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CMA Foundation · Fundamentals of Business Laws and Business Communication · Meaning of Indemnity, Guarantee, Pledge, Agent

Rohit gives a guarantee to Bharat Traders for goods to be supplied on credit to Sameer. Bharat Traders delivers the goods, and the debt falls due. Bharat Traders does not sue Sameer for a full year after the due date, and the guarantee has no clause dealing with this. What is Rohit's position?

Rohit is not discharged. Mere forbearance by the creditor to sue the principal debtor, without any contrary provision in the guarantee, does not discharge the surety. Bharat Traders merely stayed idle for a year and made no binding agreement with Sameer, so Rohit remains liable on his guarantee.

  1. ARohit is discharged because the creditor delayed for a year
  2. BRohit is discharged because the creditor did not first sue the principal debtor
  3. CRohit is not discharged, because mere forbearance to sue does not discharge the suretyCorrect
  4. DRohit's liability is reduced in proportion to the delay

Explanation

Under Section 137, mere forbearance by the creditor to sue the principal debtor or enforce any other remedy does not discharge the surety unless the guarantee provides otherwise. Here there is no such provision and no contract giving Sameer time. The option claiming discharge by delay confuses mere inaction with a binding contract to give time under Section 135.

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