Novation defined (2014 Dallas Court of Appeals case)

WHAT IS A NOVATION IN A CONTRACTUAL RELATIONSHIP?

A novation is the substitution of a new agreement in place of an existing agreement between the parties. Goldman v. Olmstead, 414 S.W.3d 346, 358 (Tex. App.-Dallas 2013, pet. denied); In re B.N.L.-B., 375 S.W.3d 557, 562 (Tex. App.-Dallas 2012, no pet.). "A novation occurs if a contract evidences an intention to relinquish and extinguish pre-existing claims and rights of action; in lieu of the old obligation, a party accepts the promise of performance of the new obligation instead of the performance itself." Fulcrum Cent. v. AutoTester, Inc., 102 S.W.3d 274, 277 (Tex. App.-Dallas 2003, no pet).

ELEMENTS OF PROOF FOR NOVATION

To establish a novation, the party must prove: (1) a previous valid obligation; (2) an agreement of the parties to a new contract; (3) the extinguishment of the old contract; and (4) the validity of the new contract. Goldman, 414 S.W.3d at 358. The substitution of a new agreement occurs when a later agreement is so inconsistent with a former agreement that the two cannot subsist together. B.N.L.-B., 375 S.W.3d at 562-63. "In the absence of inconsistent provisions, `a second contract will operate as a novation of a first contract only when the parties to both contracts intend and agree that the obligations of the second shall be substituted for and operate as a discharge of the obligations of the first.'" Fulcrum Cent., 102 S.W.3d at 277. Whether a subsequent agreement works a novation of an earlier agreement is a question of intent. Id. The parties must have clearly intended a novation and a novation is never presumed. White v. Harrison, 390 S.W.3d 666, 675 (Tex. App.-Dallas 2012, no pet.).

SOURCE: DALLAS COURT OF APPEALS - 05-12-01719-CV - 7/30/2014