2025 Contracts and Sales Bar Exam Complete Practice Test

Discharge by novation occurs when a third party takes the place of one of the original parties to a contract, thereby releasing the replaced party from their obligations under the original agreement. This process requires the consent of all parties involved: the original parties and the new party must agree to the substitution. By allowing the third party to step into the obligations of the original party, novation effectively creates a new contract. The essential element of novation is that it transfers the rights and obligations from one party to another, marking a significant change in the contractual relationship.

In contrast, discharge by release involves one party relinquishing their rights against the other, without the introduction of a third party. Discharge by impracticability refers to situations where performance of the contract has become significantly more difficult or impossible due to unforeseen circumstances, which does not involve any party change. Discharge by cancellation typically means that the contract is terminated by mutual agreement or by a party exercising a cancellation clause, again without a third party intervening. Thus, novation is uniquely characterized by its incorporation of a new party who assumes the contractual duties of one of the original parties.