Explanation:

When a new contract is substituted in place of an existing contract, it is called novation. Novation is a legal concept that allows the parties to a contract to replace an existing contract with a new contract, thereby terminating the original contract.

Novation Process:
1. Introduction: Novation is a process by which the parties to a contract agree to substitute a new contract in place of an existing contract. This new contract will supersede and replace the original contract.
2. Consent: The parties involved in the original contract must agree to the substitution of the new contract. This consent is essential for the novation to be valid.
3. Termination: The original contract is terminated once the new contract is executed. This means that the rights and obligations of the parties under the original contract cease to exist.
4. New Contract: The new contract is created to replace the original contract. It may contain different terms, conditions, and parties than the original contract, as agreed upon by the parties involved.
5. Legal Validity: Novation requires the mutual agreement of all parties involved. Without the consent of all parties, novation cannot take place. It is crucial to ensure that the new contract clearly states that it is intended to replace the original contract and that all parties are aware of the substitution.
6. Effect: Once novation occurs and the new contract is executed, the original contract is extinguished, and the rights and obligations under the original contract are replaced by those in the new contract.

Examples:
- In a business context, novation may occur when a company sells its assets and liabilities to another company. The purchasing company may then enter into a new contract with the suppliers and customers of the selling company, effectively replacing the original contracts.
- In the case of a lease agreement, novation may occur when a tenant transfers their lease obligations to another party. The new tenant then enters into a new lease agreement with the landlord, replacing the original lease contract.

Conclusion:
Novation is the process of substituting a new contract in place of an existing contract. It requires the consent of all parties involved and results in the termination of the original contract. Novation is commonly used in business transactions when parties want to replace an existing contract with a new agreement.