Fill in the blank. When both parties agree that another party will assume the contractual obligations of one of the parties, a __________ has occurred.

• A. Cancellation
• B. Novation
• C. Rescission
• D. Delegation

Answer: (B)

Novation happens when all parties agree to substitute a new party in place of one original obligor, with the old contract extinguished and a new contract formed between the remaining party and the new party. The original obligor is released from liability, and the new party steps into the same contractual position. This is different from delegation, where a party transfers performance to someone else but remains technically liable under the contract; the contract itself isn’t replaced. It also differs from cancellation or rescission, which terminate or undo the contract rather than substitute a new obligor. So, when another party takes on the contractual obligations of one party with all parties’ agreement, that is novation.