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San Diego Business Contracts: What is the Concept of “Novation?”
Generally speaking, contracts are agreements between people and/or businesses. Assuming the legal formalities are met, an agreement is a “contract.” As with any agreement, the parties can change their minds and make a new agreement. This is at core the idea behind the legal doctrine of “novation.” Novation simply means that the parties to an original contract agree to cancel the original contract and substitute a new one in its place. If you have questions about an original contract or about the concept of novation, a good San Diego corporate attorney can help. Below are the basics on novation.
San Diego Corporate Law: The Legal Concept of Novation
Novation is a defense to a claim of breach of contract. As an example, let us imagine a teaching service contract between a professor and a college. Originally, the professor agreed to teach political science on Tuesday mornings. But three weeks before class was scheduled to begin, the college called and said “Hey, instead of Political Science, we need you to teach Sociology on Thursday mornings.” The Professor said: “Sounds good. I will be in class to teach on Thursday.”
Under California law, the professor and the college have accomplished a novation of the original contract. If the college were to sue the professor for breach of contract for not showing up on Tuesday to teach political science, the professor would defend by claiming novation. If the professor proves novation, then the original contract is not enforceable.
To prove novation, it is necessary to show both that the parties agreed to cancel the old/original contract AND that the parties agreed to substitute a new contract. That is, the parties did NOT agree to two contracts. A novation is subject to the general rules governing the formation of contracts. That is, novation requires proof of the intent to discharge the old contract, a mutual assent, and a consideration. See Klepper v. Hoover, 21 Cal.App.3d 460 (Cal. App. 5th Dist. 1971).
Note that the evidence must clearly show that parties agreed to a novation. Since the claim of novation is a defense, the party asserting novation has the burden of proof. Ambiguity in the evidence will prevent novation from being successful as a defense. Note further that novation can be shown by words or by conduct.
San Diego Corporate Law: Novation as to Debtors and Creditors
Novation is an old concept under California law. Novation was made part of the Civil Code back in 1872. See Cal. Civ. Code, §§ 1530-1532.
In addition to the situation described above in which the parties agree to new obligations, novation exists with respect to debtors and creditors. Thus, under California law, novation exists if the parties agree to substitute a debtor. In that case, the original debtor may defend against any effort to collect by arguing novation. Likewise, a creditor may be substituted and the original debtor’s obligations are transferred to the new creditor.
Contact San Diego Corporate Law
For further information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard has the experience to draft your contracts properly to fit your business needs. Mr. Leonard and San Diego Corporate Law can provide legal services for any business-related matter. Contact Mr. Leonard by email or by calling (858) 483-9200.
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