Novation
Novation is the substitution of one obligation for another, with or without a change of parties. It is also the discharge of rights and obligations between contracting parties and the recreation of them in a new contract.
Section 62 of the Indian Contract Act states "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".
The act provides 3 illustrations to explain the point:
Illustrations
(a) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A. The
old debt of A to B is at an end, and a new debt from C to B has been contracted.
(b) A owes B 10,000 rupees. A enters into an arrangement with B and gives B a mortgage of his (A’s) estate for 5,000 rupees in place of the
debt of 10,000 rupees. This is a new contract and extinguishes the old.
(c) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees B orders A to credit C with 1,000 rupees in his books, but C does not
assent to the arrangement. B still owes C 1,000 rupees, and no new contract has been entered into.
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