Which term describes substituting a new contract for an old one while keeping the same parties?

Which term describes substituting a new contract for an old one while keeping the same parties?

• A. Assignment
• B. Escrow
• C. Novation
• D. Amendment

Answer: (C)

Novation is the substitution of a new contract in place of an old one with the same parties, extinguishing the old agreement and creating a fresh contract to take its place. This is the best fit because the obligations are replaced by a new set of terms, and the original party is released from liability under the old contract while the new contract governs the relationship going forward. In contrast, an assignment transfers rights to a third party but leaves the original contract in effect and the original party may remain liable; an amendment changes terms within the existing contract without creating a new agreement; escrow simply involves a third party holding funds or documents and does not replace contracts.

Novation is the substitution of a new contract in place of an old one with the same parties, extinguishing the old agreement and creating a fresh contract to take its place. This is the best fit because the obligations are replaced by a new set of terms, and the original party is released from liability under the old contract while the new contract governs the relationship going forward.

In contrast, an assignment transfers rights to a third party but leaves the original contract in effect and the original party may remain liable; an amendment changes terms within the existing contract without creating a new agreement; escrow simply involves a third party holding funds or documents and does not replace contracts.