Novation is a
term used in contract law and business law to
describe the act of either replacing an
obligation to perform with a new obligation, or
replacing a party to an agreement with a new
party. A novation must be agreed upon by all
original parties to the original agreement.
Novation is also used in futures/options trading
markets to describe a special situation where the
clearing house takes all positions with all the
brokers, buying all the brokers sell, and selling
all that the brokers buy.
In business, novation is typically the process by
which a newly formed corporation assumes the
pre-incorporation liabilities incurred by its
founders.
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