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What Happens to a Previous Commercial Contract in Georgia When a Subsequent Agreement Eventually Is Revealed to Be Invalid??

Poole Huffman, LLC
When you enter into a commercial contract with a client, there may eventually arise a desire to replace that agreement, leading to the execution of a subsequent contract. If problems later arise between the two sides and you need to pursue a breach of contract claim, then it is essential to have an experienced Atlanta commercial contract lawyer on your side who clearly understands all of the laws regarding contract validity and enforcement, and the impact of subsequent agreements on earlier ones. Recently, the Georgia Court of Appeals weighed in on the issue of the impact of an invalid subsequent contract on an earlier agreement. The original agreement was a 2001 contract in which a consulting company agreed to provide marketing strategy services to a pair of insurance entities. In 2012, the two sides sought to enter into a new agreement. Six years later, the clients allegedly abruptly stopped paying for the consultant’s services. The consultant sued the clients, alleging that the clients had breached the second contract. The clients argued that the latter agreement was unenforceable. The clients’ arguments succeeded, with the trial judge ruling that the 2012 contract was unenforceable due to two fatal flaws: a lack of consideration and a lack of mutuality. The consultant amended its complaint to pursue a claim for breach of the 2001 agreement, rather than the 2012 agreement. The clients again sought dismissal, asserting that the 2012 agreement, although itself invalid and unenforceable, served to extinguish the 2001 contract. This time, the clients failed, allowing the consultants to proceed with their case. There are certain circumstances where a subsequent agreement may act to supersede and discharge a previous contract, but this was not one of them. The Essential Elements of a Novation or Accord and Satisfaction   A subsequent agreement may extinguish an earlier contract if it qualifies as a novation but, to do that, the latter must meet four essential requirements:
  • (1) a previous valid obligation
  • (2) the agreement of the parties to a new contract
  • (3) a mutual intention by the parties to substitute the new contract for the old one
  • (4) the validity of the new contract
An additional way that a contract may be extinguished is through something the law calls “accord and satisfaction.” To succeed with this sort of argument, a party must prove the same four elements as with a novation. In this situation, the 2012 agreement lacked consideration and mutual assent. Those flaws made it invalid, which meant it could not possibly supersede the 2001 agreement under either the novation theory or accord and satisfaction. The clients’ argument, at its fundamental level, was that the 2012 agreement, regardless of its validity, demonstrated an intent to replace the 2001 agreement and, because the 2012 contract was invalid, neither agreement was enforceable. The appeals court rejected that assertion, noting that “long-standing Georgia authority establishes that to supersede an existing contract, a subsequent contract must be valid.” Whether you need to negotiate a contract, renegotiate a replacement agreement, or litigate to enforce your existing contract rights, look to the knowledgeable Atlanta commercial contracts attorneys at Poole Huffman, LLC to provide you with advice that is useful, insightful, and experience-driven, along with powerful advocacy to effectively protect your business interests. Contact our attorneys online or by calling 404-373-4008 to schedule your confidential consultation today.

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