During discharge of a contract by agreement, when a new contract is substituted for an old contract, it is called ________.

Novation

The correct answer is Option (1) → Novation

During the discharge of a contract by agreement, when a new contract is substituted for an old contract, it is called Novation.

(a) Novation - A new contract is substituted for an old contract.

(b) Rescission - Certain terms or all terms of a contract are cancelled. 

(c) Alteration - When certain terms of a contract are altered or modified with the mutual consent of the parties.

(d) Remission - Acceptance is made to a promise but not on the complete terms of the promise but to a lesser fulfilment of the promise.

(e) Waiver - Parties to a contract abandon their mutual rights.

(f) Merger - Certain terms of a contract or all the terms of a contract are merged into another contract with the consent of the parties.