FORT LAUDERDALE BUSINESS LITIGATION: BREACH OF CONTRACT DEFENSE OF “NOVATION”

If you replace a contract with another contract, is the original contract still enforceable? The answer to this question involves a contract principle called novation. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

Under Florida 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). Novation is similar to modification of a contract, but with an important distinction. Modification “merely replaces some terms of a valid and existing agreement while keeping those not abrogated by the modification in effect.” Bornstein v. Marcus, 275 So. 3d 636 (Fla. 4th DCA 2019). Novation, on the other hand, completely replaces the prior agreement.

The elements for a valid novation are (1) the existence of a previously valid contract, (2) an agreement of the contracting parties to cancel the first contract, (3) an agreement of the contracting parties that the second contract replaces the first, and (4) validity of the second contract. Thompson v. Jared Kane Co., Inc., 872 So. 2d 356 (Fla. 2d DCA 2004); U.S. Home Acceptance Corp. v. Kelly Park Hills, Inc., 542 So. 2d 463 (Fla. 5th DCA 1989) (stating that a novation must be supported by valid consideration, and finding that a promise to perform an act that a party was already obligated to perform did not constitute valid consideration). The manifestation of a novation depends on the parties’ intention, which can be implied from the surrounding circumstances.

An example of a novation in the context of business litigation occurred in Aronowitz v. Health-Chem Corp., 513 F.3d 1229 (11th Cir. 2008). In Aronowitz, an inventor of medical products signed an agreement with the defendant to enter a joint venture for marketing and developing medical products. The defendant agreed to provide funding for the development of the product and pay a licensing fee to use the product. After the parties entered the joint venture agreement, a dispute arose concerning the amount of money the defendant owed under the agreement. The parties subsequently entered a new agreement allowing the defendant to stop funding the development of the product. The new agreement expressly stated that it was intended to “terminate all obligations and stipulations” in the original contract. Thereafter, additional disputes between the parties arose, which ultimately culminated in the inventor filing a lawsuit against the defendant for claims of breaching the original agreement and the new agreement. The defendant raised the defense of novation by arguing that the original contract was extinguished once the parties entered into the new contract. The Eleventh Circuit agreed, finding that “the only reasonable conclusion to draw from the evidence is that the parties intended a novation.”

Novation can be an important defense to a breach of contract lawsuit if there are succeeding contracts because it has the potential to eradicate a claim brought under the original contract. A business would be wise to assert the novation defense if it is sued for breach of a contract that was abrogated by a subsequent contract. Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.