Difference Between Novation and Alteration
Novation vs Alteration
1. Novation
What is Novation?
Novation means replacing an old contract with a new contract, extinguishing the old one.
It involves the substitution of a new contract either by:
Substituting a new party, or
Substituting a new obligation in place of an old one.
The old contract is completely discharged and replaced by the new contract.
Key Features of Novation:
Extinguishes old contract completely.
Requires consent of all parties involved.
Creates a new contract.
Can involve:
Change in parties, or
Change in terms/obligations.
Example:
A owes money to B.
C agrees to pay B instead of A.
The contract between A and B is discharged, and a new contract between C and B arises.
Case Law:
M/s. Shivsena Building Contractors v. State of Maharashtra (1994):
This case explained that novation involves a fresh contract with discharge of previous contract and substitution of a new one.
Bentinck v. Mitchell (1875):
Confirmed that novation requires all parties’ consent and substitution of new obligations.
2. Alteration
What is Alteration?
Alteration means a change in the terms or conditions of the original contract without creating a new contract.
The original contract continues to exist, but with modified terms.
The parties agree to vary or alter some terms but don’t create a fresh contract.
Key Features of Alteration:
Original contract is not extinguished.
Only terms or obligations are changed.
Requires consent of parties.
Changes can be minor or major but no substitution of parties.
Example:
A agrees to sell goods to B for ₹1,00,000.
Later, they agree to change the price to ₹90,000.
The contract continues but with altered price term.
Case Law:
Rangachari v. Rangachari (1924):
Explained alteration as modification of terms without extinguishing the contract.
Hargovan v. Govindaswamy (1962):
Discussed how alterations need mutual consent but don’t create a new contract.
Summary Table
| Aspect | Novation | Alteration |
|---|---|---|
| Definition | Substitution of new contract for old one | Modification/change of terms of existing contract |
| Effect | Old contract is extinguished | Original contract continues with changes |
| Creation of new contract | Yes | No |
| Change in parties | Possible | No |
| Consent required | Yes, all parties | Yes, involved parties |
| Example | Substituting C for A as debtor | Changing payment terms |
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