This article is written by Vijaya Gupta, School of Law, Bennett University.
According to The Indian Contract Act, 1872 discharge of contract is legal and valid in India. Discharge of Contract means the termination of a contractual relationship between the parties. There are different ways to discharge the contract. They are as follows:
- By performance
- By mutual agreement
- By impossibility of performance
- By lapse of time
- By operation of law
- By breach of contract
In discharge of contract by mutual agreement, a contract can be discharged or terminated by mutual consent between the parties in the following ways:
- Novation, Alteration, Recession
Section 62 of Indian Contract Act 1872 states that if the parties to a contract agree to substitute a new contract for it, or rescind or alter it, the original contract need not to be performed. An alteration is an act done upon the instrument by which its meaning or language is changed. Changes in the terms of the contract with a mutual consent between two parties is known as alteration of contract.
Discharge of contract
A contract is a promise or set of promises which is legally binded upon each other. In Section 2(h), Indian Contract Act, 1872, a contract is defined as “An agreement enforceable by law is a contract.” therefore, for the formation of a contract there should be an agreement and it should be enforced by law. There should be consensus ad idem which is considered to be the most essentially part of the contract. An agreement becomes contract with the following conditions:
- The consent should be free.
- The parties should be competent to contract.
- There should be lawful consideration.
- There should be lawful objects.
There are also many terms and conditions while performing the contract. If both the parties agree to the terms and conditions of the agreement, then the contract is formed. Once the party performs the contract fully then it says that the contract is discharged. Discharge of contract means to get free from the duties imposed by law through a contract. In Indian Contract Act, 1872, discharge of contract means the termination of a contractual relationship between the parties. A contract can be discharged in different ways such as by performance, by fulfilling the duties, by breach, by agreement, by operation of law, by frustration, when performance is impossible, by lapse of time etc. In Indian Contract Act, 1872, a contract is discharged in four ways:
- By Performance (Section 31-67)
- By Impossibility of Performance (Section 56)
- By Agreement (Section 62-67)
- By Breach
One of the ways to discharge the contract is by mutual agreement. When both the parties to the contract agree to discharge the contract with a mutual agreement then that contract is said to be discharged by mutual agreement. Section 62 of Indian Contract Act, 1872 states the discharge of contract by mutual agreement. When the parties agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. There must be mutual consent and agreement between the parties to discharge the contract. If a party has made the contract and wants to modify the contract after signing the contract, then it is legal to modify or alter the contract with the consent of both the parties. If a new contract is formed with changes in terms and conditions in the original contract, then the original contract is discharged, and the parties have to follow the terms of the new contract. The parties are free to substitute, rescind, alter the terms of the original contract. The contract can be discharged by mutual agreement in three ways such as:
Alteration of contract
Alteration of contract means the modification of the terms of the contract with the consent of both the parties. The elements of the alteration are:
- The alteration must be done deliberately.
- The alteration must have been material.
When the instrument which has been altered does not itself contain the obligations of the parties but is to be relied upon by them for the purpose of carrying out the contract, the alteration does not necessarily operate to discharge the parties from their underlying obligations. The effect of alteration of contract is that the new contract is formed and both the parties have to follow the rules of the new contract. It is essential to have assent of both the parties when the contract is altered. Also, in alteration of contract parties do not change. If parties decide to alter or modify the terms of the contract, then it is necessary that the alteration of the contract should be done either by express agreement or by necessary implication which would negate the application of the doctrine of acceptance sub silentio. In the case of Satya Pal Anand v. State of Madhya Pradesh and Ors., it was stated that any novation, rescission and alteration of contract, can be made only through bilaterally and with the amicable consent of both the parties. The terms and conditions of a contract may be altered but cannot be done unilaterally unless there exists any provision in the contract, or in any law, or there is an implied acceptance through silence. In the case of Suresh Kumar Wadhwa v. State of Madhya Pradesh, it was stated that the party to the contract has no right to unilaterally alter the terms and conditions of the contract and nor they have the right to add any additional terms and conditions unless both the parties agree to alter such terms in the contract. In the alteration of contract, the liability of the parties in the original agreement is extinguished and the parties become bound by the new altered agreement.
Effect of alteration of contract through the consent of the parties
The contract is only altered when there is consent by both the parties. If there is no consent between the parties to alter the contract, then the contract is said to be void.
Effect of alteration of contract with the consent of parties
An alteration is material which affects the substance of the contract expressed in the document or which alters the legal effect of the document, which affects the document itself, at all events where identification may be important in the ordinary course of business. The alteration is not material if they merely express what was already implied in the document or add particulars consistent with the document as it stands. In the Pigot’s case, it was stated that the material alteration of a document by a party to it after its execution without the consent of the other parties renders it void and the alteration is not material. Material alteration must depend upon the nature of the instrument as also upon the changes. If the alteration causes the contract to operate it differently from the original, then it is said to be material alteration. An instrument is not discharged by an immaterial alteration. The alteration is said to be immaterial when it does not alter the legal effect of the instrument or impose a greater liability on the promisor. Immaterial alteration does not affect the rights and liabilities under a writing, irrespective of the person by whom the alteration was made or his purpose in making it. Also, alteration made by adding or changing a statement of the consideration does not ordinarily change the legal effect of an obligation is considered as immaterial. In the Pigot’s case, it was held by Coke that when any deed is altered by any stranger then the deed is said to be void. The alteration is said to be immaterial if the alteration in a deed is signed by the parties before its execution so far as those who have signed have not affected their interests.
Burden of proof
The burden of proof lies on the promisor that the promise has made the alteration in the contract without the consent of the promisor. But if it is proved that the contract is altered then the burden shifts to the promisee and the promisee has to show that the alteration made is not improper.
Effect of alteration of contract without the consent of parties
If one of the parties alters the contract without the consent of the other party, then the contract is said to be void. The effect of alteration of contract without the consent of the parties is not given in the Indian Contract Act but India practice allows the authorities of the Common Law. If there is unauthorized alteration of documents or terms and conditions of the contract then the contract is said to be void. There is no provision given in The Indian Contract Act about the unauthorized alteration of documents of the contract. The Indian Courts follow the English rule for the same. Blue Pencil Doctrine is a doctrine which is used by the courts to make some portions of the contract void or unenforceable and other portions of the contract enforceable. In Blue Pencil Doctrine, the words which are not binding in nature or invalid are declared as void and makes other parts of the contract enforceable. It is also called the doctrine of severability. Sometimes, there is alteration of contract in which some parts of the contract are altered which is unauthorized and illegal but with the help of the blue pencil doctrine this alteration can be declared as unenforceable as it invalid and not binding in nature.
Effect of alteration of contract in business
In business, the businessmen make contracts with other businessmen in which it includes many sections, terms and conditions which talks about the procedure, how the business will work, compensation, damages, steps to be taken if some part of the business has to be changed. If a business wants to change a part of the business, then the head of the business has to make changes in the contract through alteration of contract as well. Alteration of contract can only take place if there is any clause in the original contract and with the consent of both the parties. The contract made by both the parties in the business can be altered before and after signing the contract. If the contract has to be altered after signing the contract, then there should be consent of both the parties. There is a right to transfer the responsibilities of one party to another party when there is alteration of contract. If there is a clause to sell to the vendees in the original agreement and two independent persons are presented as marginal witnesses, then it is not said to be material alteration and such agreement is said to be void ab initio. Also, in the case of life insurance policy, the insured can alter some terms of the policy such as number of years, mode of payments, etc. with the consent of both the parties.
In business, the parties to a contract can alter some parts of the contract as well as the whole contract with the consent of both the parties. If two companies or business entities merge, then a new contract is formed and if the merged companies want to bring some change in the business then they have to make changes in the clauses of the contract through alteration. If there are more than two parties in an agreement, then every party has to pass information to another party independently. In English law, the employers are allowed to alter the contract which is signed by the employee when he joins the firm.
In India, the Indian Contract Act does not allow the employers to alter the employment contract. It is stated in the case of LIC and Ors. v. Sunil Kumar Mukherjee an Ors that the employee of an insurer whose controlled business has been transferees and vested in the Corporation and who is employed by the insure wholly or mainly shall continue to work unless his employment in the Corporation is terminated or until his remuneration, terms and conditions are duly altered by the Corporation. On March 26, 2013 M.P Power Management Company had filed a petition to review the tariff orders and amend the power purchase agreement (PPA). As the PPA was between the petitioners and the generators and it was noted that the review was not empowered by the generators. It was stated that the PPA will be altered only through the mutual consent of both the parties. Now-a-days, many industries are getting into the Blockchain system so that there is transparency between the parties in the industry such as manufacturing, logistics, transportation, retailers, and customers. But if these parties come together on a blockchain then they are considered to be a part of the same transaction. Any change in the delivery and supply contracts cannot be made without the entire chain of business agreeing to alter agreements.
An agreement is formed with the consent of both the parties who agree to enter in an agreement. An agreement becomes a contract when it is enforceable by law. An agreement becomes a contract with four conditions. The parties have to perform some terms and conditions of the contract. Once the particular act is performed by the party then the contract is said to be discharged. A discharge of contract means termination of contractual obligations of the contract. A contract can be discharged in many ways from which alteration is one of the ways. Alteration of contract means changes in the terms of the contract. In alteration of contract, there should be consent of both the parties. Also, there should be material alteration in the contract before execution of the contract or deed with the consent of both the parties. If the alteration is done without the consent of either of the parties, then it is said to be void.
The Blue Pencil Doctrine makes the terms or clauses which are not binding in nature or illegal makes that part of the contract as illegal and the other part of contract as enforceable in nature. When the merged companies want to make changes in the business, they also have to alter the clauses, terms and conditions of the contract. In India, the employer cannot alter the contract without informing the employee within the stipulated period of time. Also, some terms and conditions of an insurance policy can be changed with the consent of insured and insurer. The main effect of alteration of contract is that if the contract is altered with the consent of both the parties then the contract is said to be valid and if it is altered without the consent of both the parties then the contract is said to be void.
- Nitin Kabeer, Mercomindia, Madhya Pradesh Commission Rejects DISCOM’s Petition to Review Old Wind Tariff Order,(Apr 1, 2019), available at https://mercomindia.com/madhya-pradesh-rejects-petition-wind/
- Vishal Krishna, Yourstory, The Blockchain divided: why large corporates are delinking it from the crypto world?, available at https://yourstory.com/2019/03/blockchain-aws-ibm-india-del-d1uz6xn3qh
- BryaneA Garner, Black’s law dictionary, 10th Edition,2014
- Harvard Law Review
- Pollock and Mulla, The Indian Contract and Specific Relief Act
- Mulla, The Indian Contract Act
- Chitty on Contract
- Dutt on Contract
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