Novation of a contract involves which elements?

• A. Releases the original party
• B. The new party has obligation
• C. Both A and B
• D. Neither A nor B

Answer: (C)

Novation means substituting a new party for an existing one in a contract, with the old contract discharged and a new contract taking its place. For this to happen, all parties must agree to the substitution. As a result, the original party is released from liability, and the new party assumes the contractual obligations.

That combination—releasing the original party and having the new party assume the obligations—is what defines novation. If only one of those elements is present, it isn’t novation (it would be either an assignment or a delegation, which do not extinguish the original contract).

So the correct understanding is that both releasing the original party and the new party taking on the obligations occur in novation.