Fanucchi & Limi Farms v. United Agri Products
United States Court of Appeals for the Ninth Circuit
414 F.3d 1075 (2005)
Fanucchi & Limi Farms (Fanucchi) (plaintiff) borrowed over $1,000,000 from United Agri Products Financial Services (United) (defendant) to finance a crop that failed, leaving Fanucchi unable to repay under the original loan terms, which gave United a security interest in Fanucchi's crops. Fanucchi claimed United orally agreed, in exchange for Fanucchi not filing bankruptcy, to subordinate its debt to new lenders for five years, split future crop proceeds 60/40, and forgive the remaining balance if Fanucchi paid it down to $300,000-$400,000. For two years, the parties actually followed that new arrangement, splitting proceeds accordingly, but in 1998 United refused to subordinate its interest to a new lender. Fanucchi sued for breach, arguing the oral deal was a novation or modification; the district court granted summary judgment to United.
Whether a novation occurs when a later oral agreement is substantially different from the original agreement, showing the parties intended to extinguish rather than merely modify the original obligation.