Novation As a Write-off of Debt Agreement
Debts are legal events that commonly occur, especially in business-to-business relationships where the company will borrow some money to expand its business based on debt agreements. The Indonesian Civil Code regulates many ways to write off the agreement, which in this article will be discussed specifically regarding debt renewal (novation).
Renewal of debt is an agreement between a creditor and a debtor in which the existing engagement is abolished and then a new engagement is made. Regarding the novation, it has been regulated in Article 1413 to Article 1424 of the Indonesian Civil Code. Based on Article 1413 of the Indonesian Civil Code, there are 3 types of debt, namely:
- Objective novation: Renewal of the object of debt, whereas the debtor and creditor make a new debt agreement, in order for the old debt to be written off with the new debt agreement. For example, X is buying merchandise from Y a wholesaler, with a promise that the merchandise is to be taken every month and payment is made at the end of each month. To ensure the two parties’ relationships between X and Y, they should make a debt agreement. This debt agreement will replace the sale and purchase agreement, and the former is called debt renewal or novation. Another example is that A has a debt of 1 million Rupiah to B, but A can not pay the debt. Then, B said that A only needed to pay his debt for 500 thousand Rupiah. Therefore, the debt agreement amounting to 1 million Rupiah was written off and changed to a debt agreement amounting to 500 thousand Rupiah.
- Passive subjective novation: Debtor renewal, whereas a new debtor is appointed to replace the old debtor who is released by the creditor.
- Active subjective novation: Creditor renewal, whereas when a new creditor is appointed to replace an old creditor who has released the debtor
Based on Article 1415 of the Indonesian Civil Code, that novation can only occur when the will is clearly stated by the parties and cannot be suspected. Not only that, this novation arises because of an agreement, therefore the novation must meet the legal requirements of the agreement as stated in Article 1320 of the Indonesian Civil Code.
Thus, the explanation above is a brief description of the novation as a write-off of debt agreement. If you are interested in knowing more about this, you can contact our law office, Suria Nataadmadja & Associates Law Firm.
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