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

Under a contract, Sunil builds a house for Tara for a fixed price within a stipulated time, Tara supplying the timber. Vijay guarantees Sunil's performance. Tara omits to supply the timber. What is the effect on Vijay?

Vijay is discharged from his suretyship. Tara's failure to supply the timber is a creditor's omission whose legal consequence is the discharge of the principal debtor, Sunil, from his obligation. Under Section 134, the surety is then also discharged from liability.

  1. AVijay is discharged from his suretyshipCorrect
  2. BVijay remains liable because Sunil is the principal debtor
  3. CVijay is liable for half the loss since both defaulted
  4. DVijay is liable only if Sunil gives consent

Explanation

Section 134 discharges a surety by any act or omission of the creditor whose legal consequence is discharge of the principal debtor. Tara's omission to supply timber excuses Sunil's performance, so Vijay is discharged, as in illustration (c). Remaining liable would ignore that Sunil himself is released by the creditor's default.

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