Short answer. Usually just a modification. Article 1291 treats a change in the object or principal conditions as a way obligations may be modified, and Article 1292 lets the old obligation die only if that is declared in unequivocal terms or the two are incompatible on every point.

What the law says

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.

Civil Code, Article 1291 — Modification of Obligations (Novation). Read the full provision →

Three ways an obligation changes

Article 1291 lists them: 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. A repricing and a new maturity date fall under the first. But notice the verb the article uses — modified. Novation is capable of extinguishing the old obligation and replacing it, and it is capable of merely altering it while the original relation continues. Which of the two happened is not settled by how extensive the changes look; it is settled by the test in the next article.

The test, and why it favours survival

Article 1292 provides that for an obligation to be extinguished by another which substitutes it, it is imperative that this be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other. Both limbs are demanding. Unequivocal means the document says the earlier obligation is extinguished, not merely that the terms are amended. Incompatible on every point means the two cannot stand together at all — and a new rate and a new due date sit perfectly comfortably on top of the same principal, the same lender, the same borrower and the same security.

Why the answer matters

Extinctive novation carries the accessories away with it. Article 1296 provides that when the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist only insofar as they benefit third persons who did not give their consent. A genuine novation can therefore release a mortgage, a surety or a penalty clause — which is why creditors draft restructurings as amendments and borrowers sometimes argue they were replacements. Prescription and the defences available to the debtor turn on the same point, since a surviving obligation keeps its original character and everything attached to it.

Say which one you meant

The cure is a single sentence in the restructuring document. Either it states that the original obligation is extinguished and replaced, or it states that the original subsists as amended and that all security continues. Ambiguity here is expensive for both sides. Article 1297 is a further reason to be careful: if the new obligation is void, the original one subsists, unless the parties intended the former relation to be extinguished in any event. So a defective replacement does not leave a borrower owing nothing — it usually leaves him owing the old debt on the old terms.

Cases citing this provision

These Supreme Court decisions cite the provision above. We list them so you can read them yourself; the summaries of what each decided are not ours to give.

Related provisions

Note. Statute text quoted on this page is reproduced from the official enactment and is linked to the full provision. The explanation around it is general legal information from Vivas & Nobles Law Office, not legal advice. Whether it applies to your situation depends on facts only a lawyer reviewing them can assess.