When can novation occur?

Novation refers to the process of replacing one of the parties in a contract with the consent of all involved parties, resulting in a new contractual obligation. This is distinct from other modifications or changes to a contract that might involve the same parties but do not replace any party.

The key aspect of novation is the introduction of an entirely new party. This new party assumes the rights and obligations under the original contract, effectively releasing the original party from further liability. This change shifts the responsibility and relationship governed by the contract, which is why the consent of all parties is necessary.

In contrast, other options describe scenarios that do not meet the criteria for novation. For example, when parties mutually agree to change terms, this indicates an amendment to the existing contract rather than a complete replacement of a party. Similarly, when one party releases another, this could imply a termination of the contract or a waiver of claims, but does not inherently involve the introduction of a new party. Extending existing terms merely prolongs the contract without changing its parties or obligations. Hence, the correct answer about novation occurring when an entirely new party is involved highlights the fundamental requirement of replacing a party in the context of a contractual agreement.