What does novation refer to in contract terms?

Novation specifically refers to the act of replacing an old contract with a new one, effectively substituting the original agreement while potentially involving the original parties or introducing new parties. This legal concept allows for the transfer of obligations and rights from one party to another, ensuring that the new contract is recognized as valid, existing with the same enforceability as the original.

In practical terms, if one party wants to transfer their duties and rights to another party, novation requires the consent of all involved parties. This distinguishes novation from other terms related to contract modifications or terminations, as it does not simply amend an existing agreement but rather creates an entirely new one.

Other options relate to different legal concepts. Ratification refers to the formal approval of an action or agreement that was initially unauthorized. Rescission deals with the cancellation of a contract to return the parties to their previous state as if the contract had never existed. Estoppel involves preventing a party from arguing something contrary to a previous claim or action due to their own conduct. Each of these alternatives operates under different circumstances and legal principles, emphasizing the importance of understanding the specific context in which novation is applied.