KSLU Solved Question Papers
Contract II
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 5
2014 Dec Examination
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Mumbai
B.A. LL.B. (Five Years) Sem 5 Contract II 2014 Dec Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2014 Dec examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2014 Dec examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2014 Dec examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1Define contract of guarantee and discuss the distinctions between contract of guarantee and indemnity.[16]
Answer
For full marks, cover: both definitions word for word (sections 124 and 126); the essentials of each; when the indemnity holder can sue (Gajanan Moreshwar, Osman Jamal); the surety's co-extensive liability (Bank of Bihar); at least ten points of distinction in a table; why the distinction matters in practice: discharge rules, the minor debtor (Edavan Kavingal, Kashiba), and the surety's protection against a careless creditor (Amrit Lal Goverdhan Lalan).
Introduction
Chapter VIII of the Indian Contract Act 1872 deals with two contracts that both protect a person against loss: indemnity and guarantee. They look alike, because in both one person promises to make good what another loses. But the law treats them very differently. The difference turns on one question: is the promisor answering for his own promise, or for someone else's default?
Part A: Contract of indemnity
Definition. Section 124 says: "A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a contract of indemnity."
The illustration is simple. A contracts to indemnify B against the consequences of any proceedings which C may take against B for a sum of Rs 200.
Essentials.
- Two parties: the indemnifier, who promises, and the indemnity holder, who is protected.
- A valid contract, with all the elements of section 10, including consideration.
- A promise to save from loss, meaning to make the loss good.
- Loss caused by conduct, of the promisor or of any other person. The Act's definition does not cover loss from events such as fire or flood. A promise against those is still enforceable under the general law.
- Express or implied. The law implies an indemnity in some relations, such as principal and agent (sections 222 and 223).
Rights of the indemnity holder. Under section 125, when sued, he may recover the damages, the costs and the sums paid under a prudent compromise.
When he may claim. Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, AIR 1942 Bom 302, settled this for India. The plaintiff, at the defendant's request, mortgaged property and made himself personally liable for the debt. The defendant promised in writing to clear the mortgages and did not. He argued that the plaintiff had suffered no loss yet. Chagla J held that sections 124 and 125 are not exhaustive. Once the indemnity holder's liability has become absolute, he may compel the indemnifier to discharge it. He need not pay first.
Osman Jamal and Sons Ltd. v. Gopal Purshottam (Calcutta High Court, 1929) is to the same effect. A commission agent bought hessian on the defendants' promise of indemnity. They did not take delivery, and the seller resold at a loss and claimed it from the agent. The agent recovered from the defendants before paying the seller.
Part B: Contract of guarantee
Definition. Section 126 says: "A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default." The person who gives the guarantee is the surety. The person whose default is guaranteed is the principal debtor. The person to whom it is given is the creditor. "A guarantee may be either oral or written."
Essentials.
- Three parties and three relations. There is the main contract between creditor and debtor, and the guarantee between creditor and surety. There is also the debtor's implied promise to indemnify the surety (section 145).
- An existing or future liability of the principal debtor. There must be a debt or duty to guarantee.
- Consideration. Under section 127, "anything done, or any promise made, for the benefit of the principal debtor" is enough. The loan to the debtor supports the surety's promise. But a promise to pay a past debt with no new benefit is void (illustration (c)).
- Free consent. A guarantee obtained by the creditor's misrepresentation (section 142) or by his silence about material facts (section 143) is invalid.
- Form. Oral or written. No writing is required by the Act.
Liability of the surety. Section 128 says it "is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract".
Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297, explained what that means. A bank obtained a decree against a borrower and his surety. The trial court said the bank must first exhaust its remedies against the borrower. The Supreme Court set this aside. Without a special equity, a surety cannot make the creditor sue the debtor first. The surety must pay, and then take over the creditor's rights under section 140.
Part C: The distinctions
| Point | Indemnity | Guarantee |
|---|---|---|
| Section | 124 | 126 |
| Parties | Two | Three |
| Contracts | One | Three relations, including the debtor's implied indemnity (section 145) |
| Point | Indemnity | Guarantee |
|---|---|---|
| Purpose | To save from loss | To secure a debt or duty of a third person |
| Liability | Primary and independent | Secondary: arises on the debtor's default |
| Existing debt | Not needed | Must be a debt or duty of the principal debtor |
| Request | Indemnifier usually acts in his own interest | Surety usually acts at the debtor's request |
| Consideration | Must move in the ordinary way | Benefit to the debtor is enough (section 127) |
| After payment | No statutory subrogation | Surety steps into the creditor's shoes (section 140) |
| Discharge | General law of contract | Special grounds in sections 133 to 141 |
| Invalidity rules | General law of free consent | Also sections 142 to 144 |
| Number of liabilities | One | Two: the debtor's primary and the surety's secondary |
Part D: Why the distinction matters
1. The minor debtor. A minor's agreement is void. A true surety for a minor therefore has no debt to answer for. In Edavan Kavingal Kelappan Nambiar v. Moolakal Kunhi Raman, AIR 1957 Mad 164, the Madras High Court held that a surety's liability "can rest only on a valid obligation", and freed the surety. The court explained the Bombay case of Kashiba v. Shripat Narshiv (1894) ILR 19 Bom 697, where a father who joined his minor daughter's bond was held liable. His promise there was, in truth, an indemnity. The same words can thus create liability or not, depending on which contract they make.
2. The surety's special protection. Sections 133 to 141 discharge a surety in several cases. They cover a variance, a release of the debtor, time given to him, an impaired remedy and a lost security. These protections belong to a surety, not to an indemnifier.
Amrit Lal Goverdhan Lalan v. State Bank of Travancore, AIR 1968 SC 1432, shows one of them at work. A firm's cash credit was secured by goods pledged with a bank and by the appellant's guarantee. Goods worth Rs 35,690 went missing from the pledge through the bank's negligence. The Supreme Court held the surety discharged under section 141 to the extent of that value. An indemnifier, whose promise is independent, would not have had that defence.
3. Which section governs the claim. An indemnity holder relies on section 125 and the general law. A creditor relies on section 128, and must respect the surety's rights in sections 140 and 141.
How to tell them apart in a given case
Ask whether the promisor's liability depends on someone else failing to pay or perform. If it does, the contract is a guarantee. If the promisor must pay in any event, it is an indemnity. A promise "I will pay if he does not" is a guarantee. A promise "I will see that you suffer no loss from this deal" is usually an indemnity.
Conclusion. A contract of indemnity under section 124 is a two-party, primary promise to save another from loss caused by conduct. It is enforceable once liability is absolute (Gajanan Moreshwar, Osman Jamal). A contract of guarantee under section 126 is a three-party, secondary promise to answer for a third person's default, with co-extensive liability (Bank of Bihar). They differ in parties, nature of liability, consideration, subrogation and discharge. The difference decides real cases. It settles whether a surety for a minor is liable (Edavan Kavingal), and whether a careless creditor loses his claim (Amrit Lal Goverdhan Lalan).
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