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Contracts • Excuse of Non-Performance
K#139
Legal Definition
A novation is an agreement by both parties to an existing contract and a new party to substitution of a new party. A novation requires: (1) a previous valid contract; (2) an agreement among all parties; (3) the immediate extinguishment of contractual duties between the original parties; and (4) a valid new contract.
Plain English Explanation
In Beauty and the Beast, when the Beast locks Bell's father up in his dungeon and Bell trades places with him to serve his term and let him go free, this is a novation. For those of you who aren't Disney fans, let me try another explanation.
Contracts need certain things to exist. We've learned them already as "Offer," "Acceptance," and "Consideration," but they also need parties. A contract needs someone to have an obligation to someone else. A novation is the legal way to swap out one party with another party, as long as everyone is cool with it. A common example of this situation is with property leases, where the lease isn't up yet but the tenant wants to move out. Some landlords will allow their tenants to move out early without causing a breach if they can find someone else to take over the payments and rental.
Contracts need certain things to exist. We've learned them already as "Offer," "Acceptance," and "Consideration," but they also need parties. A contract needs someone to have an obligation to someone else. A novation is the legal way to swap out one party with another party, as long as everyone is cool with it. A common example of this situation is with property leases, where the lease isn't up yet but the tenant wants to move out. Some landlords will allow their tenants to move out early without causing a breach if they can find someone else to take over the payments and rental.
Hypothetical
Hypo 1: Bob is a landlord. Sam is his tenant. Sam has signed a 1 year lease, agreeing to pay $500 per month, every month, for 12 months. After 3 months, Sam wants to move. More specifically, Sam wants to move and wants to not have to continue paying on his lease. It so-happens that Sam's friend Amy loves his apartment. Sam talks to Bob, who looks at Amy's history and decides she's an even better tenant than Sam. Bob agrees to substitute Amy for Sam in the lease. Result: Here, you have a novation. The obligation between Bob and Sam is extinguished and, in Sam's place, a Amy is substituted. Note that the contract was never terminated. Its same terms exist, including whatever time period remains. All that changes is that now Amy has replaced Sam as the party to the contract with Bob, making her legally obligated to perform under it.
Visual Aids
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