“Novation”: Breach of Contract Defense in Florida

If you were to replace one contract with another, would the original contract still be enforceable? Well, the answer to that question revolves around a contract principle called novation.

Novation in Florida Law

It has been established that under Florida case law, “novation is a mutual agreement between the parties to a contract for the discharge of a valid existing obligation by the substitution of a new valid obligation.” Jakobi v. Kings Creek Village Townhouse Ass’n, Inc., 665 So. 2d 325 (Fla. 3d DCA 1995).

What that means, in layman’s terms, is that two consenting parties can make an agreement to cancel an old agreement and replace it with a new one. “Novation,” then, is similar to the concept of contract modification. However, novation differs in that novation is not simply replacing terms of an agreement, while keeping others in effect. (You can do that – again, this is contract modification.) Bornstein v. Marcus, 275 So. 3d 636 (Fla. 4th DCA 2019). Novation completely replaces the agreement or contract that came before.

Elements Needed for Novation

One cannot simply walk away from a contractual obligation, assert that novation happened, and go about their merry way. To successfully assert novation as a defense to breach of contract, you must establish certain elements.

The elements you must establish for a court to rule that valid novation of a contractual agreement occurred are:

1. Prove that a valid contract previously existed; (if you cannot prove this then the parties do not have anything to dispute anyway. One cannot breach a contractual agreement that never existed.)
2. Prove that the contracting parties came to an agreement to cancel the first contract;
3. Prove that the original contracting parties came to an agreement to create a second contract that would replace the previous, canceled contract, and;
4. Prove that the second contract is a valid contract. This includes an agreement supported by valid consideration.

Case Law: Aronowitz v. Health-Chem Corp

An example of a novation in a business litigation case occurred in Aronowitz v. Health-Chem Corp., 513 F.3d 1229 (11th Cir. 2008). In this case, one of the parties was a medical product inventor. They, and the defendant, entered a joint venture for the marketing and development of medical products. The agreement consisted of the defendant agreeing to provide funding in order for the inventor to develop products, and to pay a licensing fee in order to use the developed products.

At some point after the parties entered the joint venture contractual agreement, a dispute arose pertaining to how much money the defendant owed under the agreement. Subsequent to this dispute, the parties entered into a new agreement that allowed the defendant to stop funding a product’s development.

The new agreement entered into by the parties expressly stated that the new contract was intended to “terminate all obligations and stipulations” in the contract the parties had originally entered into.  Additional disputes between the parties subsequently arose, and ultimately the inventor filed a breach of contract suit against the defendant. The inventor asserted that the defendant breached the original contract and new contract.

The defendant asserted a novation defense and argued that the original contract had been canceled when the parties entered into the second contract. The Eleventh Circuit agreed with the defendant, finding that “the only reasonable conclusion to draw from the evidence is that the parties intended a novation.”

Takeaway – Contact Suncoast Civil Law

Novation can be asserted as a successful defense to what would otherwise be a breach of contract, if there are successive contracts that eradicate otherwise valid claims that could have been brought in the first contract. The experienced Sarasota business litigation attorneys at Suncoast Civil Law can help our clients be successful in their suits by utilizing diverse strategies and defenses tailored to the specifics of your case. Contact our office today to begin working with our team.

Sources:

casetext.com/case/jakobi-v-kings-creek-village

casetext.com/case/bornstein-v-marcus-2