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

Anil guarantees to Bank X the repayment of a loan given to Pooja. Without consulting Anil, the bank agrees with Pooja to give her an extra year to repay and promises not to sue her during that year. Anil did not assent to this arrangement. What is Anil's position?

Anil is discharged. When the creditor makes a contract with the principal debtor giving time or promising not to sue, the surety is discharged unless he assents. Anil did not assent, so the bank's extension to Pooja frees him from liability.

  1. AHe remains liable, as the bank gave time only to Pooja
  2. BHe remains liable but only for half the amount
  3. CHe is discharged, as the creditor gave time to the principal debtor without his assentCorrect
  4. DHe is discharged only if Pooja later defaults

Explanation

Under Section 135, a contract between the creditor and the principal debtor by which the creditor promises to give time to, or not to sue, the principal debtor discharges the surety unless the surety assents. Anil did not assent, so he is discharged. The fact that the time was given only to Pooja is the very situation the section covers, so the first option is wrong.

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