Novation Legal Meaning and Definition

Here is a simplified definition of the legal term Novation.

Novation (noun)

Novation is a legal concept where a new contract replaces an existing one. It typically involves three parties - the original parties and a third party - who all agree to change the contract's terms or participants. This contract change helps improve performance and adjust payment strategies, often as a solution to avoid bankruptcy. All parties involved must consent to these changes for novation to occur.