Fanucchi & Limi Farms v. United Agri Products

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
FANUCCHI & LIMI FARMS, a general 
partnership, aka Fanucchi-Limi
Farms Partnership # 2; LARRY
No. 02-17525
FANUCCHI; RICHARD LIMI,
Plaintiffs-Appellants,
 D.C. No.
CV-00-06349-REC
v.
UNITED AGRI PRODUCTS, a
corporation,
Defendant-Appellee.

FANUCCHI & LIMI FARMS, a general 
partnership, aka Fanucchi-Limi
Farms Partnership # 2; LARRY No. 03-15913
FANUCCHI; RICHARD LIMI, D.C. No.
Plaintiffs-Appellants,
 CV-00-06349-REC/
v. DLB
UNITED AGRI PRODUCTS, a OPINION
corporation,
Defendant-Appellee.

Appeal from the United States District Court
for the Eastern District of California
Robert E. Coyle, Senior Judge, Presiding
Argued and Submitted
September 15, 2004—San Francisco, California
Filed July 14, 2005
Before: Robert R. Beezer, William A. Fletcher, and
Raymond C. Fisher, Circuit Judges.
8181
8182 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
Opinion by Judge William A. Fletcher;
Concurrence by Judge Beezer
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8185
COUNSEL
Thomas J. Anton and Jeffrey Wise, Thomas Anton & Asso-
ciates, Bakersfield, California, for the plaintiffs-appellants.
Elizabeth R. Jones, The Beatty Law Firm, Denver, Colorado,
for the defendant-appellee.
OPINION
W. FLETCHER, Circuit Judge:
Fanucchi & Limi Farms, Larry Fanucchi, and Richard Limi
(collectively “Fanucchi”) sued United Agri Products Financial
Services, Inc. (“United”) for breach of contract and promis-
sory fraud. The district court granted summary judgment to
United. Fanucchi appeals from the grant of summary judg-
ment, and from an associated grant of attorneys’ fees. We
conclude that the novation theory providing one basis for
Fanucchi’s breach of contract claim should have survived
summary judgment. Accordingly, we reverse and remand to
8186 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
allow the breach of contract claim to go forward on a nova-
tion theory. We otherwise affirm the summary judgment.
Because we reverse part of the summary judgment, we vacate
the order granting attorneys’ fees.
I. Background
Larry Fanucchi, Richard Limi, and Linda Limi were gen-
eral partners in Fanucchi & Limi Farms, in Kern County, Cal-
ifornia. Fanucchi financed its farming operations by
borrowing against its future crop proceeds. In December
1994, United lent money to Fanucchi to finance its operating
costs for 1995 (“the 1994 Loan”). The 1994 Loan was memo-
rialized in several documents, including an Agricultural Loan
Agreement, a Promissory Note, an Agricultural Security
Agreement, separate Commercial Guarantees personally exe-
cuted by Larry Fanucchi, Richard Limi, and Linda Limi, and
a Notice of Final Agreement.
These documents set out the terms of the loan in consider-
able detail. The Agricultural Loan Agreement outlines the dis-
bursement schedule, repayment terms, and circumstances
under which the loan may be renewed in future years. The
Agricultural Security Agreement establishes United’s security
interest in Fanucchi’s crops. The Commercial Guarantees are
individual loan guarantees by Larry Fanucchi, Richard Limi,
and Linda Limi in the event United’s security interest in the
crops fails to cover the loan. The Notice of Final Agreement
provides that the 1994 Loan incorporates all of the above doc-
uments.
The 1994 Loan documents contain language describing
how the parties may modify the agreement. Both the Agricul-
tural Loan Agreement and Agricultural Security Agreement
have an integration clause that reads:
Amendments. This Agreement, together with any
Related Documents, constitutes the entire under-
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8187
standing and agreement of the parties as to the mat-
ters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective
unless given in writing and signed by the party or
parties sought to be charged or bound by the alter-
ation or amendment.
The three Commercial Guarantees also contain integration
clauses requiring modifications to be in writing. Finally, the
Notice of Final Agreement provides that (1) “the written loan
agreement represents the final agreement between the par-
ties,” (2) “there are no unwritten oral agreements between the
parties,” and (3) “the written loan agreement may not be con-
tradicted by evidence of any prior, contemporaneous, or sub-
sequent oral agreements or understandings of the parties.”
After Fanucchi and United entered into the 1994 Loan
agreement, United increased the amount of the note from
$700,000 to $800,000 on January 30, 1995; to $900,000 on
March 1, 1995; and to $1,475,000 on September 18, 1995. All
increases were made in writing and provided that “[t]he terms
and conditions of [the original Promissory Note] will remain
in full force and effect for this increase.”
Fanucchi’s 1995 crops failed. As a result, Fanucchi was
unable to repay the 1994 Loan, and owed more than a million
dollars to United. Fanucchi consulted with a United represen-
tative, Wayne Keese, and with bankruptcy counsel. According
to the depositions of Larry Fanucchi (“Larry”) and Richard
Limi (“Richard”), Keese persuaded Fanucchi not to file for
bankruptcy, but rather to continue farming. According to
Larry and Richard’s depositions, Keese orally promised to
subordinate United’s debt to new crop financing loans from
other lenders for up to five years. During this period, United’s
1994 Loan would be repaid from the crop proceeds available
after new crop loans were paid off. These proceeds were to be
split on a 60/40 basis, with 60 percent going to United and 40
percent going to Fanucchi’s other creditors. According to
8188 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
Larry’s deposition, Keese said that if Fanucchi had paid its
debt on the 1994 Loan down to $300,000 or $400,000 at the
end of the five-year period, United would forgive that
amount.
Keese testified in his deposition that “[w]e discussed pretty
openly possibilities, options, of which bankruptcy was one.”
He stated, “[M]y approach always has been to — if you can
work out an arrangement where they can continue to pay their
debt in a reasonable period of time, I’m open and willing to
listen to it.” Keese confirmed that there was an oral agreement
that after the new crop loans were paid off the remaining
money would be split 60/40, but his recollection was that this
was done only on a year-to-year basis. Keese stated that he
did not recall discussing a five-year term during which Fanuc-
chi could try to pay down its debt to United. Nor did he recall
promising that United would forgive the debt at the end a
five-year period should Fanucchi succeed in paying it down
to a certain level: “I don’t remember having any discussion of
that . . . that nature” (ellipsis in original).
The agreement operated as described by Larry and Richard
for the crop years 1996 and 1997. New secured lenders were
found for those years; those lenders were paid from the crop
proceeds; and the remaining proceeds were divided 60/40
between United and Fanucchi’s other creditors. There is
ample undisputed evidence in the record to show this. For
example, a January 5, 1997 letter from a United representa-
tive, Bruce Carter, to Southern California Cotton Financing
(“Southern California Cotton”) details United’s agreement to
subordinate its debt to enable Fanucchi to obtain other sources
of crop financing for that year. The secured lenders for that
year include Southern California Cotton, as well as the par-
ents of Larry and Richard. The letter provides in part:
[A]ccording to the attached “Acknowledgment and
Agreement,” on behalf of United Agri Products
Financial Services, I give the authority to Southern
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8189
California Financing to pay the above mentioned
sums to first, Southern California Cotton Financing,
secondly to Mr. & Mrs. Fanucchi and thirdly to Mr.
& Mrs. Limi, prior to funds coming to United Agri
Products Financial Services, Inc. All funds in excess
of the Southern California Cotton Financing, Fanuc-
chi and Limi funds should come to United Agri
Products Financial Services, Inc.
A May 12, 1997 letter from Carter to Daniel Rudnick, Fan-
ucchi’s attorney, similarly describes United’s agreement:
This letter is to advise you that United Agri Products
has agreed to split the profits from the 1997
Fanucchi-Limi Farms Partnership #2 farming opera-
tions on a basis of 60% for United Agri Products and
40% for Fanucchi-Limi Farms. Profits should be
defined as those monies left after the repayment of
all 1997 operating loans, including interest, to South-
ern California Cotton Financing, and to both sets of
parents[.]
Keese’s employment at United terminated in early 1998.
His last day on the payroll was March 31. Beginning in the
spring of 1998, United was no longer willing to perform in
accordance with the agreement described by Larry and Rich-
ard. Instead of subordinating to all of the lenders for the 1998
crop, United was willing to subordinate only to Southern Cali-
fornia Cotton. On April 17, 1998, Denise Fitzgerald wrote on
behalf of United to Southern California Cotton, confirming
that United had assigned its interest in the proceeds of the
1998 crop to Southern California Cotton up to the amount of
its loan, and indicating that all the remaining proceeds from
the 1998 crop were to be paid to United. Unlike in 1996 and
1997, United refused to subordinate to the parents of Larry
and Richard. Jerry Simmons, who had been hired by United
as the new credit manager in February or March 1998, testi-
8190 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
fied at his deposition that it was his decision not to subordi-
nate to the parents: “I don’t subordinate to family members.”
In August 2000, Fanucchi sued United in California Supe-
rior Court for breach of contract and promissory fraud. The
gravamen of Fanucchi’s breach of contract claim is that by
promising substantially to change the terms of the 1994 Loan
agreement, United induced Fanucchi not to declare bank-
ruptcy after the failure of the 1995 crops. In return for Fanuc-
chi’s not declaring bankruptcy, United agreed in 1995 to
subordinate its lien to crop loans by new lenders for the next
five years, to take only 60 percent of the crop proceeds
remaining after the new crop lenders were paid off each year,
and to forgive between $300,000 and $400,000 of the out-
standing loan at the end of five years if Fanucchi were able
to pay it down to that level. United breached this new agree-
ment in 1998 by refusing to subordinate its lien to the two sets
of parents, who had made crop loans for that year, and by tak-
ing all of that year’s excess crop proceeds for its own account.
United’s actions prevented Fanucchi from obtaining financing
for future crop years, effectively forcing it out of business.
United removed to federal district court based on diversity
of citizenship. The district court granted summary judgment
and attorneys’ fees to United. Fanucchi has timely appealed.
We review the district court’s grant of summary judgment de
novo. Olsen v. Idaho State Bd. of Med., 363 F.3d 916, 922
(9th Cir. 2004). Viewing the evidence in the light most favor-
able to Fanucchi, we must determine whether there are any
genuine issues of material fact and whether the district court
correctly applied California’s substantive law. Id.
II. Breach of Contract
Fanucchi makes two breach of contract arguments. First, it
argues that the subsequent oral agreement between Fanucchi
and United modified the original 1994 Loan. Second, it
argues that the subsequent oral agreement novated the 1994
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8191
Loan. We affirm the district court’s grant of summary judg-
ment to United on the modification argument. However, we
reverse on the novation argument.
A. Modification
Fanucchi first argues that the 1994 Loan agreement was
modified through subsequent oral agreements pursuant to Cal-
ifornia Civil Code §§ 1698(b) and (c), which provide:
(b) A contract in writing may be modified by an oral
agreement to the extent that the oral agreement is
executed by the parties.
(c) Unless the contract otherwise expressly pro-
vides, a contract in writing may be modified by an
oral agreement supported by new consideration. The
statute of frauds (Section 1624) is required to be sat-
isfied if the contract as modified is within its provi-
sions.
The district court rejected this argument. We agree with the
district court.
[1] Section 1698(b) allows modification of a written con-
tract by an oral agreement to the extent the oral agreement is
executed. “Executed” in § 1698(b) has the normal meaning of
that term in contract law. That is, the agreement must have
been fully performed. Lockheed Missiles & Space Co. v. Gil-
more Indus., 135 Cal. App. 3d 556, 559 (Ct. App. 1982) (rely-
ing on Black’s Law Dictionary to define “executed” as
“completed; carried into full effect” (internal quotations omit-
ted)); see also Cal. Civ. Code § 1661 (“An executed contract
is one, the object of which is fully performed.”). Fanucchi’s
own argument defeats its claim under § 1698(b), for it argues
that United breached its obligation under the oral agreement
because it failed to perform the unexecuted part of the agree-
ment.
8192 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
[2] Section 1698(c) allows oral modification of a written
contract only if the written contract does not provide other-
wise. See also Marani v. Jackson, 183 Cal. App. 3d 695, 704
(Ct. App. 1986) (noting that oral modification of a written
contract is allowed only if “the written contract does not con-
tain an express provision requiring that modification be in
writing”). The 1994 Loan provides that “the written loan
agreement may not be contradicted by evidence of any prior,
contemporaneous, or subsequent oral agreements or under-
standings of the parties.” Fanucchi therefore cannot rely on
§ 1698(c) in support of its oral modification claim.
B. Novation
Fanucchi next contends that the 1994 Loan agreement was
novated. Taking the evidence in the light most favorable to
Fanucchi, we agree. That is, if Fanucchi’s evidence is
believed, the 1994 Loan agreement was novated, and the sub-
sequent oral agreement governs the relationship between
Fanucchi and United.
California Civil Code § 1698(d) provides:
Nothing in this section precludes in an appropriate
case the application of rules of law concerning estop-
pel, oral novation and substitution of a new agree-
ment, rescission of a written contract by an oral
agreement, waiver of a provision of a written con-
tract, or oral independent collateral contracts.
United does not argue that novation is unavailable because the
subsequent agreement was oral. Rather, it argues Fanucchi
has failed properly to plead novation, and that, even taking
Fanucchi’s evidence in its most favorable light, the subse-
quent oral agreement does not fulfill the substantive require-
ments of novation under California law. We disagree.
[3] Novation is “the substitute of a new obligation for an
existing one.” Wells Fargo Bank v. Bank of America, 32 Cal.
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8193
Ohio App. 4th 424, 431 (Ct. App. 1995) (quoting Cal. Civ. Code
§ 1530). Novation may be accomplished either by the substi-
tution of a new debtor or a new creditor, California Civil
Code § 1531(2)-(3), or “[b]y the substitution of a new obliga-
tion between the same parties, with intent to extinguish the
old obligation[.]” Id. § 1531(1). Whereas a modification of a
term or a provision of a contract alters only certain portions
of the contract, novation wholly extinguishes the earlier con-
tract. Davies Mach. Co. v. Pine Mountain Club, Inc., 39 Cal.
App. 3d 18, 25 (Ct. App. 1974). “ ‘The intention of the parties
to extinguish the prior obligation and to substitute a new
agreement in its place must clearly appear.’ ” Hunt v. Smyth,
25 Cal. App. 3d 807, 818 (Ct. App. 1972) (quoting Goodman
v. Citizens Life & Cas. Ins. Co., 253 Cal. App. 2d 807, 816
(Ct. App. 1967)). The existence of a new oral agreement
replacing a prior written agreement must be shown with
“clear and convincing” evidence. Columbia Cas. Co. v. Lewis,
14 Cal. App. 2d 64, 72 (Ct. App. 1936).
[4] In deciding whether an agreement was meant to extin-
guish the old obligation and to substitute a new one, Califor-
nia courts seek to determine the parties’ intent. See, e.g.,
Alexander v. Angel, 37 Cal. 2d 856, 860 (1951) (“The ques-
tion whether a novation has taken place is always one of
intention [.]” (internal quotation marks and citation omitted));
N. Counties Bank v. Earl Himovitz & Sons Livestock Co., 216
Cal. App. 2d 849, 859 (Ct. App. 1963) (“Existence of a nova-
tion turns on the parties’ intention to discharge the old con-
tract and substitute a new one.”); Transp. Clearings-Bay Area
v. Simmonds, 226 Cal. App. 2d 405, 430 (Ct. App. 1964)
(“The question whether a novation has taken place is always
one of intention, with the controlling factor being the intent
of the obligee to effect a release of the original obligor on his
obligation under the original agreement.”) (internal quotation
marks and citation omitted).
[5] Determining the parties’ intent is a highly fact-specific
inquiry. See Hunt, 25 Cal. App. 3d at 818. Such inquiries are
8194 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
not generally suitable for disposition on summary judgment.
See Howard v. Everex Sys., Inc., 228 F.3d 1057, 1060 (9th
Cir. 2000) (“ ‘[F]act-specific issues . . . should ordinarily be
left to the trier of fact [though] summary judgment may be
granted in appropriate cases.’ ”) (quoting Hanon v. Datapro-
ducts Corp., 976 F.2d 497, 500 (9th Cir. 1992))). Courts
examining a novation claim first look to the agreements them-
selves, and, specifically, the substance of the change or
changes between the old and new agreements. See Angel, 37
Cal. 2d at 861-62. Courts may also take into consideration the
conduct of the parties, particularly where, as here, the subse-
quent agreement is oral. See Porter Pin Co. v. Sakin, 112 Cal.
App. 2d 760, 762 (Ct. App. 1952). Indeed, “it is not necessary
to meet and state either in writing or orally that the original
contract was rescinded. ‘If the intent to abandon can be ascer-
tained from the acts and conduct of the parties the same result
will be attained. Abandonment may be implied from sur-
rounding facts and circumstances.’ ” Hunt, 25 Cal. App. 3d at
818 (quoting Tucker v. Schumacher, 90 Cal. App. 2d 71, 75
(1949)).
[6] United makes two arguments against novation. First, it
argues that Fanucchi was required to plead novation specifi-
cally in its complaint. United fails to recognize that, with few
exceptions, federal courts employ notice pleading under Fed-
eral Rule of Civil Procedure 8(a). Swierkiewicz v. Sorema
N.A., 534 U.S. 506, 512 (2002). The district court rejected
United’s argument, pointing out that it improperly relied on
California state court pleading cases. Unlike the federal
courts, California courts employ code pleading, which
requires more factual detail than notice pleading. See, e.g.,
Angel, 37 Cal. 2d at 860 (discussing California’s pleading
rules, which require that novation must be pleaded “express-
ly” or by unequivocal implication). The district court cor-
rectly held that Fanucchi has fully satisfied the requirement of
Rule 8(a)(2) that the complaint “contain . . . a short and plain
statement of the claim showing that the pleader is entitled to
relief[.]”
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8195
Second, assuming the truth of Fanucchi’s evidence, United
argues that there has been no novation. Specifically, United
argues that the changes between the original 1994 Loan
agreement and the later oral agreement were insufficient to
evidence an intent to extinguish the 1994 Loan agreement and
to replace it with a new agreement. The strongest case in sup-
port of United’s argument is Davies Machinery Co. v. Pine
Mountain Club, Inc., 39 Cal. App. 3d 18 (Ct. App. 1974). In
Davies Machinery, the Smiths entered into a security agree-
ment under which they agreed to purchase heavy earth-
moving equipment from Davies Machinery (“Davies”) for
slightly over a million dollars. The contract provided that the
Smiths would pay $43,574 per month for 24 months. The con-
tract further provided that payments not made when due
would accrue interest at a rate of 12 percent. About a year
later, the Smiths had fallen behind in their payments and
owed over $100,000 under the contract. Id. at 21.
Davies agreed with the Smiths that they could keep the
equipment in order to generate income from their contracting
business, and that they would pay for it at a specified rate
based on the actual hours the equipment was used in the busi-
ness. Nothing was said about terminating the original pur-
chase contract. While the Smiths were performing work for
the Pine Mountain Club, they fell behind in the newly
arranged payment schedule. Davies repossessed the equip-
ment and sold it. Davies then sought to impose a mechanic’s
lien on the Pine Mountain Club. Under California law, Davies
was entitled to a lien against Pine Mountain Club if the equip-
ment had been rented to the Smiths, but not if it had been sold
to them. No one disputed that the original agreement consti-
tuted a sale of the equipment. However, Davies contended
that the change in the payment scheme after the Smiths fell
behind in their payments constituted a novation of the original
contract, by virtue of which the Smiths became renters rather
than owners of the equipment.
The Smiths’ accountant testified at trial that the purpose of
the new arrangement was “to arrange lower monthly pay-
8196 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
ments on the purchase contract so that the equipment could
ultimately be paid off.” Id. at 25. Davies’s manager testified
that neither Davies nor the Smiths ever “released their equity
in the equipment.” Id. The Court of Appeal noted that the par-
ties had explicitly agreed only that the manner and timing of
the payments should be changed. On these facts, the court
held that the original contract had not been novated, and that
a mechanic’s lien was improper.
[7] If Fanucchi’s evidence is believed, the new agreement
in this case did more than simply alter the timing and amount
of the payments to United. For example, unlike the agreement
in Davies Machinery, United agreed to “release its equity” (to
use the phrase employed in Davies Machinery) in Fanucchi’s
crops in order to permit Fanucchi to obtain new crop financ-
ing after 1995. Further, under the new agreement, United
would forgive between $300,000 and $400,000 at the end of
five years. By contrast, Davies never agreed to forgive any
part of the Smiths’ obligation to pay for the equipment.
This case more closely resembles Alexander v. Angel, 37
Cal. 2d 856 (1951), and San Gabriel Valley Ready-Mixt v.
Casillas, 142 Cal. App. 2d 137 (1956), where the California
Supreme Court and the Court of Appeal found novation. In
Angel, the Alexanders sold a business to Angel and took back
two promissory notes secured by a chattel mortgage. Each
note was for $2,150. One note was due in one year, the other
in two years. Neither note bore interest. Prior to the maturity
of either note, Angel sold the business to the Hawses. Upon
this sale, the Alexanders and the Hawses agreed that the Alex-
anders would not enforce the original notes, but would,
instead, take back a new note from the Hawses. The new
agreement was different from the old agreement in three
respects: (1) Unlike the original notes, which were to be paid
off on a lump-sum basis at the end of one and two years, the
new notes would be paid at a rate of $150 per month until the
entire $4,300 was paid off. (2) Unlike the original notes, the
new notes bore interest. (3) Unlike the original notes, the new
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8197
notes contained an acceleration clause in the event of nonpay-
ment of the monthly obligation.
When the Hawses fell behind in their payments, the Alex-
anders sued Angel to enforce the obligation under the original
notes. Angel defended on the ground that the agreement
between the Alexanders and the Hawses was a novation, and
that the obligation under the original notes was extinguished.
The California Supreme Court held that the changed agree-
ment between the Alexanders and the Hawses was a novation,
extinguishing the old obligation “by the substitution of a new
debtor in place of the old one” under Cal. Civil Code
§ 1531(b). Even though the Court was addressing a novation
in which there had been a change of parties to the agreement
under § 1531(b), the Court’s analysis was the same as that
required for novation between the same parties under
§ 1531(a). That is, the Court’s inquiry was whether the
changes between the old and new obligations were suffi-
ciently substantial to show an “extinguishment” of the old
obligation and a replacement by the new one. 37 Cal. 2d at
861. Characterizing the changes between the old and new
obligations as “drastic,” the Court held that there had been a
novation. Id.
[8] If Fanucchi’s evidence is believed, the changes between
the 1994 Loan agreement and the new agreement were more
“drastic” than the changes at issue in Angel. In Angel, the only
changes between the old and new notes was the difference in
payment schedule, the added obligation to pay interest, and
the addition of an acceleration clause. The old and the new
notes were both secured by the same underlying chattels, and
the amount of principal under the two notes was the same. In
the case now before us, not only was the payment schedule
different, United also agreed to give up part of its security
interest by subordinating its lien to new crop lenders. Further,
United agreed that the principal amount owed by Fanucchi
would be reduced by between $300,000 and $400,000 at the
end of five years if Fanucchi sufficiently paid down the debt.
8198 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
In San Gabriel Valley Ready-Mixt, the San Gabriel Valley
Ready-Mixt Company (“Ready-Mixt”) agreed with Casillas to
supply 6,140 cubic yards of concrete at $9.45 per yard. For a
short time, Ready-Mixt delivered concrete at that price. After
a few months, however, Ready-Mixt informed Casillas that,
due to a cement shortage, it would not be able to supply the
rest of the promised concrete at the promised price. Casillas
said, “To hell with it; I will get it from someone else.” Id. at
139. After about two weeks of purchasing concrete elsewhere,
Casillas told Ready-Mixt that he would buy additional con-
crete from Ready-Mixt if they would sell it at $11.52 per
cubic yard. Ready-Mixt then delivered 800 cubic yards of
concrete.
After the concrete had been delivered, Casillas refused to
pay the higher price, insisting on the old contract price. The
Court of Appeal held that there had been a novation. A provi-
sion to pay the increased price alone “would have been insuf-
ficient to effect a novation.” Id. at 140. But “[i]f there was a
mutual understanding that defendant could and would buy his
concrete elsewhere and that neither party would demand fur-
ther performance of the contract by the other, this would have
effected an abandonment of the contract. Entering into a new
oral contract under these circumstances would have effected
an abandonment of the contract.” Id. at 141.
[9] The changes between the first and second contracts in
San Gabriel Valley Ready-Mixt are no more substantial than
the changes between the 1994 Loan agreement and the later
oral agreement in this case. In San Gabriel Valley Ready-
Mixt, external conditions made it impossible for Ready-Mixt
to fulfill the terms of the original contract without losing
money; after a short hiatus, Casillas agreed to purchase less
concrete at a higher price. In this case, external conditions
made it impossible for Fanucchi to pay off the amount of the
loan from the 1995 proceeds. If Fanucchi’s evidence is
believed, United then agreed to be paid over a longer period
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8199
of time with less security, and, if certain conditions were ful-
filled, to accept a substantially reduced amount.
[10] Another important factor in determining whether there
has been novation, besides the nature of the changes between
the old and the new contracts, is the conduct of the parties. In
both Angel and San Gabriel Valley Ready-Mixt, the courts
concluded that the parties’ conduct indicated that they consid-
ered the new contracts to have extinguished and replaced the
old contracts. In this case, the parties’ conduct during crop
years 1996 and 1997 supports Fanucchi’s contention that the
1994 Loan was novated. It is undisputed that during those two
years United subordinated its lien to the new crop lenders, and
took only 60 percent of the proceeds remaining after the
secured crop lenders had been paid off.
[11] In sum, we conclude that if Fanucchi’s evidence is
believed, the 1994 Loan agreement was novated. Summary
judgment in favor of United was therefore improper on the
issue of novation.
III. Judge Beezer’s Concurrence
Judge Beezer has written a separate concurrence to express
his “understanding of novation under California law.” Con-
currence at 8206. To the extent Judge Beezer’s concurrence
is at variance from our majority opinion, it is, of course, a dis-
sent. We disagree with Judge Beezer in three respects.
A. Alexander v. Angel
First, Judge Beezer contends that we mistakenly rely on
Alexander v. Angel in concluding that the changes between
the 1994 Loan agreement and the later oral agreement were
substantial enough to constitute novation. Judge Beezer con-
tends that Angel is inapt because, unlike in this case, there
was a substitution of parties under California Civil Code
§ 1351(b) rather than a substitution of agreements between
8200 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
the same parties under § 1351(a). Judge Beezer is correct that
Angel is a substitution-of-parties case. But he is incorrect in
putting the case to one side. As Judge Beezer himself recog-
nizes in a paragraph in which he discusses Angel, the funda-
mental issue is whether “ ‘the parties intended to extinguish
rather than merely modify the original agreement.’ ” Concur-
rence at 8210 (quoting Wells Fargo Bank, N.A. v. Bank of Am.
NT & SA, 38 Cal. Rptr. 2d 521, 525 (Ct. App. 1995) (empha-
sis added)). The question the Court answered in Angel was
whether the changes between the two contracts were suffi-
ciently “drastic” such that there was an “extinguishment” of
the earlier contract. See 37 Cal. 2d at 861. That is exactly the
question at issue in this case.
B. Distinction Between Novation and Accord
Second, Judge Beezer contends that we have conflated
novation and accord. Under California law, an accord is
defined as “an agreement to accept, in extinction of an obliga-
tion, something different from or less than that to which the
person agreeing to accept is entitled.” Cal. Civil Code § 1521.
Once “the something different” has been delivered, there has
been satisfaction of the accord. See Cal. Civ. Code § 1523;
Moving Pictures Mach. Operators Union Local 162 v. Glas-
gow Theaters, Inc., 6 Cal. App. 3d 395, 402-03 (1970). Until
performance by the obligor, the accord is executory, and the
old obligation has not been extinguished. Gardiner v. Gaither,
162 Cal. App. 2d 607, 620 (1958). That is, when two parties
enter into an accord, “the [original] obligation is not extin-
guished until the accord is fully executed, even though the
parties to the accord are bound to execute it.” Id. at 621 (cita-
tion and internal quotation marks omitted). A novation, on the
other hand, is a substituted contract that extinguishes the pre-
vious agreement as soon as the parties enter into the new
agreement, even if the new agreement is executory. Davisson
v. Faucher, 105 Cal. App. 2d 445, 447 (1951); Eckart v.
Brown, 34 Cal. App. 2d 182, 187 (1939); Beckwith v. Shel-
don, 165 Cal. 319, 323-24 (1913). Put succinctly,
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8201
[A] novation extinguishes one obligation by
accepting for it another, that is, the creditor agrees to
accept the second promise for his existing claim. But
this is not true of an accord. Here it is not the new
promise that is accepted in lieu of the existing claim,
but the performance of that new promise.
Gardiner, 162 Cal. App. 2d at 620. In distinguishing between
an executory accord and a novation, the determinative factor
is the intent of the parties. See, e.g., id. at 619-20; Rankin v.
Miller, 179 Cal. App. 2d 133, 138-39 (1960).
Judge Beezer reads California law to contain an automatic
across-the-board presumption in favor of accord and against
novation. This is an overreading of the California case law.
Judge Beezer relies heavily on Gardiner to support his argu-
ment for an across-the-board presumption. Judge Beezer
quotes the first two sentences of a long paragraph from that
opinion, the second of which states that there is a presumption
against the conclusion that the parties intended that an execu-
tory contract would replace the old obligation. Concurrence at
8212-13. But a more extensive quotation makes clear that the
presumption comes from the overall circumstances of the
case. The Court of Appeal wrote:
In the instant case there is no evidence that
respondent, on behalf of his clients, agreed to accept
Gran-Wood’s promise to complete three of the five
structures as satisfaction of the pre-existing debts.
Certainly, the presumption is against any such con-
clusion. The most reasonable and sensible interpreta-
tion of the correspondence is that the creditors were
willing to accept performance of the agreement to
finish three of the five houses in satisfaction of their
existing claims, but extinguishment of those claims
was conditional upon performance of the second
promise. The correspondence in question between
Gardiner and Selinger was a practical attempt at a
8202 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
practical solution by which creditors would get back
some or all of their money, and Gran-Wood would
be relieved of personal liability by salvaging the
three buildings, which Gran-Wood obviously
thought could be profitably done. But Gran-Wood
found it to be unprofitable, and did not perform.
Obviously, the whole agreement was prospective.
What respondent’s assignors wanted was perfor-
mance of the second agreement. This they did not
get. Thus, the original obligation was not extin-
guished and may be enforced.
162 Cal. App. 2d 607, 621 (emphasis added).
The only other California case in which any kind of a pre-
sumption against novation is mentioned is Brown v. Friesle-
ben Real Estate Co., 148 Cal. App. 2d 720, 730 (1957), also
cited by Judge Beezer. Concurrence at 8213. The court in
Brown quoted § 419 of the Restatement (First) of Contracts,
which provides that “if the pre-existing duty is an undisputed
duty . . . to make compensation,” “the interpretation is
assumed in case of doubt,” that only actual performance or
execution of the duty prescribed in a new contract will dis-
charge the pre-existing duty. (Emphasis added.) Comment a
to that section, also quoted by the Brown court, stated that in
such a case, “the creditor generally will not enter into a bar-
gain for an immediate cancellation of his claim without
obtaining satisfaction and not merely a promise of it.” See 148
Cal. App. 2d at 730 (emphasis added). We have been unable to
discover in the California cases any other reference to any
kind of presumption against novation.
Gardiner, Brown, and the Restatement infer a presumption
against novation from the particular circumstances of the facts
or example before them. They do not state a general principle
that in all cases where the choice is between accord and nova-
tion, accord is to be presumed. Rather, any presumption is
inferred from the circumstances of the parties. Under Gardi-
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8203
ner, Brown and the Restatement, the question is whether
Fanucchi and United were likely to have agreed that the exec-
utory contract described by Fanucchi’s evidence would extin-
guish and replace the old contract. This question is not an
across-the-board presumption, to be applied in all cases with-
out regard to their factual context. Rather, it is a tool to help
the court ascertain the intent of Fanucchi and United in the
particular circumstances in which they found themselves after
the failure of Fanucchi’s 1995 crops.
If Fanucchi’s evidence is believed, Fanucchi was seriously
considering declaring bankruptcy after the crop failure. At
United’s urging, Fanucchi agreed not to declare bankruptcy
and, instead, to continue farming. In return, United agreed to
subordinate its secured debt to new crop lenders for five
years, to accept only 60 percent of the proceeds left over after
the new crop lenders were paid, and to forgive between
$300,000 and $400,000 if it had been paid down to that
amount at the end of five years. According to Fanucchi’s evi-
dence, the new agreement imposed new obligations on both
parties that were binding as soon as the parties entered into it.
According to Fanucchi’s evidence, there was nothing in the
new agreement that allowed United simply to abandon the
new agreement at its pleasure, and to enforce the old agree-
ment instead. Gardiner, Brown, and the Restatement instruct
the district court as part of its factfinding process on remand
to consider the likelihood that Fanucchi and United, in the cir-
cumstances in which they found themselves, would have
intended to enter into the novated contract described in
Fanucchi’s evidence.
C. Williams v. Reed
Finally, Judge Beezer relies on Williams v. Reed, 113 Cal.
App. 2d 195 (1952), apparently for the proposition that an
executory agreement cannot be a novated contract. He writes
that “a central aspect of Fanucchi’s novation claim rests on a
8204 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
theory of novation rejected by Reed.” Concurrence at 8215.
Judge Beezer misreads Reed.
Defendant Reed failed to pay promissory notes of $30,000
and $10,000 when they came due. Reed then entered into an
agreement with Williams, under which Williams agreed to
accept $35,000 and five percent interest as full payment. The
language of the settlement specifically made the settlement
agreement contingent upon Reed’s fulfillment of his obliga-
tion: “ ‘Upon receipt of said payment in full, W.E. Williams
will execute any and all documents required to evidence full
satisfaction of said obligation.’ ” Id. at 198 (emphasis added).
The trial court held that the settlement agreement was a nova-
tion, but the Court of Appeal reversed. Under the explicit
terms of the settlement agreement, the old obligation was not
extinguished unless and until Reed fulfilled the executory
contract to pay off the $35,000 note, which meant that the
new agreement did not of itself extinguish the old obligation.
Rather, the old obligation was extinguished only if and when
the new obligation to pay $35,000 was fulfilled. In other
words, according to its explicit terms, the new agreement was
an accord rather than a novation.
Judge Beezer somehow reads Reed to contradict the nova-
tion theory of Fanucchi. But Reed is entirely consistent with
Fanucchi’s theory. Reed only tells us what we already know
from black-letter California law distinguishing accord and
novation: (1) If the obligation contained in the old agreement
is extinguished only upon execution of the promise contained
in the new agreement, the new agreement is an accord. (2)
However, if the new executory agreement extinguishes the
old agreement as soon as the new agreement is entered into,
the new agreement is a novation. That is the standard defini-
tion of novation, contained in Reed and in all the other Cali-
fornia cases.
If Fanucchi’s evidence is believed, United agreed that the
new executory agreement would extinguish the old agreement
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8205
when the new agreement was entered into. The fact that the
new agreement was executory is not fatal to Fanucchi’s the-
ory of novation. As the Court of Appeal wrote in Davisson v.
Faucher, 105 Cal. App. 2d 445, 447 (1951):
[T]he written contract was a complete novation of all
obligations of the parties, one to the other, which
existed prior to the execution of the written contract
and in particular the obligations arising out of the
oral contract. The fact that the written contract was
executory is of no moment.
(Emphasis added.)
IV. Promissory Fraud
[12] Even assuming that the 1994 Loan agreement was
extinguished by the novated contract, the district court prop-
erly dismissed Fanucchi’s promissory fraud claim. “Under
California law, the indispensable elements of a fraud claim
include a false representation, knowledge of its falsity, intent
to defraud, justifiable reliance, and damages.” Vess v. Ciba-
Geigy Corp. USA, 317 F.3d 1097, 1105 (9th Cir. 2003) (inter-
nal quotation and citation omitted). Fanucchi asserts in its
complaint that United had a “secret intention” not to perform
on the contract. It does not, however, present any evidence
supporting its claim that United intended to defraud. Affirma-
tive evidence is necessary to avoid summary judgment
because mere nonperformance is not enough to show intent to
defraud. Tenzer v. Superscope, Inc., 39 Cal. 3d 18, 30 (Cal.
1985) (“[S]omething more than nonperformance is required to
prove the defendant’s intent not to perform his promise.”
(quoting People v. Ashley, 42 Cal. 2d 246, 263 (1954)) (inter-
nal citations omitted)).
V. Attorneys’ Fees
[13] The district court awarded attorneys’ fees to United
based on a provision in the Agricultural Loan Agreement pro-
viding:
8206 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
Costs and Expenses. Borrower agrees to pay upon
demand all of Lender’s out-of-pocket expenses,
including without limitation attorneys’ fees, incurred
in connection with the preparation, execution,
enforcement and collection of this Agreement or in
connection with the Loans made pursuant to this
Agreement.
California Civil Code § 1717(a), deems any contract that
allows attorneys’ fees to a prevailing party to one party to
apply equally to the other party. Because we reverse summary
judgment on Fanucchi’s novation claim, we vacate the district
court’s award of attorneys’ fees to United. Once the novation
claim has been resolved, the district court will be in a position
to revisit the question of attorneys’ fees.
Conclusion
We reverse the district court’s grant of summary judgment
on Fanucchi’s novation claim. We otherwise affirm the dis-
trict court’s grant of summary judgment. We vacate the
court’s award of attorneys’ fees. We remand for further pro-
ceedings consistent with this opinion. Each party shall bear its
own costs.
AFFIRMED in part, REVERSED in part, VACATED in
part, and REMANDED.
BEEZER, Circuit Judge, concurring in judgment:
I concur in the result reached by the court. I write sepa-
rately to express my understanding of novation under Califor-
nia law, and how that law applies in this case. In my view,
California law instructs that the rejection of plaintiffs’
(“Fanucchi”) novation theory was not proper on summary
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8207
judgment, but that Fanucchi faces a substantial burden at trial
to demonstrate that such a novation actually occurred.
I
As the opinion of the court recounts, Fanucchi received a
loan from United in 1994 for crop financing. Language in the
loan documents prohibited oral amendments to the agreement.
The “Notice of Final Agreement” also specifically provided
that the contract “may not be contradicted by evidence of any
prior, contemporaneous, or subsequent oral agreements or
understandings of the parties.” Fanucchi now attempts to do
just that. To get around these agreed-upon provisions, Fanuc-
chi argues that a novation occurred, completely extinguishing
the old contract in favor of a new agreement between the
same parties. Fanucchi relies on California Civil Code
§ 1698(d), which enables courts to give effect to a true nova-
tion despite its inconsistency with the prior agreement.
Although the word “novation” does not appear in Fanuc-
chi’s complaint, the theory is purportedly discoverable in
paragraph 5 of this document. In its entirety, that paragraph
reads:
In 1995, Defendant agreed to finance the Plaintiffs’
farming operations for the 1996 crop year and five
(5) years thereafter. During these discussions the
parties agreed that for a period of five (5) years the
Defendant would finance the Plaintiffs’ [sic] and
give them the opportunity to rehabilitate their farm-
ing operations by not pursuing collection efforts. The
Defendant conditioned its offer upon the condition
that the Plaintiffs first had to obtain alternative
financing from a source other than the Defendant. At
the conclusion of each subsequent crop year, after
the sale proceeds for the new crop was paid and the
new financier was paid, the balance of the sales pro-
ceeds from the crops were to be distributed on a “60/
8208 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
40” basis. Sixty percent (60%) was to be paid to the
Defendant and forty percent (40%) was to be paid to
the creditors of the Plaintiffs. In early 1997, one or
more of the Plaintiffs had a conversation with [a rep-
resentative of Defendant]. During that conversation,
the following oral agreement was reached: (a) defen-
dant would provide no further crop financing to
plaintiffs; (b) defendant would subordinate its secur-
ity interest in future crop proceeds to any other lend-
ers who might provide crop financing for future
years; (c) defendant would continue to be paid sixty
(60%) of the net proceeds from each future crop to
apply towards its receivable from the Plaintiffs; and
(d) if Plaintiffs were able to pay down one half (1/2)
of the principal amount owing on the debt with
Defendant within five (5) years, Defendant would
forgive the balance of the principal and accrued
interest.
From the complaint, it is not immediately apparent what
exactly triggered a novation. Was it the 1995 “discussions,”
or the 1997 “conversation”? Evidence in the record further
muddles this picture, and Fanucchi’s briefing does little to
clear it up.1 The most logical candidate for a novation is the
purported agreement in 1997. Of course, because Fanucchi is
alleging an oral novation, there is no document memorializing
the terms of the alleged deal. Lack of a written contract, how-
ever, does not allow us to speculate about what that oral
agreement entailed. Fanucchi’s complaint spells out its ver-
sion of the agreement’s terms. Our task is to determine
whether, viewing the evidence in the light most favorable to
Fanucchi, the record supports those allegations in a manner
sufficient to demonstrate a novation.
1
Fanucchi asserts that the novation occurred when Fanucchi first agreed
to forego bankruptcy in exchange for modifying its repayment obligations,
presumably in 1995. But Fanucchi’s briefing and arguments rely heavily
on the facts of the alleged 1997 agreement to assert that the modifications
were comprehensive enough to demonstrate a novation.
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8209
II
The opinion of the court properly states the relevant
requirements for a novation under California law: the substi-
tution of a new obligation for an existing one, with the intent
to extinguish the prior agreement. Cal. Civil Code §§ 1530,
1531. Evidence supporting a novation must be “clear and con-
vincing.” See supra at 8193 (citing Columbia Cas. Co. v.
Lewis, 57 P.2d 1010, 1013 (Cal. Dist. Ct. App. 1936)).
The strong emphasis on intent of the parties in California
novation claims convinces me that summary judgment is not
warranted here. See, e.g., Williams v. Reed, 248 P.2d 147,
151-52 (Cal. Dist. Ct. App. 1952). There is some evidence
from the submitted depositions that, when viewed in the light
most favorable to Fanucchi, indicates that the parties intended
to immediately substitute the new agreement for the old,
extinguishing the prior contract. See Menotti v. City of Seattle,
No. 02-35971, 2005 WL 1300994 at *3 and *8 n.23 (9th Cir.
June 2, 2005). Such intent, if true, could effect a novation. See
Davisson v. Faucher, 233 P.2d 567, 568 (Cal. Dist. Ct. App.
1951). It is for this reason that I agree that we should reverse
the summary judgment. But I believe it is necessary to write
further because the opinion of the court suggests a theory of
novation inconsistent with California law. By conflating the
concept of novation by substituted contract with other con-
tract law principles, the opinion of the court credits certain
evidence in the record as supporting Fanucchi’s theory when
it clearly fails to do so.
A
My first concern is that the court’s opinion inadequately
differentiates between a substituted contract novation and a
modified contract. The mere fact that a subsequent agreement
contained several changes from the original is by no means a
sufficient basis for finding a novation. The critical require-
ment, as the court acknowledges, is the parties’ intent to com-
8210 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
pletely extinguish the original agreement. See Wells Fargo
Bank, N.A. v. Bank of Am. NT & SA, 38 Cal. Rptr. 2d 521, 525
(Ct. App. 1995) (“It must clearly appear the parties intended
to extinguish rather than merely modify the original agree-
ment.” (internal citations omitted)).
For this reason, I find the court’s reliance on Alexander v.
Angel, 236 P.2d 561 (Cal. 1951), to be misplaced. The opin-
ion of the court concludes that the present dispute “resem-
bles” that in Angel because both cases involved changes to a
debtor’s loan obligations. What the opinion of the court
glosses over, however, is the most relevant difference
between that case and the one before us: namely, the disputes
turn on different theories of novation.
California Civil Code § 1531 recognizes three separate
methods for effecting a novation. The two relevant here are
(1) the substitution of a new obligation between the same par-
ties, with intent to extinguish the old obligation, and (2) the
substitution of a new debtor with intent to release the old
debtor. Unlike the present case, Angel involved a novation by
way of substitution of parties, not a changed obligation
between the original parties. See 236 P.2d at 563-64. The fact
that the new parties in Angel changed some terms from the
original agreement indicated the intent to release the original
debtor, satisfying that element of a novation by substitution of
parties: as the California Supreme Court explained, the origi-
nal mortgagor would have had to agree to any substantial (or
“drastic”) change in terms if he were to remain a surety in the
agreement. Id. at 564. In contrast, changing terms between the
same parties does not necessarily imply anything about a
novation by substituted contract.
The opinion of the court attempts to link the cases anyway,
equating the “drastic” changes sufficient to demonstrate an
intent to substitute parties with the changes necessary to dem-
onstrate an intent to extinguish a prior contract between the
same parties. This conclusion is contrary to the very case law
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8211
previously discussed by the court. In particular, the court
finds it significant that Angel involved a revised contract with
three changes in terms: (1) a change in payment schedule, (2)
the addition of interest payments, and (3) the addition of an
acceleration clause. Yet the opinion of the court appears to
recognize that, under Davies Machinery, “alter[ing] the tim-
ing and amount of the payments” due on an old obligation is
insufficient to cause a novation. See supra at 8196 (discussing
39 Cal. App. 3d 18 (Ct. App. 1974)). Under the court’s analy-
sis, then, the difference between the failed novation argument
in Davies and the successful claim in Angel amounts to the
addition of an acceleration clause in the new contract. Cf. 14
Cal. Jur. 3d Contracts § 251 (1999) (“A mere change in the
amount of the debt, the terms and mode of payment, the rate
of interest, or the nature of the security does not effect a nova-
tion, unless the parties’ intention that it should do so is clearly
shown.”).
I submit that Angel should not be read in such a manner.
The three changes discussed by Angel are merely indicators
of the truly “drastic” change that they precipitated: releasing
the surety. The opinion of the court’s analysis strips Angel’s
discussion of its context, attaching qualities of a change-in-
parties novation to a purported substitute contract novation
between the same parties.
B
My next concern is that the opinion of the court does not
adequately distinguish a “novation” from an “accord and sat-
isfaction” under California law. The relevant difference is
whether the old contract is extinguished upon acceptance of
the new promise (novation) or upon performance of the new
promise (satisfaction). Gardiner v. Gaither, 329 P.2d 22, 31
(Cal. Dist. Ct. App. 1958). When there is an accord, “the orig-
inal obligation remains in force until the new one is per-
formed.” Id. (citations omitted). This distinction is relevant
because, although California Civil Code § 1698 creates an
8212 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
“oral novation” exception to the general prohibition against
oral modifications, there is no similar express exception for an
accord lacking satisfaction. Neither Fanucchi nor the opinion
of the court has sufficiently demonstrated why, in light of
§ 1698(c), this court should give any legal effect to an oral
accord that conflicts with an original agreement’s requirement
that any subsequent change must be in writing.2
Courts must presume the parties intended the creation of an
accord rather than a novation. The California appellate court
decision in Gardiner v. Gaither is instructive. After explain-
ing the difference between the two contract doctrines, the
court states:
In the instant case there is no evidence that respon-
dent, on behalf of his clients, agreed to accept
2
The fact that United has supposedly prevented satisfaction of the
alleged accord is of no moment here. Although it is certainly true that
“parties to an accord are bound to execute it,” Cal. Civ. Code § 1522, “a
plea which avers an unexecuted accord fails to state facts sufficient to con-
stitute a defense.” Silvers v. Grossman, 192 P. 534, 536 (Cal. 1920). As
explained in Gardiner v. Gaither:
an accord may be binding on the parties, but it does not discharge
the obligation it is made to satisfy until it is executed. . . . It is
an elementary principle that an accord without satisfaction is not
a bar, nor does it constitute a defense. In other words, if a second
contract is but an accord, then the original obligation remains in
force until the new one is performed.
329 P.2d at 31 (quoting 1 Cal. Jur. 2d § 34).
If Fanucchi were asserting an accord in writing, the case for suspending
United’s right to enforce the original obligation, pending timely perfor-
mance, would be significantly different. Cf. 29 Richard A. Lord, Williston
on Contracts § 73:33 (4th ed. 2003). But Fanucchi is not. A non-satisfied,
oral accord cannot prevent enforcement of a written contract that
expressly requires all changes to be in writing. See Cal. Civ. Code § 1698
(c) & (d). If Fanucchi could end-run this statute by asserting that United
had prevented satisfaction of the accord, this same reasoning would apply
equally to a “modified” contract, which the opinion of the court and I both
agree provides no basis for suit here. See supra at 8192.
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8213
[appellants’] promise to complete three of the five
structures as satisfaction of the pre-existing debts.
Certainly, the presumption is against any such con-
clusion.
329 P.2d at 31 (emphases added); see also Brown v. Friesle-
ben Estate Co., 307 P.2d 388, 394 (Cal. Dist. Ct. App. 1957)
(quoting and applying Restatement (First) of Contracts § 419
(1932), which states that when a contract is made for the satis-
faction of a preexisting duty to provide compensation, “the
interpretation is assumed in the case of doubt . . . that only
performance of the subsequent contract shall discharge the
preexisting duty”) (emphasis added). Williston discusses a
similar point as follows:
Unless there is clear evidence that the accord itself
was intended as the satisfaction, it must be presumed
that the parties contemplated the performance of the
accord as the satisfaction, for it is not a probable
inference that a creditor intends merely an exchange
of its present cause of action for another.
29 Richard A. Lord, Williston on Contracts § 73.37 (4th ed.
2003) (footnote omitted).
The opinion of the court observes that, in determining
whether an accord or novation took place, the “determinative
factor” is the intent of the parties. See supra at 8201. I agree.
But authority relied on by the court for this proposition also
counsels that the presumption is against a novation. See Gar-
diner, 329 P.2d at 31. I disagree with the opinion of the court
that this presumption, present in both California cases and
secondary sources, can be so easily explained away as an
exception applicable only with certain anomalous factual set-
tings. See Williston on Contracts § 73.37.
In my view, California law instructs courts to apply this
presumption here. Even assuming that United agreed to enter
8214 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
an entirely new agreement under the terms Fanucchi asserts,
a court need not infer that United intended merely “an
exchange of its present cause of action for another.” The pre-
sumption must be that United agreed to a new repayment plan
on the express condition Fanucchi would satisfy the terms of
the new agreement, and that United intended to keep the old
agreement alive until Fanucchi performed. Fanucchi should
bear the burden of proof to overcome this presumption.
C
As the opinion of the court observes, I find the case of Wil-
liams v. Reed, 248 P.2d 147 (Cal. Dist. Ct. App. 1952), to be
a particularly relevant example of what is not sufficient to
demonstrate novation. While reversing the summary judg-
ment in favor of novation, Reed holds that an agreement to
forgive an outstanding debt upon future satisfaction of a new
obligation does not support a novation. Id. at 152. As the Reed
court states:
Plaintiff agreed to accept, in settlement of the old
notes, a certain sum of money, with interest, that
sum to be paid in full by [a certain date]. That does
not indicate an intent to substitute the new obligation
for the old, unless and until the new obligation has
been performed.
Id.
The opinion of the court views Reed as simply another rep-
resentation of “black-letter California law distinguishing
accord and novation.” Supra at 8204. I agree. My point is that
Fanucchi cannot expect to demonstrate a novation by refer-
encing factual allegations that are similar to those that the
Reed court held did not evidence a novation. Fanucchi’s own
briefing states “that the repayment obligation was plainly
modified—cease interest, and if paid down . . . the remainder
would be waived.” (emphases added). This assertion leads me
FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S 8215
right back to Reed. I do not see how agreeing to waive an old
obligation if a new obligation is satisfied demonstrates “an
intent to substitute the new obligation for the old, unless and
until the new obligation has been performed.” 248 P.2d at
152; see also 14 Cal. Jur. 3d Contracts § 251 (1999) (“If the
new agreement is to become operative only at a future time,
or is dependent on a condition that is not performed, there is
no extinguishment of the original obligation and the novation
fails.”).
The fact that a central aspect of Fanucchi’s novation claim
rests on a theory of novation rejected by Reed almost per-
suades me that summary judgment is appropriate. But Reed
ultimately concludes that other evidence could convince a
trial court otherwise. See 248 P.2d at 155. Fanucchi’s evi-
dence and allegations are mixed at best, but when viewed in
the light most favorable to Fanucchi, possibly could persuade
a reasonable trier of fact that the parties intended to immedi-
ately substitute a new contract for the old. It is for this reason
that I am satisfied to reverse summary judgment.
III
California lawmakers were explicit in recording their disfa-
vor of oral agreements purporting to modify written contracts
in situations like the one we consider: where the parties con-
templated such a scenario and expressly required any changes
to be in writing. The court’s broad reading of novation has the
potential to undermine the force of California statutory law.
According to the opinion of the court, a novation looks quite
similar to a modification or unsatisfied accord. I am not con-
vinced that such an interpretation is consistent with the intent
of the California legislature, California case law interpreting
state law, or general contract principles.
California law indicates that Fanucchi first must prove the
parties intended to extinguish the prior agreement and not
simply modify it. But that is not enough. Fanucchi then must
8216 FANUCCHI & LIMI FARMS v. UNITED AGRI PROD’S
also demonstrate that it was United’s intent to extinguish the
prior agreement upon acceptance of Fanucchi’s promise to
fulfill its new obligations, not upon performance (i.e., that a
novation occurred and not an accord). The presumption is in
favor of an accord, not a novation.
With these principles in mind, I concur in the judgment of
the court.