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What Is a Novation?

A novation is a contract that substitutes one party to a preexisting contract for a party who was not in the original contract. When a party enters into a contract to do something for another party, the performing party may delegate its duty to perform to another party. However, the original performing party will still be liable for breach of contract if the party it has delegated its duties to does not perform. This problem can be avoided by something called a “novation".

For example: B enters into a contract with C for B to paint C’s house for $500. B then enters into a separate contract with C and D for D to paint C’s house and to discharge its duties to C. This new contract is called a novation.

What Are the Elements of a Valid Novation?

In order to have a valid novation, the party asserting it must show that:

    1. There was a prior valid obligation;
    2. All of the parties affected by the new contract must agree to the new contract;  
    3. The new contract must show the intention by the parties to discharge the prior obligation; and
    4. The new contract itself must be a valid contract (i.e. it has all of the elements of a valid contract).

Am I Discharged from My Obligations with a Novation?

Yes. Unlike delegation of duties, a valid novation will completely free you from liabilities for breaching your original contract even if the new party that has taken over your duties does not perform. A novation is also different than an assignment because, with a novation, the party that assigns his duties and obligations to a 3rd party cannot be held liable for any further damages because he is released from the entire contract.

Do I Need an Attorney for My Breach of Contract Issue?

Contract law can be quite complicated. Additionally, every state has different lawsuit filing procedures and deadlines for breach of contract claims. Contact an attorney to make sure that you conform to the applicable procedural rules and collect all the proper documents to prove a breach. An attorney can also help you negotiate the terms of a contract before you make or accept an offer. 

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Last Modified: 10-01-2014 02:26 PM PDT

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