Novation

In one sentence

Replacing an old contract with a new one, with all parties' agreement.

Plain English

Novation happens when everyone involved in a contract agrees to cancel the old deal and create a brand-new one in its place. This is different from just changing one detail—it's a complete substitution. Often, novation involves swapping out one party for another, like when a debt gets transferred to a new creditor who the original debtor now owes instead. All parties must consent, and the new contract wipes out the old one entirely.

Ad slot

Example

Sarah owes money to a bank, but the bank sells her loan to an investment company. If Sarah, the bank, and the investment company all sign a new agreement, that's novation—Sarah now owes the investment company under fresh terms, and the original loan is dead.

Used in a sentence

“The three parties agreed to novation by signing a new contract that replaced their old agreement entirely.”

Related terms

Affirmation

A party's decision to keep a contract or agreement even after discovering a reason to cancel it.

Illegal Contract

A contract whose purpose or performance violates the law.

Enforceability

The legal ability to compel someone to follow through on a contract's terms in court.

Material Fact

A fact that significantly affects a party's rights, obligations, or decision-making in a contract.

Objective Theory of Contracts

The legal rule that contract meaning is based on what a reasonable person would understand, not secret thoughts.

Remedy

A legal action or payment a court awards to fix a harm or enforce a right after a breach.

Offer

A proposal to enter into a binding agreement on specific terms.

Acceptance

Agreeing to the exact terms of an offer, creating a binding contract.

This page is a plain-English reference and is not legal advice. Laws vary by jurisdiction and change over time. For specific situations consult a licensed attorney.