Performance, breach, and discharge - Discharge of duties (including accord and satisfaction, substituted contract, novation, rescission, and release)

Learning Outcomes

After reading this article, you will be able to identify and apply the main methods by which contractual duties are discharged other than full performance. You will understand the requirements and legal consequences of accord and satisfaction, substituted contract, novation, rescission, and release, and be able to distinguish these doctrines in MBE-style scenarios.

MBE Syllabus

For the MBE, you are required to understand the legal mechanisms that discharge contractual obligations without full performance. This includes recognizing the elements, effects, and distinctions among various discharge doctrines. You should be able to:

  • Recognize and apply the rules for discharge by accord and satisfaction.
  • Distinguish a substituted contract from other forms of discharge.
  • Identify the requirements and effects of a novation.
  • Understand mutual and unilateral rescission.
  • Analyze the effect of a release on contractual duties.
  • Determine when discharge is effective and which party bears the burden of proof.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which of the following best describes an accord and satisfaction?
    1. A mutual agreement to rescind a contract.
    2. A new contract that immediately replaces the old one.
    3. An agreement to accept different performance, followed by that performance.
    4. A unilateral release of one party’s duties.
  2. A, B, and C are parties to a contract. All agree that C will replace B and assume B’s duties, with B fully released. What is this called?
    1. Accord and satisfaction
    2. Novation
    3. Substituted contract
    4. Unilateral rescission
  3. Which of the following is required for a valid mutual rescission?
    1. Both parties must have fully performed.
    2. The contract must be executory on both sides.
    3. Only one party must consent.
    4. The rescission must always be in writing.
  4. A creditor agrees to accept a lesser sum in full satisfaction of a disputed debt, and the debtor pays that sum. What is the legal effect?
    1. The creditor may still sue for the balance.
    2. The debt is discharged.
    3. The agreement is void for lack of consideration.
    4. The original contract remains enforceable.

Introduction

A contract may be discharged not only by full performance, but also by certain legal mechanisms that excuse further performance. Understanding these methods is essential for the MBE, as questions often test your ability to distinguish among them and to identify when a party is truly released from contractual duties.

Key Term: Discharge of Duties The legal termination of a party's obligation to perform under a contract, so that no further performance is required.

Discharge by Accord and Satisfaction

An accord and satisfaction occurs when parties agree that a contractual obligation will be satisfied by a different performance (the accord), and that performance is then rendered (the satisfaction). This is most commonly seen where there is a dispute over the amount or nature of a debt.

Key Term: Accord and Satisfaction An agreement to accept a different performance in place of the original contractual duty (accord), followed by the actual performance of that substitute (satisfaction), which discharges the original obligation.

  • The accord alone suspends the original duty, but does not discharge it.
  • Only when the satisfaction (the substitute performance) is completed is the original duty discharged.
  • If the party fails to perform the accord, the other party may sue on either the original contract or the accord.

Worked Example 1.1

A owes B 10,000.TheydisputewhetherAowesthefullamount.TheyagreethatAwillpay10,000. They dispute whether A owes the full amount. They agree that A will pay 7,000 in full satisfaction of the debt. A pays $7,000, which B deposits.

Answer: The original debt is discharged. The accord (agreement to accept 7,000)andsatisfaction(paymentof7,000) and satisfaction (payment of 7,000) together extinguish the obligation, provided the debt was disputed or unliquidated.

Discharge by Substituted Contract

A substituted contract is a new agreement that immediately replaces and extinguishes the original contract. Unlike an accord, the substituted contract itself discharges the prior duty, regardless of whether the new promise is performed.

Key Term: Substituted Contract A new contract that replaces the original contract and immediately discharges the original duties, regardless of later performance.

  • The parties must clearly intend the new contract to replace the old one.
  • If the new contract is later breached, only the substituted contract may be enforced.

Worked Example 1.2

X and Y have a contract for X to deliver goods. They later agree that X will instead provide consulting services, and both intend this to replace the original deal.

Answer: The original contract is discharged immediately. If X fails to provide consulting, Y may only sue for breach of the substituted contract.

Discharge by Novation

A novation is a new contract that replaces one party to the original contract with a new party, with the consent of all original and new parties. The original party is fully released from further liability.

Key Term: Novation A mutual agreement among all parties to substitute a new party for an original party, with the intent to release the original party from all obligations.

  • Requires the consent of all parties (including the incoming party).
  • The original contract is discharged; only the new party is liable going forward.
  • Novation must be clearly intended; mere delegation of duties is not enough.

Worked Example 1.3

A contracts with B to build a house. With A and B’s agreement, C takes over A’s duties, and B releases A from liability.

Answer: This is a novation. C is now liable; A is discharged. If C breaches, B cannot sue A.

Discharge by Rescission

Rescission is the mutual cancellation of a contract by both parties before full performance. This is only available if both sides still have duties remaining (the contract is executory on both sides).

Key Term: Rescission The mutual agreement by the parties to cancel a contract and discharge all remaining duties before full performance.

  • If one party has fully performed, rescission is generally not available unless new consideration is given.
  • Rescission may be oral unless the contract falls within the Statute of Frauds.

Discharge by Release

A release is a written agreement by which one party gives up the right to enforce the other party’s contractual duties. At common law, a release required consideration or a seal; under modern statutes, a signed writing is usually sufficient.

Key Term: Release A written agreement in which one party relinquishes the right to enforce the other party’s contractual obligations, thereby discharging those duties.

  • A release is effective only if it complies with statutory requirements (usually a signed writing).
  • A release may be unilateral; mutual consent is not required.

Distinguishing the Doctrines

  • Accord and satisfaction suspends the original duty until the substitute performance is rendered; only then is the original duty discharged.
  • Substituted contract immediately replaces and discharges the original contract.
  • Novation substitutes a new party and releases the original party.
  • Rescission cancels the contract by mutual agreement before full performance.
  • Release is a written relinquishment of rights, effective upon execution.

Exam Warning

Be careful not to confuse a novation (which releases the original party) with a mere delegation of duties (which does not). The consent of all parties is required for novation.

Revision Tip

On the MBE, look for clear evidence of intent to discharge the original contract. If the parties agree to a new contract and intend it to replace the old one, it is a substituted contract. If they intend the new contract to be performed before the old one is discharged, it is an accord.

Key Point Checklist

This article has covered the following key knowledge points:

  • Discharge of duties can occur by accord and satisfaction, substituted contract, novation, rescission, or release.
  • Accord and satisfaction requires agreement to different performance and completion of that performance.
  • A substituted contract immediately replaces and discharges the original contract.
  • Novation substitutes a new party by agreement of all, releasing the original party.
  • Mutual rescission is only available if both sides have duties remaining.
  • A release is a written relinquishment of rights, effective upon execution.
  • The intent of the parties and the presence of consideration (where required) are critical for discharge.

Key Terms and Concepts

  • Discharge of Duties
  • Accord and Satisfaction
  • Substituted Contract
  • Novation
  • Rescission
  • Release
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Pleased to share that I have successfully passed the SQE1 exam on 1st attempt. With SQE2 exempted, I’m now one step closer to getting enrolled as a Solicitor of England and Wales! Would like to thank my seniors, colleagues, mentors and friends for all the support during this grueling journey. This is one of the most difficult bar exams in the world to undertake, especially alongside a full time job! So happy to help out any aspirant who may be reading this message! I had prepared from the University of Law SQE Manuals and the AI powered MCQ bank from PastPaperHero.

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