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

Hari guarantees to Gopal the price of goods Gopal supplies to Imran. Imran becomes embarrassed and contracts with his creditors, including Gopal, to assign his property in return for their releasing him from their demands. What is Hari's position?

Hari is discharged from his suretyship. Under Section 134, a contract between the creditor and the principal debtor that releases the debtor also releases the surety, even though the surety was not a party to that arrangement.

  1. AHari remains liable because he was not a party to the arrangement
  2. BHari is liable for half the debt
  3. CHari is discharged from his suretyshipCorrect
  4. DHari is liable only if he consents to the release

Explanation

Section 134 discharges the surety by any contract between the creditor and principal debtor by which the debtor is released. Imran's release through the contract with Gopal discharges Hari. Hari's non-participation is irrelevant, so the first option is wrong.

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