KSLU Solved Question Papers
Contract II
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 5
2022 Oct Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 5 Contract II 2022 Oct 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 2022 Oct examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2022 Oct examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2022 Oct 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 80 · 20 questions answered
Instructions printed on the paper
- N.B. (1) Answer all five units. (2) One essay type question and short note/problems is compulsory from each Unit. (3) Figures to the right indicate marks. (4) Answer should be written either in English or Kannada completely.
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.
Q1
Unit I
(a)What is contract of guarantee ? Explain the various modes of discharge of surety from his liability.[10]
Answer
For full marks, cover: the definition in section 126 and the three parties; discharge by revocation (sections 130 and 131); discharge by the creditor's conduct (sections 133, 134, 135, 139 and 141); discharge because the guarantee was invalid (sections 142 to 144); what does not discharge (sections 136 to 138); Amrit Lal Goverdhan Lalan and State Bank of Saurashtra.
What a contract of guarantee is
Section 126 of the Indian Contract Act 1872 defines it: "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 the guarantee is given is the creditor. A guarantee may be oral or written.
Under section 128 the surety's liability is co-extensive with that of the principal debtor. Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297, held that the creditor may proceed against the surety without first suing the principal debtor.
"Discharge" means the surety is freed from liability. It happens in three broad ways.
1. Discharge by revocation
- By notice (section 130). A continuing guarantee covers a series of transactions. The surety may revoke it "at any time" as to future transactions by notice to the creditor. He stays liable for transactions already entered into.
- By death (section 131). The surety's death revokes a continuing guarantee as to future transactions, unless the contract says otherwise. His estate stays liable for past transactions.
A specific guarantee, given for one transaction, cannot be revoked once that transaction has been entered into.
2. Discharge by the creditor's conduct
The law protects the surety because he never agreed to carry a risk larger than the one he accepted.
- Variance in the terms (section 133). Any variance made without the surety's consent in the contract between the principal debtor and the creditor discharges him as to later transactions. In illustration (a), a bank manager's salary and duties are changed without the surety's consent, and the surety is discharged.
- Release or discharge of the principal debtor (section 134). A contract releasing the principal debtor, or any act or omission of the creditor whose legal result is the debtor's discharge, discharges the surety.
- Composition, time or promise not to sue (section 135). A contract with the principal debtor to compound, to give him time, or not to sue him discharges the surety unless he assents.
- Act or omission impairing the surety's remedy (section 139). The creditor may do an act inconsistent with the surety's rights, or omit a duty he owes the surety. If the surety's eventual remedy against the principal debtor is impaired as a result, the surety is discharged.
- 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 the surety's consent, the surety is discharged to the extent of its value.
The two leading cases
Amrit Lal Goverdhan Lalan v. State Bank of Travancore, AIR 1968 SC 1432, shows that these grounds are separate. A firm had a cash credit of Rs 1,00,000 secured by goods pledged with the bank, and the appellant guaranteed it. Goods worth Rs 35,690 went missing from the pledge through the bank's negligence. The surety pleaded variance and the giving of time. The Supreme Court rejected both. Internal entries in the bank's books were not a variance under section 133. Time given to make up the stock was not time to pay under section 135. But the surety succeeded under section 141. The bank had lost part of the security, so he was discharged to that extent.
State Bank of Saurashtra v. Chitranjan Rangnath Raja, AIR 1980 SC 1528, applied the same rule more strongly. A cash credit of Rs 75,000 was secured by 5,000 tins of groundnut oil under the bank's lock and key, and by the surety's guarantee. The tins were lost through the bank's negligence in custody. The Supreme Court held the surety discharged under sections 139 and 141 read together. It did not matter that the bank called the guarantee an independent contract.
3. Discharge because the guarantee was invalid
- Misrepresentation (section 142). A guarantee obtained by misrepresentation by the creditor, or with his knowledge and assent, about a material part of the transaction is invalid.
- Concealment (section 143). A guarantee obtained by keeping silence about material circumstances is invalid. In illustration (a), an employer does not tell the surety that the clerk has already failed to account. The guarantee is invalid.
- Co-surety not joining (section 144). A guarantee may be given on the term that the creditor will not act until another person joins as co-surety. If that person does not join, the guarantee is not valid.
What does NOT discharge the surety
| Section | Situation | Result |
|---|---|---|
| 136 | Creditor agrees with a third person, not the debtor, to give time | Surety not discharged |
| 137 | Creditor merely forbears to sue the debtor | Surety not discharged |
| 138 | Creditor releases one co-surety | Other co-sureties not discharged |
The illustration to section 137 makes the point. C does not sue B for a year after the debt is payable, and A, the surety, is not discharged.
Discharge by the ordinary law
The surety is also discharged when the principal debt itself ends. This happens when the debtor pays or performs, or when the main contract is discharged by agreement or becomes void. The surety's liability follows the principal debt under section 128.
Conclusion. A contract of guarantee is a promise under section 126 to answer for a third person's default. The surety is discharged by revocation of a continuing guarantee (sections 130 and 131). He is also discharged by the creditor's conduct (sections 133, 134, 135, 139 and 141). He is also freed where the guarantee was invalid (sections 142 to 144). Mere forbearance, time given through a third person or release of a co-surety does not free him. The two Supreme Court cases show that a careless creditor who loses the security loses the surety too.
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