EFFECT OF NOVATION RESCISSION AND ALTERATION OF CONTRACT

Submitted by

NANCY SINGH

2019-24……...BA-LLB….E…PRN-19010223132

IN

AUGUST, 2019

Under the guidance of

DR. KANAN DIVETIA

SYMBIOSIS LAW SCHOOL, NOIDA

SYMBIOSIS INTERNATIONAL(DEEMED UNIVERSITY), PUNE

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 1
INTRODUCTION
DISCHARGE OF CONTRACTS
A contracts is discharged when the obligations created by it come to an end. A contract may be discharged in any
of the following ways:
1. By agreement.
2. By performance of the contract.
3. By lapses of time.
4. By operation of law.
5. By material alteration.
6. By subsequent impossibility of the performance.
7. By breach.
1. By Agreement Sec. (62-64)
The parties may agree to terminate the existence of the contract by any of the following ways:- (a) By
Novation (Sec. 62): Substitution of a new contract in place of the old existing one is
known as ‘inovation of contract’. New contract may be either between the same parties or between different parties,
the consideration being mutually the discharge of the old contract.
(i) Substitution of a contract with new terms for an old contract between the same parties.
(ii) Substitution of a new party for an old one, the contract remaining the same. Promisee will now look to the third
party for the performance of the contract. Original promisor is released of the obligations under the old contract.
Implied agreement
An agreement to alter or rescind a contract may be express or implied. Thus a balance signed by the defendant
which states as payable a rate of interest different from the Tate usually charged in the previous accounts, amounts
to a new contract which can form the basis of a suit.

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 2
legally enforceable agreement that is formed by the conduct or behavior of the parties rather than
through specific words. Most legal contracts are written down, but those that are implied typically aren’t, and not
only that they often don’t even involve direct communication between the parties.

ILLUSTRATION
(a).A owes money to B under a contract .It is agreed between A,Band 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). A owes B 10,000 rupees.A enters into an agreement with B, and gives B, and gives B a mortgage of the his
(A’s) estates for 5000 rupees in place of the
debt of 10,000 rupees.This is a new contract and extinguishes the old.
(c). A owes B 1000, rupees under a contract. B owes c 1,000 rupees. B orders A to credit C with 1000 rupees in
his books, but c does not assent to the agreement.B still owes C 1000 rupees,
And no new contract has been entered into.
Assent of all parties-Weather or not there is a novation of a contract it is in each case a question of fact. This
section requires assent of both the parties in respect of novation, alteration or rescission. Unilateral novation,
alteration or rescission can however take place if this was either envisaged in the original contract, or, if the
novation alteration or rescission is accepted sub silentio i.e there is implied acceptance through silence.

Discharge of existing contract- The word “THE ORIGINAL CONTRACT need not be performed” clearly indicate that
by virtue of the three circumstances specified in this section,the old original contract is discharged completely
and it is not to be performed. You have then to look at the new contract or the altered contract, as the case may
be.

EXPLANATION

What is novation?
The meaning of “novation” the term used in the marginal note to this section and now the accepted
catchword for its subject-matter, has been thus defined in the House of Lords: "that, there being a
contract in the existence, some new contract is substituted for it either between the same parties (for
that might be) or between different parties, the consideration mutually being the discharge of the old
contract. A common instance of it in partnership cases is where upon the dissolution of the partnership
the person who are going to continue in business agree and undertake as between themselves and the

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 3
 retiring partner, that they will assume and discharge the whole liabilities of the business, usually taking
over the assets; and if, in that cases, they give notice of that arrangement to a creditor, and the new
firm to the effect that he will accept their liability instead of the old liability, and on other hand, that
they promise to pay him for that consideration.

The first takes place, without the intervention of any new person, where a debtor contracts a new
engagement with his creditor, in consideration of being liberated from the former. This kind has no
appropriate name, and is called a novation generally.
The second is that which takes place by the intervention of a new debtor, where another person
becomes a debtor instead of a former debtor, and is accepted by the creditor, who thereupon
discharges the first debtor. The person thus rendering himself debtor for another, who is in
consequence discharged, is called expromissor; and this kind of novation is caned expromission.
The third kind of novation takes place by the intervention of a new creditor where a debtor, for the
purpose of being discharged from his original creditor, by order of that creditor, contracts some
obligation in favor of a new creditor. There is also a particular kind of novation called a delegation.

NOVATION BY COLLATERAL AGREEMENT

The collateral agreement must be, in a complete sense legal contract , and the effect must be to vary
or add the terms to contract .Such collateral agreement are viewed in suspicion and so must be proved
strictly. The term of the agreement and also the animus contract on the part of all the parties must be
established clearly.

Substitution of New Agreement

When the parties to a contract agree to substitute a new contract for it, the original contract is
discharged and need not be performed. It is necessary for the application of this principle that the
original contract must be subsisting and unbroken. The substitution of a new contract is not possible
AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF
SSC ONLINE Page 4
 after there has been breach of the original contract. An early illustration is Manohur Koyal v Thakur Das
Naskar, the plaintiff sued to recover the sum of Rs. 1173 due on a bond. After the due date of the
bond, the plaintiff agreed to accept Rs. 400 in cash and a new bond of Rs. 700 payable by instalments.
Subsequently, the defendant neither gave Rs. 400 nor the bond.

The plaintiff thereupon sued him on the original bond. The Calcutta High Court held that the original
contract was discharged, not by novation, but by breach, and the plaintiff was entitled to sue for the
breach of the original contract.

EFFECT OF NOVATION

When a contract is novated a new contract come into existence, directly or by implication, in the place
of the on tract. A contract would be rescinded by another contract between the same parties where
new contract, or inconsistent with, or rendered impossible the performance of the former contract.
Where legal effect of both contract, i.e. new and the former ones remains the same though they
differed in term, even then of it, would it be their ratification of the former and both must be
constructed together.

EFFECT OF INVALID NOVATION

To effect novation a substituted contract must be capable of enforcement in law. The giving of a Hindi
in payment of the price goods sold operate as a payment, only if the “Hindi is honored and if the Hindi
is dishonored as the right to sue on the original cause of action is revived; but if another Hindi is
substituted, it would operate as discharge of the first one only if the new contract could be legally
enforced, falling which the plaintiff can fall back on the first Hindi.

CASE LAW
AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF
SSC ONLINE Page 5
 KAKARA ESTATES LTD V/S SAVVY VINEYYARDS 3552 LTD [2013]

The fact of the case and the issue under consideration

In this case, the appellants (Karaka and Wets) were parties to identical management and supply
agreements with Gold ridge. Gold ridge 'transferred' the agreements with Karaka and Wets to two
separate related companies (Savvy 3552 and Savvy 4334). The 'transfers' did not require the consent
of Karaka or Wets as the Savvy companies were permitted assignees as related companies of Gold
ridge. However, Gold ridge purported to treat the 'transfers' to the Savvy companies not as
assignments under the terms of the agreements, but as novation under which the respective Savvy
company was to substitute Gold ridge as a party to the relevant agreement.

Gold ridge argued that this was evidenced in a 'deed of novation' (signed by both Gold ridge and Savvy
3552) which was sent to Karaka for execution but was never acknowledged or executed by Karaka, and
Karaka’s subsequent dealings with Savvy 3552.

The issues before the Court of Appeal arose because Karaka and Wets wanted to rely on Gold ridge's
subsequent liquidation (which had occurred 15 months after it had 'transferred' the agreements to the
Savvy companies) as a ground for issuing termination notices under the management and supply
agreements. Karaka and Wets had to show that:

• there was no novation of the relevant agreements; and

• under the terms of the original agreements, Gold ridge, as an original contracting party, remained as
a 'party' to the respective agreements in addition to the Savvy companies for the purposes of the
termination provisions.

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 6
 JUDGEMENT

Were the transfers novation or assignments?

A novation is a transaction that creates a new contract that is substituted for the original contract. The
court confirmed that, to be effective, a novation requires:
 the consent of all parties (that is, the original parties, and the new party), which may be inferred from
conduct and need not be express; and
 consideration (which may be in the form of mutual promises).
On the facts, the High Court had found that Karaka’s conduct following the receipt of the deed of
novation had amounted to consent to the novation. However, Kakara argued that its consent to the
novation could not be properly inferred from the factors relied on by the High Court given that its
conduct could be construed as being consistent with both a novation and a simple assignment.
The Court of Appeal agreed, particularly in light of the contractual framework set by Gold ridge and Savvy 3552
through the presentation of the deed of novation to Karaka for execution.
The court noted that the orthodox position is that "where a party has declined to execute a written contract sent to
it by the other party, the normal inference is that the declining party did not [intend] to be bound, unless there was
clear evidence to the contrary". It went on to note that "a party that chose not to execute an agreement has a
strong argument that it should not be bound to that very agreement because of its later conduct".
The court disagreed with the significance the High Court placed on Karaka’s failure to sign the deed of novation but
not inform Gold ridge that it regarded Gold ridge still as a party to the agreements. Unlike the High Court, the Court
of Appeal saw this as evidence that Karaka, when asked to accept the novation, did not do so. The Court of Appeal
also did not consider that the fact that Savvy 3552 was a member of the Gold ridge corporate group and not an
"outsider" lowered the bar of what is required for a novation. The only conduct the court considered as having
relevance to the High Court's finding was the fact that Kakara had issued notices to Savvy 3552 to remedy defaults
under the agreements after it had received the deed of novation. The notices were formal legal agreements
prepared by lawyers and referred to Karaka and Savvy 3552 as "the present parties" without reference to Gold
ridge. However, ultimately the court did not see the features of the notices as sufficient to constitute agreement to
the deed of novation and concluded that Gold ridge had not been substituted as a party to the agreements under a
novation.
AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF
SSC ONLINE Page 7
Did Gold ridge remain as a party to the agreements for the purposes of the termination clauses?
The termination clauses in the agreements provided that "either party" had the right to terminate the agreements if
the "other party" was placed in liquidation.
Savvy 3552 argued that the reference to 'party' in these clauses was limited to the "active" parties under the
agreement, namely Karaka and Savvy 3552. It argued that for the court to hold that the assignor remained as a
party to the agreements would lead to an outcome that "flouts business common sense" noting that "it would be
absurd if the liquidation of the [assignor] could give rise to a right of termination".
However, the court held that there was nothing in the original supply and management agreements that revealed
an intention to create an exception to the general rule that assignments do not remove the assignor as a
contracting party. The wording of the interpretation clauses in the respective agreements provided that "assigns"
were included in addition to, and not in substitution for, the original named parties. The court noted that if it was
intended that references to 'party' in the agreement were to have excluded the 'assignor', the assignment clause
would have provided for full substitution of the assignor by the assignee.
As a result, the court was in agreement with the High Court that the interpretation clause did not limit the class of
parties to only the successors or assigns, or to the currently "active" parties.
The Court of Appeal issued a declaration in favors of Karaka and Wets that their notices of termination were valid.

RESCISSION
The basis for rescission under this section is mutual assent of the parties while the basis of rescission in
Section 64 is one-sided.
Rescission may be express or may be inferred from the circumstances and conduct of the parties to the
contract.
Rescission reverts the contract of the day it had not been signed as if the contract had been made. In the
fact, the rescinded contract becomes a nullity as if it had never existed. As such, it behooves us to
ascertain how and when a contract is rescinded and what would be the legal implication of such rescission
or lack thereof.

EFFECT OF RESCISSION

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 8
Contract rescission is a major decision and can often be complex and multi-layered. The effect of
rescission is that the entire contract is cancelled out.
An experienced business attorney will be able to tell you whether rescission is appropriate and what your
chances are in succeeding with such a claim.
Contract rescission can only be effected through equitable or legal memes. When effected through
equitable means, a judicial decree voids the contract and returns the parties immediately to the states in
which they were before they entered into the contract .The court does not award either party damages. In
this cases rescission prevents either party from taking my future action regarding the contract. As a legal
remedy, the rescinding party provides the other party with notice of rescission or cancellation, and returns
any monies or other benefits received from the contract.

DISCHARGE BY RESCISSION
A contract may be discharged by agreement between the parties to it to the effect that it shall no longer
be binding on them. In such cases there is rescission of the contract with mutual constant and the parties
to it are released from their obligations. Under the Indian law this rule applies to both the executor and
executed contracts as the wording of s.62 recognizes no such distinction as exists in England.
Rescission in its primary sense means retrospective cancellation of contract abs initio as for instance
where one of the parties has been guilty of fraudulent misrepresentation .Inn such cases the contract is
completely destroyed as if it never existed .But in cases where it operates as a discharge of the contract,
it does not affect the rights and obligations that have already matured. Johnson v Agnew, case can be
referred.

CASE LAW
Johnson v Agnew [1980] AC 367
Purchaser failed to comply with order for specific performance; alternative remedies

Facts

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 9
Johnson was in arrears on his mortgage and entered an agreement to sell the property to Agnew. The
agreed price was sufficient to discharge his mortgage and to allow him to buy another property. Agnew
failed to complete the sale, and Johnson obtained a summary order for specific performance. The order
was not complied with and the mortgagees enforced their powers to sell the property for a sum which was
insufficient to discharge the mortgage. Johnson sought damages from Agnew.

Issues

Agnew argued that Johnson had elected to enforce the contract by way of specific performance and,
therefore, the court did not have the power to discharge the order for specific performance and award
damages in lieu. The rights under the contract had merged with the order for specific performance, and
could not be revived to form the basis of a claim for damages. Failure to comply with an order did not
amount to grounds for discharging the order. Johnson contended that because the order had not been
complied with, he was entitled to apply for the order to be discharged, treat the contract as at an end and
obtain damages in lieu. Agnew had failed to fulfill her contractual obligations and, therefore, the measure
of damages should be the difference between the agreed purchase price and the price obtained by the
mortgagee.

Held

Johnson was successful in his claim. He had been entitled to elect specific performance and the contract
remained in effect until that order had been complied with. As there was a failure to comply with the
order, he was entitled to apply to the court to put an end to the contract and to receive damages
appropriate to the breach of contract.

ALLETRATION OF CONTRACT

Alteration of contract is the modification of the terms of a contract with the assent of both parties. Effect
of alteration of a contract is that a new contract is formed, to be supported by a good consideration.

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 10
Contract alteration occurs after a contract has been signed but one party seeks to modify the term or key
points of the contract with or without the consent of the party. The effect of contract alteration is that
legally a new contract has been created because it no longer reflects the intentions of the parties at the
time the original contract was signed.

It is not illegal to alter a contract once it has been signed. However, it must be materially changed,
meaning that if an important part of the contract is altered by the change, it must be made by mutual
consent of both parties. If only one party modifies the contract without the agreement of the other, then it
is unlikely the changes will be enforceable.

EFFECT OF ALTERATION OF CONTRACT

If ta contract includes language that describes the process for modifying the term or conditions, and those
procedures are followed, Thus , the parties will proceed to act under the modified terms of the altered
contract. In effect, it’s a new contract.

To be considered a modification or alteration of a contract, the changes must appear directly on the signed
legal document. It might appear as a change in the handwriting of a signatory to the agreement, or words
may be erased or crossed out.

Whatever the change, it must significantly revise the intention of what the original document established.
As a result, if agreed to by competent parties to the contract, it releases the original signers from the
obligation contained in the original document.

However, if the modification has been performed with the consent of bth parties, it does not hold the non-
consenting party liable for the changes.

Even if the non-consenting party changes the document back to reflect the original intention by deleting
the unauthorized modification, the contract is still considered invalid. A new contract must be created.

EXAMPLE OF ALTERATION OF CONTRACT

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF
SSC ONLINE Page 11
To be considered an alteration, a change must be material, meaning it must impact the overall meaning of
the language, revise the intent of an important section of the contract, or affect the right of the parties to
the agreement. Example of material alteration includes:

1. A change to any dates existing in the document, including the date of execution, which revises the
time frame under which the duties of the contract will be performed. This is especially true if it
affects payment terms or performance schedules.
2. If the signature of either party is erased or replaced by a new signature. In addition, if any language
that indicated that the signatory is authorized to act on one of the party’s behalf is changed, it is
considered a material change. However, if that signer was never given authority to sign the
document in the first place, then the change is not deemed to be material.
3. When the obligation of either party to the other are changed. Commission promised or payment
schedules established between parties.
4. Any changes in the description of the goods and services that are involved in the transaction are
deemed material. For instance, if the property described in a mortgage or deed is made larger or
smaller, or if the days of a week then services are to be performed changes, then it is a material
alteration.

In most cases, the intention behind any contract is not alteration is not important.

However if the alteration was made with the intent of one party to defraud the other, the contract is
considered invalid and the damaged party may seek a remedy in a court of law.

If you suspect that a contract you have entered into has been altered without your consent, it is highly
recommended that you seek the counsel of an experienced contract attorney. The attorney should be
able to advise you of the best course of action, whether it is agree to the alterations, negotiate new
terms, or take legal actions the other party. It is better that being forced to adhere to unfavorable
terms.

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 12
 LITERATURE REVIEW

To enhance the project of mine, I would like to continue by giving some review of some famous
journals and article

YALE LAW JOURNAL-

“This subject has already been developed exhaustively and with great accuracy.” Yet it is a subject in
which there has always been great confusion of thought, and the decision are in hopeless conflict.”

In this context writer is telling that due to great deal of misunderstanding or lack of understanding in
regards to certain topics connected with the subject of discharge.” some of this is due to the fact few of
them use such terms as condition and warranty in the same sense. This article will not attempt to
discuss the subject of discharge in all its detail, but will try to delimit the field and will discuss at some
length a few of the problems arising therein. In particular relation existing between the subject of
fulfillment of condition and the subject of discharge, and between breach of contract and discharge is
being discussed.

It is believed that great assistance will be obtained from a clear understanding and a complete
separation of primary and secondary obligation.

THE CAMBRIDGE LAW JOURNAL

Rescission (by process by which a voidable contract or other disposition is avoided)is frequently
described as a remedy which can be effected both by judicial decree and by the act of innocent party.
This article seeks to explore the latter notion, that it is possible to rescind a contract or disposition by
self-help means. It explains that the law is in some disarray, caused primarily by confusion between
the dual historical development of rescission at law and in equity.

Rescission was traditionally regarded as the act of the innocent party only for vitiating factors(such as
fraud) actionable at common law , not those actionable in equity , but this separation was not
AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF
SSC ONLINE Page 13
 maintained following the judicature acts. Moreover, there are practical and conceptual difficulties with
the notion of rescission as a self-help remedy, both in the idea that rescission can be effected by the
election of the innocent party without judicial intervention and that , even where judicial rescission is
obtained, the court order is back-dated to the earlier date of the innocent party’s election. The principal

Difficulty arises when an executed or party executed transaction is rescinded, for then there are
restitutionary implication and implications for the security of the third party title.

A method of invitation to alteration of a contract of cash loan for consumption, which makes it possible to
discover a potential customer with whom a new contract can be made and promote making of the new
contract. When a creditor issues an itemized statement of use and a bill and/or executes a reminding
process, invitation target customers each satisfying conditions for being a defaulting debtor or a candidate
defaulting debtor are extracted from all debtors, and each of the extracted debtors is notified of an
address of a Web site at which a service is provided for guiding customers to new contracts. At the Web
site, a payment plan which is to be followed after alteration of present contract contents is simulated, and
when the debtor can consent to a result of the simulation, a procedure for altering the present contract
contents can be taken instantly. Since debtors eligible for new contracts are each extracted as invitation
target customers, and a payment plan which is to be followed under a new contract can be checked
instantly, it is possible to promote making of a contract with each extracted debtor.

CONCLUSION

In the law of contract, there is a great deal of misunderstanding or lack of understanding in regard to
certain topics connected with the subject of discharge. It is due to the fact that few people use such terms
as condition and warranty in the same sense, the rest is due to faulty reasoning concerning matters that
the admittedly difficult. The best way of discharging a contract is based on performance. As this way bith
the parties follow all the terms of the contract and afterwards go for it’s discharge. On the other hand
discharge by the breach is the most unpleasant way to release you from duties. Therefore, discharge by
breach result in damages too.

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 14
Where there is no instrument that can be regarded as a obligation, there is great difficulty in proving the
execution of a deed, for the obligation itself, cannot be physically delivered. But the surrender or
cancellation of evidential documents may even in these latter cases prevent proof of the obligation or may
be given evidence of mutual recession. but the recession and substitution are interwoven into one body
and one breath neither one having power of separate existence. In pleading such a discharge the
defendant is not seeking a remedy and hence he does not have to establish the existence of any
secondary obligation. he must alleged merely the agreement, showing that it includes a rescission of the
former obligation. No technical language is required. The facts must be so stated that the court can
determine whether or not there was an agreement and what were its terms.

BIBLOGRAPHY

 YALE LAW JOURNAL

 THE CAMBRIDGE LAW JOURNAL
 INDIAN CONTRACT ACT 1872
 QUIZLET
 LAW TEACHER
 HEIN ONLINE

AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF

SSC ONLINE Page 15
AVTAR SINGH CONTRACT ACT AND SPECIFIC RELEIF
SSC ONLINE Page 16