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Below is a list of the most common customer questions. If you can’t find an answer to your question, please don’t hesitate to reach out to us.
Novation is the process by which the original contract is extinguished and replaced with another, under which a third party takes up rights and obligations duplicating those of one of the parties to the original contract. This means that the original party transfer both the benefits and burdens under the contract.
Novation is a process by which contractual rights and obligations are transferred from one party to another. Whilst the benefits of a contract can be transferred by assignment, if the parties wish to transfer both the benefits and the burdens then this must be done by a novation agreement.
When a third party enters the agreement, it takes the place of the departing party. Usually, novation happens when a new party assumes an obligation to pay that an original party had incurred. The debts transfer to someone else, releasing the original debtor from the obligation.
A novation is a contract that substitutes one party to a preexisting contract for a party who was not in the original contract. For example: B enters into a contract with C for B to paint C's house for $500.
Novation gives rise to a new agreement on the same terms as the original agreement, with the original agreement being discharged. Once an assignment occurs, the original contract is not extinguished and, consequentially, the assignor will remain bound by any prospective obligations and liabilities under it.
An assignment and novation differ in several important ways. Assignment gives some rights to a third party, whereas a novation transfers both rights and obligations to a third party. Novations are most often used in corporate takeovers or the sale of a business.
An assignment agreement transfers one party's rights and obligations under a contract to another party. Novation is a mechanism where one party transfers all its obligations and rights under a contract to a third party, with the consent of the original counterparty.
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