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A novation is the mutual agreement between the parties, to an existing contract, for its discharge by the substitution of a new valid obligation. To prove a novation, four elements must be shown: (1) the existence of a previously valid contract; (2) the agreement of the parties to cancel the first contract; (3) the agreement of the parties that the second contract replace the first; and (4) the validity of the second contract. From a legal standpoint, a novation is a form of affirmative defense, and the party who advocates a novation has the burden of proving it by clear, satisfactory evidence.
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Please keep in mind that the above information is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as legal or investment advice.