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CMA Intermediate · Business Laws and Ethics · Special Contracts - Indemnity and Guarantee; Bailment and Pledge; Laws of Agency

Bharat Finance lent money to Devraj on the guarantee of Sunil. The loan was overdue. Bharat Finance then agreed with Devraj's brother Ramesh, a third person, to give time to Devraj for repayment. Sunil was not consulted. Which statement is correct?

Sunil is not discharged. When the creditor makes a contract to give time with a third person rather than with the principal debtor, the surety is not discharged. The discharge rule applies only to contracts made with the principal debtor.

  1. ASunil is discharged because time was given without his consent
  2. BSunil is discharged because Ramesh is a stranger to the guarantee
  3. CSunil is not discharged because the agreement to give time was made with a third person and not with the principal debtorCorrect
  4. DSunil is discharged to the extent of half the debt

Explanation

Where the contract to give time is made by the creditor with a third person and not with the principal debtor, the surety is not discharged. The discharge rule applies only to a contract with the principal debtor. Hence the option claiming discharge is wrong.

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