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Contract II
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B.A. LL.B. (Five Years) · Sem 5
2022 Oct (100 marks) Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 5 Contract II 2022 Oct (100 marks) 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 2022 Oct (100 marks) examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2022 Oct (100 marks) 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.
Q1"Do you agree that contract of guarantee is a tri-partite contract" ? Discuss.[16]
Answer
For full marks, cover: a clear stand (yes, in substance); the definition and the three parties (section 126); the three contracts: creditor and debtor (the principal liability, Edavan Kavingal, Kashiba), creditor and surety (consideration under section 127, free consent under sections 142 and 143, co-extensive liability under section 128, Bank of Bihar), debtor and surety (implied indemnity under section 145, subrogation under section 140); how the three interlock: the discharge rules (sections 133 to 135, 139 and 141, Amrit Lal Goverdhan Lalan); the limits of the description (no single document needed, section 132); the contrast with indemnity; a conclusion.
Introduction
The statement is correct in substance. A contract of guarantee always involves three persons and three linked relations. What happens in one relation affects the others, and much of the law of guarantee exists to manage that link. But the description needs one qualification: the three persons need not all sign one document.
The definition and the three parties
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". It names three persons.
- The surety, who gives the guarantee.
- The principal debtor, for whose default it is given.
- The creditor, to whom it is given.
A guarantee cannot exist with only two persons. There must be a third person whose promise or liability is guaranteed. That is why a guarantee is described as tripartite.
The three contracts
1. The principal contract: creditor and principal debtor. This is the loan, supply or other contract that creates the debt or duty. It is the foundation of the guarantee. If there is no valid liability of the debtor, there is nothing for the surety to answer for.
Edavan Kavingal Kelappan Nambiar v. Moolakal Kunhi Raman, AIR 1957 Mad 164, shows how much depends on this first contract. A surety was sued for money lent to a minor. The Madras High Court held him not liable. A surety's liability "can rest only on a valid obligation", and the minor owed nothing in law, so there was no default to guarantee.
The contrast is Kashiba v. Shripat Narshiv (1894) ILR 19 Bom 697. A minor executed a bond, and her father joined in it, undertaking to pay if she did not. The father was held liable. The Madras court in Edavan Kavingal explained that his promise was really an independent undertaking, closer to an indemnity, not a guarantee.
2. The contract of guarantee: surety and creditor. This is the surety's promise to the creditor to pay or perform if the debtor defaults. Several rules govern it.
- Consideration (section 127). "Anything done, or any promise made, for the benefit of the principal debtor" is enough consideration. The consideration moves to the debtor, not to the surety. This rule only makes sense because three persons are involved.
- Free consent (sections 142 and 143). A guarantee obtained by the creditor's misrepresentation, or by his silence on material circumstances, is invalid. The creditor owes the surety a duty of candour about the debtor and the transaction.
- Extent of liability (section 128). The surety's liability is co-extensive with the debtor's, unless the contract limits it.
Bank of Bihar Ltd. v. Damodar Prasad, AIR 1969 SC 297, explains this relation. A trial court allowed a bank to execute its decree against a surety only after exhausting its remedies against the borrower. The Supreme Court set that condition aside. Once the debtor has defaulted, the surety's liability to the creditor is immediate.
3. The implied contract: principal debtor and surety. Section 145 says that "in every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety". The surety may recover whatever he has rightfully paid, but nothing paid wrongfully.
Under section 140, a surety who pays all he owes is "invested with all the rights which the creditor had against the principal debtor". Under section 141, he takes the benefit of every security the creditor held. The surety's rights thus link back through the creditor to the debtor.
The three relations at a glance
| Relation | Source | What it does |
|---|---|---|
| Creditor and principal debtor | The loan or other main contract | Creates the debt or duty guaranteed |
| Creditor and surety | The guarantee (sections 126 to 128) | Surety answers on the debtor's default |
| Principal debtor and surety | Implied by section 145 | Debtor must repay the surety what he rightly paid |
An example. A bank lends Rs 10 lakh to a trader on the guarantee of the trader's friend. The loan agreement binds the trader to repay the bank. The guarantee binds the friend to pay the bank if the trader does not. If the friend pays, the law implies the trader's promise to repay him (section 145). The friend also takes over the bank's rights and securities against the trader (sections 140 and 141). Three persons, three relations, one transaction.
How the three contracts interlock
The clearest proof of the tripartite nature lies in the rules of discharge. Dealings between two of the parties can release the third.
- Variance (section 133). A change in the terms of the principal contract between creditor and debtor, without the surety's consent, discharges the surety for later transactions.
- Release of the debtor (section 134). A contract releasing the debtor, or any act or omission of the creditor that discharges the debtor, discharges the surety.
- Composition, time or promise not to sue (section 135). A binding promise by the creditor to the debtor discharges the surety, unless he assents.
- Impairing the surety's remedy (section 139). An act or omission of the creditor that weakens the surety's eventual remedy against the debtor discharges him.
- Loss of security (section 141). If the creditor loses a security he held against the debtor, the surety is discharged to that extent.
Amrit Lal Goverdhan Lalan v. State Bank of Travancore, AIR 1968 SC 1432, shows the third relation protecting the surety. A bank held goods pledged by a firm for its cash credit account, which the appellant had guaranteed. Goods worth Rs 35,690 went missing through the bank's negligence. The Supreme Court held the surety discharged to that extent under section 141. The creditor's carelessness with the debtor's security reduced the surety's liability.
None of these rules would make sense in a two-party contract. They exist because the surety is affected by what passes between the other two.
The limits of the description
1. No single document is needed. The Act does not require all three persons to sign one deed, or the debtor even to know of the guarantee. What it requires is a third person whose default is guaranteed. In that sense the contract of guarantee proper is made between surety and creditor, against the background of the debtor's liability.
2. A private arrangement is not enough. Section 132 covers two persons who both undertake a liability to a creditor. Between themselves, they agree that one is liable only on the other's default. The creditor is not bound by that arrangement, even if he knew of it. So a person becomes a surety, as against the creditor, only where the creditor deals with him as one.
The contrast with indemnity
A contract of indemnity under section 124 has only two parties: the indemnifier and the indemnity holder. The indemnifier's liability is primary and does not depend on anyone's default. A guarantee has three parties, and the surety's liability is secondary, arising on the debtor's default. The difference in the number of parties explains most of the other differences.
Conclusion. A contract of guarantee is tripartite in substance. Section 126 names three parties, and three relations link them. They are the principal liability between creditor and debtor, the guarantee between creditor and surety, and the implied indemnity between debtor and surety (section 145). The discharge rules in sections 133 to 141 show the three relations working on each other, as Amrit Lal Goverdhan Lalan illustrates. Edavan Kavingal shows that the guarantee fails without a valid principal liability, and Bank of Bihar shows the surety's direct liability to the creditor. The only qualification is that the three need not join in one document.
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