Definition of Novation
Novation is basically the replacement of an old contract (or contractual party, or debt) with a new one. More specifically, the process involves the debt of a firm being cancelled upon the substitution of this firm to a contract with a new party, or substitution of a new contract with the original constituents. Upon substitution, the obligations of the withdrawing party are automatically discharged; provided that both the original and the new parties agree to the contract. As such, novation is not written into a contract, rather, it is established from the conduct of the associated parties towards one another.