For example: you make a loan to someone (it could be money or goods) and later you want to change who receives the repayment (change who is the creditor). A novation is not a unilateral contractual mechanism; Therefore, all parties involved can negotiate the terms of the replacement contract until a consensus is reached. Our standard assignment agreement can be used for most orders (for the exceptions below). It is not specific to the circumstances. Upon Novation, the parties terminate the original contract and establish a brand new contract. However, the same conditions and provisions must be maintained in the agreement, as it would be too costly for the debtor to change the repayment terms. This would allow the lender to continue to comply with certain obligations that the debtor has not used. Thereafter, the former lender no longer has an obligation under the original contract; It will be as if the original contract no longer exists and is replaced by the new loan agreement. In the derivatives sector, Novation will have another meaning. It refers to an agreement with a clearing house.
Instead of negotiating directly with buyers, the seller transfers his securities to the clearing house, which in turn resells them to the buyer. While the transaction is bilateral, the clearing house will therefore continue to act as an intermediary. This reduces credit risk for participants in the transaction who may not be able to identify the creditworthiness or quality of the other party. The only risk for both parties is that the clearing house will become insolvent. In a sense, it is misleading to refer to Novation as a method of “transfer”. The novelty of a loan means that the rights and obligations of the existing lender will be completely removed and discharged and the new lender will assume in its place new and identical rights and obligations.. . . .