Contract Which Need not be Performed

A Contract is defined as an Agreement Enforceable by Law under Section 2(h) of the Indian Contract Act 1872. A "contract" is the outcome of mutual agreement between two or more parties. Notwithstanding the fact that parties may also consent to terminate the contract, a contract must be valid for it to be legally enforceable, and the Contract Act specifies the necessary conditions.

Contracts Which Need not be Performed

A contract must have been entered into under coercion, threat, fraud, undue influence, etc. for it to be invalid. Also, the purpose shall not be in conflict with any other contract law. Moreover, performance would not be required in some circumstances, as stated in Sections 62 and 63 of the Act. These are the circumstances −

• Novation

• Rescission

• Alteration

• Remission

Novation

This Section states that if the parties to a contract agree to alter or substitute a new contract, the old contract does not have to be performed. The term "novation of contract" refers to the creation of a new contract that does not need to be performed and is thus terminated.

Additionally, the newly substituted agreement would be valid, enforceable, and have consideration due to the parties' mutual consent. Basically, it must fulfil the requirements of a valid contract.

Additionally, the following are the essentials of Section 62 of the Act −

• Consensus ad idem between parties to the contract.

• Contract substitution, recession, or alteration that results in a valid new contract

• The original contract has been terminated.

• Previous contracts should have been signed between the parties.

The Court observed in Ramdayal vs. Maji Devdiji that novation occurs by introducing new terms into the contract or by introducing new parties. A Novation contract requires a party to agree to or discharge his debt. There will be no Novation unless this is accomplished.

For example, in a partnership firm, a contract is where the liabilities of the old firm are taken over by the new firm; a lease agreement is where the tenant gives the lease to another party and makes him responsible for the responsibilities and obligations that arise from these agreements; and so on. According to the High Court in the case of Juggilal Kamlapat vs. N.V. Internationale, for novation to be effective, contract modification must go all the way to the root of the original contract.

Contracts in Novation are as

Where the Obligation Under the Contract is Replaced with the New One

As we know, the parties to a contract have the freedom to enter into a contract and change its terms by mutual consent. And when both parties mutually agree to change the terms of the contract into which they entered, the new agreement becomes binding on them. As a result, a party that was not a party to the original contract cannot unilaterally impose terms.

Where a Party is Replaced by Another Party

This creates an obligation for one party in place of another, as the terms of a Novation agreement may provide for contract replacement from one party to another. The new party assumes that obligations to another party will not make it liable for any future damages under this sort of contract. For example, if A and B enter into a contract and A agrees to replace C in B's place, the existing contract between A and B will start having force.

The Supreme Court discussed the basic necessity of Section 62 in the case Lata Construction & Ors. vs. Dr. Ramesh Chandra Ramnikal Shah and Anr. It was decided that a new contract was required in place of the old one, with the condition that the new contract totally alter the terms of the original contract.

Rescission

Section 62 also states that a party shall be allowed to terminate a contract only under bilateral terms. To rescind is to cancel, which means that a contract can be terminated by mutual consent. Rescission of a contract occurs when any or all of the terms of the contract are cancelled.

As in the case of Union of India vs. Kishorilal Gupta and Bros., the Calcutta High Court held that a contract under Section 62 of the Contract Act can be rescinded only after a breach. Rescission takes place.

• When one party fails to perform or the other party cancels the contract

• Contract termination by mutual consent of the parties

Alteration in Contract

It happens when two people enter into a contract and, with mutual consent, one of the parties wants to modify it. As a result, after the parties sign the contract, they cannot change or modify its terms unless both parties agree to the change by mutual consent. As stated in the case of United India Insurance Co., Ltd. vs. M.K.J. Corporation, a material alteration is one that alters the rights and liabilities of the parties as stated by the deed or changes the legal effect of the instrument as originally expressed.

Remission

This Section enables the promisee to agree to waive or delay performance of the promise. Remission means waiver, and so the promise might waive the promisor's obligation in full or in part. This part allows a party who is entitled to contract performance to −

Dispensing with or Remitting Performance

So, the promisee has been authorized to remit with the performance of the contract without any consideration; he may completely forego his claim or agree to a smaller amount in full fulfilment of the full amount.

For example, if A owes B Rs 5,000, B may only accept Rs 2000 from A. That is, if B agrees to accept Rs. 2000 in lieu of Rs. 5000 from A, he cannot subsequently ask A to pay the balance of Rs. 3000. As in the case of Kapur Chand Godha vs. Himayatalikhan Azamjah, B executed a promissory note in favour of A, for which A was offered Rs. 27 lacs in complete satisfaction. According to the note, he initially accepted Rs 20 lacs but later asked for an additional Rs 7 lacs and sued B. The matter was ruled to be completely covered under Section 63.

Extending the Date for the Performance

Even if the original agreement had a specific date, it is not common for the term of performance to be extended. Section 63 states that any promise may extend the time for contract performance. In Keshavlal Lallubhai Patel and Others vs Lalbhai Trikumlal Mills Ltd, it was determined that a change in the date of performance by express representation by the defendants, agreed to by the plaintiffs' forbearance, was permissible.

Accepting any Other Satisfaction Instead of Performance

Section 63 permits the promisee to take any other satisfaction in lieu of the agreed-upon performance, which discharges the promisor. For example, A owes B money under a contract since a specific amount of money was not provided. A gives B satisfaction and receives Rs 2000 without first deciding on the sum. This is a discharge of the whole debt, whatever its amount. Likewise in the case of the Union of India. The plaintiff's suit for the balance of the money was upheld in General vs. Babulal Uttamchand Bhandari because amounts were not accepted in full satisfaction of the claim.

Conclusion

As a result, we may conclude that novation happens when the parties' contract terms change, and the most important thing is that the new changes be agreed upon by both parties. Only the new contract is said to be a valid contract when both parties have consented to the alterations of the new contract and not unilaterally.

A valid novation agreement also includes definitions, the names of the parties, recitals, representations, the rights of the third party, the obligations of both parties, the effects of the novation agreement, jurisdiction, and counterparts.

Frequently Asked Questions (FAQ)

Q1. Which contracts need not be performed under the Indian Contract Act?

Ans. Contracts do not have to be performed under the following conditions, according to the Contract Act: If contract parties agree to 'Novation,' 'Rescission,' or 'Alteration,' the original contract must be performed. In such cases, the original contract is dissolved and replaced with a new contract.

Q2. What are the five circumstances under which a contract need not be performed?

Ans. There are the following circumstances: I novation, (ii) rescission, (iii) alteration, and (iv) remission. Section 62 of the Act specifies 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".

Q3. Which contract is valid unless avoided?

Ans. A voidable contract may be considered valid if the aggrieved party does not cancel it within a reasonable time.