novation

Novation occurs when the parties to a contract agree to substitute a new contract for it, or to rescind or alter it. The original contract then need not be performed. The new contract may be between the same parties on different terms, or may substitute a new party, as where a creditor agrees to accept a third person as debtor instead of the original one.

Novation requires the consent of all parties, and the new contract must be valid and enforceable; if it is void, the old one survives. It must take place before the time for performance of the original contract has expired. It differs from assignment, which transfers rights without the consent of the other party and does not create a new contract.

Example

A, B and C agreed that C would pay A instead of B, and A accepted C as his debtor; this novation discharged B.

In Indian law

• Section 62, Indian Contract Act, 1872

See also

rescission · accord and satisfaction · breach of contract

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