Definition of Novation:
The substitution of a new contract in place of an old one.
Novation is the act of substituting a valid existing contract with a replacement contract, where all concerned parties mutually agree to make the switch. In most novation scenarios, one of the two initial contracting parties is replaced outright by an entirely new party, where the original party willingly agrees to forgo any rights originally afforded to them. Novations are most frequently used in corporate takeovers and the sales of businesses.
A novation is similar to an assignment, which is the act of one party transferring an interest in a property or a business to a third party, as opposed to transferring the entire entity. But while novations pass along both benefits and potential liabilities to the new party, assignments merely pass along the benefits, and so any future obligations remain with the original property holder.
Substitution of an original party to a contract with a new party, or substitution of an original contract with a new contract. Upon substitution, the obligations of the withdrawing-party are automatically discharged and no express-release is required. To be effective, however, the substitution must be agreed-to by all the original and new parties to the contract. Novation is never presumed; if the novation agreement is not in writing, it must be established from the acts and conduct of the parties. Novation is not the same as assignment of an agreement where no new agreement is needed and the rights and duties are transferred from the assignor to the assignee.
How to use Novation in a sentence?
- Novations pass along an interest in a company or contract.
- If your partnership with a company comes to an end and you dont want to renew find a new company instead using novation .
- With novations, obligations remain with the original property holder.
- When the suppliers end of the deal fell through, it was up to the company to access its competitor for a novation , replete with the same terms; luckily the competitor agreed to the same deal.
- If things go wrong with a business partner and you think its time for a change you can make a novation to a new party.
- The trial judge found that novation could not stand - he disregarded it.
- Novations are seen in financial trading, as it facilitates an expedient buy/sell process for all parties.
Meaning of Novation & Novation Definition