Section 47 The Indian Contract Act, 1872
Section 47 – “Effect of Novation, Rescission, and Alteration of Contract”
Text of Section 47 (Indian Contract Act, 1872):
“When a contract has been legally rescinded or altered, the parties are discharged from their obligations under the contract as altered or rescinded, except in so far as may be necessary to give effect to such rescission or alteration.”
1. Purpose of Section 47
Section 47 deals with situations where:
A contract is rescinded – i.e., the parties mutually agree to cancel it.
A contract is altered or modified – i.e., the parties agree to change certain terms.
Novation occurs – i.e., a new contract replaces the old one, either substituting a party or terms.
The section clarifies that once a contract is rescinded or altered legally, the parties are relieved of their original obligations under the contract, except to the extent necessary to carry out the rescission or alteration itself.
2. Key Concepts
Novation
A new contract replaces the old one with either a new party or new obligations.
Original contract obligations are discharged.
Example: Party A owes Party B ₹1,00,000. A new contract is entered where Party C pays Party B instead, discharging A.
Rescission
Mutual cancellation of a contract.
Parties are no longer bound by the contract from the rescission date.
Example: A contract for supply of goods is cancelled due to mutual consent. Neither party is obliged to perform further.
Alteration
Terms of the contract are legally modified with mutual consent.
Only obligations under the altered terms are binding.
Example: Delivery date in a supply contract is changed; other obligations remain intact.
3. Legal Effect
Parties no longer have obligations under the original contract once it is legally rescinded or altered.
However, any obligations necessary to give effect to the rescission or alteration (like returning goods, refunding money) are still enforceable.
Protects parties from being held liable under outdated or superseded agreements.
4. Illustrative Examples
Novation Example:
X owes Y ₹50,000. Z agrees to pay Y on X’s behalf under a new agreement.
Original debt of X is extinguished; new obligation arises for Z.
Rescission Example:
A hires B to construct a shed. Both agree to cancel the contract.
B returns any advance paid, and both are discharged from further performance.
Alteration Example:
Delivery date in a supply contract is extended.
Original performance obligation is replaced by the new obligation under altered terms.
5. Related Provisions
Section 63: Contracts may be rescinded by mutual agreement.
Section 62: Novation, alteration, or remission of a contract requires consent of all parties.
Section 39-40: Effects of fraud or coercion on altering or rescinding contracts.
6. Key Takeaways
Section 47 ensures that parties are discharged from their original obligations when a contract is legally rescinded, altered, or novated.
Obligations necessary to give effect to rescission or alteration (like refunds or restitution) remain enforceable.
Protects parties from unintended liability under superseded or cancelled agreements.
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