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CMA Foundation · Fundamentals of Business Laws and Business Communication · Consideration and Legality of Object

Anil sells and delivers goods to Bimal on credit. Later, Chetan, without receiving anything in return, promises Anil in an agreement to pay for the goods if Bimal defaults. What is the legal position of Chetan's promise?

Chetan's promise is void. His guarantee was given after the goods were delivered and without any consideration moving to him or for Bimal's benefit at his request. Section 127 validates a guarantee only when something is done or promised as consideration, which is absent here.

  1. AValid, because a guarantee never needs consideration
  2. BValid, because Anil has already delivered the goods
  3. CVoid, because Chetan's promise was made without considerationCorrect
  4. DVoidable at Anil's option

Explanation

Section 127 allows anything done or promised for the benefit of the principal debtor to be consideration for a surety. However, the goods were delivered before Chetan's promise and he got nothing in return, as in illustration (c) to that section. So the agreement is void. Past delivery at no request of Chetan does not support his promise.

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