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

Hari Steels supplied goods on credit to Mehta Fabricators on the guarantee of Nirmala. Mehta Fabricators then entered into a contract with Hari Steels under which Hari Steels promised to give Mehta Fabricators an extra six months to pay, without asking Nirmala. Nirmala did not assent to this. What is the legal position of Nirmala?

Nirmala is discharged. Where the creditor makes a contract with the principal debtor promising to give him time, the surety is discharged unless the surety assents to it. Nirmala did not assent, so her liability ends.

  1. AShe remains liable because a guarantee is a continuing obligation
  2. BShe is discharged because the creditor promised time to the principal debtor without her assentCorrect
  3. CShe is liable only for half of the amount
  4. DShe is discharged only if the guarantee was in writing

Explanation

A contract between the creditor and the principal debtor by which the creditor promises to give time to the principal debtor discharges the surety unless the surety assents. Nirmala did not assent, so she is discharged. Whether the guarantee was written is irrelevant.

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