GA Code § 13-4-5 (2021)
2021 Georgia Code|Title 13 - Contracts|Chapter 4 - Modification, Extinguishment, and Renewal|Article 1 - General Provisions|§ 13-4-5. Effect of Execution of Second Contract Upon Same Matter; Novation

 A simple contract regarding the same matter and based on no new consideration does not destroy another simple contract between the same parties; but, if new parties are introduced so as to change the person to whom the obligation is due, the original contract is at an end.   (Orig. Code 1863, § 2686; Code 1868, § 2682; Code 1873, § 2724; Code 1882, § 2724; Civil Code 1895, § 3641; Civil Code 1910, § 4226; Code 1933, § 20-115.)   Law reviews.   - For comment on Acree v. Kay, 188 Ga. 783, 4 S.E.2d 820 (1939), see 2 Ga. B.J. 61 (1940).   JUDICIAL DECISIONS    Change of nature of terms of contract is called a novation. Stallings v. Bank of Americus, 59 Ga. 701 (1877); Central Ga. Bank v. Cleveland Nat'l Bank, 59 Ga. 667 (1877).    "Novation" is a term of art, signifying a very particular type of accord or modification.  Lindenberg v. First Fed. Sav. & Loan Ass'n, 528 F. Supp. 440 (N.D. Ga. 1981), aff'd, 691 F.2d 974 (11th Cir. 1982).   Section incorporates common-law motion of novation.    - Common-law idea of a novation is when A is indebted to B, and B to C, and by mutual agreement B is dropped out, and in consideration of this, A becomes debtor to C. Such agreement constitutes a novation; a new person is introduced to whom obligation is due. Wofford v. Gaines, 53 Ga. 485 (1874).   Four essential requisites of a novation.    - In every novation there are four essential requisites: (1) previous valid obligation; (2) agreement of all parties to new contract; (3) extinguishment of old contract; and (4) validity of new one. Savannah Bank & Trust Co. v. Wolff, 191 Ga. 111, 11 S.E.2d 766 (1940); Cowart v. Smith, 78 Ga. App. 194, 50 S.E.2d 863 (1948); Franchise Enters., Inc. v. Ridgeway, 157 Ga. App. 458, 278 S.E.2d 33 (1981); City of Buford v. International Sys., 158 Ga. App. 682, 282 S.E.2d 165 (1981).    In every novation there are four essential requisites: (1) a previous valid obligation; (2) the agreement of all the parties to the new contract; (3) the extinguishment of the old contract; and (4) the validity of the new one. If these essentials, or any one of them, are wanting, there can be no novation. M.W. Buttrill, Inc. v. Air Conditioning Contractors, 158 Ga. App. 122, 279 S.E.2d 296 (1981); Lindenberg v. First Fed. Sav. & Loan Ass'n, 528 F. Supp. 440 (N.D. Ga. 1981), aff'd, 691 F.2d 974 (11th Cir. 1982).   Prerequisite termination agreement.    - Prerequisite to effecting a novation, the express terms of a termination agreement must support the contention that the parties intended that agreement to supersede all previous obligations and, furthermore, the termination agreement must purport to cover the subject matter of any previous agreement. Farris v. Pazol, 166 Ga. App. 760, 305 S.E.2d 472 (1983).    Novation is itself a contract and must have all elements of de novo contract. Savannah Bank & Trust Co. v. Wolff, 191 Ga. 111, 11 S.E.2d 766 (1940).    A novation or accord and satisfaction is in itself a contract and must have all the elements of a de novo contract. Therefore, there must be a meeting of the minds if the novation or accord and satisfaction is to be valid and binding. M.W. Buttrill, Inc. v. Air Conditioning Contractors, 158 Ga. App. 122, 279 S.E.2d 296 (1981).    Novation is a complete contract in itself. Franchise Enters., Inc. v. Ridgeway, 157 Ga. App. 458, 278 S.E.2d 33 (1981).    There must be a mutual intent to create a novation.  Lindenberg v. First Fed. Sav. & Loan Ass'n, 528 F. Supp. 440 (N.D. Ga. 1981), aff'd, 691 F.2d 974 (11th Cir. 1982).    To discharge existing contract, subsequent, inconsistent agreement covering same subject matter must be valid contract, and not nudum pactum. Carter v. Rich's, Inc., 83 Ga. App. 188, 63 S.E.2d 241 (1951).    Novation must be supported by some new consideration. Bradbury v. Morrison, 93 Ga. App. 704, 92 S.E.2d 607 (1956).    Consideration for novation is not original indebtedness, but change in obligation of parties. Cherry v. Jones, 41 Ga. 579 (1871); Mayor of Brunswick v. Dure, 60 Ga. 457 (1878).    Agreement to pay more for same performance required by prior contract between same parties is unenforceable. Carter v. Rich's, Inc., 83 Ga. App. 188, 63 S.E.2d 241 (1951).    All parties need not expressly agree that new contract shall take place of original contract to constitute a novation, but only that the parties agree that new contract itself be executed. Acree v. Kay, 188 Ga. 783, 4 S.E.2d 820 (1939).    Contracts under seal, if facts bring the contracts under this statute must be controlled thereby. Acree v. Kay, 188 Ga. 783, 4 S.E.2d 820 (1939).    Novation must not prejudice rights of parties to lis pendens. Whatley v. Marshall, 139 Ga. 148, 76 S.E. 1025 (1912).   To constitute novation, enforceable contract must be made between creditor and new debtor.    - To constitute a novation, by which original debtor is released, creditor being bound thereby to discharge debt as to original debtor and look to another for payment of creditor's demand, it is essential that a contract be made between new debtor and creditor by which claim can be enforced against new debtor. FDIC v. Thompson, 54 Ga. App. 611, 188 S.E. 737 (1936); Cowart v. Smith, 78 Ga. App. 194, 50 S.E.2d 863 (1948).   Novation requires contract, for consideration, containing other and different terms from original.    - To allege novation it is necessary to show that another contract containing other and different terms from original contract has been agreed upon and that there is consideration for novation. Maguire v. Ivey, 212 Ga. 151, 91 S.E.2d 35 (1956).    Execution of new contract for purchase and sale of same article may satisfy former agreement. Poland Paper Co. v. Foote & Davies Co., 118 Ga. 458, 45 S.E. 374 (1903).   For new note between same parties to displace preexisting one, different consideration or collateral necessary.    - In order that the taking of a new note and new lien to secure the note, between the same parties, will operate to discharge or displace the preexisting lien, it is essential that the new lien embrace different property, or that the new lien be based upon a new and distinct consideration. Albany Loan & Fin. Co. v. Tift, 43 Ga. App. 789, 160 S.E. 661 (1931).   Note given for existing indebtedness, although for greater interest and later maturity, not novation.    - New note, given in lieu of existing note between same parties and for same indebtedness, at higher rate of interest and due at later date, is not given for a new consideration, and therefore does not constitute a novation. Georgia Nat'l Bank v. Fry, 32 Ga. App. 695, 124 S.E. 542 (1924); Cohen's Dep't Stores, Inc. v. Siegel, 60 Ga. App. 79, 2 S.E.2d 762 (1939); Motor Contract Div. v. Southern Cotton Oil Co., 76 Ga. App. 199, 45 S.E.2d 291 (1947).    Note given for existing indebtedness, even at higher rate of interest and due at later date, is not given for new consideration, and therefore does not constitute novation. Brooks v. Jackins, 38 Ga. App. 57, 142 S.E. 574 (1928).   Note given for existing indebtedness, although at greater interest, not novation unless so agreed.    - New notes given for existing indebtedness, although providing for additional interest and, in former case, additional carrying charges, do not operate to extinguish indebtedness on original notes, in absence of express agreement that the notes should so operate. Carter v. Rich's, Inc., 83 Ga. App. 188, 63 S.E.2d 241 (1951).   Renewal between same parties with subject matter and consideration remaining same, not necessarily novation.    - Law is well recognized that a contract may be renewed between same parties as to same subject matter, and upon same consideration, without working a novation. Albany Loan & Fin. Co. v. Tift, 43 Ga. App. 789, 160 S.E. 661 (1931); Cohen's Dep't Stores, Inc. v. Siegel, 60 Ga. App. 79, 2 S.E.2d 762 (1939); Wilson v. Nauman, 88 Ga. App. 782, 77 S.E.2d 756 (1953).   Renewal note not a novation, unless so agreed.    - Renewal note or instrument is not a novation extinguishing first one, unless there is agreement between parties to that effect. Cohen's Dep't Stores, Inc. v. Siegel, 60 Ga. App. 79, 2 S.E.2d 762 (1939).    Renewal of note to executor of deceased payee does not make novation by substitution of new parties. Collins v. Collins, 44 Ga. 128 (1871).   Novation of debtors.    - There may be a novation of debtors, but the novation must be such as to release the original debtor and substitute a new debtor in the original debtor's place. This release and substitution may be by express terms, or may be inferred from the acts of the parties or by necessary implication from a construction of the new agreement. Franchise Enters., Inc. v. Ridgeway, 157 Ga. App. 458, 278 S.E.2d 33 (1981).   Acceptance of substituted performance insufficient to establish novation, absent intention to release original obligor.    - Mere acceptance by obligee of performance by assignee, or substituted obligor, is not sufficient to establish novation in absence of words or conduct tending to show intention or agreement on part of obligee to release original obligor and extinguish original obligor's liability. Cowart v. Smith, 78 Ga. App. 194, 50 S.E.2d 863 (1948).   Substitution of payor with parties, terms and conditions remaining the same was not a novation.    - Change in only one term of original contract which merely substitutes another payor, the parties, terms, and conditions of original contract remaining the same, does not constitute novation. Melton v. Lowe, 117 Ga. App. 783, 161 S.E.2d 912 (1968).   Assumption of debt by third party not novation absent intention to release first obligor.    - Mere assumption of debt by third party is not sufficient to establish novation since it is essential that intention to release first obligor and extinguish the obligor's liability should definitely appear. Otherwise assumption of debt by third party will be presumed to be merely additional security. Cowart v. Smith, 78 Ga. App. 194, 50 S.E.2d 863 (1948).    Consolidating two companies does not necessarily work dissolution of both, and creation of new corporation. Whether such be its effect depends upon legislative intent manifested in statute under which consolidation takes place. Central R.R. & Banking Co. v. Georgia, 92 U.S. 665, 23 L. Ed. 757 (1875).   Second agreement controlled over prior agreement.    - Agreement entered into in October 2005 for security services controlled a dispute between a security firm and the firm's customers, not an earlier agreement between the security firm and the customers' predecessor in interest, pursuant to O.C.G.A. § 13-4-5. USF Corp. v. Securitas Sec. Servs. USA, 305 Ga. App. 404, 699 S.E.2d 554 (2010).   Letter allowing another party to obtain permits for construction project was not novation.    - A letter of acknowledgement in which the owner acknowledged a professional engineer as the contractor for purpose of obtaining permits was not a novation substituting the engineer for the general contractor. Saks Mgmt. & Assocs. v. Sung, 356 Ga. App. 568, 849 S.E.2d 19 (2020).   Arbitration agreements.    - O.C.G.A. § 13-4-5 is not at odds with the general rule that contractual termination does not extinguish an agreement to arbitrate; to the contrary, O.C.G.A. § 13-4-5 codifies the principle that the effect of a novation on an arbitration clause is equivalent to the effect of contractual termination. Goshawk Dedicated Ltd. v. Portsmouth Settlement Co. I, Inc., 466 F. Supp. 2d 1293 (N.D. Ga. 2006).    Cited in Wofford v. Gaines, 53 Ga. 485 (1874); Carmichael v. Foster, 69 Ga. 372 (1882); Partridge v. Williams' Sons, 72 Ga. 807 (1884); Foy-Adams Co. v. Smith, 19 Ga. App. 172, 91 S.E. 242 (1917); Hiatt v. Tumlin, 46 Ga. App. 105, 166 S.E. 836 (1932); First Nat'l Bank v. Simmons, 48 Ga. App. 728, 173 S.E. 241 (1934); Kelley v. Spivey, 182 Ga. 507, 185 S.E. 783 (1936); Standard Oil Co. v. Jasper County, 53 Ga. App. 804, 187 S.E. 307 (1936); Board of Educ. v. Southern Mich. Nat'l Bank, 184 Ga. 641, 192 S.E. 382 (1937); Garvin v. Worthington Pump & Mach. Corp., 62 Ga. App. 240, 8 S.E.2d 589 (1940); Pittsburgh Plate Glass Co. v. Jarrett, 42 F. Supp. 723 (M.D. Ga. 1942); Manry v. Selph, 77 Ga. App. 808, 50 S.E.2d 27 (1948); Green v. Johns, 86 Ga. App. 646, 72 S.E.2d 78 (1952); White v. Williams, 87 Ga. App. 496, 74 S.E.2d 363 (1953); Swanson v. Chase, 107 Ga. App. 295, 129 S.E.2d 873 (1963); Allstate Ins. Co. v. Moody, 128 Ga. App. 300, 196 S.E.2d 482 (1973); Edwards v. Gold Kist, Inc., 137 Ga. App. 42, 223 S.E.2d 12 (1975); Sportsman Camping Ctrs. of Am., Inc. v. Bagwell, 140 Ga. App. 312, 231 S.E.2d 118 (1976); Mauldin v. Lowe's of Macon, Inc., 146 Ga. App. 539, 246 S.E.2d 726 (1978); Leasing Systems v. Easy St., Inc., 161 Ga. App. 756, 288 S.E.2d 879 (1982); Lindenberg v. First Fed. Sav. & Loan, 691 F.2d 974 (11th Cir. 1982); Olympic Dev. Group, Inc. v. American Druggists' Ins. Co., 175 Ga. App. 425, 333 S.E.2d 622 (1985); Mitchell v. Mitchell, 191 Ga. App. 139, 381 S.E.2d 84 (1989); Brack Rowe Chevrolet Co. v. Walls, 201 Ga. App. 822, 412 S.E.2d 603 (1991).   RESEARCH REFERENCES   Am. Jur. 2d.   - 58 Am. Jur. 2d, Novation, §§ 1, 2. 67 Am. Jur. 2d, Sales, §§ 206.   C.J.S.   - 17A C.J.S., Contracts, § 409. 66 C.J.S., Novation, §§ 1 et seq., 14 et seq.   ALR.    - Judgment against seller of chattels for breach of warranty as conclusive upon prior warrantor, 8 A.L.R. 667.    Applicability of protective provisions of Uniform Conditional Sales Act or similar statutes where there has been a novation of the contract, 83 A.L.R. 998.    Creditor's knowledge of, or consent to, assumption by third person of debtor's obligation as release of original debtor or extinguishment of original debt essential to novation, 87 A.L.R. 281.    Accepted offer to give or take less than full amount of liquidated claim as a novation or an accord executory, 96 A.L.R. 1133.    Necessity or proof of original obligor's consent to, or ratification of, third person's assumption of obligation, in order to effect a novation, 124 A.L.R. 1498.   What constitutes reservation of right to terminate, rescind, or modify contract, as against third party beneficiary, 44 A.L.R.2d 1270.   Creditor's acceptance of obligation of third person as constituting novation, 61 A.L.R.2d 755.