Overview

In Philippine law, a guaranty is accessory to a principal obligation. Novation, in turn, is a mode of extinguishing or modifying obligations. Put together, the central inquiry is: what happens to a guarantor’s liability when the principal obligation is novated? The short answer is that the guaranty generally follows the fate of the principal—it is extinguished by an extinguishing (extinctive) novation, and it persists only to the extent compatible with a merely modificatory novation—subject to crucial statutory rules and consent requirements.

This article synthesizes the Civil Code framework (on obligations, novation, and guaranty), explains practical consequences across common novation scenarios, contrasts guaranty with suretyship, and offers drafting and litigation checklists.

Legal Framework

A. Guaranty (Civil Code, Title XV)

Accessory nature. A guaranty cannot exist without a principal obligation. As a rule, when the principal is extinguished, the guaranty is also extinguished.
Subsidiary character. The guarantor’s liability is generally subsidiary, benefiting from excussion (creditor must first exhaust the debtor’s property), unless excussion is waived or inapplicable by law.
Scope of consent. A guarantor is bound only within the limits of his consent; if the principal obligation is increased or materially altered without the guarantor’s assent, the guarantor is not bound for the increase and may be released altogether if the alteration prejudices him.
Extension granted without consent (key rule). An extension of the period granted by the creditor to the debtor without the guarantor’s consent releases the guarantor.
Rights upon payment. A paying guarantor is subrogated to the creditor’s rights against the debtor to the extent of payment, including securities and preferences that were not purely personal to the creditor.

Practical point: Many of the above rules are default rules. Contracting parties can recalibrate them (e.g., waiver of excussion, consent to future modifications) so long as the law allows.

B. Novation (Civil Code, Title I, Chapter 4)

Requisites of novation: (1) a previous valid obligation; (2) agreement of parties to a new obligation; (3) extinguishment or modification of the old; and (4) a valid new obligation.
Types of novation:
- Objective (real): change in object or principal conditions.
- Subjective (personal): substitution of debtor (expromisión or delegación) or subrogation of creditor.
- Mixed: both objective and subjective changes.
Extinctive vs. modificatory:
- Extinctive novation extinguishes the old obligation and creates a new one that is incompatible with the former.
- Modificatory novation merely alters terms without extinguishing the original juridical tie.

Core Rules: How Novation Affects Guarantor Liability

1) Extinctive novation (objective or mixed):

Effect: The principal obligation is extinguished; the guaranty is extinguished as an accessory, unless the guarantor expressly consents to guarantee the new obligation.

Increase in burden: If the new obligation is more onerous, the guarantor is never liable for the increase without his clear consent.
Express reservation is not enough: A creditor’s unilateral “reservation” that securities remain despite novation does not bind the guarantor without the guarantor’s assent.

2) Modificatory novation (no extinguishment):

Effect: The original obligation remains; the guaranty continues, but only to the extent the modification does not prejudice the guarantor or increase his risk without his consent.

Examples: Minor adjustments to interest computation methods or payment mechanics that do not enlarge risk typically keep the guaranty intact.
Material changes: A higher principal, higher interest beyond the cap agreed with the guarantor, accelerated maturity, or new onerous conditions do not bind the guarantor unless he consents.

3) Extension of the term granted to the debtor without the guarantor’s consent:

Effect: By statute, the guarantor is released.

Rationale: An extension can impair the guarantor’s right to proceed against the debtor (or to manage risk timing). Philippine law treats unconsented extensions as prejudicial to the guarantor.

4) Subjective novation: substitution of debtor

There are two classic modes:

Expromisión (initiative of a third person): A third person assumes the debt with the creditor’s consent. Effect on guarantor of the original debtor: Released, unless the guarantor agrees to remain bound for the new debtor.
Delegación (initiative of the original debtor): The original debtor proposes a new debtor and the creditor accepts. Effect on guarantor of the original debtor: Same: released, unless he consents to guarantee the new debtor.

Reason: The guaranty is typically tied to the person and solvency profile of the original debtor. A change of debtor changes the risk the guarantor agreed to cover.

5) Subjective novation: subrogation of creditor

Conventional or legal subrogation of the creditor does not by itself extinguish the principal obligation. Effect on guaranty: The guaranty follows the credit to the new creditor (it is a real accessory security), unless the guaranty is strictly personal to the original creditor by agreement.
Consents needed: No new consent from the guarantor is required if the principal obligation is not made more onerous and the guaranty was not personal to the original creditor.

6) Partial novation

If only part of the obligation is novated (e.g., an increased principal), the guarantor remains bound only up to the original scope and not for the novated increase absent consent.

Matrix of Common Scenarios

Scenario	Extinctive or Modificatory?	Guarantor’s Liability
Change of debtor (expromisión/delegación)	Extinctive (as to the old debtor)	Released, unless guarantor consents to remain for the new debtor
Assignment/subrogation of creditor	Generally modificatory	Guaranty remains, unless the guaranty was personal to the old creditor or the change increases risk
Extension of term given to debtor without guarantor’s consent	Modificatory but statutorily prejudicial	Guaranty extinguished by operation of law
Increase in principal/interest or stricter conditions without guarantor’s consent	Modificatory	Guarantor not bound by the increase; may be released if change is material/prejudicial
Refinancing that replaces the original loan (new note cancels old)	Extinctive	Guaranty extinguished unless the guarantor assents to guarantee the new loan
Mere restructuring that repackages payment schedule but preserves the same debt and risk	Modificatory	Guaranty continues to original limits if no prejudice; otherwise guarantor is released or bound only to the non-prejudicial extent

Guaranty vs. Suretyship: Why It Matters in Novation

Although both are accessory undertakings:

Guaranty is subsidiary; the guarantor can invoke excussion and enjoys statutory protections (e.g., release upon unconsented extension).
Suretyship (often phrased as “solidary guaranty”) is, in practice, an original, primary, and solidary undertaking with the debtor. Philippine jurisprudence treats many “surety” obligations as co-extensive with the principal debtor’s obligation.

Implications:

Material alteration without surety’s consent generally releases the surety (parallel to guaranty), especially if it increases risk or changes the nature of the undertaking.
However, because a surety is solidarily liable, courts scrutinize the instrument: broad consent clauses in surety bonds or loan agreements may allow certain post-issuance modifications (e.g., rate changes within a cap, routine extensions) without releasing the surety. The exact text controls.

Consents, Reservations, and Drafting

A. For Creditors

Get the guarantor’s written consent for any novation, extension, refinancing, or material amendment.
Include advance-consent clauses where lawful, e.g., that the guarantor agrees in advance to certain modifications (interest repricing within stated bands, payment rescheduling, routine extensions of up to X days) without release.
If substituting the debtor, obtain a fresh guaranty or a ratification by the existing guarantor.

B. For Guarantors

Limit your consent to specific items; disallow open-ended increases or unspecified extensions.
Preserve rights of excussion and subrogation (and ensure collateral and mortgages remain intact until you are paid back).
Add a clause that any extension or material modification without your prior written consent releases you (this mirrors the Civil Code default and avoids debate).

C. For Debtors

If you seek a refinancing or restructuring, plan the consents: the cleanest path is to have the guarantor re-affirm the guaranty for the restructured obligation.
If you substitute a new debtor, expect to replace the guaranty unless the guarantor agrees to remain.

Litigation & Advisory Checklist

Identify the transaction’s character: Was there extinctive or modificatory novation? Gather the notes, amendments, and payment history.
Map the paper trail of consents: Is there a guarantor’s signature (ratification, consent to amendment, continuing guaranty language)? Absence of consent is often dispositive.
Spot statutory triggers: Was there an extension granted to the debtor without the guarantor’s consent? If yes, the guaranty is released.
Compare risk profiles: Did the modification increase the principal, interest, tenor risk, collateral risk, or enforcement risk? If so, the guarantor is typically not bound by the increase, and may be released.
Distinguish guaranty vs. suretyship: Read the instrument—solidary language, waivers of excussion, “continuing surety” clauses—then apply the correct standard.
Check securities and subrogation: If the guarantor paid, ensure assignment of securities and documents to the guarantor; if the obligation was novated, determine which securities carried over.
Partial novation analysis: If only part of the obligation changed, ring-fence the guarantor’s exposure to the unaltered portion.
Personal defenses preserved: A guarantor may invoke all defenses available to the debtor that are inherent in the debt (e.g., payment, prescription, nullity), but not those purely personal to the debtor (e.g., incapacity), unless the law allows.

Example Applications

Unconsented extension: Bank grants the debtor a 12-month extension without notifying the guarantor. Even if the principal amount and rate stay the same, the guarantor is released.
Refinancing with bigger loan: Old loan is cancelled and replaced with a bigger loan under a new note. This is extinctive novation. The guaranty ends, unless the guarantor signs the new note or a ratification.
Interest repricing within cap & timely notice: If the guarantor pre-consented in the guaranty to periodic repricing within a stated cap and was notified, courts often treat this as modificatory and non-prejudicial; the guaranty remains to its agreed limits.
Change of debtor (assignment of business): The buyer assumes the seller’s loan (delegación with creditor’s approval). The old guarantor is discharged, unless he consents to guarantee the new debtor.

Practical Clauses (Illustrative Only)

Guarantor advance-consent to defined modifications: “Guarantor consents to interest adjustments not exceeding ___% p.a., and to extensions not exceeding ___ days per 12-month period; beyond these, Guarantor’s prior written consent is required.”
Release on unconsented changes: “Any extension, restructuring, or material amendment increasing Guarantor’s risk without Guarantor’s prior written consent shall release Guarantor.”
Continuing guaranty across refinancings (with limit): “This is a continuing guaranty that shall secure renewals and refinancings of the Obligation not exceeding an aggregate principal of Php ___ and a term not exceeding ___ months, provided Guarantor receives written notice within ___ days.”

(Always adapt to the specific transaction and obtain counsel review.)

Key Takeaways

Accessory follows the principal: Extinctive novation of the principal debt extinguishes the guaranty unless the guarantor assents to the new obligation.
Consent is king: No guarantor consent, no increased risk.
Unconsented extensions release the guarantor by force of law.
Substitution of debtor discharges the guarantor unless he opts in for the new debtor.
Assignment/subrogation of creditor usually preserves the guaranty, barring personal-to-creditor undertakings or increased risk.
Suretyship is different: solidary wording can expand exposure, but material, unconsented changes still risk releasing the surety.

Final Word

The liability of a guarantor after novation turns on (i) whether novation was extinctive or merely modificatory, (ii) whether the guarantor consented, and (iii) whether the change prejudices or increases the guarantor’s risk. In practice, disputes are document-driven: precise language on consent, extension, and continuing coverage usually decides the outcome.