Skip to content

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

Ravi guarantees repayment of a loan of ₹2,00,000 that Sunrise Traders owes to Metro Finance. Metro Finance later enters into a contract with Sunrise Traders by which Sunrise Traders is fully released from the debt. What is the effect on Ravi's liability as surety?

Ravi is discharged from liability. Under the Contract Act, a surety is discharged by any contract between the creditor and the principal debtor by which the principal debtor is released, so once Metro Finance releases Sunrise Traders by contract, the guarantee ends.

  1. ARavi is discharged, because the principal debtor has been released by a contract with the creditorCorrect
  2. BRavi remains liable, because his liability is independent of the principal debtor's
  3. CRavi remains liable for half the amount, as the surety shares the loss
  4. DRavi remains liable until he gives written notice of his discharge

Explanation

Section 134 provides that the surety is discharged by any contract between the creditor and the principal debtor by which the principal debtor is released. Since Sunrise Traders has been released by contract, Ravi is discharged. Remaining liable would ignore this rule, as a surety's liability is co-extensive with the debtor's and ends when the debtor is released.

Did you get it right without looking?

One question tells you little. A timed set on Discharge of Contracts shows your real accuracy, how long you take and where you lose marks.

Practise Discharge of ContractsFree diagnostic mock

More Discharge of Contracts questions