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prashant1314 (HR Learner)     19 March 2010

Novation - Contract Act

What is the example of Novation as per contract act???



Learning

 1 Replies

Mansi Aggarwal   09 March 2021

Hello, thank you for your query.

Novation refers to the process of substituting the original contract with a replacement contract, where the original party agrees to forgo any rights afforded to them by the original contract. 

It is a consensual replacement of a contract.

Example: X bought a car from Y for 10 lakhs on credit terms, which he plans to clear in the next year. Even before X makes the first installment, he gets a medical emergency and needs cash for it. Therefore X decides to sell the car to someone else under the same terms as Y. X wants to exit the transaction but owes an obligation to both Y and the other person. 

Therefore, X decides to settle his debt obligation through a novation by talking Y and the other party into a novation agreement. 

Hope this helps.


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