Which termination occurs when the parties replace the original contract with a new obligation?

• A. By accord & satisfaction
• B. By novation
• C. By partial performance
• D. Mutual agreement

Answer: (B)

Novation happens when the parties replace the original contract with a new obligation, and the old agreement is discharged. In a novation, a fresh contract takes its place—often with a new promise, or with a new party taking on the duties of the old one—so the original obligation no longer exists. For this to occur, all involved parties must agree to the substitution.

For example, if A owes B under a contract, and A is replaced by C who agrees to assume A’s duties under a new contract with B, the old contract is extinguished and a new one binds B and C. That replacement is what makes it novation.

Accord and satisfaction, by contrast, involves settling a dispute by accepting a different performance in satisfaction of the original obligation; the original contract is not replaced with a new one, it’s settled. Partial performance means only part of the obligation is fulfilled and does not terminate the contract. Mutual agreement can terminate the contract (rescission) without creating a new substituted obligation, so it doesn’t fit the idea of substituting the original contract with a new one.