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Microcap & Penny Stocks : Naked Shorting-Hedge Fund & Market Maker manipulation?
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From: dvdw©5/7/2009 7:37:25 AM
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"The common law has long recognized that while one may be free to assign contractual benefits to a third party, the same cannot be said of contractual obligations. This principle results from the fusion of two fundamental principles of contract law: that parties are able to make bargains with the parties of their own choice (freedom of contract); and that parties do not have to discharge contractual obligations that they had no part in creating (privity of contract).

"Our law does, however, recognize that contractual obligations which a party has freely assumed may be extinguished in certain circumstances and the doctrine of novation provides one way of achieving this.

"A novation is a trilateral agreement by which an existing contract is extinguished and a new contract brought into being in its place. Indeed, for an agreement to effect a valid novation the appropriate consideration is the discharge of the original debt in return for a promise to perform some obligation. The assent of the beneficiary (the creditor or mortgagee) of those obligations to the discharge and substitution is crucial. This is because the effect of novation is that the creditor may no longer look to the original party if the obligations under the substituted contract are not subsequently met as promised.

"Because assent is the crux of novation it is obvious that novation may not be forced upon an unwilling creditor and, in the absence of express agreement, the court should be loath to find novation unless the circumstances are really compelling. Thus, while the court may look at the surrounding circumstances, including the conduct of the parties, in order to determine whether a novation has occurred, the burden of establishing novation is not easily met. The courts have established a three-part test for determining if novation has occurred ... as follows:

The new debtor must assume the complete liability;
The creditor must accept the new debtor as principal debtor and not merely as an agent or guarantor; and
The creditor must accept the new contract in full satisfaction and substitution for the old contract."
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