Novation requires a valid prior obligation, agreement of all parties including the obligee, a new valid contract, and extinguishment of the original. The original obligor is fully released.
It differs from assignment, which does not release the assignor.
Alternative Names:
Novation Agreement|Substitution of Party
Why it Matters?
The obligee's consent is what distinguishes novation from assignment, and a party that assigned its obligations without obtaining a release remains liable despite the transfer. That distinction is frequently misunderstood in commercial transitions, where the assigning party assumes it has exited. Establishing novation requires clear evidence of intent to release, since courts do not infer discharge from acceptance of performance by a substitute.
Frequently Confused with
Related terms
Frequently asked questions
How does novation differ from assignment?
What evidence establishes novation?
