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IAI Actuarial Core Principles · Business Management · Sources of Indian law and valid contracts

Vikram agreed to pay Rs 5 lakh to Deepa on 1 April for software she would deliver. Before 1 April, Vikram and Deepa agreed in writing to cancel the contract and replace it with a new one with different terms. Which description fits the discharge of the original contract?

The original contract is discharged by novation. The parties agreed to substitute a new contract with different terms, so the old one need not be performed. This is discharge by agreement, not by breach, frustration or lapse of time.

  1. ADischarge by breach
  2. BDischarge by frustration
  3. CDischarge by novationCorrect
  4. DDischarge by lapse of time
  5. Discharge by operation of law through insolvency

Explanation

Under the Act, when the parties substitute a new contract for the existing one, the original need not be performed. This is novation, a form of discharge by agreement. No breach occurred and no supervening impossibility or limitation period is involved.

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