What is a novation of a contract?

A novation of a contract is a legal process that allows for a contract to be transferred to a third party without breaching the original agreement. This process can be initiated either by consent of both the original and third parties, or by the court. In North Carolina, when novation is made by consent of both parties, the original party must be released from its obligations under the contract and the third party must accept those same obligations. In addition, the original party must be compensated by the third party for the transfer of the rights and obligations. The original parties must sign a document releasing the original party from its obligations and transferring any rights and obligations to the new party. If a court-ordered novation is necessary, the parties must petition the court for permission to transfer the rights and obligations of the contract. The court will then scrutinize the contract and the parties to determine if a novation is appropriate in the situation. If so, the court may order a novation which could require the original party to be released from its obligations, the new party to accept those same obligations, and the original party to be compensated. Ultimately, a novation of a contract is a legal process by which a contract can be transferred from one party to another. In North Carolina, it can be undertaken either by consent of the parties or under a court order.

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