Novation in Thailand is a contract that changes an essential element of an obligation. Under Section 349 of the Civil and Commercial Code, the original obligation then ends by novation, and a new obligation takes its place.
First, this guide takes Sections 349 to 352 in turn for lenders, suppliers, investors and finance teams that restructure a claim, replace a debtor or move a security in Thailand.
What is novation in Thailand?
Novation in Thailand arises when the parties concerned conclude a contract that changes an essential element of an obligation. In that case, the old obligation ends, and the new one replaces it. Sections 349 to 352 form Part 4 of the Code, headed novation, inside the chapter on the extinguishment of obligations (Sections 314 to 353).
Which changes alter an essential element of an obligation?
Section 349 states that three changes to a condition count as a change to an essential element:
- making a conditional obligation unconditional;
- adding a condition to an unconditional obligation;
- changing a condition.
Each of these changes therefore extinguishes the old obligation by novation, and the new obligation takes over.
How does novation in Thailand work when the creditor changes?
When the parties novate by changing the creditor, Section 349 applies the Code’s provisions on the transfer of claims. As a result, the rules in the assignment of claims article govern this form of novation.
The assignment rules sit in Sections 303 to 309 of the Code. Together, they cover the written form, the notice or consent that binds the debtor, and the defences the debtor keeps.
How does novation in Thailand work when the debtor changes?
Section 350 allows novation by changing the debtor to take the form of a contract between the creditor and the new debtor. However, the parties cannot make it against the will of the original debtor.
The text gives the creditor and the new debtor the contracting role. In addition, it sets one limit: the will of the original debtor.
What happens if the new obligation does not arise?
Section 351 protects the original obligation. For example, if the new obligation does not come into existence, the original obligation does not end. The same result follows if the new obligation ends through cancellation because its basis is unlawful, or because of another cause that the parties did not know.
Can a pledge or mortgage move to the new obligation?
Section 352 lets the parties to a novation transfer a pledge or a mortgage, given as security for the original debt, to secure the new debt. However, the transfer works only to the extent that the security covered the object of the original obligation.
Moreover, if a third party gave the security, that third party must also consent before the transfer takes effect. The articles on pledge in Thailand and mortgage in Thailand explain how each security works.
Novation in Thailand at a glance
| Question | Section | Rule |
|---|---|---|
| What triggers novation? | 349 | A contract that changes an essential element of the obligation. The original obligation ends |
| Do changes to a condition count? | 349 | Yes. Making a conditional obligation unconditional, adding a condition or changing a condition counts |
| What if the creditor changes? | 349 | The Code’s provisions on the transfer of claims apply |
| What if the debtor changes? | 350 | A contract between the creditor and the new debtor, but not against the will of the original debtor |
| What if the new obligation fails? | 351 | The original obligation does not end |
| Does security move across? | 352 | A pledge or mortgage may transfer to the new debt. A third-party security provider must consent |
For the full Thai text of Sections 349 to 352, see the Office of the Council of State. The Royal Gazette publishes the Code and its amendments at ratchakitcha.soc.go.th. Lenders that need to enforce a claim after a restructuring can also read about debt recovery in Thailand.
Novation in Thailand: frequently asked questions
What is novation under the Thai Civil and Commercial Code?
Can the parties replace a debtor against the original debtor’s will?
Does the original debt survive if the new obligation fails?
Can security for the old debt secure the new debt?
Which rules apply when novation changes the creditor?
Conclusion
Sections 349 to 352 give novation a defined shape: a contract that changes an essential element, a separate rule for each change of creditor or debtor, a safeguard for the original obligation, and a route for pledges and mortgages. Therefore, testing a restructuring against these four sections shows which obligation survives and which security follows.
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