ContractsIntermediateCalifornia Exam

Novation in a real estate contract occurs when:

AA new party is substituted for an original party, releasing the original party from liabilityCorrect
BThe contract terms are modified without changing parties, as typically drafted in a residential purchase agreement
CA contingency is removed from the contract, consistent with common contract law principles
DThe earnest money deposit is increased, per standard contingency and disclosure practice

Why A new party is substituted for an original party, releasing the original party from liability Is Correct

Answer A: A new party is substituted for an original party, releasing the original party from liability

Novation substitutes a new party for an original party with the consent of all parties, releasing the original party from all further obligation under the contract.

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

Earnest Money

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

Contingency

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

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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