A contractor entered into a contract with a homeowner to renovate the homeowner's property for $50,000. Before work began, both parties decided to replace the original contract with a new agreement under which the contractor would build a guest house on the property for $60,000 instead of performing the renovation. The contractor later refused to construct the guest house. Under the facts, what is the BEST explanation of the legal effect of the new agreement?
The original contract was discharged because the new agreement constituted a valid novation.
The original contract remains in effect because the new agreement was only a modification of the terms.
The original contract was discharged because the parties mutually rescinded it.
The original agreement was not discharged because there was no accord and satisfaction.
The correct answer is rooted in the legal doctrine of 'novation,' which occurs when a new contract replaces an existing one, extinguishing the original agreement. For a novation to occur, there must be mutual agreement, valid consideration, and a clear intent to substitute the previous contract. Since both parties agreed to replace the original contract with the new one, the new agreement discharged the original obligations. Option A is incorrect because mere agreement to modify a contract does not fully discharge the original if the terms reflect modifications rather than substitution. Option B is incorrect as rescission refers to canceling a contract entirely, restoring parties to their pre-contract state, which is not what happened here. Option D is incorrect because accord and satisfaction involve resolving disputes over existing obligations, which is not at issue in these facts.
Ask Bash
Bash is our AI bot, trained to help you pass your exam. AI Generated Content may display inaccurate information, always double-check anything important.
What is a novation in contract law?
Open an interactive chat with Bash
What are the requirements for an effective novation?
Open an interactive chat with Bash
How does a novation differ from a contract modification?