A novation replaces a party to a contract, or an obligation itself, with the consent of everyone concerned. Its defining feature is the discharge of the original obligor.

Four requirements. A valid existing obligation, agreement of all parties to the substitution, extinguishment of the old obligation, and a valid new contract. The consent of the party being asked to give up its original obligor is essential and cannot be implied lightly.

Distinguished from assignment, which moves rights but leaves the assignor liable, and from an accord and satisfaction, which settles a disputed obligation rather than substituting a party.

Where it matters. Business sales where the buyer takes over supply contracts, leases and guaranties; corporate reorganizations moving obligations between affiliates; and refinancing, where the question of whether the new facility discharges the old one affects lien priority and guaranty continuity.

Guaranties are the trap. A guarantor is generally discharged by a material alteration of the underlying obligation made without consent. A novation that overlooks the guarantor may leave the creditor unsecured in the way that matters most.

Get it in writing, signed by everyone. Novation by conduct is possible in principle and difficult in practice. A one-page deed of novation signed by all three parties costs almost nothing and removes the argument entirely.