The clearing house practice simplifies the processes for participants who do not have the resources to verify the creditworthiness of each potential counterparty. However, the buying and selling parties are unlikely to see the clearing houses become insolvent, although this is considered unlikely. A guarantee is a lesser clause, since it is only a subsidiary of the main purpose of the contract. The breach of the warranty confers only a right to reparation. In real estate law, a new one occurs when a tenant transfers a tenancy agreement to another party that assumes both responsibility for rent and liability for any consequential damage to the property, as indicated in the original tenancy agreement. In the construction industry as well, novation is often listened when contractors transfer certain workstations to other contractors, provided customers accept such a measure. Novation is also used in futures and options trading to describe a particular situation in which the central clearing house between buyers and sellers presents itself as a legal counterpart, i.e. the clearing house becomes a buyer for each seller and vice versa. The result is the need to determine the creditworthiness of each counterparty and the only credit risk to which participants are exposed is the risk of default by the clearing house. In this context, innovation is seen as a form of risk management. A contract can be entered into regardless of the will of the parties.
There are laws that relieve a contract in certain circumstances, such as, “I was really impressed with your service and I will reuse your business, and more importantly, I recommend it.” Novation is the act of replacing an existing contract in valid form with a replacement contract by which all parties involved agree on the change. In most innovation scenarios, one of the original two parts is replaced by a whole new party, in which the original party is willing to waive the rights originally conferred on them. Innovations are most used in business acquisitions and business sales. To continue with our example, instead of the money you owe, Monica may agree to accept a coin from Sally`s original work that is worth approximately $200. The transfer of ownership constitutes a renewal and effectively exceeds the original cash commitment. Legally, the principle of “treaty compliance” means that only the contracting parties are required to comply and the right to enforce it.