NOVATION, civil law.
1. Novation is a substitution of a new for an old debt. The old debt is extinguished by the new one contracted in its stead; a novation may be made in three different ways, which form three distinct kinds of novations.
2. The first takes place, without the intervention of any new person, where a debtor contracts a new engagement with his creditor, in consideration of being liberated from the former. This kind has no appropriate name, and is called a novation generally.
3. The second is that which takes place by the intervention of a new debtor, where another person becomes a debtor instead of a former debtor, and is accepted by the creditor, who thereupon discharges the first debtor. The person thus rendering himself debtor for another, who is in consequence discharged, is called expromissor; and this kind of novation is referred to as expromissio.
4. The third kind of novation takes place by the intervention of a new creditor where a debtor, for the purpose of being discharged from his original creditor, by order of that creditor, contracts some obligation in favor of a new creditor. There is also a particular kind of novation called a delegation. Poth. Obl. pt. 3, c. 2, art. 1. See Delegation.
5.-2. It is a settled principle of the common law, that a mere agreement to substitute any other thing in lieu of the original obligation is void, unless actually carried into execution and accepted as satisfaction. No action can be maintained upon the new agreement, nor can the agreement be pleaded as a bar to the original demand. See Accord. But where an agreement is entered into by deed, that deed gives, in itself, a substantive cause of action, and the giving such deed may be sufficient accord and satisfaction for a simple contract debt. 1 Burr. 9; Co. Litt. 212, b.
6. The general rule seems to be that if one indebted to another by simple contract, give his creditor a promissory note, drawn by himself, for the same sum, without any new consideration, the new note shall not be deemed a satisfaction of the original debt, unless so intended and accepted by the creditor. 15 Serg. & Rawle, 162; 1 Hill’s N. Y. R. 516; 2 Wash. C. C. Rep. 191; 1 Wash. C. C. R. 156, 321; 2 John. Cas. 438; Pet. C. C. Rep. 266; 2 Wash. C. C. R. 24, 512; 3 Wash. C. C. R. 396: Addis. 39; 5 Day, 511; 15 John. 224; 1 Cowen, 711; see 8 Greenl. 298; 2 Greenl. 121; 4 Mason, 343; 9 Watts, 273; 10 Pet. 532; 6 Watts & Serg. 165, 168. But if he transfer the note he cannot sue on the original contract as long as the note is out of his possession. 1 Peters’ R. 267. See generally Discharge; 4 Mass.. Rep. 93; 6 Mass. R. 371; 1 Pick. R. 415; 5 Mass. R. 11; 13 Mass. R. 148; 2 N. H. Rep. 525; 9 Mass. 247; 8 Pick. 522; 8 Cowen, 390; Coop. Just. 582; Gow. on Partn. 185; 7 Vin. Abr. 367; Louis. Code, art. 2181 to 2194; Watts & S. 276; 9 Watts, 280; 10 S. R. 807; 4 Watts, 378; 1 Watts & Serg. 94; Toull. h.t.; Domat, h.t.; Dalloz. Dict. h.t.; Merl. Rep. h.t.; Clef des Lois Romaines, h.t.; Azo & Man. Inst. t. 11, c. 2, SS 4; Burge on Sur. B. 2, c. 5, p. 166.
Assignment involves the transfer of an interest or benefit from one person to another. However the ‘burden’, or obligations, under a contract cannot be transferred.
After assignment, the assignee is entitled to the benefit of the contract and to bring proceedings against the other contracting party to enforce its rights. The assignor still owes obligations to the other contracting party, and will remain liable to perform any part of the contract that still has to be fulfilled since the burden cannot be assigned. In practice, what usually happens is that the assignee takes over the performance of the contract with effect from assignment and the assignor will generally ask to be indemnified against any breach or failure to perform by the assignee. The assignor will remain liable for any past liabilities incurred before the assignment.
If you want to transfer the burden of a contract as well as the benefits under it, you have to novate. Like assignment, novation transfers the benefits under a contract but unlike assignment, novation transfers the burden under a contract as well.
In a novation the original contract is extinguished and is replaced by a new one in which a third party takes up rights and obligations which duplicate those of one of the original parties to the contract. Novation does not cancel past rights and obligations under the original contract, although the parties can agree to novate these as well.
Novation is only possible with the consent of the original contracting parties as well as the new party. Consideration (the ‘price’ paid, whether financial or otherwise, by the new party in return for the contract being novated to it) must be provided for this new contract unless the novation is documented in a deed signed by all three parties.
The concept of novation derives from Roman Law and is where all liabilities and obligations under a contract, whether it is the transfer of the benefit or burden of a contract, can be passed to a third party providing that all parties consent. Where this happens, the original contract between the debtor and creditor is annulled and is replaced by a new contract between the debtor and the third party. Consideration must be provided in respect of the new contract and is usually assumed to be the discharge of the original contract and the creditor’s contractual obligations. For example, where A owes B money and all parties agree that C will pay the money to B, not A, B’s consideration to C is agreeing to release A from his obligations and A’s consideration is providing the new debtor, C.
Novation can be distinguished from assignment. A party to a contract (the assignor) is able to transfer the benefit of a performance he is to receive under that contract to another person (the assignee) who is able to enforce performance in his own right, without the consent of the other party (the debtor). For example, where there is a contract between A and B and B assigns the benefit of the contract to C, he can then enforce it against A.