See Harrington-Wiard Co., 131 N.W. at 563 (holding that assumption of liability is not novation). The elements of a novation require the creditor's intention both that the new debtor assume the obligation and that the old debtor be released. See id. at 563-64; Devitt v. Quirk, 105 Mich.App. 94, 306 N.W.2d 405, 407 (1981) (creditor's consent to a transaction between old debtor and third party did not necessarily indicate release of old debtor). The record proves at most that Imperial intended Dore Development to assume the Khatiwala Note obligation. Nothing in the record directly speaks to an intention by Imperial to release Mainstream; any such intention must be inferred from the surrounding circumstances.
The elements of novation are well settled under Michigan law. Harrington-Wiard Co. v. Blomstrom Manufacturing Co., 166 Mich. 276, 131 N.W. 559 (1911). As recently stated in Devitt v. Quirk, 105 Mich. App. 94, 306 N.W.2d 405 (1981), the following four elements are necessary to establish novation: (1) parties capable of contracting;
(4) the extinction of the old obligation and the creation of a valid new one. In re Dunneback's Estate, 302 Mich. 73; 4 N.W.2d 472 (1942), George Realty Co v Gulf Refining Co, 275 Mich. 442; 266 N.W. 411 (1936), Harrington-Wiard Co v Blomstrom Manufacturing Co, 166 Mich. 276, 286-288; 131 N.W. 559 (1911), Devitt v Quirk, 105 Mich. App. 94, 97; 306 N.W.2d 405 (1981), National Premium Budget Plan Corp v Siegel Agency, Inc, 43 Mich. App. 29, 35; 204 N.W.2d 30 (1972). Payment on a debt by a third party which is accepted by a creditor does not establish a novation.
(4) the extinction of the old obligation and the creation of a valid new one.Leila Hosp. and Health Center v. Xonics Medical Systems, Inc., 948 F.2d 271, 274 (6th Cir. 1991) (citing Harrington-Wiard Co. v. Blomstrom Manufacturing Co., 166 Mich. 276, 131 N.W. 559 (1911)); Devitt v. Quirk, 105 Mich. App. 94, 306 N.W.2d 405 (1981). Neither party disputes elements (1) or (2). Perry contends, however, that it did not consent to the substitution of Auto Works for CSKG (element (3)) and that it did not intend that the closing with Auto Works rather than CSKG would extinguish CSKG's obligations under the purchase agreement (element (4)).
Consent of the parties may be implied by the circumstances of the transaction, In re Yeager Bridge Co., 150 Mich. App. 386, 410, 389 N.W.2d 99 (1986), but there must be some proof that the parties intended a novation to occur. Gorman v. Butzel, 272 Mich. 525, 262 N.W. 302 (1935); Devitt v. Quirk, 105 Mich. App. 94, 97, 306 N.W.2d 405 (1981). In Gorman the Michigan Supreme Court said that delay in instituting litigation is evidence of a novation.