Arizona Real Estate License Practice Exam

In this scenario, when Ned substitutes his sister Fay's name for his in an agreement, it represents a novation. Novation is a legal concept that involves the replacement of one party in a contract with the consent of all original parties involved, effectively creating a new agreement. This means that instead of transferring the rights and obligations of the original agreement to a new party (which would be an assignment), the original party (Ned) is being replaced entirely by another party (Fay).

This is different from an assignment, which allows the original party to retain liability while transferring their responsibilities to someone else. In novation, the original party is fully released from the contract, making Fay the new party who will assume rights and obligations under the contract. This ensures that all parties are aware of and agree to the changes being made, establishing Fay as the primary party to the agreement.

Recission, on the other hand, involves nullifying or canceling an existing contract, while a tender offer is a proposal to purchase some or all of shareholders' shares in a corporation. Thus, the correct understanding of this transaction lies in recognizing that a novation effectively establishes a new agreement with a different party, which is exactly what occurs with Fay's substitution