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

Sohan guarantees Tara's performance of a contract to deliver a crop to Kishore at a fixed rate. Kishore diverts a stream needed to irrigate Tara's land, so Tara cannot raise the crop. What is the effect on Sohan's liability?

Sohan is no longer liable. A surety is discharged by any act or omission of the creditor whose legal consequence is the discharge of the principal debtor, and Kishore's diversion of water prevented Tara's performance, which ends the guarantee.

  1. ASohan is no longer liable, because the creditor's act prevented the principal debtor's performance and led to her dischargeCorrect
  2. BSohan is liable, because a guarantee is co-extensive with the debtor's original promise
  3. CSohan is liable for half the loss as Tara's co-obligor
  4. DSohan is liable if Tara pays him a commission

Explanation

Section 134 also discharges the surety by any act or omission of the creditor whose legal consequence is the discharge of the principal debtor. Kishore's diversion of water prevents Tara's performance and discharges her, so the surety is discharged as in the section's indigo illustration. Co-extensive liability applies only while the principal debtor is liable.

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