KSLU Solved Question Papers
Contract II
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 5
2017 Dec Examination
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Mumbai
B.A. LL.B. (Five Years) Sem 5 Contract II 2017 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 2017 Dec examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2017 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. Explain the rights of surety against co-sureties.[16]
Answer
For full marks, cover: the definition and the three parties (section 126); the essentials, with consideration (section 127) and the vitiating factors (sections 142 and 143); the surety's liability to the creditor (section 128, Bank of Bihar); who are co-sureties; the right to equal contribution (section 146) with its illustrations; sureties bound in different sums (section 147) worked out; the effect of releasing one co-surety (section 138); a guarantee conditional on a co-surety joining (section 144); when the right to contribution arises and how it is enforced; a worked example; a summary table.
Part I: The contract of guarantee
Definition. Section 126 of the Indian Contract Act 1872 defines a contract of guarantee as "a contract to perform the promise, or discharge the liability, of a third person in case of his default". A guarantee "may be either oral or written".
The parties. Section 126 names three persons.
- The surety is the person who gives the guarantee.
- The principal debtor is the person for whose default the guarantee is given.
- The creditor is the person to whom the guarantee is given.
So a guarantee always involves three people and, in substance, three contracts. They are the main contract between creditor and debtor, and the surety's promise to the creditor. The third is the debtor's implied promise to indemnify the surety (section 145).
Essentials.
- A liability to be guaranteed. There must be a debt or duty of the principal debtor, existing or future. The surety's liability is secondary: it arises on the debtor's default.
- Consideration. Under section 127, "anything done, or any promise made, for the benefit of the principal debtor" is enough consideration for the surety. The surety need not benefit himself. In illustration (c), a promise made after the goods were supplied, with nothing in return, is void.
- Free consent. A guarantee obtained by the creditor's misrepresentation on a material part of the transaction is invalid (section 142). So is one obtained by the creditor keeping silence on material circumstances (section 143).
- Capacity and the other general requirements of a valid contract under the Act.
The surety's liability. Under section 128, the surety's liability is "co-extensive with that of the principal debtor", unless the contract provides otherwise. The creditor need not sue the debtor first.
Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297, confirms this. The Supreme Court refused to make a bank exhaust its remedies against the borrower before executing its decree against the surety.
Part II: Rights of a surety against his co-sureties
Who are co-sureties. Where two or more persons guarantee the same debt or duty, they are co-sureties. Section 146 makes the class wide. It applies whether they are bound "jointly or severally", "under the same or different contracts", and "with or without the knowledge of each other". So a surety may have a duty to share the burden with people he has never met.
Two separate questions. Against the creditor, each co-surety may be liable for the whole debt under section 128. Between themselves, the burden is shared. The Act's rules on co-sureties deal only with this second question.
Right 1: equal contribution (section 146). In the absence of a contract to the contrary, co-sureties are liable "as between themselves, to pay each an equal share of the whole debt". If the debtor has paid part, they share only "that part of it which remains unpaid by the principal debtor".
So a surety who pays more than his equal share may recover the excess from the others. Illustration (a) gives the rule. A, B and C guarantee Rs 3,000 lent to E, and E defaults. As between themselves, each must pay Rs 1,000.
Right 2: shares fixed by their own contract. The words "in the absence of any contract to the contrary" let co-sureties agree on unequal shares. In illustration (b), A, B and C guarantee Rs 1,000 and agree to bear one quarter, one quarter and one half. As between them, A pays Rs 250, B Rs 250 and C Rs 500. That agreement binds only the sureties, not the creditor.
Right 3: sharing within the limits of each bond (section 147). "Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit." The method has three steps.
- Divide the loss equally.
- Cap any surety whose equal share would exceed his limit.
- Divide the rest equally among the others.
The illustrations use bonds of Rs 10,000 (A), Rs 20,000 (B) and Rs 40,000 (C).
| Default | A pays | B pays | C pays | Why |
|---|---|---|---|---|
| Rs 30,000 | 10,000 | 10,000 | 10,000 | equal shares fit within every limit |
| Rs 40,000 | 10,000 | 15,000 | 15,000 | A is capped; B and C share the rest equally |
| Rs 70,000 | 10,000 | 20,000 | 40,000 | each pays his full bond |
The division is never in proportion to the size of the bonds. It is equal, subject to each surety's ceiling.
Right 4: release of one co-surety does not hurt the others (section 138). "A release by the creditor of one of them does not discharge the others." Nor does it free the released surety "from his responsibility to the other sureties". So the creditor cannot, by releasing one surety, shift that surety's share onto the rest. The others keep their right to contribution against him.
Right 5: a guarantee conditional on a co-surety joining (section 144). A person may guarantee on the term that the creditor shall not act on it until another person has joined as co-surety. If that other person does not join, the guarantee is not valid. This protects a surety who agreed only on the footing that the burden would be shared.
Right 6: the rights against the debtor. A surety who pays is also invested with all the creditor's rights against the debtor (section 140). He may then claim an indemnity from the debtor (section 145). Contribution from co-sureties is the remedy for whatever he cannot recover from the debtor.
When the right to contribution arises
The right to contribution arises only when a co-surety has paid more than his own share. A surety who has paid less than his share has nothing to claim from the others. He cannot sue them in advance merely because he fears he will have to pay.
The right rests on the fact of a shared burden, not on any agreement between the sureties. That is why section 146 applies "whether with or without the knowledge of each other". Two persons who separately guaranteed the same loan, unaware of each other, must still share it.
If one co-surety cannot pay, because he is insolvent or cannot be found, the loss falls on the others. They share it in the proportions the Act or their agreement fixes.
A worked example
A bank lends Rs 9 lakh to a trader. P, Q and R each guarantee the whole loan by separate documents, without knowing of one another. The trader pays Rs 3 lakh and then defaults.
- The bank may sue any one of them for the unpaid Rs 6 lakh (section 128, Bank of Bihar). It recovers it all from P.
- Between themselves, each must bear an equal share of the unpaid Rs 6 lakh, that is Rs 2 lakh (section 146). P may recover Rs 2 lakh each from Q and R.
- If Q had guaranteed only up to Rs 1 lakh, he would pay Rs 1 lakh. P and R would then share the remaining Rs 5 lakh equally, Rs 2.5 lakh each (section 147).
- If the bank had released R, P could still claim R's share from him (section 138).
Summary
| Right | Section | In short |
|---|---|---|
| Equal contribution | 146 | Equal shares of the unpaid debt, unless agreed otherwise |
| Contribution within limits | 147 | Equal shares, capped at each surety's limit |
| Release does not hurt the others | 138 | Released surety still contributes |
| Guarantee conditional on co-surety | 144 | Invalid if the co-surety never joins |
Conclusion. A contract of guarantee under section 126 is a promise to answer for a third person's default. It needs consideration (section 127) and the surety's free consent (sections 142 and 143). Against the creditor, each surety is liable for the whole, as Bank of Bihar holds. Between themselves, co-sureties share the loss equally under section 146, or as they have agreed. Where their bonds differ, they share equally within each limit (section 147). Releasing one surety does not end his duty to contribute (section 138).
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