DIFFERENCE BETWEEN A NOVATION AND A MODIFICATION TO A CONTRACT

In contract law, there are two doctrines that have similarities but are indeed different. These doctrines are known as novation and modification.   There are times you may want to make arguments relative to these doctrines because they are important for your theory of the dispute.  Thus, you want to make sure you understand them so you can properly plead and prove the required elements to substantiate the basis of the theories.  Understanding the elements will help you understand the evidence you will need to best prove your factual theories.

A novation is essentially substituting a new contract for an old contract.

A novation is a mutual agreement between the parties for the discharge of a valid existing obligation by the substitution of a new valid obligation.’” Thompson v. Jared Kane Co., Inc., 872 So.2d 356, 361 (Fla. 2d DCA 2004) (citation omitted).   To prove a novation, a party must prove four elements: “(1) the existence of a previously valid contract; (2) the agreement of the parties to cancel the first contract; (3) the agreement of the parties that the second contract replace the first; and (4) the validity of the second contract.”  Id. at 61.  Whether the parties consented to the substitute contract can be implied from the factual circumstancesId.

Parties are more familiar with a modification because it is not uncommon that parties may agree to modify contractual terms. The contract remains in effect but certain terms or obligations are modified.  For example, a change order to a contract is a modification.

A modification, unlike a novation, “merely replaces some of the terms of a valid and existing agreement while keeping those not abrogated by the modification in effect.”  Bornstein v. Marcus, 275 So.3d 636, 639 (Fla. 3d DCA 2019).

When determining the scope of a modification to a contract, the following principles control: (1) “individual terms of a contract are not to be considered in isolation, but as a whole and in relation to one another”; (2) “the proper resolution of any inconsistency … is best determined by the manner in which the parties actually perform under it”; and (3) “an amendment to an agreement is designed to serve some useful function, and its existence is strong evidence, therefore, that the contract was changed from what the parties believed and intended was provided before.”

Marcus, supra, at 640 (citations omitted).

Remember, there is a difference between a modification and a novation.  Understanding this distinction may come into play in a dispute you have relative to a contract you entered into.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

 

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