Also known as: substitute contract · substituted contracts
Written by attorneys · grounded in primary & secondary sources — see below
A contract that the obligee accepts in satisfaction of the obligor's existing duty. The new agreement immediately discharges the original obligation. Breach of the substituted contract does not revive enforcement of the prior duty.
Sydney Santos contracted with Sterling Manufacturing to supply custom parts by a set date. When Santos could no longer perform, the parties and Starlight Media executed one document under which Starlight Media assumed the delivery duty and Santos stepped aside entirely. Blue Haul later sued Santos for missed shipments. The court held Santos discharged because the tri-party agreement constituted a novation that substituted a new obligor.
Sterling Dynamics assigned its right to payment under a supply contract with Skyline Construction to a factoring company. After defects appeared, Sterling Dynamics and Skyline Construction renegotiated lower prices and extended deadlines in good faith. The factoring company sued Skyline Construction for the original amounts. The court ruled the substitution effective against the assignee, limiting recovery to the revised terms.
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Solomon Silver owed Spencer Silver $450 due August 1 under a prior agreement. On July 1 the brothers signed a new writing under which Solomon Silver would pay $425 on August 15 instead. Solomon Silver failed to pay the reduced sum. Spencer Silver could not enforce the original $450 obligation because the later writing had been accepted in satisfaction of the first duty.
Sofia Stern agreed to paint Sean Steele's office by June 1 for $8,000. The parties later signed a substituted contract under which Stern would install new lighting instead. Stern failed to complete the lighting work. Steele could not sue on the original painting obligation because the substituted contract had discharged that duty.
A substituted contract immediately discharges the original duty upon formation. An accord instead requires actual performance of the new promise before the original duty is released.
A substituted contract becomes a novation when it adds a party who was neither obligor nor obligee under the original agreement. The new party replaces the original obligor and the prior duty ends.
Supporting sources
No. Once the substituted contract is formed, the original duty is discharged. The obligee's only remedy lies in enforcement of the new agreement.
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A good-faith substitution made before full performance is effective against the assignee. The assignee obtains only the rights that exist under the substituted terms.
Supporting sources
…and the demand for Ferro Carbo was therefore down. In these circumstances Lake River would have little prospect of finding a substitute contract that would yield it significant profits to set off against the full contract price, which is the method by which it proposes to take account of mitigation. At argument Lake River suggested…