novation is a legal process where an existing contract or obligation is replaced with a new one. This can involve several scenarios:

  • Change of object or principal condition: Altering the thing due or core terms of an existing obligation.
  • Substitution of debtor: A new debtor takes over the original debtor's obligations.
  • Subrogation of creditor: A third party assumes the creditor's rights in the obligation.

Types of Novation

  • Express Novation: The parties explicitly state their intent to extinguish the old obligation and create a new one.
  • Implied Novation: The old and new obligations are completely incompatible, implying a novation even without an express declaration.

Essential Requisites of Novation (Philippine Civil Code)

  1. A previous valid obligation: The original obligation must be legally binding.
  2. Agreement of all parties: All involved parties (original debtor, original creditor, and the new party, if applicable) must agree to the new contract.
  3. Extinguishment of the old obligation: The original obligation ceases to exist.
  4. Validity of the new obligation: The new contract must be legally enforceable.

Effects of Novation

  • Extinguishment of the old obligation
  • Transfer of original obligation's accessory rights: Any guarantees or securities associated with the previous obligation might transfer to the new one, depending on the agreement.
  • Release of original debtor: In cases of substituting a debtor, the original debtor is released from liability unless they expressly remain bound.

Examples of Novation

  • Changing Debt Terms: Altering the amount, interest rate, or payment schedule of a loan agreement with the consent of the borrower and lender.
  • Transferring a Contract: A buyer taking over a seller's obligations in a real estate contract, with the agreement of all three parties.
  • New Guarantor: Replacing the guarantor of a debt by agreement between the creditor, original guarantor, and new guarantor.

Legal Basis: Philippine Civil Code

Novation is governed by Articles 1291 to 1296 of the Civil Code of the Philippines.

Important Note: It is highly advisable to consult with a Philippine lawyer when dealing with novation as it is a complex legal concept. They'll help ensure that your rights are protected and that the novation process is carried out in accordance with Philippine law.

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Location: Davao City, Davao del Sur, Philippines

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