C) Novation

Novation is the term used when a new contract is substituted in place of an existing contract. It involves the mutual agreement of all parties involved to replace the original contract with a new one. This new contract effectively extinguishes the rights and obligations under the original contract.

Novation involves the substitution of a new party or the substitution of a new obligation or consideration. It can occur in various situations, such as when there is a change in the parties involved, a change in the terms of the contract, or the transfer of rights and obligations to a third party.

Key Points:
1. Definition: Novation is the substitution of a new contract in place of an existing contract.
2. Mutual Agreement: All parties involved must agree to the novation and consent to the substitution of the new contract.
3. Extinguishing of Rights and Obligations: The new contract effectively cancels out the rights and obligations under the original contract.
4. Change in Parties: Novation can occur when there is a change in the parties involved. For example, if Company A enters into a contract with Company B, but later Company A wants to transfer its rights and obligations to Company C, a novation can take place to substitute Company C as the new party in the contract.
5. Change in Terms: Novation can also occur when there is a change in the terms of the contract. For example, if the parties agree to modify the payment terms or the scope of work, a new contract can be substituted through novation.
6. Transfer of Rights and Obligations: Novation can also involve the transfer of rights and obligations to a third party. For example, if a person owes money to Company A but later transfers that debt to Company B, a novation can take place to substitute Company B as the new creditor in the contract.
7. Legal Effect: Novation has the legal effect of replacing the original contract with the new contract. It releases the parties from their obligations under the original contract and establishes new rights and obligations under the substituted contract.

In conclusion, novation is the process of substituting a new contract in place of an existing contract. It requires the mutual agreement of all parties involved and can occur in various situations, such as a change in parties, change in terms, or transfer of rights and obligations. Novation effectively extinguishes the rights and obligations under the original contract and establishes new rights and obligations under the substituted contract.