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Report No. 13

74. Section 62.-

A controversy has arisen on the question whether section 62 will apply to a case where the fresh agreement contemplated by the section is entered into after the breach of the original contract. The Calcutta High Court has taken the view that such an agreement can take place only when the original contract is still capable of performance and that the section is a mere legislative expression in India of the English Common Law.1 Later decisions2 in that Court have followed this view. In the Madras High Court,3 which has taken the opposite view, the opinion of Kumaraswami Sastri, J. has prevailed.4 He pointed out that the observations of the learned editors of Smith's Leading Cases5 and the view of Lord Balckburn in Foakes v. Beer, 9 AC 605. show that the rules of English Law as to consideration for variation are not founded on any sound principle.

1. Manohur Koyal v. Thakurdas, 15 Cal 319.

2. New Standard Bank v. Prabodh Chandra, AIR 1942 Cal 87.

3. Ramiah v. Somasi, (1915) 29 MLJ 125.

4. N.M. Firm . Theperumal Chetty, 45 Mad 180.

5. Smith's Leading Cases, 13th Edn., p. 338.

The Indian legislature did not adopt the principles laid down in Foakes v. Beer, when it enacted section 62 of the Contract Act. He also pointed out that it was very common in this country for mediators to interfere after a breach of contract takes place and effect a compromise between the parties. We prefer the Madras view and accordingly recommend that it should be made clear that the new agreement may take place either before or after the breach of the original contract.

75. There is no express provision in the Contract Act on the subject of unauthorised alteration of documents. Sections 87, 88 and 89 of the Negotiable Instruments Act, which have, however, adopted the English Common Law to its full extent, have made ample provision for such alterations. Naturally, the Indian Courts have followed the English rule. That rule may be stated thus:

"If a material alteration is made in any instrument containing words of contract without the consent of the party contracting, this will discharge him from all liability thereon, whether such alterations were made by a party to the contract or by a stranger".1

1. Chitty; Op. Cit., vol. I, p. 302.

We recommend that this rule be incorporated in a separate section.1

1. Vide section 67A, App I.

76. What is a material alteration has been the subject of judicial exposition. "The effect of material alteration will be the same although the original words of that instrument be still legible, or although it be not made in respect of the breach of contract on which the plaintiff is suing."1 According to decided cases in England, an alteration is material which affects either the substance of a contract expressed in the document or the identification of the document itself. Alterations are immaterial if they merely express what is already implied in the document or add particulars consistent with the document, as it stands, though superfluous, or, are innocent attempts to correct clerical errors. It has also been established1 that alteration by a stranger should not alter the liability of a party to the contract, where no fraud, negligence or assent of such party is involved.

1. Chitty; Op. Cit., Vol. I, p. 304.

2. Hong Kong and Shanghai Banking Corpn. v. Lo Lee Shi, 1928 AC 181.

These principles should be embodied in the new section suggested by us.

77. The Government of Bihar suggest that a new sub-section should be added to the following effect:

"If there be a breach of any contract, parties thereto may choose to revive the terms of the original contract". As we have accepted the position that a novation can take place even after the breach of the original contract, it does not seem to be necessary to introduce the suggested sub-section.

Indian Contract Act, 1872 Back

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