Separate express agreement REQUIRED to substitute creditor in novation

Upon the facts shown in the record, there is no doubt that the last three essential requisites of novation are wanting in the instant case. No new agreement for substitution of creditor was forged among the parties concerned which would take the place of the preceding contract. The absence of a new contract extinguishing the old one destroys any possibility of novation by conventional subrogation. In concluding that a novation took place, the respondent court relied on the two letters dated March 19, 1991, which, according to it, formalized petitioners and respondent Eleazars agreement that BERMIC would directly settle its obligation with the real owners of the funds the AFP-MBAI and DECS IMC. Be that as it may, a cursory reading of these letters, however, clearly and unmistakably shows that there was nothing therein that would evince that respondent AFP-MBAI agreed to substitute for the petitioner as the new creditor of respondent Eleazar in the contract of loan. It is evident that the two letters merely gave respondent Eleazar an authority to directly settle the obligation of petitioner to AFP-MBAI and DECS-IMC. It is essentially an agreement between petitioner and respondent Eleazar only. There was no mention whatsoever of AFP-MBAIs consent to the new agreement between petitioner and respondent Eleazar much less an indication of AFP-MBAIs intention to be the substitute creditor in the loan contract. Well settled is the rule that novation by substitution of creditor requires an agreement among the three parties concerned the original creditor, the debtor and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties. Hence, there is no novation if no new contract was executed by the parties pursuant to Article 1301 of the Civil Code. [G.R. No. 120817. November 4, 1996]