This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
If B is indebted to A and C is indebted to B, and by mutual agreement between A, B and C, C agrees to pay his indebtedness to A, B agrees to discharge his obligation to C and A agrees to discharge his obligation to B, the contracts discharging B and C are valid and supported by a valuable consideration. Such a contract is a contract of novation in the more limited sense. Under such a contract, B and C are discharged.1 A may maintain an action against C,2 and may enforce the obligation against C even in jurisdictions where a person for whose benefit a contract is made cannot enforce it at law.3 Hence a subsequent attaching creditor of B's who attempts by garnishee process against C to enforce B's claim against C cannot recover as against A's claim.4 The simplest form of novation is here given, consisting of two original debts and three parties. It is of course perfectly possible that there may be several debts and a corresponding increase in the number of parties.5 A new promise from the substituted debtor and a release of the claim against the substituted debtor are essential elements of a novation.6 Hence, if B, the original debtor, keeps silent when C, the new promisor, makes a verbal agreement with the creditor A, because B is too sick to talk, no novation exists.7 C's consent is an essential element of the novation, either to discharge B from his liability to A,8 or to enable A to maintain an action against C.9 Hence, if B hires C and agrees that C shall be paid by receiving goods from the firm of A and B and C buys goods on credit from such firm, no novation exists if A has not assented to such arrangement and B must pay his obligation to the firm, and recover his indebtedness from C.10 The assent of the parties may be implied11 as well as expressed. It is not necessary that the parties should all assent to the transaction at the same moment. If A and B agree and notify C of their agreement and he subsequently assents thereto, the contract of novation is valid if C's assent is given while the agreement between A and B stands ready for C's acceptance, like an unrevoked offer.12 The term novation is also used to indicate a contract between the same parties as a prior contract, intended as a discharge of such prior contract and as a substitution therefor. The questions presented under novation of this sort are those discussed under the title of new contract as discharge,13 and new contract as payment.14 !No novation of this sort exists unless the parties intend the new contract as a satisfaction of the prior contract. Hence the mere acceptance of a note,15 or a receiver's certificate,16 is not such novation. So the mere acceptance of a new certificate of deposit from a banking partnership does not discharge the estate of a deceased partner from liability on a certificate of deposit issued when such partner was alive and a member of the firm.17
2 Stockton, etc., Works v. Insi Co., 121 Cal. 167; 53 Pac. 565. The court also put their ground of decision in this case upon the fact that the new agreement was in part performance, since the insured had furnished proofs of loss under the contract.
3 Mettel v. Gales, 12 S. D. 632; 82 N. W. 181.
1 Dillard v. Dillard, 118 Ga. 97;
44 S. E. 885; Schlicher v. Whyte, - N. J. Eq. - ; 54 Atl. 1125; affirming without report, Schlicher v. Vogel, 61 N. J. Eq. 158; 47 Atl. 448; Munson v. Magee, 161 N. Y. 182; 55 N. E. 916; Union Central Life Ins. Co. v. Hoyer, 66 0. S. 344; 64 N. E. 435.
2 Castle v. Persons, 117 Fed. 835; 54 C. C. A. 133.
3 Griffin v. Cunningham, 183 Mass. 505; 67 N. E. 6G0.
4 Commercial National Bank v. Kirkwood, 184 111. 139; 56 N. E. 405; affirming 85 111. App. 235.
5 Henry v. Ritenour, 31 Ind. 136; Lester v. Bowman, 39 la. 611; Fin-an v. Babcoek, 58 Mich. 301; 25 N. W. 294.
6 Pugh v. Barnes, 108 Ala. 167; 19 So. 370; Carpy v. Dowdell, 131 Cal. 495; 63 Pac. 778; Pimental v. Marques, 109 Cal. 406; 42 Pac. 159; Walker v. Wood, 170 111. 463; 48 N. E. 919; Kirchman v. Coal Co., 112 la. 668; 52 L. R. A. 31S; 84 N. W. 939; Darling v. Rutherford, 125 Mich. 70: 83 N. W. 999; Dean v. Ellis, 108 Mich. 240; 65 N. W. 971; Hanson v. Nelson, 82 Minn.
220; 84 N. W. 742; In re Lemerise, 73 Vt. 304; 50 Atl. 1062; Cook v. Durham, 61 Wis. 15; 20 N. W. 670.
7 Hanson v. Nelson, 82 Minn. 220; 84 N. W. 742.
8 Illinois, etc., Co. v. Wagon Co., 112 Fed. 737; 50 C. C. A. 504; Car-py v. Dowdell, 131 Cal. 495; 63 Pac. 778; In re Lemerise, 73 Vt. 304; 50 Atl. 1062.
9 Darling v. Rutherford, 125 Mich. 70; 83 N. W. 999.
10 Kirchman v. Coal Co., 112 la. 668; 52 L. R. A. 318; 84 N. W. 939.
11 Whitney v. Ins. Co., 127 Cal. 464; 59 Pac. 897; Shoemaker Pianh Mfg. Co. v. Bernard, 2 Lea (Tenn.) 358.
16 State Bank v. Sewing Machine Co., 99 Va. 411; 39 S. E. 141.
17 Henry v. Caruthers, 196 111. 136; 63 N. E. 629; affirming 95 111. App. 582; In re Gardner's Estate, 199 Pa. St. 524; 49 Atl. 346.
12 McLaren v. Hutchinson, 22 Cal. 187; 83 Am. Dec. 59; Comley v. Dazian, 114 N. Y. 161; 21 N. E. 135.
13 See Sec. 1339 et seq.
14 See Sec. 1397 et seq.
15 Hughes v. Mattes, 104 La. 218; 28 So. 1006.