Which term refers to termination by substituting a new contractual obligation, with full satisfaction when all terms are fulfilled?

• A. By performance
• B. By accord & satisfaction
• C. By novation
• D. By destruction of property

Answer: (B)

The idea here is settling a dispute by replacing the old obligation with a new one, and then fully performing that new obligation to discharge the original duty. This is accord and satisfaction. An accord is the agreement to accept a different performance in place of the original obligation, and satisfaction happens when that new performance is completed. Once the substituted terms are fully met, the original contract is discharged.

For example, if someone owes $100 but the parties agree to accept $80 as full payment, the agreement to take $80 is the accord, and when that $80 is paid, the debt is satisfied and the old obligation ends.

This differs from termination by performance, which ends only when the original duties are fully carried out, without substituting a new obligation. Destruction of property ends a contract because the subject matter is gone, not because a substituted obligation was created. Novation also ends the old contract, but it involves substituting a completely new contract (often with a new party or terms), rather than simply replacing the obligation to be satisfied under the existing agreement.