NOVATION Meaning and
Definition
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Novation is a commonly used term in both legal and business contexts, referring to a specific type of contractual agreement. It can be defined as the substitution of an existing contract or obligation with a new contract or obligation, thus replacing the original parties or obligations with new ones. The key aspect of novation is the extinguishing of the initial legal relationship and the creation of a new one.
In a novation agreement, all parties involved must consent to the substitution, as it requires the release of the original party from its obligations and the introduction of a new party to assume those obligations. Novation commonly occurs in situations such as the transfer of debts, where a debtor substitutes an existing creditor with a new one. This relieves the debtor from their original obligation towards the initial creditor.
The novation agreement must be a clear and unequivocal expression of the parties' intention to discharge the previous contractual relationship and establish new rights and obligations. It is usually formalized through a written document to ensure enforceability and clarity.
Novation is distinguishable from assignment, as the latter refers to the transfer of rights or obligations without the need for mutual consent or the discharge of the initial parties. In contrast, novation requires the discharge of the initial obligations and the establishment of new ones with the agreement of all parties involved.
Common Misspellings for NOVATION
Etymology of NOVATION
The word novation has its etymology in Latin. It comes from the Latin word novatio, which means renewal or making new.
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