Roll No.

SAP ID: 500086261

UNIVERSITY OF PETROLEUM AND ENERGY STUDIES
Mid Semester Examination, March 2021
Online – Through Blackboard Learning Management System

Course: Law of Contract II………… Course Code: ……… CLCC 1004……………

Programme: … BA.LL.B (Hons.) … …… Semester: .…………II………..

Time: 02 hrs. Max. Marks: 100

Instructions:
As this examination is in online mode the students are expected to demonstrate a very high degree of Academic Integrity and not
copy contents from resources referred. Instructors would look for understanding of the concept by the students and any
similarity found from resources online/ offline shall be penalized in terms of deduction of marks and even cancellation of paper
in requisite cases. The online examination committee of the School would also look for a similarity of two answer scripts and if
answer scripts of two or more students are found similar, both the answer scripts shall be treated as copied and lead to
cancellation of the paper. In view of the aforesaid points, the students are advised that they should desist from using any unfair means.

Instructions:

S. No. Marks CO
1 A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the
debt for a year, and promises that, if he does so, C will pay for them in default of
payment by B. A agrees to forbear as requested. In the above-stated case, analyse 25 CO 3
whether the consideration is enough to constitute a contract of Guarantee. Also,
illustrate the difference between the contract of Indemnity and Guarantee.
Ans. Facts:
Contract of guarantee:
Section 126 Of ICA defines contract of gurantee as:
A contract to perform the promise or discharge the liability, of a third party in case of
his own defaults.
Surety: A person whom gives the gurantee.
Principal Debtor: Person in respect of whose default the gurantee is given
Creditor: Person to whom the gurantee is given.

A sells and delivers goods to B. C afterwards requests A to forbear to sue B for the
debt for a year, and promises that, if he does so, C will pay for them in default of
payment by B. A agrees to forbear as requested.

Issue: Whether the consideration is enough to constitute a contract of Guarantee?

Discussion:
1. Yes, the consideration is enough in the aforementioned scenario to constitute
a contract of guarantee. It constitutes a "contract of guarantee" under the
 purview of Section 127, of the Indian Contract Act, 1872.
2. Section 126 of the Indian contract act, 1872 defines the "Contract of
guarantee", which is a contract to perform the promise or discharge the
liability of the defaulting party in case he fails to fulfil his promise.
3. There are three parties to the contract: Principal debtor, creditor and surety.
Section 127 of the Indian Contract Act, 1872 states that anything is done or
any promise made for the benefit of the principal debtor may be sufficient
consideration to the surety for giving the guarantee. Consideration is needed
for the contract of guarantee. The benefit to the principal debtor constitutes
sufficient consideration to the surety for giving the guarantee.
4. The creditor or the Principal Debtor may have consideration for the surety's
guarantee. The surety may benefit from the consideration, but it is not
required that the surety benefit from the consideration in a guarantee.

Illustration: A sells and delivers goods to B. C afterwards requests to forbear

to sue B for the debt for a year, and promises that if does so, C will pay for
them in default of payment by B. A agree to forbear as requested. This is
sufficient consideration for C promise.

Case Law: In State Bank of India v Premco Saw Mill, AIR 1984 Gujarat
93

In this case, the State Bank gave notice to the debtor - defendant and also
threatened legal action against her, but her husband agreed to become surety
and undertook to pay the liability and also executed a promissory note in
favour of the State Bank and the Bank refrained from threatened action. It
was held that such forbearance on the bank's part constituted good
consideration for a guarantor.
Judgement:

2 A lends a horse to B for his own riding only. B allows C, a member of his
family, to ri

Difference Between Contract of Indeminity And Gurantee:

de the horse. C rides with care, but the horse accidentally falls and is injured. By
applying the relevant provision of the Indian Contract Act 1872, in the above-
mentioned case, determine the liability of B for the injury done to the horse. Also, 25 CO 4
elaborate the Bailor’s responsibility towards the Bailee.

Ans. Facts: A lends a horse to B for his own riding only. B allows C, a member of his
family, to ride the horse. C rides with care, but the horse accidentally falls and is
injured.
Issue: Whether B can be held liable to B for the injury done to the horse?

Discussion:
Section 148 of the ICA defines Bailments & Bailee. Bailment is the delivery of
goods by one person to another for some purposes on a contract that they shall when
the purpose is accomplished to returned according to the directions of the person
delivering them.
Where;
Bailor: Person delivering the goods.
Bailee: Person to whom goods are delivered.

Bailment involves the transfer of possession of goods to a person who holds the
goods either for or the direction of their owner, to whom they will be returned.

Bailment involves change possession. In bailment, there must be the delivery of

possession but not a transfer of ownership.

Essentials of bailment:
● Delivery of goods for some purpose: Delivery of goods for some purpose
delivery means the transfer of possession of goods from one person to
another. Section 149 defines way of delivery of the goods. Delivery to the
bailee may to made by doing anything which has the effect of putting the
good in possession of intended bailee or any other person authorised to hold
them.
● Return of goods after the purpose is achieved or disposal according to bailor's
directions.

Now, the factual situation tells about the unauthorised use of goods
bailed.
When the goods have been bailed for a particular purpose, the bailee is
supposed to use them only for that purpose and nothing else. If he makes
unauthorized use of the goods bailed, there are two remedies available to the
bailor.-
1. The bailor terminates the bailment [Section 153].
2. The bailor may recover compensation for the loss caused due to
unauthorised use of goods [Section 154].

Termination of Bailment: According to section 153 of the bailor finds that the
bailee is making such use of goods which is inconsistent with the conditions of
bailment, he may terminate the bailment & claim back the goods.

Illustration:
A lets to B, for hire, a horse for his own riding. B drives the horse in his carriage.
This is, at the option of A, a termination of the bailment.

But, in the above mentioned factual situation, Bailor “A” may recover compensation
for the loss caused due to unauthorised use of goods According to section 154,
because if the bailee makes such unauthorised use of the goods which is contrary to
the conditions of bailment, he would be liable to make compensation to the bailer for
any damage to the goods unauthorized use was being made with due to unauthorized
use. Such liability arises even if the unauthorised use was being made with care.

Illustration: A lends a horse to B for his own riding only. B allows C, a member of
his family, to ride the horse. C rides with care, but the horse accidentally falls and is
injured. B is liable to make compensation to A for the injury done to the horse.

Judgement: Here, B is liable to make compensation to A for the injury done to the
horse because A only had lent to B the horse and not anyone else. Also, the fact that
C rode with due care is irrelevant. So, unauthorised use of good is there.

The Bailor’s responsibility towards the Bailee:

1. Right to necessary expenses incurred on bailment section 158 When under a
contract of bailment some remuneration is to be paid to the bailee for services
he renders in respect of them, he has the right to recover the same or to
exercise the right of Men in respect of such goods until he receives the
necessary payment. Even when the bailment is of gratuitous nature, the bailee
is nonetheless entitled to recover the bailor necessary expenses incurred by
him for the purpose of bailment.
Illustration: If A leaves his horse with his neighbour B for 1 week for safe
custody, B is entitled to recover the expenses incurred by him in feeding the
horse.
2. Right to recover compensation from the bailor according to section 164
sometimes the Bailor may not be entitled to make the bailment, or to receive
back the goods. This may result in some loss to the baile The Bailee is
entitled to recover from the bailor such loss.
3. Rights of Men on goods bailed (section 170 & 171) lien is the right of the
bailee under which the bailee can retain the goods of the bailor, & refuse to
deliver them to the bailor until his due remuneration for services in respect of
goods bailed on the amount due is paid.

Two kinds of lien:

Particular lien: entitles the bailee to retain those very goods for the services
regarding which the remuneration is due.
General lien: entitles bailee to retain the goods of the bailor for a general
balance of the account,
I, Sarthak Sabbarwal, understand that submitting work that isn’t my own may
result in failure in this paper and I may also be subject to Disciplinary
Proceedings as per the Academic Integrity Policy of the University.