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

Ravi owes Meera Rs 20,000 under a contract. Ravi, Meera and Kishore agree that Meera will henceforth accept Kishore as her debtor in place of Ravi. What is the legal effect under Section 62 of the Indian Contract Act, 1872?

The old debt of Ravi to Meera comes to an end and a new debt from Kishore to Meera is created. All three parties agreed to the substitution, which is novation under Section 62, so the original contract need not be performed.

  1. ARavi remains liable and Kishore is only an additional debtor
  2. BThe old debt of Ravi to Meera ends and a new debt from Kishore to Meera arisesCorrect
  3. CThe agreement is void because Kishore gave no consideration
  4. DThe old contract is merely suspended until Kishore pays

Explanation

Section 62 provides that where parties agree to substitute a new contract, the original need not be performed. In the illustration, when A, B and C agree that B accepts C as debtor instead of A, the old debt ends and a new debt from C to B arises. Option A is wrong because novation extinguishes the old liability rather than adding to it.

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