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

Oral modification of contract or novation barred if original contract falls under the statute of frauds

STATUTE OF FRAUDS CONTINUES TO APPLY IF ORIGINAL CONTRACT WAS SUBJECT TO IT, THUS PRECLUDING VERBAL MODIFICATION OF TERMS 

There can be no oral modification of an agreement that is required to be in writing under the statute of frauds. Columbia/HCA of Houston, Inc. v. Tea Cake French Bakery & Tea Room, 8 S.W.3d 18, 21 (Tex. App.-Houston [14th Dist.] 1999, pet. denied).

SOURCE: CORPUS CHRISTI COURT OF APPEALS - No. 13-11-00229-CV – 1/17/2013

An agreement that cannot be performed within one year of its making falls under the statute of frauds. TEX. BUS. & COM. CODE ANN. § 26.01(a), (b)(6) (West 2009).

Here, the leases that form the basis of XTRA's lawsuit are for thirty-six month terms. They therefore cannot be performed within one year and fall under the statute of frauds. As such, ATC's novation defense, based on an alleged oral modification of the lease terms by an XTRA vice-president, would have failed as a matter of law, so we cannot conclude that ATC was harmed by the exclusion of Alvarez's testimony relevant to the alleged oral modification. See TEX. R. APP. P. 44.1(a); Nissan Motor Co., 145 S.W.3d at 144; see also Columbia/HCA of Houston, Inc., 8 S.W.3d at 21. ATC's second issue is overruled.

What is novation and what are its legal consequences?

NOVATION AS A DEFENSE AGAINST ENFORCEMENT OF THE ORIGINAL CONTRACT

Novation is the substitution of a new agreement between the same parties or the substitution of a new party on an existing agreement. Honeycutt v. Billingsley, 992 S.W.2d 570, 576 (Tex. App.-Houston [1st Dist.] 1999, pet. denied).

Where a novation occurs, only the new agreement may be enforced. Id. To establish a novation, the party raising the defense must prove: (1) the existence of a previous, valid obligation; (2) a mutual agreement of the parties to a new contract; (3) the extinguishment of the old contract; and (4) the validity of the new contract. RM Crowe Prop., 348 S.W.3d at 448 (citing Vickery v. Vickery, 999 S.W.2d 342, 356 (Tex. 1999)).

SOURCE: HOUSTON COURT OF APPEALS - 01-11-01034-CV – 2/21/2013 

CITES FOR NOVATION ELEMENTS FROM OLDER CASES

A novation is:

. . . the substitution of a new agreement between the same parties or the substitution of a new party on an existing agreement. See Hidalgo County v. Pate, 443 S.W.2d 80, 89 (Tex. Civ. App.-Corpus Christi 1969, writ ref'd n.r.e.). Therefore, only the new obligation may be enforced. Priem v. Shires, 697 S.W.2d 860, 864-65 (Tex. App.-Austin 1985, no writ). The elements of novation are: (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. Mandell v. Hamman Oil [&] Ref. Co., 822 S.W.2d 153, 163 (Tex. App.-Houston [1st Dist.] 1991, writ denied).

Honeycutt v. Billingsley, 992 S.W.2d 570, 576 (Tex. App.-Houston [1st Dist.] 1999, pet. denied).

A novation is the substitution of a new agreement between the same parties or the substitution of a new party on an existing agreement. See Hidalgo County v. Pate, 443 S.W.2d 80, 89 (Tex. Civ.App.-Corpus Christi 1969, writ ref'd n.r.e.). Therefore, only the new obligation may be enforced. Priem v. Shires, 697 S.W.2d 860, 864-65 (Tex.App.-Austin 1985, no writ).

Novation is an affirmative defense. Mandell, 822 S.W.2d at 163. Therefore, the burden of proof "is on the party asserting it." See Starcrest Trust v. Berry, 926 S.W.2d 343, 353 (Tex.App.-Austin 1996, no writ); see also Schwab v. Schlumberger Well Surveying Corp., 145 Tex. 379, 198 S.W.2d 79, 82 (1946).