Effect of Insolvency of New Debtor | Expromision and Delegacion Distinguished | Novation | Extinguishment of Obligations | Obligations | OBLIGATIONS AND CONTRACTS

In Philippine civil law, novation is one of the modes of extinguishing obligations, where an old obligation is replaced by a new one, effectively substituting either the obligation itself or the parties involved. Novation can be achieved through several mechanisms, including expromision and delegacion, two forms that involve a third-party substitution. These concepts are codified in the Civil Code of the Philippines, particularly in Articles 1291 to 1294.

Below is a meticulous breakdown of expromision and delegacion, focusing on their distinctions and the implications of the new debtor's insolvency.

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1. Novation by Substitution of Debtor

Novation can occur either by:

• Substitution of the debtor (the person obligated to perform).
• Substitution of the creditor (the person to whom performance is owed).

In the substitution of the debtor, a third party (the new debtor) replaces the original debtor, extinguishing the original debtor's obligations. This process can take place by expromision or delegacion, each with distinct legal effects and requirements.

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2. Expromision and Delegacion Defined and Distinguished

a. Expromision

Expromision is a type of novation by substitution of debtor initiated by the new debtor without the consent of the original debtor. Key characteristics of expromision include:

• No participation or consent required from the original debtor. The new debtor voluntarily assumes the obligation of the original debtor.
• Consent of the creditor is essential for the substitution to take effect and extinguish the original obligation.

In expromision, the initiative comes from the new debtor, who offers to assume the original debtor’s obligation to the creditor. Once the creditor agrees, the original debtor is released from the obligation, and the new debtor becomes solely liable.

b. Delegacion

Delegacion, on the other hand, requires all three parties' consent: the creditor, the original debtor, and the new debtor. This tripartite agreement means:

• The original debtor requests the creditor to accept a third party as the new debtor.
• Both the creditor and the new debtor must agree to this arrangement.

Unlike expromision, delegacion is seen as a transfer of responsibility arranged and endorsed by the original debtor, with the creditor's acceptance, thus formalizing the substitution.

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3. Effect of Insolvency of New Debtor

A critical consideration in both expromision and delegacion is the effect of the new debtor’s insolvency on the obligation and the parties involved. The Civil Code of the Philippines addresses this issue, providing different outcomes depending on the method of novation:

a. Expromision and the Effect of Insolvency

In expromision, if the new debtor becomes insolvent after assuming the obligation, the original debtor is not liable for the new debtor’s inability to perform. This is because:

• The substitution was a voluntary act by the new debtor and accepted by the creditor.
• Upon the creditor’s consent, the original debtor is completely discharged and is no longer responsible for the obligation.

In other words, once the creditor accepts the expromised substitution, they assume the risk of the new debtor's insolvency.

b. Delegacion and the Effect of Insolvency

In delegacion, if the new debtor becomes insolvent, the original debtor may still be held liable in certain cases:

• If the new debtor’s insolvency was known to the original debtor at the time of the substitution, and this fact was not disclosed to the creditor, the original debtor may be held liable. This is based on the principle of good faith and transparency in contractual relationships.

However, if the original debtor disclosed all material facts, including any risks of insolvency of the new debtor, the creditor’s acceptance implies an assumption of that risk, and the original debtor would generally be discharged from further liability.

Key Points on Insolvency in Expromision and Delegacion

• Expromision: Insolvency of the new debtor does not affect the original debtor’s discharge, and the creditor bears the risk.
• Delegacion: Insolvency of the new debtor could result in continued liability for the original debtor if insolvency risk was known and undisclosed by the original debtor.

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4. Relevant Civil Code Articles

To support these interpretations, here are pertinent articles from the Civil Code of the Philippines:

• Article 1291: Enumerates novation as a mode of extinguishing obligations and specifies the substitution of the debtor as a form.
• Article 1292: Defines novation through substitution of the debtor, and the requirement of creditor consent for it to be valid.
• Article 1293: Describes the distinction between expromision and delegacion.
• Article 1294: Discusses the effects on the original debtor if the new debtor becomes insolvent, specifying that, in cases where the creditor accepts the substitution, the original debtor is generally discharged unless certain facts are undisclosed.

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5. Summary Table: Expromision vs. Delegacion

Feature	Expromision	Delegacion
Initiative	New debtor	Original debtor
Consent Required	New debtor and creditor	Original debtor, new debtor, creditor
Effect on Original Debtor	Fully discharged upon creditor’s consent	Discharged if no fraud or concealment
Effect of New Debtor’s Insolvency	Creditor assumes risk of insolvency	Original debtor may be liable if insolvency risk was concealed

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Practical Implications for Creditors and Debtors

For creditors, expromision involves a higher risk since they lose recourse against the original debtor and rely solely on the new debtor’s solvency. In delegacion, creditors should perform due diligence on the new debtor, as any knowledge of insolvency risks on the original debtor’s part may allow for future liability.

For original debtors, expromision offers a more reliable discharge as it does not require their involvement and immediately releases them upon creditor acceptance. However, delegacion requires transparency, especially concerning the new debtor's financial status, to ensure no subsequent liability.

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In sum, understanding the distinctions between expromision and delegacion, especially regarding the effects of the new debtor’s insolvency, is crucial for both creditors and debtors in navigating novation effectively under Philippine civil law.

Consent Required | Expromision and Delegacion Distinguished | Novation | Extinguishment of Obligations | Obligations | OBLIGATIONS AND CONTRACTS

Civil Law > Obligations and Contracts > Extinguishment of Obligations > Novation > Expromision and Delegacion Distinguished > Consent Required

1. Overview of Extinguishment of Obligations through Novation Novation, under Philippine law, is a mode of extinguishing obligations by substituting a new one in place of the original. This substitution could involve a change of the object, the principal conditions, or the parties involved in the obligation. Novation is governed by Articles 1291 to 1304 of the Civil Code of the Philippines.

Novation can be classified as either objective (modifying the obligation itself) or subjective (changing the person of the debtor or creditor). In subjective novation, the substitution of the debtor can occur by expromision or delegacion. These two forms of novation are distinguished primarily by the nature and consent required.

2. Expromision and Delegacion in Subjective Novation

• Expromision and delegacion are methods to transfer the obligation from the original debtor to a new debtor.
• Both are forms of subjective novation where the person of the debtor is replaced.
• They are differentiated by the manner of substitution and the role of consent in each.

3. Expromision

• In expromision, a third party (new debtor) voluntarily assumes the obligation of the original debtor without requiring the latter's initiative or consent.
• The substitution here occurs independently of the original debtor's action.
• Consent of the creditor is required for expromision to take effect, as the creditor must agree to the new party assuming the obligation.
• Importantly, the original debtor’s consent is not needed. However, if the creditor does not agree to the substitution, expromision cannot take place.
• The new debtor assumes all rights, obligations, and defenses inherent to the original debt unless otherwise agreed upon.

Example of Expromision: A third party offers to pay the debt of a friend to the creditor. The friend (original debtor) is not involved in this offer; however, the creditor must consent for the substitution to occur. If the creditor consents, the original debtor is released from the obligation.

4. Delegacion

• In delegacion, the substitution of the debtor is initiated by the original debtor, who proposes a new debtor to the creditor.
• This type of novation requires the consent of all three parties: the original debtor, the new debtor, and the creditor.
• Delegacion involves all parties’ concurrence in the substitution arrangement, making it a more formalized transfer compared to expromision.
• The new debtor takes on the original obligation, with any defenses or conditions attached to the debt, and the original debtor is released from liability.

Example of Delegacion: An original debtor asks another person to assume their debt obligation, and this person agrees. However, for the substitution to be effective, the creditor must also approve of this new arrangement. Once the creditor consents, the original debtor is discharged from the obligation.

5. Consent Requirement in Expromision and Delegacion

• In expromision, the substitution requires only the consent of the creditor and the new debtor. The original debtor’s consent is not essential, as the assumption of debt is unilateral.
• In delegacion, consent from all three parties (original debtor, new debtor, and creditor) is mandatory. This mutual consent is necessary for delegacion to extinguish the original obligation and bind the new debtor.
• This distinction underscores the importance of the creditor's rights in any novation, as they hold the power to accept or reject the substitution of the debtor.

6. Legal Effects of Expromision and Delegacion on the Obligation

• When expromision or delegacion occurs, the original obligation is extinguished, and a new obligation is established with the new debtor.
• Rights and defenses associated with the original obligation, including possible modifications or conditions agreed upon in the substitution, now apply to the new debtor.
• The original debtor is released from liability, provided all conditions for a valid novation have been met.

7. Key Judicial Interpretations

• Case law emphasizes the importance of creditor consent in both expromision and delegacion, as the creditor’s rights are paramount in determining the enforceability of a novation.
• The courts have ruled that without creditor consent, neither expromision nor delegacion can effectively replace the original debtor. This requirement protects the creditor’s interests, ensuring they maintain control over whom they may collect from.
• The Supreme Court has underscored that novation, particularly in subjective substitution, is never presumed. Clear and unequivocal proof of all parties’ intent to effect novation is necessary.

8. Practical Implications for Obligations and Contracts

• Parties involved in obligations must carefully consider the consent requirements when substituting debtors.
• Creditors maintain the prerogative to approve or deny any substitution, safeguarding their ability to assess the financial reliability of the new debtor.
• Legal practitioners should advise clients on the importance of obtaining explicit consent to avoid disputes over liability, particularly in cases of expromision, where the original debtor might not be involved in the substitution process.

Summary

Expromision and delegacion are distinguished in the context of extinguishing obligations through novation by the role of consent:

• Expromision: Involves a third party assuming the obligation unilaterally with only creditor consent.
• Delegacion: Involves substitution initiated by the original debtor, requiring consent from the original debtor, new debtor, and creditor.

In both cases, the original obligation is extinguished, provided all parties meet the legal requirements, and a new obligation is established with the substituted debtor.

Expromision and Delegacion Distinguished | Novation | Extinguishment of Obligations | Obligations | OBLIGATIONS AND CONTRACTS

Expromisión and delegación are two types of novation that involve the substitution of debtors and the subsequent extinguishment of the original obligation in favor of a new one. These concepts are essential to civil law, especially in obligations and contracts. In novation by substitution of debtors, the original obligation is extinguished, and a new one is created, with a new debtor taking the place of the old debtor.

Novation in General

Novation, under Philippine civil law, refers to the extinguishment of an obligation through the creation of a new one, which replaces the original. Novation can happen either by changing the object or principal conditions, by substituting the person of the debtor, or by subrogating a third person in the rights of the creditor.

Article 1291 of the Civil Code of the Philippines states:

"Obligations may be modified by:

1. Changing their object or principal conditions;
2. Substituting the person of the debtor;
3. Subrogating a third person in the rights of the creditor."

Two important novation types, which fall under substitution of the person of the debtor, are expromisión and delegación.

Expromisión and Delegación Distinguished

Both expromisión and delegación involve third-party intervention, but they differ in the manner and requirements of substitution, as well as in the legal consequences for the parties involved.

1. Expromisión

Expromisión is a type of novation by substitution of debtors where a third party, without the intervention of the original debtor, assumes the obligation on behalf of the debtor. This new debtor substitutes the original debtor with the creditor’s consent, resulting in the extinguishment of the original obligation and the creation of a new obligation between the new debtor and the creditor.

Key Characteristics of Expromisión:

• Initiated by a Third Party: The substitution of the debtor is done at the initiative of a third person who voluntarily assumes the obligation of the original debtor.
• No Intervention by the Original Debtor Required: The original debtor’s consent is not required, although the creditor must consent to the substitution.
• Extinguishment of the Original Obligation: The original obligation is extinguished upon the assumption of the obligation by the new debtor, creating a new obligation between the creditor and the third party.
• Effect on the Original Debtor: The original debtor is entirely discharged from the obligation and has no further liability to the creditor.

Legal Effects of Expromisión:

• Novation: There is a novation of the obligation by substitution, extinguishing the original debt and creating a new obligation.
• Release of the Original Debtor: The original debtor is released from all obligations to the creditor because the new debtor assumes the debt in full.

Expromisión is advantageous when a third party wishes to assume a debt without needing the original debtor’s involvement, as long as the creditor agrees.

2. Delegación

Delegación is another form of novation by substitution of debtors, where the original debtor, with the creditor’s consent, introduces a third party who assumes the obligation in their stead. The main distinction is that the original debtor is actively involved in the process and plays a crucial role in introducing the new debtor to the creditor.

Key Characteristics of Delegación:

• Initiated by the Original Debtor: The substitution is initiated by the original debtor, who “delegates” the obligation to the third party with the consent of the creditor.
• Consent of All Parties Required: Unlike expromisión, delegación requires the agreement of all three parties – the creditor, the original debtor, and the new debtor.
• Extinguishment of the Original Obligation: As with expromisión, the original obligation is extinguished, creating a new obligation with the new debtor as the sole liable party.
• Possible Guarantee by the Original Debtor: In some cases, the original debtor may still provide a guarantee or assume secondary liability, depending on the terms of the agreement and the creditor’s requirements.

Legal Effects of Delegación:

• Novation: The obligation is extinguished through novation, as the new debtor assumes the debt, and a new obligation is formed.
• Release of Original Debtor: Generally, the original debtor is released from liability. However, under certain circumstances, the creditor may require the original debtor to act as a guarantor.

Delegación is more formal and structured than expromisión, as it involves the active participation and consent of all parties.

Comparison of Expromisión and Delegación

Aspect	Expromisión	Delegación
Initiating Party	A third party voluntarily assumes the debt	Original debtor introduces the new debtor to the creditor
Original Debtor's Role	Not required; only the creditor’s consent is necessary	Original debtor actively delegates responsibility
Consent Requirements	Creditor and new debtor’s consent	Consent of creditor, original debtor, and new debtor
Obligation Extinguished	Yes, upon assumption by the new debtor	Yes, upon delegation and acceptance
Release of Original Debtor	Original debtor is fully discharged	Original debtor is typically released, but may act as guarantor in some cases

Practical Applications and Legal Implications

In practical terms, the distinctions between expromisión and delegación have implications for legal liability and recourse:

• Creditor’s Security: Creditors might prefer delegación when the original debtor has better financial standing, as they may request the original debtor to act as a guarantor.
• Debtor’s Consent: Expromisión can simplify processes when the original debtor is unavailable or unwilling to participate in the substitution but might be disadvantageous if the original debtor does not wish to be released from the obligation.

Summary:

• Expromisión allows a third party to take on the debtor’s obligation without involving the original debtor directly.
• Delegación requires the active involvement of the original debtor, who presents the new debtor to the creditor for approval.
• Both forms extinguish the original obligation and replace it with a new one between the creditor and the new debtor, effectively freeing the original debtor from liability, though in delegación, additional guarantees may be agreed upon.

By understanding these distinctions, parties can make informed decisions on debt substitution, balancing ease of transition with liability considerations, to effectively manage obligations within Philippine civil law.