Downing v. Dial

Citation. 426 N.E.2d 416 (Ind. App. 1981)

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Citation426 N.E.2d 416 (Ind. App. 1981)

Brief Fact Summary.

Downing sued Dial for breach of contract when Dial’s assignee defaulted on payments owed to Downing.

Synopsis of Rule of Law.

A novation will only occur if both parties to the original contract agree that a new party is taking over the obligations of one of the original parties to the contract.

Points of Law - Legal Principles in this Case for Law Students.

Accordingly, except where a party to the contract expressly agrees to accept the responsibility of the other party's assignee in the stead and place of that of the assignor, making a new contract by way of novation, the assignor remains bound by his obligations under the contract and is liable if the assignee defaults.

View Full Point of Law

Dial bought a restaurant from Downing under a conditional sale contract. The Dials signed over their interest in the restaurant to Watkins, and Watkins signed over her interest to two other people. When the final assignee defaulted on payments to Downing, Downing sued the Dials and Watkins. The trial court granted judgment to Watkins.

Issue.

Whether a novation will only occur if both parties to the original contract agree that a new party is taking over the obligations of one of the original parties to the contract?

Held.

Yes. The judgment of the trial court is reversed. Although the assignment said that Watkins was taking over Dials’ contractual obligation, the assignment agreement did not state that Downing was accepting an obligation from Watkins in place of Dials’ obligations under the original contract.

Discussion.

A novation will only occur if both parties to the original contract agree that a new party is taking over the obligations of one of the original parties to the contract.