National Real Estate Exam (PSI)ContractsHard
A buyer and seller have a signed purchase contract. The buyer later wants to withdraw entirely and have a new buyer take their place, with the seller's full agreement releasing the original buyer from all obligations. What is this legal process called?
- AAssignment
- BRescission
- CNovation
- DEstoppel
Show answer & explanationAnswer & explanation
Correct answer: C. Novation
Novation occurs when all parties agree to substitute a new party into a contract, completely releasing the original party from further obligation. This differs from assignment, where the original party may remain secondarily liable.
Why the other options are wrong
- A. Assignment transfers rights/duties but typically leaves the original party secondarily liable.
- B. Rescission cancels the contract entirely, it doesn't substitute a new party.
- D. Estoppel prevents a party from denying a previous representation; it's unrelated here.
Novation
The substitution of a new party for an original party in a contract, with the consent of all parties, which fully releases the original party from liability.
- Requires agreement of all original and new parties
- Fully releases the original party (unlike assignment)
- Common in complex real estate or business transactions
- Different from assignment, which retains secondary liability
Memory trick: Novation = 'Novel' new party fully replaces old, no strings attached