Novation
Novation is the substitution of a new contract, obligation, or party for an existing one, with the consent of all parties. It extinguishes the original agreement and, unlike assignment, transfers both rights and obligations while releasing the original party from liability.
What it means
Novation replaces an original contract or party with a new one by mutual agreement of everyone involved. It is most often used to swap out a party — for example, when a business is sold and the buyer takes over the seller's contracts. The defining feature is the release of the original obligor: because all parties consent, the departing party is discharged from future liability. This distinguishes novation from assignment, where the assignor typically remains liable, and from delegation of duties.
Read more
- Assignment Clause Explained: Meaning, Rules & UCC 9-406 Exception — Who can take over your contract, and when a clause can't stop it: rights vs. obligations, novation, and the UCC 9-406 override, explained plainly.
- What Makes a Contract Legally Binding? — Learn the five elements every legally binding contract must have — offer, acceptance, consideration, capacity, and legality — with real examples and jurisdiction notes.