Skip to content

CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Arun guarantees Chopra Infra's performance of a contract to build a warehouse for Deshmukh Ltd. The contract needs Deshmukh Ltd to supply the cement and steel. Deshmukh Ltd fails to supply the steel, so Chopra Infra cannot proceed. Which statement is correct?

Arun is discharged. An omission by the creditor that has the legal consequence of discharging the principal debtor also discharges the surety. Deshmukh Ltd's failure to supply the agreed steel prevents Chopra Infra from performing, so Arun's guarantee ends regardless of his knowledge.

  1. AArun remains liable, as the failure was not his act
  2. BArun is discharged, because an act or omission of the creditor has made the principal debtor's performance impossible, discharging himCorrect
  3. CArun is liable only if Chopra Infra consents in writing
  4. DArun is discharged only if he had been informed of the omission earlier

Explanation

Section 134 discharges the surety by any act or omission of the creditor whose legal consequence is the discharge of the principal debtor. Illustration (c) is similar: the creditor omits to supply the timber and the surety is discharged. Deshmukh Ltd's omission releases Chopra Infra, so Arun is discharged. Knowledge or consent of the surety is not required.

Did you get it right without looking?

One question tells you little. A timed set on Meaning of Indemnity, Guarantee, Pledge, Agent shows your real accuracy, how long you take and where you lose marks.

Practise Meaning of Indemnity, Guarantee, Pledge, AgentFree diagnostic mock

More Meaning of Indemnity, Guarantee, Pledge, Agent questions