{"id":651110,"date":"2015-03-25T06:10:58","date_gmt":"2015-03-25T12:10:58","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=651110"},"modified":"2015-03-18T12:11:25","modified_gmt":"2015-03-18T18:11:25","slug":"the-danger-of-settling-disputes-novation","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/the-danger-of-settling-disputes-novation\/","title":{"rendered":"The Danger of Settling Disputes: Novation"},"content":{"rendered":"<p>John Paul Nefflen | Burr &amp; Forman LLP | February 25, 2015<\/p>\n<p>Resolving business disputes before filing a lawsuit is efficient, cost effective \u2013 and sometimes dangerous.\u00a0 At least that\u2019s what an architect learned when he tried to settle a pay dispute with the owner of a luxury condominium development.\u00a0 His efforts nearly cost him $900,000.<\/p>\n<p>TWB Architects, Inc. was retained by Progress Capital Partners, LLC\u00a0[1] to provide architectural and design services for the The Braxton, a mid-rise condominium project. \u00a0TWB earned almost $900,000 in fees, but Progress Capital was unable to pay.\u00a0 Rather than file a mechanic\u2019s lien (a method for ensuring payment unique to the construction industry), TWB\u2019s owner agreed to accept a penthouse at The Braxton in lieu of TWB\u2019s fees.<\/p>\n<p>Despite their new agreement, The Braxton could not deed the penthouse because it was encumbered by a lender\u2019s lien.\u00a0 To make matters worse, The Braxton was forced into receivership because it was unable to pay its debts, and all condominium units, including TWB\u2019s penthouse, were transferred to the receiver.<\/p>\n<p>Because the new agreement was worthless, TWB attempted to enforce the old agreement.\u00a0 It filed mechanic\u2019s lien against The Braxton and a lawsuit to enforce the lien. \u00a0Though there was no dispute TWB did not get paid, the court dismissed TWB\u2019s suit.\u00a0 The court found that the new agreement canceled the old agreement along with TWB\u2019s right to collect under the old agreement.\u00a0 TWB\u2019s only remedy, the court found, was under the new agreement which had no value.<\/p>\n<p>The legal basis for dismissing TWB\u2019s lawsuit was \u201cnovation.\u201d \u00a0A novation is a contract that substitutes a new obligation for an old one, and extinguishes the old obligation.\u00a0 In TWB\u2019s case, the court found the new agreement to deed a penthouse to TWB extinguished the old agreement to pay money for TWB\u2019s services.<\/p>\n<p>Novation can be an unintended, deadly result when a business tries to resolve a dispute before litigation.\u00a0 As in the TWB case, a party may unknowingly waive the benefits or rights under an old agreement even if the other side does not perform under the new agreement.<\/p>\n<p>Novation occurs when the parties intend for the new agreement to cancel a prior obligation.\u00a0 The parties\u2019 intent be expressed, or implied from the facts and circumstances surrounding the new agreement.\u00a0 But that intent must be clear and definite before a court can find there was a novation.<\/p>\n<p>Fortunately for TWB, the Court of Appeals found that the parties did not intend to cancel Progress Capital\u2019s obligation to pay TWB\u2019s fees.\u00a0 That intent was not expressed in the new agreement, and communications between the parties suggested TWB would still be paid under the old agreement if it did not receive the penthouse.\u00a0 As a result, the Court of Appeals held the new agreement was not a novation, and TWB could enforce its right to payment under the old agreement.<\/p>\n<p>The conflicting rulings in TWB turned on each court\u2019s interpretation of the events that occurred before and after the new agreement was signed.\u00a0 The courts had to rely on the surrounding facts and circumstances because the parties\u2019 intent was not expressed in the new agreement.\u00a0 The Court of Appeals could have just as easily agreed with the lower court and determined the facts showed there was a novation, leaving TWB with no ability to collect its fees.<\/p>\n<p>An effective way to avoid disputes about novation, resulting in litigation the parties intended to avoid by settling their dispute, is to clearly express the parties\u2019 intention in the new agreement.\u00a0 If the parties intend for the new agreement to cancel the old agreement, the new agreement should state that.\u00a0 If the parties wish to preserve their rights and obligations under the old agreement, they should make that clear in the new agreement.<\/p>\n<p>via <a href=\"http:\/\/www.lexology.com\/library\/detail.aspx?g=440190db-df11-4498-8d60-339c242dea7e&amp;utm_source=Lexology+Daily+Newsfeed&amp;utm_medium=HTML+email+-+Body+-+Federal+section&amp;utm_campaign=Lexology+subscriber+daily+feed&amp;utm_content=Lexology+Daily+Newsfeed+2015-02-27&amp;utm_term=\">The danger of settling disputes: novation &#8211; Lexology<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>John Paul Nefflen | Burr &amp; Forman LLP | February 25, 2015 Resolving business disputes before filing a lawsuit is efficient, cost effective \u2013 and sometimes dangerous.\u00a0 At least that\u2019s what an architect learned when he tried to settle a pay dispute with the owner of a luxury condominium development.\u00a0 His efforts nearly cost him&hellip; <a class=\"more-link\" href=\"https:\/\/www.myconstructionexpert.com\/blog\/the-danger-of-settling-disputes-novation\/\">Continue reading <span class=\"screen-reader-text\">The Danger of Settling Disputes: Novation<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[164,8],"tags":[164,344,184],"class_list":["post-651110","post","type-post","status-publish","format-standard","hentry","category-construction-dispute","category-mechanics-lien-rights","tag-construction-dispute","tag-design-professional","tag-mechanics-lien-law","entry"],"jetpack_publicize_connections":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v25.0 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Danger of Settling Disputes: Novation - Advise &amp; 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