Difference between Novation and Alteration

Novation and Alteration are legal concepts that both involve changes to contracts, but they differ significantly in their nature and implications. Novation is a legal term that refers to the transfer of one obligation or party to another. In a novation, each party consents to having the original party or obligation replaced with a new one. The original party is liberated from its contractual responsibilities, and the new party or duty essentially replaces the old one. In contrast, Alteration refers to a legal notion that modifies the terms of an already-existing contract. Any portion of the contract, including the parties engaged, each party’s duties, and the terms and circumstances of the agreement, may be changed.

What is Novation?

Novation suggests that the original or old contract be replaced with a new one. The parties to the new contract can be the same, or they might be different. The conditions of the contract could alter, or they might not. Furthermore, the new contract’s consideration is derived from the existing contract’s discharge. It is important to remember that a novation cannot take effect unless all parties to the original contract agree to it; in such a case, the original agreement will remain in effect. Novation must take place before the period for performing the real contract expires; otherwise, there will be a breach of contract between the parties. Additionally, should a new contract be signed after the term has expired, it will be done so to modify any remedial rights that resulted from the contract’s violation.

Key Features of Novation:

• Novation is a legal term that refers to the transfer of one obligation or party to another.
• In a novation, each party consents to having the original party or obligation replaced with a new one.
• The original party is liberated from their contractual responsibilities, and the new party or duty essentially replaces the old one.

What is Alteration?

A simple definition of alteration is a change to the terms of the agreement. Alteration is the process of changing the previous contract by adding new terms and conditions or by changing or eliminating the previous ones with the agreement of all parties. As a result, the initial contract is nullified because it is not required to be fulfilled. Any change to the terms of the agreement must be approved by both parties; if approved, the previous agreement is terminated and a new agreement is created that is legally binding on both parties. As a result, the parties may only execute the newly agreed-upon terms and conditions of the contract. Nevertheless, the parties involved won’t alter.

Key Features of Alteration:

• The term ‘Alteration’ refers to a legal notion that modifies the terms of an already-existing contract.
• Any portion of the contract, which may include each party’s duties and the terms and circumstances of the agreement, may be changed.
• Alteration is not the same as novation in that no party or obligation is replaced. Rather, the parties agree on new conditions, which are reflected in a modification of the current contract.

Difference between Novation and Alteration

Basis	Novation	Alteration
Meaning	Novation is the term used when the parties agree to replace the previous contract with the new one.	With the parties’ approval, an alteration is a revision or modification of the contract’s terms and conditions.
Parties	Parties could differ or be the same.	The parties don’t change.
Terms and Conditions	The terms and circumstances of the contract could change, or they might not.	The contract’s terms and conditions are always subject to change.
Substitution of Contract	The previous contract is replaced with the new one.	Substitution might not always be necessary.
Consent of Parties	All parties involved must agree to the substitution of the contract.	All parties involved must agree to the changes in the contract.
Legal Consequences	Novation typically extinguishes the rights and obligations under the original contract.	Alteration does not necessarily extinguish the original rights and obligations, but modifies them.
Timing	Novation must occur before the expiry of the original contract’s performance period.	Alteration can happen at any time during the lifespan of the contract.

Conclusion

The nature of the duty must be significantly changed in the new contract, showing a straightforward alteration in the contractual terms if there is no change between the parties. Therefore, it is alteration rather than novation when the parties do not modify. It is important to understand the basic difference between novation and alteration while entering the contract to understand the consequences of the contract.

Difference between Novation and Alteration- FAQs

What is a discharge of contract?

The phrase “discharge of contract” refers to the parties’ termination of their contractual arrangement. When a contract ends, meaning the rights and duties that the parties established are no longer in effect, it is considered to have been discharged.

Are alteration and novation the same?

When a contract is altered, it means that some provisions have been amended or modified with the agreement of all parties. Novation replaces an existing contract with a new one. The parties to a contract do not change when it is altered.

What distinguishes novation from variation?

Variation changes the legally binding contracts, whereas under novation there is only the transfer of contractual rights.

What are the two types of novation?

• Parties change, but the contract remains the same.
• Substitution of a new contract with no change in parties

Is remission the same as novation?

When the parties decide to rescind or end the agreement, this is known as remission. Whereas, when the parties replace their previous contract with a new one, this is known as novation.

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