KSLU Solved Question Papers
Contract II
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 5
2015 Dec Examination
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Mumbai
B.A. LL.B. (Five Years) Sem 5 Contract II 2015 Dec Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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Contents
The questions below are the paper as Karnataka State Law University set it at the 2015 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 2015 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.
Q1What is Continuing Guarantee ? Explain the various modes of discharge of surety from his liability.[16]
Answer
For full marks, cover: Part I, the continuing guarantee: the definition (section 129) with its illustrations; specific and continuing guarantees compared; the bank cash credit guarantee as the usual example. Part II, the modes of discharge, in four groups: by revocation (notice and death, sections 130 and 131); by the creditor's conduct (variance, release, composition or time, impairment, loss of security: sections 133 to 135, 139 and 141, with Amrit Lal Goverdhan Lalan and State Bank of Saurashtra); by invalidity (sections 142 to 144); by the end of the principal debt; what does not discharge (sections 136 to 138); a worked example on a cash credit guarantee.
Part I: The continuing guarantee
Definition
A contract of guarantee is "a contract to perform the promise, or discharge the liability, of a third person in case of his default" (section 126 of the Indian Contract Act 1872). Section 129 adds: "A guarantee which extends to a series of transactions, is called a 'continuing guarantee'."
So the test is whether the guarantee covers a single transaction or a running series of them.
- In illustration (a), A promises to answer, up to Rs 5,000, for C's collection and payment of the rents of B's estate. That covers a series of collections, so it is continuing.
- In illustration (b), A guarantees up to £100 for tea a dealer may supply to C "from time to time". It is a continuing guarantee, so A answers up to £100 for later unpaid supplies.
- In illustration (c), A guarantees the price of five sacks of flour. C pays for them. Four more sacks are later supplied and not paid for. A is not liable, because his guarantee covered only the first supply. It was a specific guarantee.
Specific and continuing guarantees compared
| Point | Specific guarantee | Continuing guarantee |
|---|---|---|
| Covers | One debt or one transaction | A series of transactions |
| Ends | When that debt is paid | By revocation, or another ground of discharge |
| Point | Specific guarantee | Continuing guarantee |
|---|---|---|
| Revocation for the future | Not possible once the debt arises | At any time by notice (section 130) |
| Usual example | Guarantee of a single car loan | Guarantee of a cash credit or overdraft account |
A cash credit account is the commonest continuing guarantee. The borrower draws and repays again and again within a limit, and the surety answers for the balance at any time.
Part II: The modes of discharge of the surety
"Discharge" means that the surety is freed from liability, wholly or as to the future. The Act provides four groups of grounds.
A. Discharge by revocation (continuing guarantees only)
1. By notice (section 130). "A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor." He stays liable for transactions already entered into. In illustration (a), A guarantees bills to be discounted for C over twelve months, up to Rs 5,000. He revokes after bills worth Rs 2,000 have been discounted. He is free as to later discounts, but liable for the Rs 2,000. In illustration (b), a bill accepted before the notice is still covered.
2. By death (section 131). "The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions." His estate remains liable for transactions before his death. Bank guarantees often contain a contrary clause, which then governs.
B. Discharge by the creditor's conduct
The surety agreed to carry a defined risk. Whatever the creditor does to change or worsen that risk without his consent may free him.
3. Variance in the terms (section 133). A variance in the terms of the contract between the principal debtor and the creditor may be made without the surety's consent. It "discharges the surety as to transactions subsequent to the variance". In illustration (d), a creditor holds a continuing guarantee for oil supplied on credit. He agrees with the debtor to supply oil for cash and apply payments to old debts. The surety is not liable for later supplies.
4. Release of the principal debtor (section 134). The surety is discharged by a contract releasing the principal debtor. He is also discharged by any act or omission of the creditor whose legal result is the debtor's discharge. In illustration (b), A contracts to grow indigo for B, and C guarantees A's performance. B diverts the stream that irrigates A's land, so A cannot grow the crop. C is no longer liable.
5. Composition, time or promise not to sue (section 135). The creditor may contract with the principal debtor to compound with him, to give him time, or not to sue him. Such a contract discharges the surety, unless he assents.
6. Impairing the surety's remedy (section 139). The creditor may do an act inconsistent with the surety's rights, or omit a duty owed to him. If the surety's eventual remedy against the debtor is impaired as a result, he is discharged. In illustration (b), a creditor holding a bill of sale of the debtor's furniture sells it through wilful negligence for a small price. The surety is discharged.
7. Loss of security (section 141). The surety is entitled to every security the creditor held when the guarantee was given. If the creditor loses it, or parts with it without his consent, he is discharged to the extent of its value.
Amrit Lal Goverdhan Lalan v. State Bank of Travancore, AIR 1968 SC 1432, arose on a continuing guarantee of a cash credit account of Rs 1,00,000, secured by goods pledged with the bank. Goods worth Rs 35,690 went missing through the bank's negligence. The surety's pleas of variance and time failed. But the Supreme Court held him discharged under section 141 to the extent of the goods lost.
State Bank of Saurashtra v. Chitranjan Rangnath Raja, AIR 1980 SC 1528, also concerned a cash credit, of Rs 75,000. It was secured by 5,000 tins of groundnut oil kept under the bank's own lock. The tins were lost through the bank's negligence. The Supreme Court held the surety discharged under sections 139 and 141 read together.
C. Discharge because the guarantee was invalid
8. Misrepresentation (section 142). A guarantee obtained by the creditor's misrepresentation about a material part of the transaction is invalid.
9. Concealment (section 143). A guarantee obtained by keeping silence about material circumstances is invalid. In illustration (b), the creditor and the debtor privately agree that the debtor will pay five rupees a ton above market price for iron. The excess is to go towards an old debt. This is hidden from the surety, who is not liable.
10. A co-surety who never joins (section 144). A guarantee may be given on terms that the creditor will not act until another person joins as co-surety. If that person does not join, the guarantee is not valid.
D. Discharge when the principal debt ends
The surety's liability follows the principal debt (section 128). So he is freed when the debtor pays or performs in full, or when the main contract is otherwise lawfully discharged.
What does not discharge the surety
- A promise of time made to a third person, not to the debtor (section 136).
- Mere forbearance to sue the debtor (section 137).
- Release of one co-surety, which does not free the others (section 138).
A worked example
S guarantees a trader's cash credit account with a bank up to Rs 5 lakh, secured by the trader's pledged stock.
- S gives notice of revocation when the balance is Rs 3 lakh. He is free as to later drawings, but liable for the Rs 3 lakh (section 130).
- The bank and the trader agree, without S, to raise the limit to Rs 8 lakh. S is discharged as to drawings after the change (section 133).
- The bank carelessly lets pledged stock worth Rs 1 lakh go missing. S is discharged to that extent (section 141, Amrit Lal Goverdhan Lalan).
- The bank merely delays suing the trader. S is not discharged (section 137).
Conclusion. A continuing guarantee under section 129 covers a series of transactions, such as a cash credit account. Unlike a specific guarantee, it may be revoked as to the future by notice or by the surety's death (sections 130 and 131). Any surety is also discharged by the creditor's conduct (sections 133 to 135, 139 and 141). That covers variance, release, composition or time, impairment of his remedy, and loss of security. Amrit Lal Goverdhan Lalan and State Bank of Saurashtra show a careless bank losing its surety. A guarantee obtained by misrepresentation or concealment is invalid (sections 142 and 143). Mere forbearance does not free him (section 137).
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