§ 1532 Novation Contract Rules

This law says that a new contract (novation) works like any other contract, and it lets a creditor cancel an acceptance of a promise from a third person if certain problems happen.

Key Takeaways

•A novation is just a new contract and follows normal contract rules.
•The creditor can cancel an acceptance if the debtor blocks the third person or if the third person was insolvent and the creditor didn't know.
•The creditor must act quickly; if the third person later becomes insolvent, the creditor can still cancel if they didn't know earlier.

Example

A worker promises to pay a debt for a friend, and the creditor later tries to enforce that promise.

The creditor can cancel the acceptance if the worker stops the friend from paying or if the friend was broke and the creditor didn't know.

How to Calculate

Rescind = (Prevention OR (Insolvency AND Unknown))

See if the debtor stops the third person from fulfilling the promise.
Check if the third person was insolvent when the promise was received.
See if the creditor didn't know about that insolvency.
If any part of the formula is true, the creditor can rescind.

Creditor wants to enforce a promise from a friend who is broke.

Result: Rescind = (false OR (true AND true)) = true

Novation is made by contract, and is subject to all the rules concerning contracts in general. (Enacted 1872.) [1533.] Section Fifteen Hundred and Thirty-three. When the obligation of a third person, or an order upon such person is accepted in satisfaction, the creditor may rescind such (such) acceptance if the debtor prevents such person from complying with the order, or from fulfilling the obligation; or if, at the time the obligation or order is received, such person is insolvent, and this fact is unknown to the creditor, or if, before the creditor can with reasonable diligence present the order to the person upon whom it is given, he becomes insolvent. (Amended by Code Amendments 1873-74, Ch. 612.)

This law says that a new contract (novation) works like any other contract, and it lets a creditor cancel an acceptance of a promise from a third person if certain problems happen.

Key Takeaways

•A novation is just a new contract and follows normal contract rules.
•The creditor can cancel an acceptance if the debtor blocks the third person or if the third person was insolvent and the creditor didn't know.
•The creditor must act quickly; if the third person later becomes insolvent, the creditor can still cancel if they didn't know earlier.

Example

A worker promises to pay a debt for a friend, and the creditor later tries to enforce that promise.

The creditor can cancel the acceptance if the worker stops the friend from paying or if the friend was broke and the creditor didn't know.

How to Calculate

Rescind = (Prevention OR (Insolvency AND Unknown))

See if the debtor stops the third person from fulfilling the promise.
Check if the third person was insolvent when the promise was received.
See if the creditor didn't know about that insolvency.
If any part of the formula is true, the creditor can rescind.

Creditor wants to enforce a promise from a friend who is broke.

Result: Rescind = (false OR (true AND true)) = true

Key Takeaways

Example

How to Calculate

Key Terms

References

§ 1532 Novation Contract Rules

Key Takeaways

Example

How to Calculate

Key Terms

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References

Key Takeaways

Example

How to Calculate

Key Terms

Related Statutes

References