Summary
In Greenwood Leflore Hospital Com. v. Turner, 213 Miss. 200, 56 So.2d 496, this rule was deduced: "A novation may occur where the debt remains the same but a new debtor is substituted in which event the original debtor is acquitted, his obligation is extinguished and the creditor contents himself with the obligation of the second debtor.
Summary of this case from Ainsworth v. LeeOpinion
No. 38221.
February 4, 1952.
1. Novation — when may occur.
A novation may occur where the debt remains the same but a new debtor is substituted in which event the original debtor is acquitted, his obligation is extinguished and the creditor contents himself with the obligation of the second debtor.
2. Novation — consideration.
In novation the consideration need not be pecuniary or even beneficial to the person promising, and where the promise is to pay another's debt in consideration of his being discharged there need be no consideration moving between the person promised for and the person who promises.
3. Novation — obligation discharged by acceptance of draft or order.
Generally, where one obligation is discharged by the acceptance of an order or draft on a third person, a novation results.
4. Novation — essential elements.
It is essential to a novation that the creditor agree to accept the obligation of the new debtor, as a substitute for the original debtor, and that new debtor participate in and consent to the arrangement and thereby assume the obligation to the creditor.
5. Novation — agreement by original debtor.
While generally it is necessary that the original debtor should be consulted and should consent to the new arrangement, there is a presumption of his consent when to his benefit, in the absence of any timely disclaimer.
6. Novation — issuance and acceptance of check for hospital bill of another.
Where a brother-in-law issued and delivered his bank check to hospital in payment of his sister-in-law's hospital bill and obtained receipt therefor in sister-in-law's name, but about which the sister-in-law was not consulted because against policy of hospital to present bills to sick persons, the transaction is properly considered as amounting to a novation rendering the new debtor liable for the amount of the check on which he had stopped payment when the sister-in-law did nothing to indicate any disclaimer or repudiation on her part.
7. Novation — consideration for bill of exchange.
A novation is good consideration for a bill of exchange, and a check is a bill of exchange drawn on a bank payable on demand.
Headnotes as approved by Lee, J.
APPEAL from the circuit court of Carroll County; H.L. RODGERS, Judge.
Porter W. Peteet, for appellant.
I. In a novation, the discharge of the original debtor by the creditor is sufficient consideration to support the undertaking of the new debtor.
It is not necessary that an express promise be made. The promise to pay may be implied from the circumstances. In Blakeslee Manufacturing Co. v. Martin Son, 128 Miss. 302, 91 So. 8, our Court said: "The rule is well settled that the release of one debtor and the substitution of another may be implied from the facts and circumstances, though no express susbstitution is shown. And when the proof substantially tends to show that the creditor impliedly accepted the new debtor in the place of the old, and it does not appear that the creditor clearly intended to hold both the new and the old debtor for the debt, it is a question of fact for the jury as to whether there is a novation and release of the old debtor * * *."
The discharge of Miss Johnson from further liability on her account was sufficient consideration to support the promise of Turner to pay the account.
"It matters not from whom the consideration moves or to whom it goes. If it is bargained for as the exchange for the promise, the promise is not gratuitous." Am. L.I., Restatement of the Law of Contracts, Sec. 75, Comment e, Vol. 1, p. 82.
To apply that comment to the present case it matters not that the consideration moved from the Hospital to Miss Johnson. If the discharge of Miss Johnson's liability to the Hospital was bargained for as the exchange for Turner's promise, then his promise is not gratuitous. 39 Am. Jur. 267; 66 C.J.S. 708, Novation, Sec. 19; A.L.I. Restatement of the Law of Contracts, Vol. 2, p. 803. Sec. 427.
In the case of Adams v. Power, 48 Miss. 450, the Mississippi Supreme Court discusses the question of consideration in the doctrine of novation. The Court says, at page 455: "There must always be a debt once existing and now canceled, to serve as a consideration for the new liability. The action in all cases is brought on the new agreement. But in order to give the right of action, there must be an extinguishment of the original debt."
II. In a novation, where the original debtor is discharged by the creditor upon the creditor's acceptance of the undertaking of a new debtor, the consent of the original debtor is not required in order to bind the new debtor.
There is no showing that Miss Johnson, the original debtor in this case, assented to the discharge of her obligation by the Hospital when the Hospital accepted Turner's undertaking to pay the account. No assent by the original debtor is required for the new debtor to be bound.
While the Mississippi Court has not ruled upon this point, the rule is specifically stated by the American Law Institute that the agreement of the original debtor is not necessary.
"Where a creditor by a contract with a third person agrees to the immediate discharge of the original debtor, in consideration of a promise by the third person, made either to the creditor or to another, to render the performance for which that debtor was previously bound or some other performance, there is a novation discharging the original debtor and giving the promisee a new right.
"Comment: a. Since a debt may be discharged by performance rendered by a third person that is accepted as satisfaction by the creditor (see Sec. 421), and since a promise may be accepted as satisfaction (see Sec. 418), such an agreement between a creditor and a third person as is stated in the present section discharges immediately the duty of the original debtor, and substitutes in its stead a new right of the creditor against the third person. In this type of case the agreement of all three parties is not essential to the creation of both a new right and a discharge of the old debt. As in the cases within the rule stated in Sec. 426, disclaimer by the beneficiary is indeed possible; and therefore the unlikely contingency of disclaimer by the debtor may destroy the discharge. The only effect of obtaining the agreement of the debtor either before or after the contract between the creditor and the third party is to deprive the debtor of the power of disclaiming the benefit of the discharge * * *." American Law Institute, Restatement of the law of Contracts, Vol. 2, p. 803, Sec. 427.
Cases on this point are gathered in 124 A.L.R. 1498. Among the cases there discussed is the case of Under-Wood v. Lovelace, 61 Ala. 155, 66 C.J.S. 700, Novation, Sec. 18b.
The better rule is that in such cases no agreement or consent of the original debtor is required, although the original debtor may be the holder of a right of disclaimer.
If the creditor and the new debtor are willing to contract between themselves for the discharge of the original debtor, what detriment or difficulty is thus beset upon the original debtor? On the new contract of novation there is no privity between the creditor and the original debtor, the contract being between the creditor and the new debtor. The old debtor obtains a discharge from her existing obligation, and suffers no harm by reason of the discharge of that she was obligated to perform. What harm or deprivation was worked upon Miss Johnson in the instant case by reason of Turner's undertaking to pay her account to the Hospital? He was paying her expenses elsewhere, so there must have been no real objection to Turner making payment of her hospital expenses. However, should there be any harm worked upon the original debtor by the discharge of her obligation, with a power of disclaimer she could refuse to accept the discharge and the novation would be destroyed. Until the disclaimer is entered, however, the creditor is bound on the discharge and the new debtor is bound on his undertaking.
Wm. S. Turner, for appellee.
I. The court below committed no error in granting the motion of the defendant for a directed verdict, and in entering judgment for the defendant. Adams v. Power, 48 Miss. 454; 39 Am. Jur., Sec. 17, pp. 262, 265; 46 C.J. 613, Secs. 58, 59; 20 R.C.L. 370; 35 A.L.R. 371.
II. The appellant having failed to prove a novation, it cannot recover on any other theory. Allen v. Smith Brand, 160 Miss. 303, 133 So. 599; Deposit Guaranty Bank Trust Co. v. Silver Savers Stores, Inc., 166 Miss. 882, 148 So. 367; Gulf Refining Co. v. Travis, 201 Miss. 336, 30 So.2d 398; Howie v. Swaggard, 142 Miss. 409, 107 So. 556, 153 A.L.R. 1120; Meyer v. Meyer, 106 Miss. 638, 64 So. 420; Smythe v. Sanders, 136 Miss. 382, 101 So. 435; Sweatman v. Parker, 49 Miss. 19; True-Hixton Lbr. Co. v. McDonough, 154 Miss. 720, 122 So. 855; Wade v. Long, 168 Miss. 434, 151 So. 564; 20 A.L.R. 367; 49 Am. Jur. 643, Sec. 332; Sec. 168 Code 1942.
Greenwood Leflore Hospital Commission sued Richard B. Turner to recover a sum of money, growing out of an alleged novation. At the close of the plaintiff's evidence, the trial judge sustained the defendant's motion to exclude the evidence and direct a verdict for him. From the judgment entered, the Hospital Commission appeals.
Miss Eunice Johnson, sister-in-law of appellee, was a patient in the appellant's hospital. Her bill aggregated the sum of $402.50 for the period from January 7th to February 20, 1949. Appellee and his wife were in the hospital on February 26, 1949, when the bill was presented, and appellee offered to pay it. To consummate the payment, he signed and delivered to appellant a check or customer's draft, drawn on the Peoples Bank Trust Company of Carrollton, Mississippi, for the amount of the bill. The receipt was made out in Miss Johnson's name and was given to appellee in full payment of her account to that date. Appellee thereafter stopped payment on the check, and when, in due course, it was presented to the bank, payment was refused. Miss Johnson was not consulted at the time of the transaction because it was against the policy of the hospital to ask sick people to pay bills. Neither was an account thereafter rendered to her, because the appellant considered that she had been discharged from the debt.
In Adams v. Power, 48 Miss. 450, it was recognized that (Hn 1) a novation may occur where the debt remains the same, but a new debtor is substituted. In such event, the original debtor is acquitted, his obligation is extinguished, and the creditor contents himself with the obligation of the second debtor.
In Allen v. Smith Brand, 160 Miss. 303, 133 So. 599, 601, it was said: "The question to be kept in mind always is whether or not the person making the promise is entering into an original or a collateral obligation. If it be the former, the Statute of Frauds does not apply; if the latter, it does."
Miss Johnson was indebted to the appellant. No payment had been made over a period of five or six weeks. It is well known that, with many people, debt is a source of worry and anxiety. It is easy to conceive that the motivating cause of appellee's beneficence in discharging the debt was to relieve his sister-in-law from worry and anxiety. Is the discharge of debt a sufficient consideration for the new contract?
(Hn 2) The consideration "need not be pecuniary, or even beneficial to the person promising. If it be * * * the relinquishment of a right, as the discharge of a debt, * * * it is sufficient. In relation to novation contracts where the promise is to pay another's debt, in consideration of his being discharged, it seems to be well settled now that there need be no consideration moving between the person promised for, and the person who promises." 39 Am. Jur. 267, Section 22. See also 66 C.J.S., Novation, Section 19, pages 708-709.
The next question that arises is, did the concurrent delivery of the check to the appellant and Miss Johnson's receipted bill to appellee constitute a novation? (Hn 3) "Generally, where one obligation is discharged by the acceptance of an order or a draft on a third person, a novation results." 66 C.J.S., Novation, Section 18, page 705. (Hn 4) The appellant agreed to accept the check of appellee, that is, to substitute a new debtor. Such assent was essential. 39 Am. Jur. 264, Novation, Section 19. Likewise, appellee assumed to discharge his sister-in-law's debt. Such assumption was essential. "In order to constitute a contract of novation by the substitution of a new debtor, the latter must participate in and consent to the arrangement and thereby assume the discharge of the obligation to the creditor. Without such consent by the new debtor, the creditor can have no action against him, since there is, in such case, no privity between them." 39 Am. Jur. 263, Novation, Section 18.
The third question to be answered is whether or not Miss Johnson should have been consulted and given her consent to such payment.
(Hn 5) While generally it is necessary that the original debtor should be consulted and should consent to the new arrangement, "there are decisions where such concurrence is not required * * *". 66 C.J.S., Novation, Section 18, page 700. See also Note in 39 Am. Jur. 263, Novation, Section 18, where it is said: "Ordinarily, the necessity of such consent is not stressed, since there is a presumption of his (the original debtor's) consent to such act for his benefit, although he may be said to have a right of disclaimer."
In American Blakeslee Mfg. Company v. Martin Son, 128 Miss. 302, 91 So. 6, it was said: "The rule is well settled that the release of one debtor and the substitution of another may be implied from the facts and circumstances, though no express substitution is shown."
In F.I. Somers Sons, Inc. v. R.A. Le Clerc, 110 Vt. 408, 8 A.2d 663, 124 A.L.R. 1497, where a daughter promised to pay her mother's indebtedness, it was held that, in view of the relationship of the parties, their living together, the mother's inability to pay, and the length of time that elapsed, the jury could have rightfully inferred that the daughter's assumption of her mother's debt was either authorized or subsequently ratified by her mother.
(Hn 6) Miss Johnson was the appellee's sister-in-law. Her failure to pay her bill for five or six weeks indicated her inability to do so. Suit was not filed until July 23, 1949, nearly five months later. No evidence of repudiation or disclaimer appears in the record. Such circumstances, undisputed, warranted the inference that she either authorized, or subsequently ratified, the appellee's payment of her indebtedness.
(Hn 7) In addition to what has already been said, "A novation is good consideration for a bill or note." 7 Am. Jur. 941, Bills and Notes, Section 246. And, "A check is a bill of exchange drawn on a bank payable on demand." Section 226, Code of 1942. Cf. also Note, Novation of Indebtedness, L.R.A. 1918C, 548.
It follows that the trial judge was in error in sustaining the motion to exclude the evidence and in directing a verdict for appellee, which error necessitates a reversal of the case.
Reversed and remanded.
Alexander, Hall, Kyle and Arrington, JJ., concur.