In contract law, what term refers to transferring contractual obligations from one party to another?

In contract law, what term refers to transferring contractual obligations from one party to another?

• A. Novation
• B. Assignment
• C. Subrogation
• D. Escrow

Answer: (B)

The idea being tested is how a contract can be substituted so one party’s duties are carried out by someone else. That substitution is called novation. In a novation, the original contract is replaced by a new agreement in which a new party takes on all the rights and obligations, and the original party is released from those duties. This swap requires the consent of all involved parties. This differs from an assignment, which is about transferring rights under a contract to a third party (for example, the right to receive a payment). The original party can often remain responsible for performance unless a novation occurs. Subrogation is when one party pays a claim and then steps into the insured’s rights to pursue reimbursement. Escrow is merely a neutral holding arrangement for funds or documents.

The idea being tested is how a contract can be substituted so one party’s duties are carried out by someone else. That substitution is called novation. In a novation, the original contract is replaced by a new agreement in which a new party takes on all the rights and obligations, and the original party is released from those duties. This swap requires the consent of all involved parties.

This differs from an assignment, which is about transferring rights under a contract to a third party (for example, the right to receive a payment). The original party can often remain responsible for performance unless a novation occurs. Subrogation is when one party pays a claim and then steps into the insured’s rights to pursue reimbursement. Escrow is merely a neutral holding arrangement for funds or documents.