§ 1871. Necessity of the assent of all parties to a compound

novation.

The two simple forms of novation which have thus far been referred to may be combined so that there is both the creation of a new right and a new debt. If A owes B and B owes C, the same amount, it may be effectively agreed between the three parties that B's right against A, and debt to C, shall be cancelled, and that A shall acquire a right against C.40 Here too the substance of the transaction can generally be carried out without the assent of all the parties. If B assigned his claim against A to C in satisfaction of the debt which he owed to C, and C notified A of the assignment, then in the absence of some then existing defence or set-off of A against B, dissent or assent by A would be immaterial. He would be discharged from liability to B, and subject to liability to C.41

Often, though two parties by contract with one another might create a new debt and effect at least an equitable discharge of an old one without inviting the third party to join in the arrangement, they make no attempt to do so, but rather make the whole agreement conditional on the assent of each of

express or implied agreement on the part of the creditor to substitute the new debtor in the place of the original debtor, and also an express or implied agreement to release and discharge the original debtor. Kelso v. Fleming, 104 Ind. 180, 3 N. E. 830; Carpy v. Dowdell, 131 Cal. 495, 63 Pac. 778; Dempsey v. Pforzheimer, 86 Mich. 652, 49 N. W. 465, 13 L. R. A. 388; Cornwell v. Megins, 39 Minn. 407, 40 N. W. 610; Piehl v. Piehl, 138 Mich. 515, 101 N. W. 628; Hanson v. Nelson, 82 Minn. 220, 84 N. W. 742; Lowe v. Blum, 4 Okla. 260, 43 Pac. 1063; Roberts v. Samson, 50 Neb. 745, 70 N. W. 384." It will be observed that the court does not state that the agreement by the creditor to accept must be with the old debtor as well as with the new.

40 This is the form of the trans

action suggested by Buller, J., supra, § 1868, n. 17.

41 In Security Warehousing Co. v. The American Exchange Nat. Bank, 118 N. Y. App. Div. 350, 103 N. Y. S. 399, the plaintiff had a claim against one Greig, and also against the defendant bank, as severally liable for a tort. In satisfaction of this claim, Greig made a partial payment and transferred a note of a third person to the plaintiff. Of the plaintiff's attempt to charge the defendant, the court said (p. 354): "If Greig paid a part and gave the obligation of a third party, accepted in payment by defendant [plaintiff] for the balance, this was as much a payment as though the whole amount had been paid in cash. . . . A novation was thus effected and plaintiff could thereafter look to the substituted debtor only for reimbursement."

the three persons interested. Where this is the case there is nothing more than an offer until all assent.42

Where A and B are bound by a bilateral contract and it is sought to substitute a third person C for either one, the assent of all three is indeed necessary. A man may be given rights without any actual assent or expression of assent on his part, but he cannot be subjected to new contractual duties or be deprived of existing rights without his assent, and in the proposed transaction, C is to be subjected to new contractual duties and A and B are each to be deprived of previously existing rights.

§ 1872. Necessity of valid obligations.

Unless all the decisions considered in an earlier chapter, 43 holding that a promise to surrender or forbear a doubtful claim or one erroneously supposed by the claimant to be good are to be overthrown, it is not essential that the original obligation discharged by the subsequent novation shall have been valid in every sense of that word. It is indeed generally necessary that the original contract shall not have been illegal, and it is always essential that the new agreement shall be supported by sufficient consideration; but it is clearly possible in a novation of the debtor, for a new debtor to promise absolutely to pay money in consideration of the creditor's surrender of his old claim, whether that claim was well founded or not, so long as it was not wholly frivolous and unreasonable. It is indeed a question of fact whether the new obligor's promise in such a case is merely to pay such indebtedness as the original obligor was subject to, or was to pay in any event a fixed amount, 45 but whichever form the transaction may take it will be a valid contract, though if the undertaking is merely to pay such an amount as the original debtor was liable for, the new promisor by the very terms of his promise need pay nothing, if he can prove that the original debtor was liable for nothing.

42 McCall Co. v. Parson &c. Co., 107 Miss. 865, 878, 66 So. 274.

43 Supra, § 135.

"Occasionally an illegal contract is enforceable by one of the parties

thereto. See supra, § 1631. In such a case a novation based upon it would be valid.

45 See supra, § 399.

Similarly, in a novation of the creditor, it is possible for the debtor to promise absolutely to pay a fixed sum to C in consideration of his discharge from an asserted claim by B whether B's claim was valid or not; subject to the same proviso that B's claim shall not have been merely frivolous or unreasonable. The assertion that the new obligation must be a valid one is perfectly true. It is the new agreement that the parties are seeking to enforce, whether it is used as the basis for an action on the new claim or as the ground for a defence against the old one; and if it is not a valid contract it can be effective in neither way. But the principle may be misapplied. It has been held that where a novation of the debtor took place the fact that the new debtor was an infant, and therefore capable of avoiding his obligation, invalidated the novation. 46 This seems erro

neous. As long as a voidable or unenforceable promise is recognized as capable of supporting a binding counter-promise," it seems impossible to deny that the adult party to the transaction is bound by the novation. If, indeed, the infant elects to avoid his promise, it seems that the adult may also refuse to be bound by his obligation to the infant, and if the original debtor has not parted with value in return for his supposed discharge, or on the faith of it, he should not be allowed to set up the agreement with any greater effect than the infant himself could do. If an original contract was unenforceable under the Statute of Frauds similar questions may arise.

§ 1873. Conditional novations.

It is said "the legal rule is well settled that if an agreement intended as a novation is conditional, the novation can only take effect by the performance of the condition before the debt is extinct."48 There seems no difficulty, however, if the parties so intend in substituting a conditional agreement by way of novation for an obligation which was originally absolute; nor is there any difficulty in substituting an absolute new agreement for one which was originally conditional. The only question involved is what the parties in fact agreed upon.

46 Spycher v. Werner, 74 Wis. 456, 43 N. W. 161, 5 L. R. A. 414. 47 See supra, § 105.

18 Cooke v. McAdoo, 85 N. J. L. 692, 695, 90 Atl. 302. See also Edgell . Tucker, 40 Mo. 523.

Where the new agreement is conditional, it is possible that the parties agreed that on the happening of a condition there should be a novation, and that until and unless the condition happened, the original obligation should remain in force. It is equally possible, however, for them to agree upon the immediate substitution in satisfaction of the original obligation of a new conditional contract. In such a case, the original debt is none the less extinguished if the failure of the condition in the new agreement prevents liability thereon from ever arising.

§ 1874. Subsequent promise of a surety given in conformity with prior agreement of principal.

It has been frequently held that the promise of a surety is supported by sufficient consideration, though made subsequent to the contract between the principal debtor and the creditor, if that contract was induced by the debtor's promise to furnish a surety.49 Some of the decisions are based wholly or partly on the theory that the contract between the principal debtor and the creditor is incomplete until the surety has added his promise. If the facts bear out such a construction there is no legal difficulty. Sometimes, however, it is clear that the creditor has made no condition in his bargain with the debtor, but has relied on the promise of the latter to provide a surety subsequently. Even in such a case the surety should be held. His promise is taken by way of novation in satisfaction of the principal debtor's promise to provide a surety. There is no greater difficulty in such a novation than in any case where a promisee accepts the promise of a new obligor in lieu of the promise of the previous one.

49 Williams v. Perkins, 21 Ark. 18; Stroud v. Thomas, 139 Cal. 274, 72 Pac. 1008, 96 Am. St. Rep. 111; Heintz v. Cahn, 29 Ill. 308; Wylie v. Dickenson, 50 Ill. App. 622; Grim v. Semple, 39 Ia. 570; Sypert v. Harrison, 88 Ky. 461, 18 S. W. 435; Deposit Bank v. Peak, 110 Ky. 579, 62 S. W. 268, 96 Am. St. Rep. 466; Sawyer v. Fernald, 59 Me. 500; Moies v. Bird, 11 Mass. 436, 6 Am. Dec. 179; Bowen v. Thwing, 56 Minn. 177, 57 N. W. 468; Kneisley

Lumber Co. v. Edward B. Stoddard Co., 131 Mo. App. 15, 109 S. W. 840; Faust v. Rodelheim, 77 N. J. L. 740, 73 Atl. 491, 27 L. R. A.(N. S.) 189; McNaught v. McClaughry, 42 N. Y. 22, 1 Am. Rep. 487; Harrington v. Brown, 77 N. Y. 72; Pennsylvania Coal Co. v. Blake, 85 N. Y. 226; Smith v. Molleson, 148 N. Y. 241, 42 N. E. 669; Simmang v. Farnsworth (Tex. Civ. App.), 24 S. W. 541.

§ 1875. Evidence of novation.

Following the principle generally applicable to the formation of contracts, the consent of parties to a novation may be established by circumstances showing such assent as well as by expressed words. 50 In partnership cases, it is often said that slight evidence will warrant the court in inferring liability on the part of an incoming partner. 51 There is danger in pushing such a principle too far in a desire to hold an incoming partner liable, since unless the incoming partner has agreed with the old firm to assume the old debts and the local law permits a creditor to sue on such an assumption of liability without losing thereby his rights against his original debtor, 52 the only consideration for an agreement of the incoming partner with the creditor to be liable to him must be the creditor's agreement to discharge the old firm. 53 Such an agreement should not be assumed without clear evidence, for often the creditor while perfectly willing to accept payment from the new firm is not ready to accept its obligation in satisfaction of his claim against the old firm.54

50 Holloway v. White-Dunham Shoe Co., 151 Fed. 216, 80 C. C. A. 568, 10 L. R. A. (N. S.) 704; Elkins v. Henry Vogt Machine Co., 125 Ark. 6, 187 S. W. 663; Walker v. Wood, 170 Ill. 463, 48 N. E. 919; Lucas v. Coulter, 104 Ind. 81, 3 N. E. 622; Peyser v. Myers, 135 N. Y. 599, 32 N. E. 699; Lane v. United Oil Cloth Co., 103 N. Y. App. Div. 378, 92 N. Y. S. 1061; Union Central Life Ins. Co. v. Hoyer, 66 Oh. St. 344, 64 N. E. 435; Updike v. Doyle, 7 R. I. 446.

"Justinian says that novation takes place only when the contracting parties expressly disclose that their object in making the new contract is to extinguish the old contract; that otherwise the old contract remains in force and the new contract is added to it, and each gives rise to an obligation still in force. Inst. Lib. III, Tit. XXIX. pl. 3. We allow this intention to be inferred from circumstances. Hard v. Burton, 62 Vt. 314, 321, 20 Atl. 269.

51 Ex parte Jackson, 1 Ves. Jr. 131; Ex parte Peele, 6 Ves. Jr. 602, 604; Regester v. Dodge, 6 Fed. 6; Wheat v. Hamilton, 53 Ind. 256; Cross v. National Bank, 17 Kans. 336; Shaw v. McGregory, 105 Mass. 96.

52 In some jurisdictions the creditor is given no right unless there has been a direct promise to him. See Darling v. Rutherford, 125 Mich. 70, 83 N. W. 999, and supra, §§ 367, 368. In some of the other jurisdictions where he is given such a right, if he elects to enforce it he discharges the original debtor. See supra, § 392.

53 See, e. g. (not partnership cases), Griffin v. Cunningham, 183 Mass. 505, 508, 509, 67 N. E. 660; Scharff Distilling Co. v. Springfield &c. Transfer Co., 180 Mo. App. 497, 166 S. W. 654.

54 See Weingarden v. Folly Theatre Co., 189 Mich. 220, 155 N. W. 501 (assumption by new corporation of contracts of another); Hanson v. Nelson, 82 Minn. 220, 84 N. W. 742 (not a partnership case).