Agreement of the parties to replace one obligation with another
An obligation is terminated if the parties, by agreement, create a new obligation in place of the existing one, which replaces the original obligation and differs from it in subject matter or manner of performance (novation).
Novation also occurs when the original debtor is replaced by a new one, and the creditor releases the original debtor from fulfilling the obligation. In such cases, novation is possible without the original debtor’s consent.
Novation is also considered to take place when, under a new agreement, a new creditor replaces the previous one, and the debtor is released from fulfilling the obligation to the former creditor.
Novation is not presumed; it must always be clearly and unambiguously expressed. Novation is only possible if the original obligation is valid. In the Republic of Lithuania, novation is prohibited in obligations to compensate damage caused by bodily injury or death, as well as obligations that are strictly personal in nature.
The extension or shortening of the term of performance of an obligation, the issuance or amendment of a document confirming the existence of an obligation, or any other modification of the obligation is not considered a novation.
A pledge (mortgage) and other ancillary rights arising from the original obligation are extinguished in the event of novation, unless the parties agree to preserve such rights. If the novation involves the replacement of the original debtor by a new one, and the first debtor is released from the obligation, the pledge (mortgage) that secured the obligation cannot be transferred to the property of the new debtor. The pledge (mortgage) on the property of the original debtor released from the obligation can only remain if the former debtor consents. If the new debtor acquires property from the original debtor that is encumbered with a pledge (mortgage), the pledge (mortgage) remains valid if the new debtor agrees.
When the novation consists of replacing the original debtor with a new one, the new debtor may not raise against the creditor the defenses that could have been raised against the original debtor or that the original debtor had against the creditor. However, the debtor may request the invalidation of the legal transaction from which his obligation arose. In the case of novation between the creditor and the principal debtor, the debtor’s guarantor is released from the obligation. In such a case, the obligation does not terminate if the creditor requires the guarantor to participate in the novation and the guarantor refuses.