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

Sunil owes Tarun Rs 10,000. Sunil and Tarun agree that Sunil will give a mortgage of his estate for Rs 5,000 in place of the debt of Rs 10,000. Which statement is correct?

The new contract extinguishes the old debt. Where parties agree to substitute a new contract for the original, Section 62 says the original need not be performed, so Sunil's mortgage for Rs 5,000 replaces the Rs 10,000 debt completely.

  1. AThe agreement is void for inadequacy of consideration
  2. BThe original debt of Rs 10,000 survives alongside the mortgage
  3. CThe new contract extinguishes the old debtCorrect
  4. DThe agreement merely alters the mode of payment and the old debt remains enforceable

Explanation

The illustration to Section 62 states that a mortgage for Rs 5,000 given in place of a Rs 10,000 debt is a new contract and extinguishes the old. The parties agreed to substitute, so the original debt need not be performed.

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