What does novation refer to in contract law?

Novation refers specifically to the substitution of a new contract for an existing one, which effectively transfers the rights and obligations from one party to another. In this process, the original contract is extinguished, and a new contract is created, often involving a third party. This is a significant concept in contract law because it can change the parties involved in an obligation without necessarily causing any interruption to the contractual relationship.

Considering the other aspects of contract law, such as the extension of contract terms and modification of existing agreements, these do not capture the essence of novation. An extension maintains the same parties and terms but lengthens the duration, while modification alters the terms of an existing contract without creating a new obligation. Similarly, termination relates to ending a contract entirely rather than replacing it with a new agreement. Thus, the defining characteristic of novation is its role in creating a completely new contractual arrangement, distinguishing it from these other concepts.