Novation

Novation is the substitution of a new obligation for an old one.  The acceptance of a new debt or obligation in satisfaction of a prior existing one.  If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.  Thus it is said that a surety is discharged by the novation of the debt; for he can no longer be bound by the first debt, for which he was surety, since it no longer subsists, having been extinguished by the novation; neither can he be bound by the new debt into which the first has been converted, since this new debt was not the debt to which he acceded.

A novation may arise in either or two ways:-

1) As in the case of a renewal bill, where the person of the debtor remains the same, and the amount or terms are increased or altered;

2) As in the case of an amalgamation of insurance companies, where the person if the debtor is altered, but the other terms of the contract remains the same, the new company which is substituted for the old one taking over all the liabilities together with the rights of the latter.  It is essential to every novation that the creditor should have assented thereto.