Paralegal Certification PrepContracts and Business LawMedium
A landlord and tenant sign a one-year apartment lease. Three months into the lease, the tenant loses their job and cannot pay rent. The tenant informs the landlord, who agrees to release the tenant from the remainder of the lease if the tenant finds a suitable replacement tenant. The tenant finds a qualified replacement, who signs a new lease with the landlord. This scenario best exemplifies which method of contract discharge?
- AAccord and Satisfaction
- BNovation
- CMaterial Breach
- DImpossibility of Performance
Show answer & explanationAnswer & explanation
Correct answer: B. Novation
Novation occurs when a new contract is substituted for an old one, effectively replacing one of the original parties with a new party, and all parties agree to the release of the original party from their obligations. Here, the original tenant is replaced by a new tenant with the landlord's agreement.
Why the other options are wrong
- A. Accord and satisfaction involves resolving a disputed debt by agreeing to and performing a new obligation, not replacing a party.
- C. A material breach is a failure to perform a significant part of the contract, which could happen here, but the question describes a method of discharge, not just a breach.
- D. Impossibility of performance occurs when unforeseen circumstances make performance objectively impossible, not merely difficult or inconvenient due to job loss.
Novation
A legal process by which all parties to a contract agree to substitute a new party for one of the original parties, or to substitute a new agreement for an old one, thereby discharging the obligations of the original contract.
- Requires agreement by all original parties and the new party.
- Substitutes a new party or a new obligation.
- Completely discharges the original contract and its parties.
- Distinct from assignment, where original party remains liable.
Memory trick: Novation: New people, new deal, old one is done.