Just as parties create obligations by mutual agreement, they can end or alter them the same way. S.62 and S.63 provide the statutory mechanisms: substituting a new contract for the old, or the promisee voluntarily accepting less than full performance.
Legal Framework
| Section | Act | Scope |
|---|---|---|
| S.62 | Indian Contract Act, 1872 | Parties to a contract may substitute a new contract, rescind, or alter it; the original contract need not be performed |
| S.63 | Indian Contract Act, 1872 | A promisee may dispense with or remit performance, extend time, or accept any satisfaction they think fit, instead of actual performance |
Novation Under S.62
Novation substitutes an entirely new contract for the original, either between the same parties on new terms, or between different parties altogether, with the original obligation extinguished.
Why novation requires all parties' consent: Since novation replaces the original obligation entirely, including potentially substituting a new party, every party whose rights and obligations are affected must consent, otherwise a party could find their contractual counterpart, or the very terms binding them, changed without agreement.
Novation by change of parties: A owes B a debt. With B's consent, C agrees to take over A's obligation, and A is released. This substitutes C as the debtor in place of A.
Novation by change of terms: A and B, bound by an existing contract, mutually agree to entirely new terms governing the same underlying transaction, extinguishing the old contract and replacing it with the new one.
Rescission Under S.62
Rescission is the mutual agreement to entirely cancel the contract, releasing both parties from all further obligations under it, without any substitute arrangement replacing it.
Alteration Under S.62
Alteration changes one or more terms of the existing contract by mutual consent, while the contract's substantial identity and the parties remain the same, unlike novation, which replaces the contract or its parties altogether.
Remission Under S.63
A promisee may dispense with or remit, wholly or in part, the performance of the promise made to them, may extend the time for performance, or may accept any satisfaction they think fit instead of actual performance, all without requiring fresh consideration from the promisor.
Why no fresh consideration is required here, contrary to the general rule: S.63 is a deliberate statutory departure from the ordinary consideration requirement, recognising that a promisee's voluntary decision to accept less, or to extend time, is itself a unilateral act of generosity or convenience that the law chooses to make binding once acted upon, without demanding the promisor give anything additional in exchange.
Accord and Satisfaction
Though not a term used directly in the Indian Contract Act's text, the concept operates through S.63: an "accord" is the agreement to accept something different from, or less than, the original performance owed, and "satisfaction" is the actual receipt of that substituted performance.
Why this operates as valid discharge without new consideration under Indian law: Since S.63 permits a promisee to accept any satisfaction they think fit, Indian law does not require the debtor to provide anything of independent value beyond what the promisee has agreed to accept, a notable departure from the stricter English common law position historically requiring fresh consideration even for partial payment settlements.
Illustrations
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Novation, change of parties: A owes B Rs. 50,000. A, B, and C agree that C will take over A's debt and pay B directly, releasing A entirely. This is novation by substitution of C as the new debtor, and the original A to B contract is extinguished.
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Remission of part performance: A owes B Rs. 1 lakh. B agrees to accept Rs. 70,000 in full settlement of the debt, without requiring anything further from A. Under S.63, this remission is binding on B once accepted and acted upon, and A is fully discharged despite paying less than the original amount, without needing to provide any fresh consideration for B's concession.
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Extension of time: A promises to deliver goods to B by 1 August. Due to a supply delay, A requests more time, and B agrees to extend the delivery date to 15 August. Under S.63, this extension is binding without requiring any additional consideration from A.
Recall Check
- Why does novation require the consent of all parties, including any newly substituted party?
- Under S.63, can a promisee accept less than the full amount owed and still discharge the promisor entirely?
- Distinguish alteration from novation under S.62.
Distinctions
| Basis | Novation | Rescission | Alteration | Remission (S.63) |
|---|---|---|---|---|
| Effect | New contract substitutes the old, possibly with new parties | Contract cancelled entirely, no substitute | Terms changed, same parties and same substantial contract | Promisee accepts less or extends time, no new contract |
| Fresh consideration needed | Yes, for the new substituted contract | Not required beyond mutual consent to cancel | Yes, for the altered terms | No, S.63 dispenses with this requirement |
| Governing provision | S.62 | S.62 | S.62 | S.63 |
Flashcards
Q: What does S.62 permit parties to do with an existing contract? A: Substitute a new contract, rescind it, or alter its terms, discharging the original contract.
Q: Does novation require the consent of all parties affected, including a newly substituted party? A: Yes, since it extinguishes the original obligation and creates a new one.
Q: Under S.63, must a promisor provide fresh consideration for a promisee's remission of part of the debt? A: No, S.63 permits a promisee to accept lesser satisfaction without requiring fresh consideration.
Q: What is the difference between rescission and alteration under S.62? A: Rescission cancels the contract entirely with no substitute; alteration changes specific terms while the contract's substantial identity continues.
Q: Can a promisee under S.63 extend the time for the promisor's performance without fresh consideration? A: Yes, this is expressly permitted under S.63.
Exam Scenario
A owes B Rs. 2 lakh under a contract. Facing financial difficulty, A requests B to accept Rs. 1.5 lakh in full and final settlement. B agrees in writing and accepts the reduced payment. Sometime later, B demands the remaining Rs. 50,000, arguing that A provided no fresh consideration for the reduction and that the original debt survives in full. Advise A on his defence.
Approach: Apply S.63, which permits a promisee to dispense with or remit performance, in whole or in part, and to accept any satisfaction they think fit, without requiring fresh consideration from the promisor. Distinguish this from the stricter English common law position B may be relying on, and confirm that under Indian law, B's written agreement to accept Rs. 1.5 lakh in full settlement, once accepted, operates as a valid and binding remission under S.63, fully discharging A from the remaining Rs. 50,000, regardless of the absence of any additional consideration from A.
See Also
- Consideration Features and Exceptions : the general rule requiring consideration for contractual modification, contrasted here with S.63's specific statutory exception for remission.