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Novation is the replacement of one of the parties in an agreement between two parties, with the consent of all three parties involved. To novate is to replace an old obligation with a new one. For example, a supplier who wants to relinquish a business customer might find another source for the customer.
form novation agreement, governed by Texas law, where one of the contracting parties transfers the entire contract to and is replaced by a third party, referred to as the substitute party.
Novation means to replace or substitute. When a contract is novated, both parties agree that the responsibilities and obligations of one party are transferred from the original signee to a third party. The original party is freed from the original agreement, creating a new contract.
Specifically, four essential elements are necessary to form a novation in Texas: A previously valid obligation. Agreement of all parties to a new contract. Extinguishment of the old contract. A valid new contract.