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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.
Assignment only transfers the benefit of a contract (a right) such as a right to sue.
For example, if a building contract between A (employer) and B (contractor) is assigned to C (a third party), C has the right to sue B if the works are not constructed properly but the obligation to make payment under the contract remains with A.
Alternatively, a "novation agreement" may be signed after the original contract 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.
7, where the word "novations" occurs in the marginal note to the section, and so has quasi-statutory sanction.
In contrast to an assignment, which is generally valid as long as the other party is given notice (except where the obligation is specific to the obligor, as in a personal service contract with a specific ballet dancer, or where assignment would place a new and special burden on the counterparty), a novation is valid only with the consent of all parties to the original agreement.
In international law, novation is the acquisition of territory by a sovereign state through "the gradual transformation of a right in territorio alieno [in foreign territory] into full sovereignty without any formal and unequivocal instrument to that effect intervening".
Novati, as a legal term is derived from the Roman law, in which novatio was of three kinds—substitution of a new debtor (expromissio, or delegatio), of a new creditor (cessio nominum vel actionum), or of a new contract.
Thus, 'acceptance of the new contract as full performance of the old contract' may be read in conjunction to the phenomenon of 'mutual agreement of the T&Cs'.
Novation is also used in futures and options trading to describe a special situation where the central clearing house interposes itself between buyers and sellers as a legal counter party, i.e., the clearing house becomes buyer to every seller and vice versa.