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

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.