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

Hari, Gopal and Imran are co-sureties for a debt owed by Dinesh to Orient Bank. The bank releases Hari from his suretyship. Which statement is correct?

Gopal and Imran remain liable, and Hari is still responsible to them. The Contract Act provides that release of one co-surety by the creditor does not discharge the others, nor does it free the released surety from his responsibility to the other co-sureties.

  1. AGopal and Imran are not discharged, and Hari is not freed from his responsibility to them as co-suretiesCorrect
  2. BGopal and Imran are discharged, because the guarantee is indivisible
  3. CGopal and Imran are discharged only for Hari's share
  4. DHari is freed from all responsibility, including towards the other sureties

Explanation

Section 138 states that where there are co-sureties, release of one by the creditor does not discharge the others, and it does not free the released surety from his responsibility to the other sureties. So Gopal and Imran stay liable and Hari still owes his contribution to them. The option claiming discharge of all contradicts this rule.

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