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CS Professional · Drafting, Pleadings and Appearances · Commercial Contract Management

Arjun owes Bharat ₹2,00,000 under a supply contract. Arjun, Bharat and Chitra agree in a signed tripartite deed that Bharat will thenceforth accept Chitra as his debtor in place of Arjun. Under Section 62 of the Indian Contract Act, 1872, what is the legal position?

The old debt of Arjun to Bharat ends and a new debt from Chitra to Bharat arises, because all three parties agreed to the substitution. Under Section 62 the original contract need not be performed once a new contract replaces it.

  1. AArjun's old debt to Bharat ends and a new debt from Chitra to Bharat arisesCorrect
  2. BArjun remains liable and Chitra becomes only a surety
  3. CBoth Arjun and Chitra are jointly liable for the ₹2,00,000
  4. DThe deed is ineffective because novation needs a court order

Explanation

Section 62 provides that where parties agree to substitute a new contract, the original need not be performed. As in the statutory illustration, with all three parties agreeing, the old debt of the outgoing debtor ends and a new debt from the incoming debtor is created. The joint liability option ignores that the old contract is discharged.

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