Contract, Which Need not be Performed :
A contract would not require performance under circumstances spelt out in Sections 62 to 67 of the Act. These circumstances are (i) novation, (ii) rescission,(iii) alteration and (iv) remission.
Section 62 of the Act provides that “if the parties to a contract agree to substitute a new contract for it or to rescind or alter it, the original contract need not be performed”.
(a) Effect of novation: Novation means substitution. Where a given contract is substituted by a new contract it is novation. The old contract, on novation ceases. It need not be performed. Novation can take place with mutual consent. However novation can take place by substitution of new contract between the same parties or between different parties. Novation results in discharge of old contract. This can be illustrated as follows –
A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.
(b) Effect of rescission: In case of rescission, the old contract is cancelled and no new contract comes in its place. A contract is also discharged by rescission. Some times parties may enter into an agreement to rescind the previous contract. Sometimes, the contract is rescinded by implication or by non- performance for a long time without each other complaining about it.
Difference between novation and rescission: While novation involves rescission, there is no novation in rescission. Both in novation and rescission the contract is discharged by mutual agreement. In both cases parties enter into a new contract to come out of the old contract.
The new agreement is the consideration for rescission.
(c) Effect of alteration: Where the contract is altered, the original contract is rescinded. Hence the old one need not be performed whereas the new one has to be performed. Alteration involves both rescission and novation. The line of difference between alteration and novation is very thin. While there can be very minor alterations, there can not be unilateral material alteration to a contract. If it is done it will be void.
Novation and alteration: Both in novation and in alteration the old contract need not be performed.
The main difference between the two are:
| Novation | Alteration |
| Novation involves changes in the terms of contract. It also sometimes means change in the parties to contract. It infact operates as a substitution of the old contract. | In alteration there are only changes in the term of contract by mutual consent. The parties to contract remain the same. There is no substitution of old terms; only some terms and conditions change. There are remission of performance in alteration. |
Remission means waiver. Section 63 of the Act deals with remission. It provides that “every promisee may dispense with or remit wholly or in part, the performance of the promise made to him or may extend the time for such performance or may accept instead of it any satisfaction which it thinks fit”. Thus the promisee can waive either in full or in part the obligation of the promisor or extend the time for performance. For example where ‘A’ owes ‘B’ a sum of ` 1 lakh, ‘B’ may accept a part of it in full and final settlement of the due or waive his entire claim.
While granting the time to the promisor, the promisee cannot do so for his benefit but can do so only for the benefit of the promisor. For example where ‘A’ promises ‘B’ that he would deliver certain goods by a certain date, ‘B’ can extend the time but he cannot take advantage to charge interest on the extended time.
Similarly a promisee can accept any other performance to his satisfaction instead of the specified stipulated performance.
For example where A promises to sell his horse for a consideration of ` 5000/- to ‘B’, ‘A’ may instead of cash consideration of ` 5000/-may accept jewellery worth Rs 5,000/-in full satisfaction of the consideration. In a situation like this the essential element of ‘satisfaction’ is that the promisee must accept the consideration unequivocally. If a promisor tenders some thing in full satisfaction but the promisee does not accept it or accepts in part performance, such satisfaction will fall outside the ambit of section 63 of the Act. [ Shyamnagar tin Factory vs Snow White Food Products, A.I.R (1965) Cal 54]
It should be noted that novation, rescission or alteration cannot take place without consideration but in case of part or complete rescission no consideration is required. The promisee can dispense with performance without consideration and without a new agreement.