new party is introduced. In its simple form a novation may involve a change in the debtor or a change in the creditor. If A owes B a sum of money and there is substituted for this obligation an obligation of C to B, there is a novation of the debtor. If there is substituted for the original obligation an obligation of A to C, there is a novation of the creditor. There may also be a novation by the introduction of a new debtor 6 or creditor as to part of the debt due from one of the original parties to the other.

Novation necessarily involves the discharge of an old debt or part of it and the creation of a new one. There is no novation until this has been accomplished. In a broad sense it may be said that the discharge of the old debt is the consideration for the creation of the new one. And a bargain must not

For a discussion of the theory of novation by Ames, see his Lectures on Legal History, 298, 6 Harv. L. Rev. 184.

• Griffin v. Cunningham, 183 Mass. 505, 67 N. E. 660.

7 Cuxon v. Chadley, 3 B. & C. 591; American Paper Bag Co. v. Van Nortwick, 52 Fed. 752, 3 C. C. A. 274; Illinois Car, etc., Co. v. Linstroth Wagon Co., 112 Fed. 737, 50 C. C. A. 504; Carpenter v. Murphree, 49 Ala. 84; Hoffman v. Moreman, 184 Ala. 220, 222, 63 So. 942; Bank &c. Co. v. Jackson, 190 Ala. 411, 67 So. 235; Brewer v. Winston, 46 Ark. 163; Elkins v. Henry Vogt Machine Co., 125 Ark. 6, 187 S. W. 663; Ferguson v. McBean (Cal.), 35 Pac. 559; Chapin v. Brown, 101 Cal. 500, 35 Pac. 1051; Carpy v. Dowdell, 131 Cal. 495, 63 Pac. 778; Martin v. Brosnan, 18 Cal. App. 477, 123 Pac. 550; Charles v. Amos, 10 Colo. 272, 15 Pac. 417; Woodruff v. Hensel, 5 Colo. App. 103, 37 Pac. 948; Richardson Drug Co. v. Dunagan, 8 Colo. App. 308, 46 Pac. 227; Allen v. Rundle, 45 Conn. 528; Donegan v. Baker &c. Co., 73 Fla. 241, 74 So. 202; Mills v. McMillan (Fla.), 82 So. 812; Knisely v. Brown, 95 Ill. App. 516; Horn v. McKinney, 5 Ind. App. 348,

32 N. E. 334; Bristol Mill, etc., Co. v. Probasco, 64 Ind. 406; Kelso v. Fleming, 104 Ind. 180, 3 N. E. 830; Cox v. Baltimore &c. R. Co., 180 Ind. 495, 103 N. E. 337, 50 L. R. A. (N. S.) 453; Adams Co. v. Helman, 58 Ind. App. 394, 106 N. E. 733; Black v. DeCamp, 78 Iowa, 718, 43 N. W. 625; Spiro v. Leibenguth, 51 La. Ann. 152, 24 So. 785; Sucker State Drill Co. v. Henry, Loewer, etc., Co., 114 La. 403, 38 So. 399; Bank v. Sanders, 139 La. 622, 71 So. 891; Hamlin v. Drummond, 91 Me. 175, 39 Atl. 551; Griffin v. Cunningham, 183 Mass. 505, 509, 67 N. E. 660; Darling v. Rutherford, 125 Mich. 70, 83 N. W. 999; Wierman v. Bay City-Michigan Sugar Co., 142 Mich. 422, 106 N. W. 75; Nelson v. Larson, 57 Minn. 133, 58 N. W. 687; Hanson v. Nelson, 82 Minn. 220, 84 N. W. 742; Adams v. Power, 48 Miss. 450, 52 Miss. 828; Corinth, etc., Turnpike Co. v. Gooch, 113 Miss. 50, 73 So. 869; Davis v. Dunn, 121 Mo. App. 490, 97 S. W. 226; Scharff Distilling Co. v. Springfield, etc., Transfer Co., 180 Mo. App. 497, 166 S. W. 654; Aldritt v. Panton, 17 Mont. 187, 42 Pac. 767; Kinsman v. Stanhope, 50 Mont. 41, 144 Pac. 1083, L. R. A. 1916 C. 443; Western White Bronze Co. v. Portrey,

be confused with novation where it is provided that on the performance of a new agreement an old obligation shall be discharged, or that a new contract shall be security for a former one. In a novation the new contract of itself effects the discharge.

8

§ 1866. Analysis of simple novations.

Even with the assent of all parties a satisfactory analytical explanation of how a complete legal discharge of the old contract and the creation of a new one is effected is not easy. If a novation of the debtor is considered where under the original contract A owes B and it is desired to introduce C instead of A, the substance of the transaction consists of a promise by B to C, or to A, or to both, to surrender his claim against A; and a promise by C to A or B, or both, that he will pay B. If it is supposed that only a promise to B by C can create the desired new right, and only a promise to A by B can discharge A, consideration must be sought for these promises. If it be supposed that B not only promises A to discharge him, but also promises C to discharge A, the latter promise is clearly sufficient to support C's promise to B, even though B's promise to C does not discharge A.10 But unless A gives B some consideration exterior to the novation, what consideration is there for any promise which B may make to A (as distinguished from C) to discharge him? It may be suggested that inducing C to enter into the bilateral contract with B, furnishes the necessary

50 Neb. 801, 70 N. W. 383; Warren v, Batchelder, 15 N. H. 129; Cutting v. Whittemore, 72 N. H. 107, 54 Atl. 1098; Lowe v. Blum, 4 Okl. 260, 43 Pac. 1063; Gaar v. Rogers, 46 Okl. 67, 148 Pac. 161; Miles v. Bowers, 49 Ore. 429, 90 Pac. 905; Jones v. Commonwealth Casualty Co., 255 Pa. 566, 100 Atl. 450; Cohen v. P. E. Harding Const. Co. (R. I.), 103 Atl. 702; Bowen v. Carolina, etc., R. Co., 34 S. Car. 217, 13 S. E. 421; Klinkoosten v. Mundt, 36 S. Dak. 595, 156 N. W. 85; Haynes v. Delius (Tenn.), 59 S. W. 158; State Bank v. Domestic Sewing-Machine Co., 99 Va. 411, 39

S. E. 141, 86 Am. St. Rep. 891; Barnes v. Crockett, 111 Va. 240, 68 S. E. 983, 36 L. R. A. (N. S.) 464; Sutter v. Moore Investment Co., 30 Wash. 333, 70 Pac. 746; Stuckey v. Middle States Loan &c. Co., 61 W. Va. 74, 55 S. E. 996, 8 L. R. A. (N. S.) 814, 123 Am. St. Rep. 977; Lutz v. Williams, 79 W. Va. 609, 91 S. E. 460.

8 See In re Lemerise, 73 Vt. 304, 50 Atl. 1062.

District Nat. Bank v. Mordecai (Md.), 105 Atl. 585.

10 This was decided as early as Roe v. Haugh, 12 Mod. 133, s. c. 1 Salk. 29, 3 Salk. 14.

12

consideration, and doubtless it would be possible for B to offer A his discharge if A would induce C to enter into a bilateral contract with B, such as that suggested above; and if A induced C as requested, there would be an effective discharge of A. It is evident, however, that the facts in many cases of novation of the debtor will not justify the inference of the supposed offer to A, or of any inducement of C by A; so that generally it is either necessary to suppose that the promise of C to B is sufficient consideration for a promise of B to A,11 or that a promise of B to C to discharge A is operative in favor of A.12 If a novation of the creditor is considered, there is no less difficulty. The agreement between the original creditor B, and the debtor A, by which B agrees to surrender his right in consideration of the debtor's promise to pay C, is easily supported, but what is the consideration for the debtor's direct undertaking to C, in the absence of some consideration furnished by C apart from merely assenting to the novation? It is impossible to find any moving from C and it is necessary to conclude that B's agreement with A to discharge him in consideration of A's promise to C to pay him is a valid contract or that A's promise to B that he will pay C must of itself be operative to give C a direct right. However equitable such results may be, and acceptable to most American courts, English lawyers and judges have always asserted that consideration must move from the promisee, 13 and that a third party beneficiary could have no rights under a contract. 14 It may be said that in a novation of the creditor, the new creditor acquires by virtue of his agreement with the original creditor the equitable right of an assignee, and that the surrender of this equitable right against the debtor furnishes consideration for the direct promise of the latter to pay the assignee. This is all very well if the assignment was for some exterior consideration furnished by C. If not, the assignee has merely a revocable power.15 If it is said that in the exercise of that power the assignee agrees with the debtor to discharge him from liability to the original creditor in consideration of a promise to pay the assignee, the

11 See supra, § 114.

12 See supra, §§ 1857-1860.

13 See supra, § 114.

14 See supra, § 360.
15 See supra, § 440.

supposed contract consists of a promise to A by C as agent for B (and therefore virtually a promise by B) in consideration of a promise by B to C personally.

§ 1867. Analysis of compound novation.

The novations thus far considered have been of simple form. It is possible, however, to have in one transaction a novation of debtor and creditor, where there are originally two debts, both of which are to be cancelled and another or others substituted. This may occur in two kinds of cases. In one kind, A owes B, and B owes C, and the three parties then agree that B shall drop out altogether and that A shall owe the amount of the debt to C. In this case there seems no difficulty in explaining the transaction on ordinary principles. B in effect assigns his claim against A to C, in satisfaction of C's claim against himself; C either simultaneously or subsequently then agrees with A that in consideration of the surrender of C's rights as assignee of B's claim, A will undertake the direct obligation to C. There is in this kind of novation a consideration for the assignment to C of the claim against A which gives C clearly the full equitable rights of an assignee, and thereby a difficulty which exists in explaining the simpler form of novation is avoided.

The other kind of compound novation arises if the original obligation is a bilateral contract. In such a contract A is under duty to B and B is under a reciprocal duty to A, and it may be proposed to substitute C for either A or B, so that he shall acquire the rights and also become subject to the duties of the party for whom he is substituted. Here also the analysis presents no difficulty, if all parties assent. If it be supposed that A is to drop out. B promises A to discharge him, and to render performance to C if A will assign his rights to C and procure C to enter into a contract with B. A, then, accepting this offer, assigns his rights to C in consideration of a promise by C to A to assume A's liability to B. Then C makes a direct promise to B to perform what A had previously promised to B, and B in consideration thereof makes a reciprocal direct promise to C to perform what B had originally promised A. What has been thus traced as successive agreements by the

parties may, without affecting the reasoning, take place simultaneously.

§ 1868. Decisions recognizing novations.

The earliest recognition of the validity of a novation was not until 1789. In that year a decision 16 and a dictum 17 asserted the validity of a novation in the compound form where a party who is both a debtor and a creditor drops out, but the decisions of the next half century rather threw doubt on this assertion than confirmed it. 18

Until the belated recognition by the courts 19 of the possibility of an executory promise of accord operating as an immediate discharge of a debt, if so intended, the difficulties in the way of supporting a novation by logical reasoning were overwhelming; 20 and it is only since that recognition that it can be said with certainty that a novation by parol agreement is effective. Even with that principle of accord established, a simple novation with no further consideration than is furnished by the agreement itself requires, as has been shown in the preceding sections, recognition of one of two other principleseither that under a contract for the benefit of a third person

16 In Israel v. Douglas, 1 H. B. 239, A being indebted to B and B indebted to C, B gave A an order to pay C the sum which A owed B. The order was accepted by A. On his subsequent refusal to comply with it, C brought this action against him. On the common counts it was held by the majority of the court that the action might be maintained for money had and received. Gould, J., asked what difference is there between the case "whether I in fact pay money to you for a third person, or whether I give you an order to pay so much money to which you expressly assent?"

Wilson, J., dissented from the decision on the count for money had and received, but agreed with the decision for the plaintiff on a count based on an account stated.

"The statement by Buller, J., which is always referred to in a discussion of novation was made in the same month in which Israel v. Douglas, 1 H. Bl. 239, was decided: "Suppose A owes B £100, and B owes C £100, and the three meet, and it is agreed between them that A shall pay C the £ 100: B's debt is extinguished, and C may recover the sum against A." Tatlock v. Harris, 3 T. R. 174.

18 So far as the decision on the count for money had and received was concerned, Israel v. Douglas, 1 H. Bl. 239, was practically overruled by Wharton v. Walker, 4 B. & C. 163, and the court in that case certainly indicated no confidence that recovery in any form of action would be possible. 19 See supra, § 1846.

20 See Cuxon v. Chadley, 3 B. & C.

591.