KSLU Solved Question Papers
Contract II
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 5
2017 Jun Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 5 Contract II 2017 Jun 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 Jun examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2017 Jun 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 indemnity. Explain the rights of indemnity holder.[16]
Answer
For full marks, cover: the definition in section 124 and its illustration; the parties; the essentials and nature of the contract; the narrower Indian definition (loss caused by conduct) and what falls outside it; express and implied indemnities (sections 69, 145, 222 and 223); the three rights of the indemnity holder when sued under section 125, each with its conditions and an example; when he may enforce the promise, before paying (Gajanan Moreshwar, Osman Jamal); rights outside section 125 (Adamson v. Jarvis); a table.
Definition
Section 124 of the Indian Contract Act 1872 reads: "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 gives the usual form. A contracts to indemnify B against the consequences of any proceedings which C may take against B for a sum of Rs 200. That is a contract of indemnity.
The person who promises to make good the loss is the indemnifier. The person protected is the indemnity holder, or the indemnified. A common example today is a company that asks its director to sign a loan document. The company promises to save him from any personal loss if the lender sues him.
Nature and essentials
- Two parties. An indemnity is a contract between the indemnifier and the indemnity holder alone. Nobody else's debt is being secured, unlike a guarantee.
- A valid contract. It needs free consent, competent parties, consideration and a lawful object, as every contract does (section 10). A promise to indemnify a person against the results of a crime has an unlawful object and is void (section 23).
- Loss caused by conduct. The loss must be caused by the conduct of the indemnifier or of some other person.
- Primary liability. The indemnifier's promise is his own original promise. It does not depend on anybody else first failing to pay.
- Express or implied. The promise may be put into words, or it may arise from the circumstances or by law.
The narrow Indian definition
English law treats indemnity as a promise to save a person from loss however it is caused. Section 124 is narrower. It speaks only of loss "caused by the conduct of the promisor himself, or by the conduct of any other person". Loss from an accident, a fire or an act of God is not caused by anyone's conduct. So a contract of fire or marine insurance does not fall within section 124.
Such promises are still valid. They are enforced under the general law of contract, and the courts apply the same principles of indemnity to them. Section 124 does not exhaust the subject.
Indemnities implied by law
The law itself reads an indemnity into some relationships.
- A person who pays another's debt to protect himself (section 69). In the illustration, a tenant pays his landlord's arrears of land revenue to stop his own lease being lost on a sale. The landlord must reimburse him.
- A surety (section 145). The principal debtor impliedly promises to indemnify the surety for whatever he rightfully pays.
- An agent (sections 222 and 223). The principal must indemnify the agent against the consequences of lawful acts done within his authority. He must also do so for acts done in good faith at his request, even if they injure a third person's rights.
Rights of the indemnity holder when sued: section 125
Section 125 gives the indemnity holder, "acting within the scope of his authority", three rights against the indemnifier. (The official text prints "The promise" as the subject of the section. Its heading, "Rights of indemnity-holder when sued", shows that the promisee is meant.)
1. Damages (section 125(1)). He may recover "all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies". The only conditions are that he was sued and that the suit falls within the promise.
2. Costs (section 125(2)). He may recover "all costs which he may be compelled to pay in any such suit". Either of two conditions must be met.
- He did not disobey the indemnifier's orders in bringing or defending the suit. He also acted as a prudent man would have acted without any indemnity.
- Or the indemnifier authorised him to bring or defend the suit.
3. Sums paid under a compromise (section 125(3)). He may recover "all sums which he may have paid under the terms of any compromise of any such suit". Again, either condition is enough.
- The compromise was not against the indemnifier's orders, and a prudent man would have made it without any indemnity.
- Or the indemnifier authorised the compromise.
An example. Mehta promises to indemnify Rao against any claim by a buyer over a machine Rao sold for Mehta. The buyer sues Rao. Rao tells Mehta at once, and Mehta authorises him to defend the suit. Rao loses and pays Rs 80,000 as damages and Rs 15,000 as costs. He recovers both from Mehta. Suppose Rao had instead settled the suit for Rs 60,000 without Mehta's authority. He would then recover that sum only if a prudent person would have settled on those terms. Suppose too that Mehta had told him to settle and he fought on and lost. He would still get the damages, but he would risk losing his costs.
When the indemnity holder can enforce the promise
Section 125 assumes that the indemnity holder has been sued and has paid. It does not say whether he must pay first. The old English rule was that he must, since he could not show any loss until then. Indian courts have not followed this strictly.
Gajanan Moreshwar Parelkar v. Moreshwar Madan Mantri, AIR 1942 Bom 302, is the leading case. At the defendant's request, the plaintiff mortgaged property and made himself personally liable for the debt. The defendant promised to clear the mortgage, and did not. He argued that the plaintiff had paid nothing and so had no claim. Chagla J rejected this. Sections 124 and 125 are not exhaustive. Once the indemnity holder's liability has become absolute, he may compel the indemnifier to discharge it before paying it himself. An indemnity that worked only after the holder had paid might come too late to be of any use.
Osman Jamal and Sons Ltd. v. Gopal Purshottam (Calcutta High Court, 1929) applied the same rule. A commission agent bought hessian for the defendants on their promise of indemnity. The defendants did not take delivery. The seller resold the goods at a loss and claimed the difference from the agent. The agent recovered the loss from the defendants before it had paid the seller.
Rights outside section 125
Because the section is not exhaustive, the indemnity holder also keeps his rights under the general law. These include a claim for loss that arises without any suit, such as money paid on a demand that could not have been resisted.
Adamson v. Jarvis (1827) 4 Bing 66 shows an indemnity implied by law. The defendant told an auctioneer to sell some cattle, falsely claiming to own them. The auctioneer sold them in good faith. The true owner sued the auctioneer and recovered damages. The auctioneer then recovered his loss from the defendant, because he had acted in good faith at the defendant's request. Section 223 now states the same rule for agents.
Summary
| Right | Source | Condition |
|---|---|---|
| Damages paid in a suit | Section 125(1) | The suit falls within the promise |
| Costs of the suit | Section 125(2) | Obeyed orders and acted prudently, or authorised |
| Compromise money | Section 125(3) | Prudent compromise, or authorised |
| Right | Source | Condition |
|---|---|---|
| Relief before payment | Gajanan Moreshwar, Osman Jamal | Liability has become absolute |
| Indemnity implied by law | Adamson v. Jarvis; sections 69, 145, 222, 223 | Act done at another's request, or payment to protect one's own interest |
Conclusion. A contract of indemnity under section 124 is a two-party promise to save the other from loss. The loss must be caused by the conduct of the promisor or of another person. Loss from accident falls outside the section but is covered by the general law. When sued, the indemnity holder may recover damages, costs and compromise money under section 125. For costs and compromise money, he must have obeyed orders and acted prudently, or been authorised. Gajanan Moreshwar and Osman Jamal let him enforce the promise once his liability is absolute, without paying first. Adamson v. Jarvis shows that the law may also imply an indemnity.
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