Novation Agreement can be termed as substitution of new debt for the old debt. This agreement facilitates extinguishing of old debt and replacing it with new one. This Contract is mainly used for regularizing contractual position of a company that has purchased an established business.
Novation can be entered in three different ways including:
The basic content of Novation Agreement can be summed up as follows:
Thus, through Novation Agreement, old rights and obligations can be replaced with newer obligations. The obligation of the debtor is transferred to another person, who becomes the new debtor and guarantees the payment. The creditor also accepts him and releases and discharges the old debtor depending upon the Agreements or consent between parties.
Below given Novation Agreement template can be used for entering Novation Contracts:
NOVATION AGREEMENT
The _________________________(Transferor), a corporation duly organized And existing under the laws of __________________[insert State] with its principal office in
____________________[insert city]; the___________________ (Transferee),[if appropriate add “formerly known as the ____________________“] a corporation duly organized and existing under the laws of _______________ [insert State] with its principal office in _____________ [insert city]; and ________ (Counter Party)enter into this agreement as of _________________[insert the date transfer of assets becomes effective under applicable State law].
(a) THE PARTIES AGREE TO THE FOLLOWING FACTS:
1.______________________Counter Party has entered into certain contracts with Transferor, namely: ________________________ [insert contract or purchase order identifications]; or delete “namely” and insert “as shown in the attached list marked Exhibit A and incorporated in this Agreement by reference”].
The Term “THE CONTRACTS,” as used in this Agreement, means the above contracts and purchase orders, including all modifications, made between________________ Counter Party and the Transferor before the effective date of this Agreement (whether or not performance or payment have been completed and releases executed if______________Counter Party or the Transferor has any remaining rights, duties, or obligations under these contracts and purchase orders). Included in the term
“THECONTRACTS” are also all modifications made under the terms and conditions of the contracts and purchase orders between____________________Counter Party and the Transferee, on or after effective date of this Agreement.
2. As of _____________20______, the Transferor has transferred to the Transferee all of the assets of the Transferor by virtue of a ___________
[insert term descriptive of the legal transaction involved] between the Transferor and Transferee.
3. The Transferee has accepted all the assets of the Transferor by virtue of the above transfer.
4. The Transferee has assumed all obligations and liabilities of the Transferor under the contracts by virtue of the above transfer.
5. The Transferee is in a position to fully perform all obligations as they may exist under the contracts.
6. It is consistent with Counter Party’s interest to recognize the Transferee as the successor party to the contracts.
7. Evidence of the above transfer has been filed with Counter Party. [When achange of name is also involved; e.g., a prior or concurrent change of the
Transferee’s name, an appropriate statement shall be inserted (see example in paragraph (8) below)].
8. A certificate dated ____________20_____,signed by the Secretary of State of _________________[insert State], to the effect that the corporate name of _____________was changed to _______________on_______________20_________, has been filed with Counter Party.
(b) IN CONSIDERATION OF THESE FACTS, THE PARTIES AGREE THAT BY THIS AGREEMENT-
1. The Transferor confirms the transfer to the Transferee, and waives any claims and rights against _____________________Counter Party that it now has or may have in the future in connection with these contracts.
2. The Transferee agrees to be bound by and to perform each contract in accordance with the conditions contained in the contracts.
The Transferee also assumes all obligations and liabilities of, and all claims against, the Transferor under the contracts as if the Transferee was the original party to the contracts.
3. The Transferee ratifies all previous actions taken by the Transferor with respect to the contracts, with the same force and effect as if the action had been taken by the Transferee.
4. _____________________Counter Party recognizes the Transferee as the Transferor’s successor in the interest in and to the contracts. The Transferee by the Agreement becomes entitled to all rights, titles, and interests of the Transferor in and to the contracts as if the Transferee were the original party to the contracts.
Following, the effective date of this Agreement, the term “CONTRACTOR” as used in the contracts, shall refer to the Transferee.
5. Except as expressly provided in this Agreement, nothing in it shall be construed as a waiver of any rights of ______________________ Counter Party against the Transferor.
6. All payments and reimbursements previously made by _____________Counter Party to the Transferor, and all other previous actions taken by ______________________ Counter Party under the contracts, shall be considered to have discharged those parts of ___________________Counter Party’s
obligations under the contracts. All payments and reimbursements made by _____________________Counter Party after the date of this Agreement in the name of or to the Transferor shall have the same force and effect as if made to the Transferee and shall constitute a complete discharge of Counter Party’s obligations under the contracts, to the extent of the amounts paid or reimbursed.
7. The Transferor and Transferee agree that _____________________Counter Party’s not obligated to pay or reimburse either of them or otherwise give effect to any costs, taxes, or other expenses, or any related increases, directly or indirectly arising out of or resulting from the transfer or this Agreement, other than those that____________________Counter Party in the absence of this transfer or Agreement would have been obligated to pay or reimburse under the terms of the contracts.
8. The Transferor guarantees payment of all liabilities and the performance of all obligations that the Transferee (i) assumes under this Agreement; or (ii) may undertake in the future should these contracts be modified under their terms and conditions. The Transferor waives notice of, and consents to, any such future modifications.
9. The contracts shall remain in full force and effect, except as modified by this Agreement. Each party has executed this Agreement as of the day and year first above written.
By ____________________________________
Title ___________________________________
___________________________________