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CMA Foundation · Fundamentals of Business Laws and Business Communication · Discharge of Contracts

A creditor holding an overdue bill drawn by Asha as surety for Binoy, and accepted by Binoy, contracts with Manoj, a third person, to give Binoy more time. What is Asha's position under Section 136?

Asha is not discharged. Under Section 136, when the creditor agrees to give time to the principal debtor with a third person rather than with the debtor himself, the surety continues to be liable.

  1. AAsha is discharged because time was given to the principal debtor
  2. BAsha is not dischargedCorrect
  3. CAsha is discharged only if Binoy consents to the extension
  4. DAsha becomes the principal debtor

Explanation

Section 136 provides that where a contract to give time to the principal debtor is made by the creditor with a third person and not with the debtor, the surety is not discharged. Here the contract was made with Manoj, not Binoy, so Asha remains liable.

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