What term describes the extinguishment of an existing obligation by the substitution of a new one?

The term that describes the extinguishment of an existing obligation by the substitution of a new one is known as novation. In legal contexts, novation involves replacing an old contract with a new contract, leading to the termination of the original obligation and the creation of a new obligation between the involved parties. This process ensures that the original parties no longer hold any responsibilities under the old contract, as it is effectively canceled and replaced.

In cases of novation, it is crucial that all parties involved consent to the new agreement, as the intent is to create a fresh obligation that is distinct from the previous one. This principle is particularly relevant in transactions involving title insurance, where clarity and certainty regarding the obligations of the parties involved are essential.

The other terms do not convey the same specific legal concept as novation. Termination refers to the ending of a contractual relationship but does not necessarily involve substitution with a new contract. Rescission deals with voiding a contract and returning parties to their prior positions, rather than introducing a new obligation. Mutual agreement indicates a general consensus between parties but lacks the specific connotation of replacing an old obligation with a new one that is inherent to novation.