novation

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Novation

The substitution of a new contract for an old one. The new agreement extinguishes the rights and obligations that were in effect under the old agreement.

A novation ordinarily arises when a new individual assumes an obligation to pay that was incurred by the original party to the contract. It is distinguishable from the situation that occurs when another individual makes a guarantee that a debtor will pay what he or she owes to a creditor. In the case of a novation, the original debtor is totally released from the obligation, which is transferred to someone else. The nature of the transaction is dependent upon the agreement between the parties.

A novation also takes place when the original parties continue their obligation to one another, but a new agreement is substituted for the old one.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.

novation

n. agreement of parties to a contract to substitute a new contract for the old one. It extinguishes (cancels) the old agreement. A novation is often used when the parties find that payments or performance cannot be made under the terms of the original agreement, or the debtor will be forced to default or go into bankruptcy unless the debt is restructured. While voluntary, a novation is often the only way any funds can be paid. (See: accord and satisfaction)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.

novation

1 in English law, an agreement between at least three parties allowing an original contracting party to be released and another party to be brought in as obligant. It is a commonly used method of rescheduling loans.
2 in the law of contract in Scotland, novation is the discharge of a contract by the substitution of a fresh obligation between the same parties.
Collins Dictionary of Law © W.J. Stewart, 2006

NOVATION, civil law. 1. Novation is a substitution of a new for an old debt. The old debt is extinguished by the new one contracted in its stead; a novation may be made in three different ways, which form three distinct kinds of novations.
     2. The first takes place, without the intervention of any new person, where a debtor contracts a new engagement with his creditor, in consideration of being liberated from the former. This kind has no appropriate name, and is called a novation generally.
     3. The second is that which takes place by the intervention of a new debtor, where another person becomes a debtor instead of a former debtor, and is accepted by the creditor, who thereupon discharges the first debtor. The person thus rendering himself debtor for another, who is in consequence discharged, is called expromissor; and this kind of novation is caned expromissio.
     4. The third kind of novation takes place by the intervention of a new creditor where a debtor, for the purpose of being discharged from his original creditor, by order of that creditor, contracts some obligation in favor of a new creditor. There is also a particular kind of novation called a delegation. Poth. Obl. pt. 3, c. 2, art. 1. See Delegation.
     5.-2. It is a settled principle of the common law, that a mere agreement to substitute any other thing in lieu of the original obligation is void, unless actually carried into execution and accepted as satisfaction. No action can be maintained upon the new agreement, nor can the agreement be pleaded as a bar to the original demand. See Accord. But where an agreement is entered into by deed, that deed gives, in itself, a substantive cause of action, and the giving such deed may be sufficient accord and satisfaction for a simple contract debt. 1 Burr. 9; Co. Litt. 212, b.
     6. The general rule seems to be that if one indebted to another by simple contract, give his creditor a promissory note, drawn by himself, for the same sum, without any new consideration, the new note shall not be deemed a satisfaction of the original debt, unless so intended and accepted by the creditor. 15 Serg. & Rawle, 162; 1 Hill's N. Y. R. 516; 2 Wash. C. C. Rep. 191; 1 Wash. C. C. R. 156, 321; 2 John. Cas. 438; Pet. C. C. Rep. 266; 2 Wash. C. C. R. 24, 512; 3 Wash. C. C. R. 396: Addis. 39; 5 Day, 511; 15 John. 224; 1 Cowen, 711; see 8 Greenl. 298; 2 Greenl. 121; 4 Mason, 343; 9 Watts, 273; 10 Pet. 532; 6 Watts & Serg. 165, 168. But if he transfer the note he cannot sue on the original contract as long as the note is out of his possession. 1 Peters' R. 267. See generally Discharge; 4 Mass.. Rep. 93; 6 Mass. R. 371; 1 Pick. R. 415; 5 Mass. R. 11; 13 Mass. R. 148; 2 N. H. Rep. 525; 9 Mass. 247; 8 Pick. 522; 8 Cowen, 390; Coop. Just. 582; Gow. on Partn. 185; 7 Vin. Abr. 367; Louis. Code, art. 2181 to 2194; Watts & S. 276; 9 Watts, 280; 10 S. R. 807; 4 Watts, 378; 1 Watts & Serg. 94; Toull. h.t.; Domat, h.t.; Dalloz. Dict. h.t.; Merl. Rep. h.t.; Clef des Lois Romaines, h.t.; Azo & Man. Inst. t. 11, c. 2, SS 4; Burge on Sur. B. 2, c. 5, p. 166.

A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856.
References in periodicals archive ?
Novated contracts contributed to the relatively low arrears levels on prior SMART transactions and make up 38.1% of the current transaction pool.
An additional proposal stated that all the management agreements for funds in which the company directly or indirectly invests should be novated for the new manager to manage those as well, which if affected it will also assume liability for all existing obligations of the present manager.