The Mutual Breakup – How Contracts Die Peacefully (Novation & Remission)
We spent a lot of time talking about what happens when contracts end badly—someone breaches the deal, or a natural disaster makes it impossible. But in the real business world, contracts usually don’t end in dramatic courtroom battles. They evolve.
Sometimes, both parties look at the agreement, shrug, and say, “Let’s just change it.” The Indian Contract Act provides a very clean, legal way to do this under Sections 62 and 63.
1. Section 62: The “Erase and Rewind” Button
If parties to a contract agree to substitute a new contract for it, or to rescind (cancel) or alter it, the original contract does not need to be performed.
Let’s break down the three tools in Section 62:
A. Novation (The Complete Swap)
Novation means swapping out the old contract for a brand-new one. This can involve the same people changing the core terms, or it can involve bringing in a completely new person.
- The Rule: For Novation to work, the old contract must be completely extinguished.
- The Example: You owe me ₹50,000. We agree that instead of you paying me, your friend Rohan will pay me the ₹50,000. My old contract with you is dead; I now have a new contract with Rohan.
B. Alteration (The “Edit” Button)
Alteration happens when the same parties change one or more material terms of the contract.
- The Difference: Unlike Novation, you don’t bring in new parties. You just tweak the existing deal. For example, we agree to change the delivery date of a car from Monday to Friday.
C. Rescission (The Mutual Cancellation)
This is simple. We both agree to just tear up the contract. Neither of us has to perform, and neither of us owes the other any damages. It’s a clean break.
2. Section 63: The “Discount” Clause (Remission)
This is perhaps the most practical section for everyday life. Section 63 allows a person to dispense with or remit (forgive) the performance of a promise made to them, either wholly or in part.
- The Scenario: I owe you ₹5,000. I come to you and say, “I only have ₹2,000. Can we just call it even?” If you take the ₹2,000 and agree to forgive the rest, that is Remission.
- The Magic of Indian Law: Under English Law (the rule in Pinnel’s Case), accepting a lesser sum doesn’t legally wipe out the whole debt unless there is fresh consideration. But Indian Law is different. Under Section 63, you do not need new consideration to forgive a debt. If you accept the ₹2,000 in full settlement, the remaining ₹3,000 debt is legally erased.
3. Waiver: The “I Don’t Care Anymore” Rule
Waiver is when you intentionally give up your right to enforce the contract.
- Example: You were supposed to paint my house using only ‘Asian Paints’, but you used ‘Nerolac’. I see it, I shrug, and I pay you anyway without complaining. I have waived my right to sue you for that specific breach.