Fundamentals of Business Laws and Business Communication · Discharge of Contracts

Discharge by Mutual Agreement, Novation and Rescission

Updated 10 October 2026 · Fact-checked

A contract can end by agreement. Under Section 62, novation replaces the old contract with a new one, rescission by agreement cancels it, and alteration changes its terms. All parties must consent. Under Section 63, the promisee alone can remit (give up) performance, extend time, or accept a substitute. Rescission by the innocent party on breach falls under Sections 39 and 75.

Understand Discharge by Mutual Agreement, Novation and Rescission

A contract is made by agreement, so the parties can also end it by agreement. This is called discharge by mutual agreement. The contract stops binding the parties, and no one can sue on it any more.

Novation means a new contract takes the place of the old one. The new contract may be between the same parties or between new parties. For example, A owes ₹50,000 to B. A, B and C agree that C will pay B instead, and A is freed. The old contract between A and B is gone. The new contract needs the consent of all parties concerned, and the new contract must itself be valid.

Rescission by agreement means the parties agree to cancel the contract. This is covered by Section 62, so all parties must consent. After rescission, the parties are no longer bound to perform. Alteration means a change in a material term of the contract with the consent of all parties. A material alteration made by agreement gives rise to a new contract in place of the old one.

Rescission is also possible in a different situation. If one party breaks the contract, the innocent party may treat the contract as ended and refuse to perform. This arises on breach under Sections 39 and 75, not under Section 62. It does not need the consent of the party in breach. Keep it separate from the Section 62 consent rule.

Section 63 covers remission and related ideas. A promisee may dispense with or remit, wholly or in part, the performance of the promise made to him. He may extend the time for performance, or accept in place of it any satisfaction he chooses. Part payment accepted as full satisfaction is a common example. Waiver is the voluntary giving up of a right. Here the promisee gives up his right to claim performance.

A key point for exams: in novation, rescission by agreement and alteration under Section 62, all the parties must consent. In remission under Section 63, only the promisee acts, because he is giving up his own right. Learn which action needs whose consent and you can answer most questions.

Key formulas to remember

Novation: Old contract replaced by a new contract (same or new parties); Needs consent of all parties. Old contract ends and the new one must be valid.
Rescission by agreement: Contract cancelled by agreement of all parties (Section 62); Parties are released from performing the remaining obligations. Rescission by the innocent party on breach is separate (Sections 39 and 75).
Alteration: Material change in terms made with consent of all parties; It creates a new contract in place of the old one.
Remission (Section 63): Promisee may dispense with or remit, wholly or in part, performance of the promise; Includes extending time or accepting any satisfaction in place of performance.
Waiver: Voluntary giving up of a right by the person entitled to it; Only the promisee, who owns the right, needs to act.
Section reference: Section 62: novation, rescission by agreement, alteration. Section 63: remission and extension. Sections 39 and 75: rescission on breach; Section 62 deals with replacement, cancellation or change by agreement of all parties. Section 63 deals with the promisee giving up his rights.

How to solve Discharge by Mutual Agreement, Novation and Rescission questions

Use this method for any question on discharge by agreement, whether it is a definition, a difference or a short case.

1Read the facts and find out what has happened to the old contract: replaced, cancelled, changed, or the promisee has let the promisor off.
2If a new contract replaces the old one, check whether new parties come in or the terms change fundamentally. This points to novation.
3If the parties agree to cancel the contract so that nothing remains to perform, choose rescission by agreement.
4If the innocent party cancels because the other broke a promise, this is rescission on breach under Sections 39 and 75, not a Section 62 case.
5If only a material term changes with everyone's consent, choose alteration.
6If one party, the promisee, gives up or reduces his own right, extends time or accepts a substitute, choose remission or waiver under Section 63.
7Check consent: Section 62 actions need all parties. Section 63 needs only the promisee.
8Check that the new agreement is valid, with consideration where required.
9Match your finding with the option that uses the exact term.

Quickest way: Replace, Cancel, Change, Give up

When to use it: Use for case-based MCQs where you must name the mode of discharge in under a minute.

Ask: was a new contract made in place of the old? If yes, novation.
Ask: was the contract cancelled by agreement? If yes, rescission. If the innocent party cancelled after a breach, think Sections 39 and 75.
Ask: were terms changed by consent? If yes, alteration.
Ask: did the promisee alone give up, reduce or delay his claim? If yes, remission or waiver.
Eliminate options that mismatch consent: all parties versus promisee only.

Common mistakes in Discharge by Mutual Agreement, Novation and Rescission

Treating novation and rescission as the same thing.
Both end the old contract, so they look alike.
Fix: Novation always has a new contract in place. Rescission only cancels, with nothing substituted.
Thinking novation needs consent of only the old parties.
Students ignore the incoming third party.
Fix: All parties, including the new one, must agree. The creditor must accept the new debtor.
Saying remission needs the promisor's consent.
Students apply the rule of mutual agreement to everything.
Fix: Under Section 63 the promisee gives up his own right, so he can act alone.
Mixing up Section 62 and Section 63.
Both deal with discharge by agreement.
Fix: Remember 62 as replace, cancel by agreement, change, and 63 as remit, extend, accept substitute.
Treating rescission by the innocent party on breach as part of Section 62.
The word rescission is used for both cancellation by agreement and cancellation after breach.
Fix: Section 62 covers rescission by agreement and needs all parties' consent. Rescission for breach arises under Sections 39 and 75.
Treating any minor change as alteration that discharges the contract.
Students overlook the word material.
Fix: Only a material change made with the consent of all parties produces a new contract.

Worked examples

Example 1

A owes B ₹40,000. A, B and C agree that C will pay B ₹40,000 and A will be free from the debt. Which mode of discharge is this?
(a) Rescission (b) Novation (c) Remission (d) Waiver

Show the solution

The old contract between A and B is replaced by a new contract between C and B.
All three parties have consented.
Replacement of the old contract by a new one is novation under Section 62.

Answer: (b) Novation

Example 2

X agrees to supply goods to Y on 1 March. Y later tells X that he may deliver on 15 March instead. X delivers on 15 March. Which concept applies when Y extends the time for performance?
(a) Novation (b) Rescission (c) Extension of time under remission (d) Alteration

Show the solution

Y is the promisee and he has agreed to extend the time for performance.
Section 63 lets a promisee extend the time for performance of the promise made to him.
Only the promisee acts here, so this is not novation, rescission or alteration by agreement of all parties.
Y has given up his right to delivery on 1 March, so he cannot claim for delay.

Answer: (c) Extension of time under remission

Exam tips

Questions often give a short fact pattern and ask you to name the mode. Decide whether a new contract has replaced the old one before looking at the options.
Remember who must consent: all parties for novation, rescission by agreement and alteration, and only the promisee for remission.
Watch for the words in place of, cancel, extend and accept less. They point to novation, rescission, extension and remission.
Difference questions usually ask about the effect on the old contract and on the parties. Answer with replace versus cancel.

Practice questions from Discharge of Contracts

Discharge by Mutual Agreement, Novation and Rescission in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CS ProfessionalNovation, Rescission and Alteration (Section 62)

Discharge by Mutual Agreement, Novation and Rescission: frequently asked questions

What is the difference between novation and rescission?

In novation, a new contract replaces the old one. In rescission, the contract is cancelled and nothing replaces it. Novation can also bring in a new party.

What does Section 63 of the Indian Contract Act say?

It allows the promisee to dispense with or remit, wholly or in part, the performance of the promise made to him. He may also extend the time for performance or accept any satisfaction in its place.

Does novation need the consent of all parties?

Yes. All parties to the new arrangement must agree, including the creditor and any new party. Without that, the old contract continues.

What is alteration of a contract?

It is a material change in the terms of a contract made with the consent of all parties. It operates as a new contract replacing the old one.

Is rescission for breach covered by Section 62?

No. Section 62 covers rescission by agreement, which needs the consent of all parties. When one party breaks the contract, the innocent party's right to treat it as ended arises under Sections 39 and 75.