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Novation

firm, contract, liability, debt and discharge

NOVATION is a term derived from the Civil Law. It is applied when, there being a contract already in existence, some new contract is substituted for it,either between the same parties orbetweendifirent parties; the consideration mutually being the discharge of the old contract. Suppose, for instance, that A. owes B. .12100, and B. owes C. £100, and the three meet, and it is agreed between them that A. shall pay C. the 1'100 ; B.'s debt is extinguished, there has been a novation, and C. may recover the i'100 from A. (Tatlock v. Harris). But every case of novation is not exactly like that. It is most frequently found in connection with partnerships. A common instance of such a case is where upon the dissolution of a partnership the persons who are going to continue in business agree and undertake, as between themselves and the re tiring partner, that they w ill assume and discharge the whole liabilities of the business, usually taking over the assets ; and if in that case they gave notice of that arrangement to a creditor, and ask for his accession to it, there becomes a contract between the creditor who accedes and the new firm, to the effect that he will accept their liability instead of the old liability, and on the other hand that they promise to pay him for that consideration (Lord Sel borne in Scarfe v. Jardine). It is not necessary that there should be an express contract in order to create a novation in respect of a partnership liability, provided there is sufficient proof in the dealings and transactions of the severalparties, to show that the new firm on its formation adopted the liabilities of the old firm, and that the particular creditor had consented to accept the liability of the new firm, and to discharge the old firm, his original debtor. This was the decision in Rolfe v. Flower, in which case the creditors

of the old firm, knowing of a change of partnership, and that the new part ners had taken over all the assets and had agreed to be subject to all the liabilities of the former firm, not only continued their dealings with the new firm upon the same footing as with tlie old, and received payment of a portion of their debt out of the blended assets of the old and new firms, but them selves proved that from the time when they understood that the new partners took over all the assets and became subject to all the liabilities of the pre ceding firm, they " thenceforth treated the partners in that firm as their debtors, in respect of the debt owing to them at the time of the creation of that firm, or of so much thereof as for the time being remained due." In a case arising out of the suspension of payment by a bank carried on by a partnership firm, it was held (In re Head ; Head v. Head) that the accept ance by a customer, from the surviving partner, of a fresh deposit note for the balance of a debt due from a firm, one of whose partners is dead, is not sufficient evidence of novation to discharge the estate of the deceased partner. When a debt is extinguished by novation the liability of a surety in respect thereof is discharged also, for the absolute release of a principal debtor extin guishes the remedy against the surety (Commercial Bank 9f Tasmania v. Jones). The consideration for a novation is the extinction of the original contract, and the assent of the parties thereto and to the substituted contract. S e e CON TRACT; EQUITABLE ASSIGNMENT; CHOSE IN ACTION.