Novation vs Alteration: Difference and Comparison

Key Takeaways

1. Novation involves substituting one party in a contract with a new party, creating a new contract and releasing the original party from their obligations.
2. Novation requires the agreement of all parties involved in the original contract. It results in the discharge of the original obligations and the creation of new obligations between the remaining party and the new party.
3. The alteration, conversely, refers to making modifications or changes to an existing contract without replacing any party. Alterations may involve adjusting terms, conditions, pricing, or other provisions of the contract and may require the agreement of all parties depending on the contract and applicable laws.

What is Novation?

Novation is a legal concept that gets used in the context of contracts. It is a process where one party of a contract gets replaced by a new party. Hence it means a new contract gets created. The new party that replaces the previous one takes on all the rights and obligations.

Novation is needed when one party wants to hand over its rights to another. In the case of delegation of duty or merging, novation is involved. The shift of power can not be done abruptly. Consent from all involved is mandatory in terminating the old contract and creating the new one.

Novation can be contrasted with assignment, which is the transfer of only the rights under a contract, while the original party remains responsible for fulfilling the obligations under the contract. In novation, rights and obligations are transferred to the new party, and the original party is no longer responsible.

What is Alteration?

Alteration is also a term related to legal contracts and agreements. If one party desires any changes and modifications to the ongoing contract, they take the help of this process. Any terms, conditions, or obligations can be altered under this process.

This process can only occur when every party has signed the contract. The devices of alteration are addition, deletion, or substitution of terms. It can affect the validity and enforceability of the contract. Generally, any material alterations made to a contract without the consent of all parties may be able to rescind the contract or seek damages.

Additionally, contracts may include clauses that specify the conditions under which alterations may be made and the consequences of unauthorized changes. One must ensure that any changes are made by the terms of the original agreement and with the consent of all parties involved.

Difference Between Novation and Alteration

1. Novation is a procedure that replaces a party in a contract with a new one. On the other hand, alteration only changes a few terms of an existing contract.
2. Novation terminates the original contract and comes up with a new one, whereas, in the case of alteration, the existing contract does not get terminated. Only a few changes take place.
3. With novation, a whole new contract gets drafted and legalized, while in alteration, the changes can be done through a simple written agreement.
4. In novation, consent from all the involved parties is required, but at the same time, the consent of only the original parties is necessary for alteration.
5. Novation changes the nature of the contract, as along with the parties, the rules and regulations can also get revised, but alteration only modifies specific terms.

Comparison Between Novation and Alteration

Parameter of Comparison	Novation	Alteration
Description	Novation replaces a party in the contract with a new party.	Alteration is making modifications to an existing contract.
Intend	It aims to replace the original contract with a new one completely.	Its goal is to modify the terms of the original contract.
Legal Requirements	It may be subject to specific legal requirements like consideration.	It does not incorporate a lot of legal requirements.
Involved parties	It needs three parties, the original one, the one that replaced the original party, and the ongoing party.	Here only the original parties are required.
Consent of parties	Here, consent from all the involved parties is required.	Here the consent of only the original parties is needed.

References

1. https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/jmcl7&section=12
2. https://isr.umich.edu/wp-content/uploads/historicPublications/Supervisorypractices_2511_.PDF

Last Updated : 03 August, 2023