Contracts

Amogh Pareek
Module-wise list of case laws

Cases
Semester II
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Table of Contents
Module 1...............................................................................................................2

1. Gajanan Moreshwar v. Moreshwar, 1942, Bom.........................................2

Facts..............................................................................................................2

Issue..............................................................................................................2

Judgement.....................................................................................................2

2. Charter Re-insurance co v Fagan R.............................................................3

Facts..............................................................................................................3

Judgement.....................................................................................................3

3. Anand Sarup Sharma v Khurana, 1989.......................................................3

Facts..............................................................................................................3

Judgement.....................................................................................................4

4. Hindustan Sugar Mills v State of UP..........................................................4

Facts..............................................................................................................4

Judgement.....................................................................................................4

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 Module 1

1. Gajanan Moreshwar v. Moreshwar, 1942,

Bom.

Facts
Plaintiff (P) got a plot of land on lease from municipal corp. of Mumbai. P
allowed Defendant (D) to erect building on that land. D, in this course, incurred
debt of Rs.5ooo from building material supplier (K), twice. On both the
occasion, P mortgaged part of the land to K. P, on D’s request transferred the
land to D, on the consideration that he (P) would be discharged of all the
liabilities arising out of that land. D failed to adhere to his consideration. P filed
a suit for discharge of liabilities on him, alleging D to be indemnifier.

Issue
Whether the suit for indemnity was premature, as P had not incurred any such
loss at that time.

Judgement
This case changed the position of “you must be damnified before you’re
indemnified” (English concept).

Defendant had to indemnify plaintiff.

Court held that S.124 of ICA is inapplicable here, as it deals with only ONE
particular kind of indemnity in which the loss is caused by either the
indemnifier himself or any other person.

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Moreover, S.124 talks about subsequent conduct, but here the liabilities were
past. Principles of Equity were applied to relieve P of all liabilities, as ICA is
not exhaustive of the law of indemnity.

2. Charter Re-insurance co v Fagan R.

Facts
Reinsurer had a contract with insurer containing a liability clause providing that
reinsurer would be liable if and when the ultimate net loss sustained by Insured
specified amount, and an Ultimate net loss clause which defined net loss.
Insured did not meet the liabilities and went into provisional liquidation.
reinsured said they were not liable to do so unless I had actually disbursed or
satisfied claim.

Judgement
R is liable to pay!

Court observed that it is wholly unreasonable and contrary to business common

sense to construe the word sum actually paid in literal manner otherwise,
reinsurer would receive a pure gain which wasn't the mutual intent of parties.

3. Anand Sarup Sharma v Khurana, 1989.

Facts
A.N. Wadhwa owner two wheeler scooter which was insured with Vanguard
Insurance sold scooter to Khurana but the final receipt was to be given. In other
words, ownership was yet to be transfered in the name of Khurana as the
scooter was registered in name of Wadhwa even after sale under Motor
Vehicles Act. However, ownership was transferred after an accident on 3rd
January 1969, wherein Anand Swaroop was hit by Khurana by scooter from
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behind, resulting in fracture of shaft and fibula. Anand sued Wadhwa and his
insurer as Wadhwa still had the possession.

Judgement
Lower courts said that Wadhwa and his insurer aren’t liable.

Decision:  the scooter was a movable property and governed by sale of goods
act. The property was passed to buyer before the date of accident. The change of
ownership of vehicle put an end to contract of insurance policy. Third party
liability ends on transfer.

4. Hindustan Sugar Mills v State of UP

Facts
Hindustan Sugar Mills was assess sale to sales tax for year 1957 to 1958. It
appealed for stay on realisation of sales tax. The judge accepted this on
condition that a security for a sum of rupees 1070260 provided to sales tax
officer. In order to comply with restraint, Shri Gangadhar Adukia executed a
document with joint declaration of two other people declaring themselves to be
sureties for Adukiya - these persons bound themselves in case of default.

Judgement
It was held that it is clear that Adukiya entered into contract promising to save
state govt from any loss that may be caused to it by adukia performing his
obligation amounts to indemnity under Section 124.

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 Module 2

1. Bank of Bihar v Damodar Prasad

Facts
This case relates to Section 128. defendant guaranteed a bank’s loan. However,
a default took place and the defendant was sued.

The trial court decreed that the bank shall enforce the guarantee in question only
after having exhausted its remedies against the principal debtor. Patna HC
confirmed it BUT Supreme Court overruled it. Court held that where the
liability is unconditional the court cannot, of its own, introduce a condition into
it as this kind of condition would defeat the intention of the parties.

Judgement
It was held that the very object of guarantee is defeated in the creditor is asked
to postpone his remedies against the surety. the solvency of the principal is not a
sufficient ground for restraining execution of the decree against the surety.

5. Aypunni Mani v Devassy K.

Facts
the liability of a surety is coextensive with that of principal debtor. surety is
entitled to any modification of variation of latter’s liability under statute, under
the Agriculturist debtors Relief Act.

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 6. Maharashtra State Electricity Board v
Official Liquidator

Facts
A bank undertook to pay to the State Electricity Board a sum not exceeding
rupees 50000 within 48 hours of demand. The guarantee was submitted on
behalf of a supplier who had deposited with the bank sufficient securities. There
was no condition to bank’s liability except demand by the board. the board
demanded payment. the supplier was a company which went into liquidation.
The liquidator sought to prevent the board from realising the guarantee and the
Bank from paying it.

Judgement
NO Such relief was allowed. the board had the Right to enforce payment of the
guarantee and Bank had the right to reimburse itself out of securities. if the
liquidator thought that the board’s conduct in realising the guarantee was not
proper, he should proceed against the board.

7. M.S. Anirudhan v. Thomco’s Bank Ltd.

Facts
The defendant guaranteed the repayment of a loan of rupees 20000 given by the
plaintiff Bank to principal debtor. the guarantee paper should the loan to be
rupees 25000. The bank refused to accept. the principal debtor then reduced the

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amount to rupees 20000 and without intimation to the surety gave it to the bank
which was then accepted. the debtor failed to pay and the bank sued the surety.

Issue
whether the alteration discharged him?

Judgement
Surety was not discharged.

8. AmritlalGoverdhan Lal v State Bank of

Travancore

Facts
The respondents entered into an agreement with a bank to open a cash credit
account to the extent of Rupees 1,00,000 to be secured by goods to be pledged
with the bank. The greement provided that the borrowers shall be responsible
for the quantity and quality of the goods pledged. The appellant became surety
for borrowers with the account upto Rs. 1,00,000 and allowed bank to recover
notwithstanding any other security bank may hold. The stock pledged was
initially valued at Rs. 99,991 but after verificaion shortage of goods to value of
Rs. 35,690 was found. Respondent (2-6) failed to make up deficit. Finally, a
sum of Rs. 40,933.58 Due to bank from respondents.

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 Judgement
The shortage was brought about by negligence of bank and to that extent it must
be deemed to be a loss by the bank. Also, the act of bank in giving time to the
principal debtor to make up the quantity of goods pledged is not tantamount to
giving of time to the principal debtor for making payment of money within the
meaning of sec 135.

9. State Bank of Saurashtra v. Chitranjan

Rangnath

Facts
The appellant bank allowed a cash credit facility limited to Rs. 75,000 to the
principal debtor on his pledging 5000 tins of groundnut oil under the lock and
key of the bank and on personal guarantee of the respondent (surety). However,
afterwards bank lost the pledged tins and sued he legal representative of the
principal debtor (after his death) and surety.

Issues
1) whether the pledge of goods and guarantee contract amounted to one
transaction.

2) Whether S.141 is applicable here. If yes, to what extent is surety liable?

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 Judgement
the letter of guarantee by surety and pledging of goods evidenced one composite
transaction such that the Principal Debtor had offered 2 securities.

Pledge of goods

Personal guarantee of surety

The goods are lost on account of bank negligence and as the current market
price of 5000 tins would have satisfied banks entire claim, the surety would be
released to the whole extent.

10. N Narsimhaiah vs Karnataka State

Financial Corp.

Facts
An industrial concern by the name A.P. Rocks Pvt. Ltd. borrowed certain
amount from KSFC. The petitioners N. Narasimhaiah & K. Rajan offered their
properties as collateral security in favor of KFSC as guarantors for repayment of
the amount advanced to A.P. Rocks. The borrowers defaulted and KFSC passed
orders for possession of the 2 properties. Aggrieved, petitioner sued.

Contention : The petitioners contended that the SFC should first proceed against
the borrowers and only when it is unable to recover dues, it can enforce liability
of surety.

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 Judgement
as per section 128, Liability of P.D. and surety being co-extensive, there is no
need to extensive, there is no need to exhaust remedies against P.D. before
enforcing liability of surety.

11. Punjab National Bank v. Lakshmi

Industrial and Trading Co. Pvt. Ltd.

Facts
The appellant (bank) filed suit for recovery of Rs. 5, 727. In May 1977, the
defendant company approached bnk for grant of various credit (banking
facilities) and the Bank agreed. The other defendants - Kishori Lal Seth and Sri
Nand Kishor Seth became guarantors of defendant 1 for repayment of entire
borrowings of defendant 1 together with interest, to bank with their liabilities
being joint and several and co-extensive. Defendant 1 pledged certain goods
with bank as well, however failed to pay the amount hence the case. Note -
there was also a change in the management of co.

Judgement
Change in management of P.D. co. does not vary contract to discharge contract.
Bank was bailee and responsible for loss of goods in custody of receiver as it
failed to show he had taken all care as prudent owner and negligence of bank
discharges surety for payment of debt.

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 12. Ansal Engineering Products Ltd. v Tehri
Hydro Development Corp.

Facts
The petition had entered into a contract on 30th March 1991 pursuant to a
tender submitted by him to construct residential quarters at Katharia, Bhagirath
Puram, Tehri. The construction was to be completed within stipulated period
but was not completed. In terms of the contract, the first respondent had
terminated it. The petitioner availed of remedy under section 20 of the act for
appointment of an arbitration for reference of the dispute in terms of the
contract pending consideration thereof he filed an application to restrain the
respondent to encash the bank guarantee.

It was contended in H.C that amount due and payable by the petitioner should
be determined in the suit. The bank guarantee could not be invoked till then and
the payment thereof could not be made.

Judgement
the court cant interfere with enforcement of bank guarantee / letters of credit
except and in cases where fraud or special equity is prima facie made out in the
case as triable issue by strong evidence. It is found that in this case there is no
fraud.

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 13. Industrial Investment Bank of India v
Biswanath Jhunjhun Wala

Facts
The appellant industrial investment Bank of India ltd. sanctioned a working
capital loan of Rs. 3 Crores in favor of modern Malleables Limited.

The loan agreement was entered between appellant and borrower on 3-10-1994.
A deed of personal guarantee was executed by the respondent on 3-10-1994 in
respect of the said loan granted by appellant in favor of borrower company
committed default in the payment/repayment of the principla amount of the loan
as well as the interest, liquidated damages and other moneys.

A notice was issued on 20-3-1997 to the respondent invoking the personal

guarantee given by him and calling upon him to pay the sum of 5.4 Crores with
further interest.

Appellant said : The liability of guarantee and principal debtor are co extensive.

Judgement
Appeal is allowed and order of HC Set aside.

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 14. Chandrashekhar v Special Tehsildar
The petitioner was the director of M/s Power Packs Private Limited which was
established for manufacturing electronic items like sealed rechargeable nickle
cadium cells in the small scale sector. The company availed term loans from
Andhra Pradesh Industrial Development Corporation. It availed a term of 39.99
lakhs from APSFC.

The petitioner, Udaya Sankar who was MD of Company gave personal

guarantee to secure the loan besides mortgaging company’s assets as security
for the loan sanctioned by APSFC.

The petitioner approached PK Rajgorhia And Associates, Delhi for additional

funds upon agreement PPL and It’s directors with consent of financial
institutions transferred the company to Rajgorhia. It was agreed that Rajgorhia
would substitute personal guarantees with new guarantors.

15. Shailendra Raya v. Orissa State Finance

Corp.

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