Q1: A acts as a surety for a contract between B and C, on behalf of B. When there was a breach of contract by B, C instead of proceeding against B files a case against A. Discuss
 

Facts of the case:

• B and C enter into a contract
• A acts as a Surety for the above contract
• B breached the contract
• C initiated court proceedings against A, instead of B

Issues/Questions Involved in the case:

• Can C sue A, a Surety, instead of B, a party to the contract, who has actually breached the contract with C?

Decision/Judgement arrived at in the case:

• Yes, C can sue A, a Surety, instead of B, a party to the contract, who has actually breached the contract with C.

Reasons/Principles Applied to arrive at the Decision:

Definitions:

According to Section 126 of Indian Contract Act, “Contract of guarantee”, “surety”, “principal debtor” and “creditor”. — 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 called the “surety”; the person in respect of whose default the guarantee is given is called the “principal debtor”, and the person to whom the guarantee is given is called the “creditor”. A guarantee may be either oral or written.

According to Section 128 of Indian Contract Act, “Surety’s liability”. — The liability of the surety is co- extensive with that of the principal debtor, unless it is otherwise provided by the contract.

According to Section 142 of Indian Contract Act, “Guarantee obtained by misrepresentation invalid.” — Any guarantee which has been obtained by means of misrepresentation made by the creditor, or with his knowledge and assent, concerning a material part of the transaction, is invalid.

According to Section 143 of Indian Contract Act, “Guarantee obtained by concealment invalid.”—Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances, is invalid.

Meaning:

There are 3 parties to a contract of guarantee.

1. Principle Debtor
2. Creditor
3. Guarantor or Surety

And between these parties, there exists 3 contracts

1. Between Principle debtor and Creditor
2. Between Principle debtor and Surety
3. Between Surety and Creditor

Essential features of a Contract of Guarantee or Surety:

• Tripartite Agreement
• Existence of Principle Debtor
• Consent of three parties
• Applicability of essentials of a valid contract
• Past consideration is not consideration for guarantee
• Guarantee not to be obtained by misrepresentation (Complete disclosure of facts to all parties)

Explanation:

From the above points, it is vividly understood that the quantum of obligation of a Surety is the same as that of a Principle Debtor, unless there is a contract on the contrary. The liability of the Surety cannot be more than that of the Principle Debtor. Surety’s liability also depends upon the construction of the Contract of Guarantee. A Creditor is not bound to proceed first against the Principle Debtor before suing the Surety, unless otherwise agreed beforehand in the contract. Therefore, it is amply evident that the Creditor can sue the Surety without suing the Principle Debtor.

Liability of Guarantor or Surety:

1. Liability of Surety is secondary or contingent to that of the Principle Debtor and arises immediately upon the default of the Principle Debtor. Hence if Surety becomes insolvent, before any default by the Principle Debtor, the Creditor is left with no remedy.
2. Liability of Surety is immediately available for Creditor to claim, unless there is an express provision in the contract that the creditor must in the first instance, proceed against the Principle Debtor.
3. The Creditor can sue the Surety, even though he is holding securities from the Principle Debtor for his debt.
4. Liability of Surety is void, if the complete disclosure of all material facts is not done by the Principle Debtor or the Creditor or are altered on a later date without the knowledge of Surety, after initial concurrence.

Supporting Case laws/precedents/references:

1. Bank of Bihar v. Damodar Prasad [AIR 1969 SC 297]

In this case, the Court held that it is the duty of the Surety to see that the Principle Debtor fulfils his obligation. As soon as the time for payment is due, the Surety becomes liable directly, if the Principle Debtor does not or is unable to pay or perform his obligation.

1. Bank of India Limited v. R.S. Cowasjee [AIR 1955 Bom 419]

In this case, it was held that the Principle Debtor has got discharged of the obligation by operation of law.

1. Narayan Singh v. Chhattar Singh [AIR 1973 Raj 347]

In this case, it was held that if the liability of the Principle Debtor is scaled down under Debt Relief Act, the Surety’s liability also gets reduced. Hence it is to be noted that the Surety will be held liable to the extent of the Principle Debtor’s liability only.

Conclusion to the Problem:

In view of the above discussion, the liability of C towards A, arises immediately after the breach of contract by B. A can very well sue C, without proceeding against B.

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Q1

Q1: A minor enters into a contract with an adult that he will sell his house to the adult. Whether the contract is valid.

Facts of the case:

• A minor ‘offers’ an adult to sell away his house
• He represents himself as ‘major’
• The adult provides his ‘acceptance’ to the minor’s offer.
• Thereupon the minor enters into a contract with the adult.

Issues/Questions Involved in the case:

• Is the contract entered into by both the minor and the adult is maintainable in the eyes of law?

Decision/Judgement arrived at in the case:

• No, the contract entered into by both the minor and the adult is not valid and hence not maintainable in the eyes of law

Reasons/Principles Applied to arrive at the Decision:

Meaning and Definition: According to Section 3(1) of Indian Majority (Amendment) Act, 1999, a minor is a person who is under the age of 18 years. Similarly, according to Section 10 of Indian Contract Act, Capacity of parties is one of the essential elements of a valid contract.

Section 11 of Indian Contract Act defines contractual capacity as follow: “Every person is said to have contractual capacity when he is of age of majority, of sound mind and not expressly not disqualified by law”.

Effect of entering into a contract with minor:

1. Contract is absolutely void ad initio:

It means invalid at the very beginning itself. Earlier to 1903, a contract entered into with a minor was voidable at minor’s option. In 1903, the Privy Council made it essential that all contracting parties should be competent to contract and held that a contract entered into with a minor is void ad initio. Thereby ended the controversy around the maintainability of contracts with minor with respect to the liability on minor.

1. No ratification is possible:

Ratification means ‘subsequent acceptance/approval/sanction’. A minor’s agreement is void ab ignition and therefore being a nullity, it has no existence in the eye of law. Hence it cannot be ratified by the minor, after attainment of minor’s majority.

1. No restitution for fraud by minor

Restitution mean give back. A minor need not return or restitute the benefits received under void or voidable agreements. Even though, a minor committed fraud by misrepresenting his age, court cannot pass an order for return of goods. If the goods are unchanged, the court may give a direction to restore the goods or property. This is called equitable doctrine of restitution.

1. No estoppel against a minor

Estoppel is a rule which says when a person has made a statement either expressly or impliedly, he must stand upon it. Thereafter, he should not deny the statement. In case of a minor, it is a settled law now that a minor is not estopped from pleading minority even though he may be guilty of misrepresentation as to his age.

1. No Specific Performance

Specific performance is one of the remedies available to the aggrieved party to a contract. According to Specific Relief Act, when a person made a promise, the other party i.e., promise may compel promisor to perform his promise but not any other remedy. Since a contract with minor is void ab initio, it cannot be specifically enforced in the court of law.

1. No Vicarious Liability

Vicarious liability means liability incurred for another i.e., liability of one person for the acts of another person. Since a contract with minor is void ab initio, it cannot bring about any vicarious liability to his parents or guardians in the court of law. Exception is when the minor acts as an agent to the parents or guardians.

1. Minor’s liability for necessities

In case there is any property in the name of minor. Minor is held liable for necessities under the principle of equity.

In the above given problem, even though minor falsely represented himself as major and entered into contract to sell away his house, this act of minor can be called as a Fraud.

Supporting Case laws/precedents/references:

1. Mohiribibee v. Dharmodas Ghose (1903) 30 IA 114, (1903) 30 Cal. 539 P.C (Privy Council)

In this case, a minor mortgaged his house for Rs.20,000/- to money lender and received as advance of Rs.8,000/-. Later, he avoided the contract and didn’t return the advance. In an action by the minor to set aside the mortgage deed, it was held that the contract is not enforceable on the ground that, ‘an agreement with minor is void ad initio’. This view laid down by the Privy Council in the above case, is popularly known as ‘The Rule in Mohiribibi V. Dharmadas Ghose’

1. Suraj Narain Dube v. Sukhu Aheer And Anr. [AIR 1928 All 440] (Allahabad High Court)

In this case, a minor borrowed some money by executing a bond/promissory note. When he became major, he executed a second bond for the earlier borrowed money as well as interest on it. The Hon’ble Court held that the second bond is invalid because it was without consideration.

1. Leslie Ltd. v Sheill (1914) 3 KB 607

In this case, the limits of restitution were explained. The defendant minor by fraudulently misrepresenting himself to be a major, induced the plaintiff to lend his two sums of 200 pound each. The plaintiff sued minor to recover the money, 475 pounds being, amount of advances with interest.

1. Nawab Sadiq Ali Khan vs Bibi Jai Kishori (1928) 30 BOMLR 1346, (1928) P.C. 159

In this case, the fact of minority being established at the date of the execution by the mortgagors of the deed founded on is sufficient for the decision of the case; such a deed executed by minors being admittedly a nullity according to Indian law, and incapable of founding a plea of estoppel.

1. Kedhar nath v. Ajundhia Prasad (1883) Punj Rec 165

In this case, it was held that the money given to minor for marriage expenses was recoverable.

Conclusion to the Problem:

In view of the above discussion, the contract entered into by the minor with the adult is with fraud, and as there is no restitution for the fraud done by minor, the contract is not valid and inoperative ab initio. The adult can’t claim any relief whatsoever from minor.

Q2: A contract was entered into by A & B that A agricultural land to B. This land belongs to A’s grandfather. Explain the validity of the transfer as A’s children claims that it is ancestral property.

Q3: X agrees to give Y his daughter in marriage with Z on the condition that Z should transfer his right on his property to Y. Is the contract valid

Q4: A, a contractor threatens B to sell his house which is in the middle of the town for cheap price. B rejects. A brings some goondar and attempts to kill B. B signs the agreement. Is it valid

Q5: A sells his house to B and the consideration was adoption of B’s son to A. Is it valid

Q6: A minor enters into a contract with B to sell his bike and takes the agreement amount. Later he refuses to sell. Explain

Q7: X gives an advertisement to but his products which makes them fair. Y buys the product and wa effected by a skin rash when he uses it. Y sues X. X claims that it is a General offer. Explain

Q8: A proposal was made by A to B to sell his car. B accepts the proposal. Before the proposal reaches A, A sells the car to C. B sues for damages. Explain

Q9: A threatens to file a suit against B if he did not sign Promissory Note in favour of B. Whether this amount to coersion.

Q10: M, a minor took a loan of Rs 10,000/- from N for purchasing necessaries suitable to his status after taking the loan, M spends away the money on non necessary things can N recover this amount. Discuss.

Q11: X agrees to see his Maruti car for Rs 100/- Is the contract valid.

Q12: A agrees to work as an assistant to B for two years and not to work else where. But before 2 years A wants to leave the job. What are B’s rights?

Q13: A minor enters into a contract with y. y does not know that he is a minor. Discuss

Q14: A father sells his property (ancestral) on the pretext that he is selling for minor’s necessities. But he sold his property for his bad habits. Discuss

Q15: A, a person enters into an agreement with B on the ground that when a contingency should happen, then the contract will be complete. Discuss

Q16: A, a coparcenor decides to sell his property to B an outside person. B pays the agreement amount. Is the sale valid

Q17: X agrees to give his daughter in marriage to Y if he waives his loan amount of 50 Lakhs which is due to Y. Is the marriage valid

Q18: A, a person is the owner of an ancestral house and B wanted to buy the property. A refuses to sell. B kidnaps A’s child and gets agreement signed. Explain.

Q19: A, a minor takes a hand loan of Rs. 50,000/- from B and unable to return the amount. Advise B

Q20: Ram offers to sell a house in Bombay to Shyam for 20 Lakhs. The offer was communicated to Shyam in Delhi by an express letter. The letter was delayed before Shyam telegram of acceptance Ram revokes. Advice Shyam

Q21: X enters into an agreement with Y to sell a pistol without license. Is it valid?

Q22: A and B are traders. A has private information of change in prices which will effect B’s acceptance for a contract. A keeps quiet and enters into a contract. Is the contract valid?

Q23: X, a minor represents to Y as a major and takes a loan of 1 lakh and deposits in a bank. X becomes major. Can Y sue for recovery? Advise.

Go to the Index Page for other Subjects material.

These are the 5 subjects in third semester of 3 years LLB (General) of Sri Krishna Devaraya University, Anantapur, Andhra Pradesh, India.

1. Property Law

2. Administrative Law

3. Company Law

4. Public International Law

5. Labour and Industrial Law

Here are the PDFs for the previous years question papers for third semester.

2012

2014

2015

2016

2017

Click here for Home Page which contains answers

These are the 5 subjects in second semester of 3 years LLB (General) of Sri Krishna Devaraya University, Anantapur, Andhra Pradesh, India.

1. Family Law – 1

2. Family Law – 2

3. Environment Law

4. Jurisprudence

5. Legal Writing

Here are the pdfs for the previous years question papers for second semester.

2013

2014

2015

2016

2017

2018

Click here for Home Page which contains answers