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Novation: Difference between revisions
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There are pretty obvious economic reasons why that should be so: the creditworthiness of the party with whom you have contracted is a fundamental part of the bargain you have made: that party should not be able to substitute itself without your permission. | There are pretty obvious economic reasons why that should be so: the creditworthiness of the party with whom you have contracted is a fundamental part of the bargain you have made: that party should not be able to substitute itself without your permission. | ||
Therefore a [[novation]] is, in effect, the consensual termination of the existing contract (between “[[transferor]]” and the “[[remaining party]]”) and the creation of a new contract on identical terms between “[[remaining party]]” and the incoming party (known often as the “[[transferee]]”. | Therefore a [[novation]] is, in effect, the consensual termination of the existing contract (between “[[transferor]]” and the “[[remaining party]]”) and the creation of a new contract on identical terms between “[[remaining party]]” and the incoming party (known often as the “[[transferee]]”). | ||
===[[Consideration]]=== | ===[[Consideration]]=== | ||
The [[consideration]] given for terminating one contract and creating the other are related: In effect, there will be a [[MTM]] value payable to or from the [[transferor]] under the first, and an equal payment to or from the [[remaining party]] under the second, so [[transferor]] and [[transferee]] settle these payments directly between each other. [[Remaining party]]’s obligation to discharge [[transferor]] of its liabilities under the terminating {{t|contract}} is conditional on [[transferee]]’s agreement to accept the identical liabilities under the new [[contract]]. | The [[consideration]] given for terminating one contract and creating the other are related: In effect, there will be a [[MTM]] value payable to or from the [[transferor]] under the first, and an equal payment to or from the [[remaining party]] under the second, so [[transferor]] and [[transferee]] settle these payments directly between each other. [[Remaining party]]’s obligation to discharge [[transferor]] of its liabilities under the terminating {{t|contract}} is conditional on [[transferee]]’s agreement to accept the identical liabilities under the new [[contract]]. | ||