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Editing Contracts/Novation
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==Examples of novation== | ==Examples of novation== | ||
For example, if there exists a contract whereby Dan will give a TV to Alex, and another contract whereby Alex will give a TV to Becky, then, it is possible to novate both contracts and replace them with a single contract wherein Dan agrees to give a TV to Becky. | For example, if there exists a contract whereby Dan will give a TV to Alex, and another contract whereby Alex will give a TV to Becky, then, it is possible to novate both contracts and replace them with a single contract wherein Dan agrees to give a TV to Becky. Contrary to assignment, novation requires the consent of all parties. [[Consideration]] is still required for the new contract, but it is usually assumed to be the discharge of the former contract. | ||
Another classic example is when Company A enters a contract with Company B and a novation is included to ensure that if Company B sells, merges or transfers the core of their business to another company, the new company assumes the obligations and liabilities that Company B has with Company A under the contract. So in terms of the contract, a purchaser, merging party or transferee of Company B steps into the shoes of Company B with respect to its obligations to Company A. Alternatively, a "novation agreement" may be signed after the original contract<ref name=duha2>{{cite web|last=Duhaime|first=Lloyd|title=Novation Definition|url=http://www.duhaime.org/LegalDictionary/N/Novation.aspx|work=duhaime.org|publisher=Duhaime's Legal Dictionary|accessdate=30 July 2013|year=2009}}</ref> in the event of such a change. This is common in contracts with governmental entities; an example being under the United States [[Anti-Assignment Act]], the governmental entity that originally issued the contract must agree to such a transfer or it is automatically invalid by law. | Another classic example is when Company A enters a contract with Company B and a novation is included to ensure that if Company B sells, merges or transfers the core of their business to another company, the new company assumes the obligations and liabilities that Company B has with Company A under the contract. So in terms of the contract, a purchaser, merging party or transferee of Company B steps into the shoes of Company B with respect to its obligations to Company A. Alternatively, a "novation agreement" may be signed after the original contract<ref name=duha2>{{cite web|last=Duhaime|first=Lloyd|title=Novation Definition|url=http://www.duhaime.org/LegalDictionary/N/Novation.aspx|work=duhaime.org|publisher=Duhaime's Legal Dictionary|accessdate=30 July 2013|year=2009}}</ref> in the event of such a change. This is common in contracts with governmental entities; an example being under the United States [[Anti-Assignment Act]], the governmental entity that originally issued the contract must agree to such a transfer or it is automatically invalid by law. |