Which term refers to the substitution of a third party for one of the original parties to a contract, releasing the original party from rights and obligations under the contract?

• A. Novation
• B. Tender
• C. Donee beneficiary
• D. Material breach of contract

Answer: (A)

Novation is the substitution of a third party for one of the original contract’s parties, resulting in the release of the original party from rights and obligations. In a novation, the remaining party, the new party, and the other original party all agree to form a new contract, and the old contract is extinguished so the original party is discharged from duties. This is different from simply transferring rights or delegating duties, where the original party typically remains liable or the obligation continues under a new arrangement rather than creating a completely new contract.

For example, if A contracts with B to perform a service, and C agrees to take B’s place, with all parties consenting to a new agreement between A and C, B is released from the contract.

The other options don’t fit: tender is just an offer to perform or pay; a donee beneficiary is someone who benefits from a contract but isn’t substituted for a party; a material breach is a breach that may excuse performance or trigger damages, not substitution of parties.