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

Rohan owes Mehta Traders Rs 50,000. By a tripartite agreement among Rohan, Mehta Traders and Sunil, Mehta Traders agrees to accept Sunil as its debtor instead of Rohan. What is the legal result?

Rohan's old debt ends and Sunil becomes a new debtor to Mehta Traders. This is novation under Section 62: all three parties agree to substitute a new contract, so the original obligation need not be performed and a fresh debt arises.

  1. ARohan remains liable and Sunil is only a guarantor
  2. BRohan's debt is at an end and a new debt from Sunil to Mehta Traders arisesCorrect
  3. CNothing changes because Mehta Traders gave no fresh consideration
  4. DThe agreement is void because three parties cannot make a contract

Explanation

This matches Section 62, illustration (a): when A, B and C agree that B will accept C as debtor instead of A, the old debt is at an end and a new debt from C to B is contracted. Rohan is therefore released, so the option keeping him liable is wrong.

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