Explain the difference between assignment of rights and novation of a contract.

• A. Assignment transfers existing rights to a third party; novation replaces one party with another and creates a new contract with consent of all parties
• B. Assignment ends the contract; novation creates a new contract
• C. Novation transfers existing rights; assignment creates a new contract
• D. They are the same concept

Answer: (A)

In short, the difference hinges on who holds the rights and what happens to the contract. An assignment of rights means one party transfers their right to receive performance under the contract to a third party. The underlying contract keeps going between the other party and the remaining original party, and the assignor generally remains liable for duties unless there’s a release or a separate agreement. There’s no new contract created and no substitution of the contracting parties.

Novation, on the other hand, involves substituting one party for another and, with everyone’s consent, creating a new contract that replaces the old one. The original contract is discharged, and the new party becomes the liable party under the new agreement.

The statement aligns with this distinction: assignment transfers existing rights to a third party; novation replaces one party with another and creates a new contract with consent of all parties.