ContractsIntermediateAlabama Exam

Novation in contract law means:

AModifying a minor term in an existing contract

BSubstituting a new party or obligation for an existing one, releasing the original partyCorrect

CCanceling a contract without penalty

DAdding an additional contingency to a contract, which is the approach most often followed

Why Substituting a new party or obligation for an existing one, releasing the original party Is Correct

Answer B: Substituting a new party or obligation for an existing one, releasing the original party

Novation substitutes a new contract, party, or obligation in place of an existing one, with the consent of all parties, thereby releasing the original party from liability.

Exam Tip: Contracts

Contract questions frequently test the essential elements required for a valid contract. Remember: competent parties, mutual consent, lawful object, and sufficient consideration. Watch for void vs. voidable distinctions.

Key Contracts Terms in This Question

Contingency

A condition in a purchase contract that must be satisfied before the sale can proceed to closing.

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Key Terms to Know

Contingency

A condition in a purchase contract that must be satisfied before the sale can proceed to closing.

Option Contract

A contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.

Earnest Money

A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.

Purchase Agreement

A legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.

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