NOVATION (Lat. nocutio, renewal, from vetoer, to renew). in law, the substitution of one legal obligation for another. Novation may be accomplished by the substitution of a new for an old party to a legal obligation. which is in effect the creation of a new. obligation. or it may be accomplished by the substitution of a new obligation for an old one by the same parties. When the old obligation is extinguished by a new one without change of parties, the transac tion is sometimes spoken of as a merger of the old obligation into the new. See MEncEa.
At common laNV, as under the civil law, there are three important classes of novation. as fol lows: (1) Novation by substitution of debtors. By mutual agreement a substituted debtor may assume payment of a debtor's obligation upon agreement of the creditor or obligee to accept hire as a debtor, and to discharge the original debtor or obligor.
(2) Novation by substitution of creditors. By mutual agreement of all the parties a creditor may agree to discharge his debtor upon the debtor's agreement to accept a third party as a new creditor and to pay the debt to him.
(3) A new debt or obligation may be sub stituted for the old by mutual agreement between the same debtor and creditor.
The first class is of the most freqnent occur rence at common law-, but as all novations are dependent upon the substitution of a new obliga lion for an old by mutual agreement bet an obligor and obligee, or between an obligor and obligee and a third party, it is evident that there be as many partividar forms of novation as there inay be combinations by agree ment among the parties specified.
As the essential element of novation is the agreement or between the parties, it is necessary that the essential elements of a contract, including meeting of the minds, promise, and consideration, should all exist in order to establish the relationship. In general the prom ise of the obligee to release the first obligor is sufficient consideration for the promise of the new obligor, and vice versa, and as the promise of each party to the novation is given in ex change for the promise of each of the others, it is necessary that the several promises should Ire contemporaneous. In order that the promise
to give up rights under the earlier obligation may be a sullieient consideration for the new obligation, it is essential that the earlier obliga tion should be valid. Tin-re van be no novation of a void obligation. See CoNsmER.vriox.
As the result of a novation is the extinction of the earlier it follows that all liens attaching to it are extinguished unless expressly preserved or continued by the new obligation.
Properly any new obligation which is created by the parties to an old obligation and operates merely to suspend the old obligation fm- a xr tain period, instead of extinguishing it. is not a novation, but a merger.
New collateral agreements catered into as security for a preexisting obligation do not effect a novation, as the original obligation vontinues in full force and effect.
Upon analogous classes of contracts, see SERcER; ACCORD .0;1) SATISFACTION; SECURITY. See also ASSIGNMENT.
In the ease of novation by the substitution of debtors, the substance of the transaction is that the new debtor pays the obligation of the old debtor. and is thus within the express language of the Statute of Frauds. As, however, the pur pose of the Statute of Frands was to require contracts which were in effect contracts of suretyship, or contracts in the nature of surety ship, to be iu writing, the courts have uniformly held that contracts of novation are not within the statute and need not be committed to writing. See FRAUDS. STATUTE or. Corti-ilia the authori ties referred to under CONTRACT.