​KembaraXtra – Legal Terms – Novation


Novation is the replacement of an existing contract with a new contract.


The new agreement may involve the same parties or may introduce a new party altogether. A common example occurs when one debtor is substituted for another with the agreement of everyone involved.


For instance, if A owes B money and B owes C the same amount, all three may agree that A will now owe the debt directly to C, while the earlier debts are extinguished.


Novation differs from *assignment because novation creates a completely new contractual relationship, whereas assignment merely transfers the benefit of an existing contract.