LegalCrystal – Blog

CHAPTER IV.

OF THE PERFORMANCE OF CONTRACTS

37.Obligation of parties to contracts

The parties to a: contract must either perform, or offer to perform, their respective promises, unless such performance’ is dispensed with or excused under the provisions of this Act, or of any other law.

Promises bind the representatives of the promisors in case of the death of such promisors before performance, unless a contrary intention appears from the contract.

Illustrations

a) A promises to deliver goods to B on a certain day on payment of Rs. 1,000. A dies before that day. A’s representatives are bound to deliver the goods to B, and B is bound to pay the Rs. 1,000 to A’s representatives.

b) A promises to paint a picture for B by a certain day, at a certain price. A dies before the day. The contract cannot be enforced either by A’s representatives or by B.

38.Effect of refusal to accept offer of performance

Where a promisor has made an offer of performance to the promisee, and the offer has not been accepted, the promisor is not responsible for non-performance, nor does he thereby lose his rights under the contract.

Every such offer must fulfill the following conditions:-

1) it must be unconditional;

2) it must be made at a proper time and place, and under such circumstances that the person to whom it is made may have a reasonable opportunity of ascertaining that the person by whom it is made is able and willing there and then to do the whole of what he is bound by his promise to do

3) if the offer is an offer to deliver anything to the promisee, the promisee must have a reasonable opportunity of seeing that the thing offered is the thing which the promisor is bound by his promise to deliver. An offer to one of several joint promisees has the same legal consequences as an offer to all of them,

Illustration

A contracts to deliver to B at his warehouse, on the 1st March, 1873,100 bales of cotton of a particular quality. In order to make an offer of a performance with the effect stated in this section, A must bring the cotton to B’s warehouse, on the appointed day, under such circumstances that B may have a reasonable opportunity of satisfying himself that the thing offered is cotton of the quality contracted for, and that there are 100 bales.

39.Effect of refusal of party to perform promise wholly

When a party to a contract has refused to perform, or disabled himself from performing, his promise in its entirety, the promisee may put an end to the contract, unless he has signified, by words or conduct, his acquiescence in its continuance.

Illustrations

a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every week during the next two months, and B engages to pay her 100 rupees for each night’s performance. On the sixth night A willfully absents herself from the theatre. B is at liberty to put an end to the contract.

b) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre two nights in every. Week during the next two months, and B engages to pay her at the rate of 100 rupees for each night. On the sixth night A willfully absents herself. With the assent of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the contract, and cannot now put an end to it, but is entitled to compensation for the damage sustained by him through A’s failure to sing on the sixth night. By whom contracts must be performe

By whom contracts must be performed

40.Person by whom promise is to be performed

If it appears from the nature of the case that it was the intention of the parties to any contract that any promise contained in it should be performed by the promisor himself, such promise must be performed by the promisor. In other cases, the promisor or his representatives may employ a competent person to perform it.

Illustrations

a) A promises to pay B a sum of money. A may perform this promise, either by personally paying the money to B or by causing it to be paid to B by another; and, if A dies before the time appointed for payment, his representatives must perform the promise, or employ some proper person to do so.

b) A promises to paint a picture for B. A must perform this promise personally.

41.Effect of accepting performance from third person

When a promisee accepts performance of the promise from a third person, he cannot afterwards enforce it against the promisor.

42. Devolution of joint liabilities

When two or more persons have made a joint promise, then, unless a contrary intention appears by the contract, all such persons, during their joint lives, and, after the death of any of them, his representative jointly with the survivor or survivors, and, after the death of the last survivor, the representatives of all jointly, must fulfill the promise.

43. Any one of joint promisors may be compelled to perform

When two or; more persons make a joint promise, the promisee may, in the absence of express agreement to the contrary, compel any 1*[one or more] of such joint promisors, to perform the whole of the promise.

Each promisor may compel contribution. Each of two or more joint promisors may compel every other joint promisor to contribute equally with himself to the performance of the promise, unless a contrary intention appears from the contract.

Sharing of loss by default in contribution.-If any one of two or more joint promisors makes default in such contribution, the remaining joint promisors must bear the loss arising from such default in equal shares.

Explanation.-Nothing in this section shall prevent a surety from recovering from his principal; payments made by the surety on behalf of the principal, or entitle the principal to recover anything from the surety on account of payments made by the principal.

Illustrations

a) A, B and C jointly promise to pay D 3,000 rupees. D may compel either A or B or C to pay him 3,000 rupees.

b) A, B and C jointly promise to pay D the sum of 3,000 rupees. C is compelled to pay the whole. A is insolvent, but his assets are sufficient to pay one-half of his debts. C is entitled to receive 500 rupees from A’s estate, and 1,250 rupees from B.

c) A, B and C are under a joint promise to pay D 3,000 rupees. C is unable to pay anything, and A is compelled to pay the whole. A is entitled to receive 1,500 rupees from B.

d) A, B and C are under a joint promise to pay D 3,000 rupees, A and B being only sureties for C. C fails to pay. A and B are compelled to pay he whole sum. They are entitled to recover it from C.

44. Effect of release of one joint promisor

Where two or more persons have made a joint promise, a release of one of such joint promisors by the promisee does not discharge the other joint promisor or joint promisors ; neither does it free the joint promisors so released from responsibility to the other joint promisor or joint promisors.

45. Devolution of joint rights

When a person has made a promise to two or more persons jointly, then, unless a contrary intention appears from the contract, the right to claim performance rests, as between him and them, with them during their joint lives, and, after the death of any of them, with the representative of such deceased person. Jointly with the survivor or survivors, and, after the death of the last survivor, with the representatives of all jointly.

Illustration

A, in consideration of 5,000 rupees, lent to him by B and C, promises B and C jointly to repay them that sum with interest on a day specified. B dies. The right to claim performance rests with B’s representative jointly with C during C’s life, and after the death of C with the representatives of B and C jointly.

Time and place for performance

46. Time for performance of promise, when no application is to be made and no time is specified

Where, by the contract, a promisor is to perform his promise without application by the promisee, and no time for performance is specified, the engagement must be performed within a reasonable time.

Explanation.- The question “what is a reasonable time” is, in each particular case, a question of fact.

47. Time and place for performance of promise, where time is specified and no application to be made

When promise is to be performed on a certain day, and the promisor has undertaken to perform it without application by the promisee, the promisor may perform it at any time during the usual hours of business on such day and at the

place at which the promise ought to be performed.

Illustration

A promises to deliver goods at B’s warehouse on the first January. On that day A brings the goods to B’s warehouse, but after the usual hour for closing it, and they are not received. A has not performed his promise.

48. appplication for performance on certain day to be at proper time and place

When a promise is to be performed on a certain day, and the promisor has not undertaken to perform it without application by the promisee, it is the duty of the, promisee to apply for performance at a proper place and within the usual hours of business.

Explanation.-The question “what is a proper time and place.” is, in each particular case, a question of fact.

49. Place for performance of promise, where no application to be made and no place fixed for performance

When a promise is to be performed without application by the promisee, and no place is fixed for the performance of it, it is the duty of the promisor to apply to the promisee to appoint a reasonable place for the performance of the promise, and to perform it at such place.

Illustration

A undertakes to deliver a thousand mounds of jute to B on a fixed day. A must apply to B to appoint a reasonable place for the purpose of receiving it, and must deliver it to him at such place. Performance in manner or at time prescribed or sanctioned by promisee.

50. Performance in manner or at time prescribed or sanctioned by promisee

The performance of any promise may be made in any manner, or at any time which the promisee prescribes or sanctions.

Illustrations

a) B owes A 2,000 rupees. A desires B to pay the amount to A’s account with C, a banker. B, who also banks with C, orders the amount to be transferred from his account to A’s credit, and this is done by C. Afterwards, and before A knows of the transfer, C fails. There has been a good payment by B.

b) A and B are mutually indebted. A and B settle an account by setting off one item against another, and B pays A the balance found to be due from him upon such settlement. This amounts to a payment by A and B, respectively, of the sums which they owed to each other.

c) A owes B 2,000 rupees. B accepts some of A’s goods in reduction of the debt. The delivery of goods operates as a part payment.

d) A desires B, who owes him Rs. 100, to send him a note for Rs. 100 by post. The debt is discharged as soon as B puts into the post a letter containing the note duly addressed to A.

Performance of reciprocal promises

51. Promisor not bound to perform, unless reciprocal promisee ready and willing to perform.

When a contract consists of reciprocal promises to be simultaneously performed, no promisor need perform his promise unless the promisee is ready and willing to perform his reciprocal promise.

Illustrations

a) A and B contract that A shall deliver goods to B to be paid for by B on delivery. A need not deliver the goods, unless B is ready and willing to pay for the goods on delivery.

B need not pay for the goods, unless A is ready and willing to deliver them on payment.

b) A and B contract that A shall deliver goods to B at a price to be paid by installments, the first installment to be paid on delivery. A need not deliver, unless B is ready and willing to pay the first installment on delivery. B need not pay the first installment, unless A is ready and willing to deliver the goods on payment of the first installment.

52. Order of performance of reciprocal promises

Where the order in which reciprocal promises are to be performed is expressly fixed by the contract, they shall be performed in that order; and, where the order is not expressly fixed by the contract, they shall be performed in that order which the nature of the transaction requires.

Illustrations

a) A and B contract that A shall build a house for B at a fixed price. A’s promise to build the house Must be performed before B’s promise to pay for it.

b) A and B contract that A shall make over his stock-in-trade to B at a fixed price and B promises to give security for the payment of the money. A’s promise need not be performed until the security is given, for the nature of the transaction requires that A should have security before he delivers up his stock.

53. Liability of party preventing event on which the contract is to take effect

When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation 1* from the other party for any loss which he may sustain in consequence of the non-performance of the contract.

Illustration

A and B contract that B shall execute certain work for A for a thousand rupees. B is ready and willing to execute the work accordingly, but A prevents him from doing so. The contract is voidable at the option of B; and, if he elects to rescind it, he is entitled to recover from A compensation for any loss which he has incurred by its non-performance.

54. Effect of default as to that promise which should be first performed, in contract consisting of reciprocal promises

When a contract consists of reciprocal promises, such that one of them cannot be performed, or that its performance cannot be claimed till the other has been performed, and the promisor of the promise last mentioned fails to perform it, such promisor cannot claim the performance of the reciprocal promise, and must make compensation to the other party to the contract for any loss which such other party may sustain by the non-performance of the contract.

Illustrations

a) A hires B’s ship to take in and convey, from Calcutta to the Mauritius, a cargo to be provided by A, B receiving a certain freight for its conveyance. A does not provide any cargo for the ship. A cannot claim the performance of B’s promise, and must make compensation to B for the loss which B sustains by the non-performance of the contract.

b) A contracts with B to execute certain builder’s work for a fixed price, B supplying the scaffolding and timber necessary for the work. B refuses to furnish any scaffolding or timber, and the work cannot be executed. A need not execute the work, and B is bound to make compensation to A for any loss caused to him by the non-performance of the contract.

c) A contracts with B to deliver to him, at a specified price, certain merchandise on board a ship which cannot arrive for a month, and B engages to pay for the merchandise within a week from the date of the contract. B does not pay within the week. A’s promise to deliver need not be performed, and B must make compensation.

d) A promises B to sell him one hundred bales of merchandise, to be delivered next day, and B promises A to pay for them within a month. A does not deliver according to his promise. B’s promise to pay need not be performed, and A must make compensation.

55. Effect of failure to perform at fixed time, in contract in which time is essential

When a party to a contract promises to do a certain thing at or before a specified time or certain things at or before specified times, and fails to do any such thing at or before the specified time, the contract, or so much of it as has not been performed,becomes voidable at the option of the promisee, if the intention of the parties was that time should be of the essence of the contract.

Effect of such failure when time is not essential – If it was not the intention of the parties that time should be of the essence of the contract, the contract does not become voidable by the failure to do such thing at or before the specified time ; but the promisee is entitled to compensation from the promisor for any loss occasioned to him by such failure.

Effect of acceptance of performance at time other than that agreed upon. If, in case of a contract voidable on account of the promisor’s failure to perform his promise at the time agreed the promisee accepts performance of such promise at any time other than that agreed, the promisee cannot claim compensation for any loss occasioned by the non-performance of the promise at the time agreed, unless, at the time of such acceptance he gives notice to the promisor of his intention to do so.1*

2007(1) AKAR(NOC) 130 (DEL.)=AIR 2007 Delhi 1 BADAR DURREZ AHMED,J.

(A) Contract Act (9 of 1872), S.55- Agreement to sell – Specific performance – Time whether essence of Contract – Contract clause providing that defendants vendors would get property converted from leasehold to freehold prior to execution of sale deed – Failure on part of defendants to fulfill said obligation   Time would not be essence of contract – Plaintiff-vendee cannot be asked to make balance payment immediately on premises that time was essence of contract.

2007(6)AIR Kar R 43 K.RAMANNA,J.

Karnataka Rent Act(34 of 2001),S.43(2)(b)-Transfer of Property Act (4 of 1882)S.54-Contract Act (9 of 1872)S.55-Proceedings under S.43(2)(b)before Rent Court-Agreement to sell between tenant and landlord-Time was essence of Contract-Tenant failed to pay balance of sale consideration before stipulated date-Balance of consideration was paid by him on different dates-Tenants had entered into an agreement of sale without taking possession of schedule property-Tenant cannot be said to be in possession of schedule property in capacity of purchaser under agreement of sale – In view of non-compliance with terms of agreement he cannot be termed as owner of property  – He continues to be a tenant and cannot deny relationship of landlord and tenant between them.

AIR 2002 SC 101; AIR 1996 SC 2917, Relied on (paras8,9)

56. Agreement to do impossible act.

An agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful

A contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the Promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.2*

Compensation for loss through non-performance of act known to be impossible or unlawful.-Where one person has promised to do something which he knew, or, with reasonable diligence, might have known, and which the promisee did not know, to be impossible or unlawful, such promisor must make compensation to such promisee for any loss which such promisee sustains through the non-performance of the promise.

Illustrations

a) A agrees with B to discover treasure by magic. The agreement is void,

b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void

c) A contracts to marry B, being already married to C, and being forbidden by the law to Which he is subject to Practice polygamy, A must make compensation to B for the loss caused to her by the non-performance of his promise.

d) A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.

e) A contracts to act at a theatre for six months in consideration of a sum paid in advance by B. On several occasions A is too ill to act. The contract to act on those occasions becomes void.

2007(3) AIR Kar R 99 D.V.SHYLENDRA KUMAR,J.

(A)Contract Act(9 of 1872) S.56 - Karnataka Excise Act (21 of 1966) S.71 – Karnataka Excise (Lease of Rights of Retail Vend of Liquor) Rules (1969), Rr.16,18-Frustration of contract – Forfeiture of bid amount – Validity – Leasing of right to vend liquor – Bid/offer invited by State at public auction – Death of highest bidder after acceptance and confirmation of his bid – Rights and liabilities are statutorily determined and not by volition of parties – Rights and liabilities are not that are to be continued even in hands of legal heirs or legal representatives – Question of frustration of contract does not arise – Legal heir of highest bidder cannot independently plead doctrine of frustration to get himself/herself relieved of consequences of breach of promise,(Paras 50,51,52)

2007(6) AIR Kar R 99 Supreme Court(From 2004(1)Cal LJ 219)

H.K.SEMA & LOKESHWAR SINGH PANTA,JJ.

Contract Act(9 of 1872) S.56- Agreement to sell thika tenancy – Suit for specific performance-Transfer of thika tenancy prohibited by W.B.Thika Tenancy Act(1981), enforced during pendency of sui – Agreement to sell thus becomes impossible of performance passed after 1981 Act, set aside,

57. Reciprocal promise to do things legal and also other things illegal

Where persons reciprocally promise, firstly, to do certain things which are legal, and, secondly, under specified circumstances to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.

Illustration

A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a gambling house, he shall pay A 50,000 rupees for it.

The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it, is a contract.

The second set is for an unlawful object, namely, that B may use the house as a gambling house, and is a void agreement.

58. Alternative promise, one branch being illegal

In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.

Illustration

A and B agree that A shall pay B 1,000 rupees for which B shall afterwards deliver to A either rice or smuggled opium.

This is a valid contract to deliver rice, and a void agreement as to the opium.

Appropriation of payments

59. Application of payment where debt to be discharged is indicated

Where a debtor, owing several distinct debts to one person, makes a payment to him, either with express intimation, or under circumstances implying that the payment is to be applied to the discharge of some particular debt, the payment, if accepted, must be applied accordingly.

Illustrations

a) A owes B, among other debts 1,000 rupees upon a promissory note which falls due on the’ first June. He owes B no other debt of that amount. On the first June A pays to B 1,000 rupees. The payment is to be applied to the discharge of the promissory note.

b) A owes to B, among other debts, the sum of 567 rupees. B writes to A and demands payment’ of this sum A sends to B 567 rupees. This payment is to be applied to the discharge of the debt of which B had demanded payment.

60. Application of payment where debt to be discharged is not indicated -

Where the debtor has omitted to intimate and there are no other circumstances, indicating to which debt the payment is to be applied, the creditor may apply it at his discretion to any lawful debt actually due and payable to him from the debtor, whether its recovery is or is not barred by the law in force for the time being as to the limitation of suits.

61. Application of payment where neither party appropriates.-

Where neither party makes any appropriation the payment shall be applied in discharge of the debts in order of time, whether they are or are not barred by the law in force for the time being as to the limitation of suits. If the debts are of equal standing, the payment shall be applied in discharge of each proportionally.

Contracts which need not be performed

62. Effect of novation, rescission, and alteration of contract -

If the parties to a contract agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed.

Illustrations

a) A owes money to B under a contract. It is agreed between A, B and C that B shall thenceforth accept C as his debtor, instead of A. The old debt of A to B is at an end, and a new debt from C to B has been contracted.

b) A owes B 10,000 rupees. A enters into an arrangement with B, and gives B a mortgage of his (A’s) estate for 5,000 rupees in place of the debt of 10,000 rupees. This is a new contract and extinguishes the old.

c) A owes B 1,000 rupees under a contract. B owes C 1,000 rupees. B orders A to credit C with 1,000 rupees in his books, but C does not assent to the arrangement. B still owes C 1,000 rupees, and no new contract has been entered into.

2007(1)AKAR(NOC) 117 (CAL.) GIRISH CHANDRA GUPTA & MANIK MOHAN SARKAR,JJ.

(B) Contract Act (9 of 1872) S.62 - Civil P.C.(5 of 1908),O23,R1 – Novation and recession of contract – Order of arrest of suppliers vessel passed in admiralty suit – Out of Court settlement by plaintiff with owner of vessel – Under subsequent agreement debtor agreed to pay not only sum claimed in suit but cost and interest and third party to transaction guaranteed such payment – Existing cause of action gets substituted by new cause of action arising out of agreement Claim in suit stands abandoned acting upon agreement   That apart, ownership of vessel was transferred to defendant when asset was sought to be effected-Admiralty claim not maintainable-In view of Art.3 of International Convention of Arrest Ships 1999, vessel no longer continued to remain charged for payment of dues of plaintiff/secured creditor-Transferee of vessel cannot be made liable for debt incurred by transferor.

63. Promisee may dispense with or remit performance of promise

Every promisee may dispense with or remit, wholly or in part, the performance of the promise made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which he thinks fit.

Illustrations

a) A promises to paint a picture for B. B afterwards forbids him to do so. A is no longer bound to perform the promise.

b) A owes B 5,000 rupees. A pays to B, and B accepts, in satisfaction of the whole debt, 2,000 rupees paid at the time and place at which the 5,000 rupees were payable. The whole debt is discharged.

c) A owes B 5,000 rupees. C pays to B 1,000 rupees, and B accepts them, in satisfaction of his claim on A. This payment is a discharge of the whole claim.

d) A owes B, under. a contract, a sum of money, the amount of which has not been ascertained. A’ without ascertaining the amount, gives to B, and B, in satisfaction thereof, accepts, the sum of 2,000 rupees. This is a discharge of the whole debt, whatever may be its amount.

e) A owes B 2,000 rupees, and is also indebted to other creditors. A makes an arrangement with his creditors, including B, to pay them a 3*[composition] of eight annas in the rupee upon their respective demands. Payment to B of 1,000 rupees is a discharge of B’s demand.

64. Consequences of rescission of voidable contract

When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is promisor. The party rescinding a voidable contract shall, if he have received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received.’

65. Obligation of person who has received advantage under void agreement, or contract that becomes void

When an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.

Illustrations

a) A pays B 1,000 rupees in consideration of B’s promising to marry C, A’s daughter. C is dead at the time of the promise. The agreement is void, but B must repay A the 1,000 rupees.

b) A contracts with B to deliver to him 250 mounds of rice before the first of May. A delivers 130 maunds only before that day, and none after. B retains the 130 maunds after the first of May. He is bound to pay A for them.

c) A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights in every week during the next two months, and B engages to pay her a hundred rupees for each night’s performance. On the sixth night, A willfully absents herself from the theatre, and B, in consequence, rescinds the contract. B must pay A for the five nights on which she had sung.

d) A contracts to sing for B at a concert for 1,000 rupees, which are paid in advance. A is too ill to sing. A is not bound to make compensation, to B for the loss of the profits which B would have made if A had been able to sing, but must refund to B the 1,000 rupees paid in advance

2007(6)AKAR(NOC) 836 (DEL.)= 2007 Cri.L.J.2262

BADAR DURREZ AHMED,J.

(B)Contract Act (9 of 1872) S.65 - Obligation of person receiving advantage under void agreement – Agreements which are void ab initio and their illegality is known to the parties at the time of execution-would not fall within the purview of S.65.

2007(6) AKAR (NOC) 898 (MAD) P.K.MISRA & J.A.K SAMPATH KUMAR,JJ.

Arbitration and Conciliation Act(26 of 1996),S.34 - Contract Act (9 of 1872),- Ss.65,70,73 Award-Setting aside of  – Works Contract – Terms of Contract expressly stipulated that Contractor has no right to claim compensation on account of premature termination of contract – Award of Tribunal does not indicate anywhere as to on what basis it has come to conclusion that Contractor is entitled to compensation  – Neither principle of restitution recognized under S.65 nor S.70 or 73 would apply-Award of Tribunal is liable to be set aside.

66. Mode of communicating or revoking rescission of voidable contract

The rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal.

67. Effect of neglect of promisee to afford promisor reasonable facilities for performance

If any promisee neglects or refuses to afford the promisor reasonable facilities for the performance of his promise, the promisor is excused by such neglect or refusal as to any non-performance caused thereby.

Illustration

A contracts with B to repair B’s house.

B neglects or refuses to point out to A the places in which his house requires repair.

A is excused for the nonperformance of the contract if it is caused by such neglect or refusal.

CHAPTER VI.

OF THE CONSEQUENCES OF BREACH OF CONTRACT

73. Compensation for loss or damage caused by breach of contract
When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it.
Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach.

Compensation for failure to discharge obligation resembling those created by contract – When an obligation resembling those created by contract has been incurred and has not been discharged, any person injured by the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract.

Explanation – In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non-performance of the contract must be taken into account.

Illustrations
a) A contracts to sell and deliver 50 mounds of saltpeter to B, at a certain price to be paid on delivery. A breaks his promise. B is entitled to receive from A, by way of compensation, the sum, if any, by which the contract price falls short of the price for which B might have obtained 50 mounds of saltpeter of like quality at the time when the saltpeter ought to have been delivered.

b) A hires B’s ship to go to Bombay, and there take on board, on the first of January, a cargo which A is to provide and to bring it to Calcutta, the freight to be paid when earned. B’s ship does not go to Bombay, but A has opportunities of procuring suitable conveyance for the cargo upon terms as advantageous as those on which he had chartered the ship. A avails himself of those opportunities, but is put to trouble and expense in doing so. A is entitled to receive compensation from B in respect of such trouble and expense.

c) A contracts to buy of B, at a stated price, 50 mounds of rice, no time being fixed for delivery. A afterwards informs B that he will not accept the rice if tendered to him. B is entitled to receive from A, by way of compensation, he amount, if any, by which the contract price exceeds that which B can obtain for the rice at the time when A informs B that he will not accept it.

d) A contracts to buy B’s ship for 60,000 rupees, but breaks his promise. A must pay to B, by way of compensation, the excess, if any, of the contract price over the price which B can obtain for the ship at the time of the breach of promise.

e) A, the owner of a boat, contracts with B to take a cargo of jute to Mirzapur, for sale at that place, starting on a specified day. The boat, owing to some avoidable cause, does not start at the time appointed, whereby the arrival of the cargo at Mirzapur is delayed beyond the time when it would have arrived if the boat had sailed according to the contract. After that date, and before the arrival of the cargo, the price of jute falls. The measure of the compensation payable to B by A is the difference between the price which B could have obtained for the cargo at Mirzapur at the time when it would have arrived if forwarded in due course, and its market price at the time when it actually arrived.

f) A contracts to repair B’s house in a certain manner, and receives payment in advance. A repairs the house, but not according to contract. B is entitled to recover from A the cost of making the repairs conform to the contract.

g) A contracts to let his ship to B for a year, from the first of January, for a certain price. Freights rise, and, on the first of January, the hire obtainable for the ship is higher than the contract price. A breaks his promise. He must pay to B, by way of compensation, a sum equal to the difference between the contract price and the price for which B could hire a similar ship for a year on and from the first of January.

h) A contracts to supply B with a certain quantity of iron at a fixed price, being a higher price than that for which A could procure and deliver the iron. B wrongfully refuses to receive the iron. B must pay to A, by way of compensation, the difference between the contract price of the iron and the sum for which A could have obtained and delivered it.

i) A delivers to B, a common carrier, a machine, to be conveyed, without delay, to A’s mill informing B that his mill is stopped for want of the machine. B unreasonably delays the delivery of the machine, and A, in consequence, loses a profitable contract with the Government. A is entitled to receive from B, by way of compensation, the average amount of profit which would have been made by the working of the Mill during the time that delivery of it was delayed, but not the loss sustained through the loss of the Government contract.

j) A, having contracted with B to supply B with 1,000 tons of iron at 100 rupees a ton, to be delivered at a stated time, contracts with C for the purchase of 1,000 tons of iron at 180 rupees a ton, telling C that he does so for the purpose of performing his contract with B. C fails to perform his contract with A, who cannot procure other iron, and B, in consequence, rescinds the contract. C must pay to A 20,000 rupees, being the profit which A would have made by the performance of his contract with B.

k) A contracts with B to make and deliver to B, by a fixed day, for a specified price, a certain piece of machinery. A does not deliver the piece of machinery at the time specified, and in consequence of this, B is obliged to procure another at a higher price than that which he was to have paid to A, and is prevented from performing a contract which B had made with a third person at the time of his contract with A but which had not been then communicated to A, and is compelled to make compensation for breach of that contract. A must pay to B, by way of compensation, the difference between the contract price of the piece of machinery and the sum paid by B for another, but not the sum paid by B to the third person by way of compensation.

l) A, a builder, contracts to erect and finish a house by the first of January, in order that B may give possession of it at that time to C, to whom B has contracted to let it. A is informed of the contract between B and C. A builds the house so badly that, before the first of January, it falls down and has to be re-built by B, who, in consequence, loses the rent which he was to have received from C, and is obliged to make compensation to C for the breach of his contract. A must make compensation to B for the cost of rebuilding the house, for the rent lost, and for the compensation made to C.

m) A sells certain merchandise to B, warranting it to be of a particular quality, and B, in reliance upon this warranty, sells it to C with a similar warranty. The goods prove to be not according to the warranty, and B becomes liable to pay C a sum of money by way of compensation. B is entitled to be reimbursed this sum by A.

n) A contracts to pay a sum of money to B on a day specified. A does not pay the money on that day; B, in consequence of not receiving the money on that day, is unable to pay his debts, and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with interest up to ‘the day of payment

o) A contracts to deliver 50 mounds of saltpeter to B on the first of January, at a certain price. B afterwards, before the first of January, contracts to sell the saltpeter to C at a price higher than the market price of the first of January. A breaks his promise. In estimating the compensation payable by A to B, the market price of the first of January, and not the profit which would have arisen to B from the sale to C, is to be taken into account.

p) A contracts to sell and deliver 500 bales of cotton to B on a fixed day. A knows nothing of B’s mode of conducting his business. A breaks his promise, and B, having no cotton, is obliged to close his mill. A is not responsible to B for the loss caused to B by the closing of the mill.

q) A contracts to sell and deliver to B, on the first of January, certain cloth which B intends to manufacture into caps of a particular kind, for which there is no demand, except at that season. The cloth is not delivered till after the appointed time, and too late to be used that year in making caps. B is entitled to receive from A, by way of compensation, the difference between the contract price of the cloth and its market price at the time of delivery, but not the profits which he expected to obtain by making caps, nor the expenses which he has been put to in making preparation for the manufacture.

r) A, a ship-owner, Contracts with B to convey him from Calcutta to Sydney in A’s ship, sailing on the first of January, and B pays to A, by way of deposit, one-half of his passage-money. The ship does not sail on the first of January, and B, after being in consequence detained in Calcutta for some time and thereby put to some expense, proceeds to Sydney in another vessel, and, in consequence, arriving too late in Sydney, loses a sum of money. A is liable to repay to B his deposit with interest, and the expense to which he is put by his detention in Calcutta, and the excess, if any, of the passage-money paid for the second ship over that agreed upon for the first, but not the sum of money which B lost by arriving in Sydney too late

2007(2) AKAR (NOC) 190 (KER)= AIR 2007 Kerala 69 M.N.KRISHNAN,J.
(B)Contract Act(9 1872) Ss.73,70- Agreement to sell vehicle – Misrepresentation of model of vehicle or breach of Contract – Factum of non – disclosure of real model to plaintiff entitles plaintiff to get away from contract – Plaintiff entitled for return of advance amount paid by him-However, plaintiff having taken possession of vehicle, used it as taxi for 36 days – Even if there is breach of contract committed by defendant in form of misrepresentation plaintiff cannot be unjustly enriched-Amount of Rs.100/- per day directed- be given to defendant for plaintiffs possession and user of jeep.

2007(3) AIR Kar R 278 D.V.SHYLENDRA KUMAR,J.
Contract Act (o of 1872) S.73-Compensation towards idle labour-Contractor could not execute work on instructions from respondent – Electricity Board-Agreement not imposing liability on Board to pay for idle labour – Notwithstanding said agreement Assistant Executive Engineer of Board awarded fabulous sum towards compensation which goes beyond contract value of work itself – Held, improper – Reason being, Contractor cannot be assumed to have incurred so much of expenditure for employing work force-Reduction of said amount by Board without notice to Contractor cannot be found fault with – No relief can be granted against unilateral action taken by Board, be it in violation of principles of natural justice.(Paras 3,7,9)

74. Compensation for breach of contract where penalty stipulated for-
[When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation.- A stipulation for increased interest from the date of default may be a stipulation by way of penalty.]

Exception.- When any person enters into any bail-bond, recogni- zance or other instrument of the same nature, or, under the provisions of any law, or under the orders of the 1*[Central Government] or of any State Government, gives any bond for the performance of any public duty or act in which the public are interested, he shall be liable, upon breach of the condition of any such instrument, to pay the whole sum mentioned therein.

Explanation.- A person who enters into a contract with Government does not necessarily thereby undertake any public duty, or promise to do an act in which the public are interested.

Illustrations
a) A contracts with B to pay B Rs. 1,000, if he fails to pay B Rs. 500 on a given day. A fails to pay B Rs. 500 on that day. B is entitled to recover from A such compensation, not exceeding Rs. 1,000, as the Court considers reasonable.

b) A contracts with B that, if A practices as a surgeon within Calcutta, he will pay B Rs. 5,000. A practice as a surgeon in Calcutta. B is entitled to such compensation, not exceeding Rs. 5,000, as the Court considers reasonable.

c) A gives a recognizance binding him in a penalty of Rs. 500 to appear in Court on a certain day. He forfeits his recognizance. He is liable to pay the whole penalty.

d) A gives B a bond for the repayment of Rs. 1,000 with interest at 12 per cent at the end of six months, with a stipulation that, in case of default, interest shall be payable at the rate of 75 per cent from the date of default. This is a stipulation by way of penalty, and B is only entitled to recover from A such compensation as the Court considers reasonable.

e) A, who owes money to B a money-lender, undertakes to repay him by delivering to him 10 mounds of grain on a certain date, and stipulates that, in the event of his not delivering the stipulated amount by the stipulated date, he shall be liable to deliver 20 mounds. This is a stipulation by way of penalty, and B is only entitled to reasonable compensation in case of breach.

f) A undertakes to repay B a loan of Rs. 1,000 by five equal monthly installments, with a stipulation that” in default of payment of any installment, the whole shall become due. This stipulation is not by way of penalty, and the contract may be enforced according to its terms.

g) A borrows Rs. 100 from B and gives him a bond for Rs. 200 payable by five yearly installments of Rs. 40, with a stipulation that, in default of payment of any installment, the whole shall become due. This is a stipulation by way of penalty.

2007(3) AIR Kar R 528 R.GURURAJAN AND C.R.KUMARASWAMY,JJ.
Contract Act(9 of 1872) S.71, 74 – Evidence Act (1 of 1872) S,45-Suit for refund of advance purchase price and damages-Claim based on agreement to sell and receipt of defendant with regard to receipt of advance purchase price-Signature of defendant on agreement identified by plaintiff-Court noticing signature of defendant accepted agreement and receipt-Non-examination of hand writing expert-Does not render said documents, inadmissible-Plea raised by defendants alleging forgery-Not tenable, in view of fact that defendant despite being a practicing lawyer had not taken any action for forgery against plaintiff.(para13)

2007(2) AIR Kar R 493(Supreme Court) S.B.SINHA & MARKANDEY KATJU,JJ
(B)Contract Act(9 of 1872) S.74-Auction sale – Forfeiture of earnest money   Is permissible only when there is concluded contract and not prior thereto(Paras 30,32)

2007(3) AIR Kar R 99 D.V.SHYLENDRA KUMAR,J.
(D)Karnataka Excise Act (21 of 1966) S.71 Karnataka Excise (Lease of Rights of Retail Vend of Liquor)Rules (1969) R 18(2)Contract Act(9 of 1872) S.74-Forfeiture of bid deposit-Phrase loss sustained by the State Government – Computation of – State will have to take into account amount that it has received by way of forfeiture under Rule 18(1) such other amount which it has received pursuant to re-auction – Demand in so far as it seeks to exclude amount which was deposited by highest bidder and which has been forfeited by Government cannot be sustained  Provisions of S.74 of Contract Act would be a guiding factor for purpose of computation of such losses.(Paras68,72,73)

2007(3) AKAR (NOC) 313 (P & H) =AIR 2007 PUNJAB & HARYANA 58 HEMANT GUPTHA,J.
(B)Contract Act(9 of 1872) Ss.74,70- Unjust Enrichment-What amounts to Govt. Contract – Forfeiture of earnest money of highest bidder for not fulfilling terms and conditions of contract consequent to issue of letter of intent – Not unjust enrichment – In cases of breach of contract, consequences has to follow from each of defaulting tenderers.

75. Party rightfully rescinding contract entitled to compensation
A person who rightfully rescinds a contract is entitled to compensation for any damage which he has sustained through the non-fulfillment of the contract.

Illustration
A, a singer, contracts with B, the manager of a theatre, to sing at his theatre for two nights In every week during the next two months, and B engages to pay her 100 rupees for each night’s performance. On the sixth night, A willfully absents herself from the theatre, and B, in consequence, rescinds the contract. B is entitled to claim compensation for the damage which he has sustained through the non-fulfillment of the contract.

2007(5)AIR Kar R 113(Supreme Court)(From AIR 2005 Bombay 385)
S.B.SINHA & P.K.BALASUBRAMANYAM,JJ.
(D)Contract Act(9 of 1872) Ss.124,126- Indemnity or Bank Guarantee – Document indemnifying party against losses, claims, damages etc. which may be suffered by it – And not using usual words found in Ban k Guarantees like “unequivocal condition”; unconditional and absolute – Is a contract of Indemnity – Contractor indemnifying Co-operative Society against loss, damages etc. which may be suffered by it-And not using usual words found in Bank Guarantees like unequivocal condition; unconditional and absolute – Is a contract of indemnity-Contractor indemnifying Co-operative Society against loss. Damages etc.- Claim made by assured on termination of contract need not be honored by bank without proof of loss. AIR 2005 Bom.385,Reversed.(para 18)

CHAPTER VII.
Sale of Goods
Chapter VII  Sections 76-123-[Sale of Goods] Rep. by the Indian Sale of Goods Act 1930 (3 of 1930), s. 65.
CHAPTER VIII.
OF INDEMNITY AND GUARANTEE
124. “Contract of indemnity” defined
A contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself, or by the conduct of any other person, is called a ” contract of indemnity”.

Illustration
A contract to indemnify B against the consequences of any proceedings which C may take against B in respect of a certain sum of 200 rupees. This is a contract of indemnity.

2007(5)AIR Kar R 113(Supreme Court)(From AIR 2005 Bombay 385)
S.B.SINHA & P.K.BALASUBRAMANYAM,JJ.
(D)Contract Act(9 of 1872) Ss.124,126- Indemnity or Bank Guarantee – Document indemnifying party against losses, claims, damages etc. which may be suffered by it – And not using usual words found in Ban k Guarantees like “unequivocal condition”; unconditional and absolute – Is a contract of Indemnity – Contractor indemnifying Co-operative Society against loss, damages etc. which may be suffered by it – And not using usual words found in Bank Guarantees like unequivocal condition; unconditional and absolute – Is a contract of indemnity – Contractor indemnifying Co-operative Society against loss. Damages etc. – Claim made by assured on termination of contract need not be honored by bank without proof of loss. AIR 2005 Bom.385,Reversed.(para 18)

125. Rights of indemnity holder when sued.
The promisee in a contract of indemnity, acting within the scope of his authority, is entitled to recover from the promisor-

1) all damages which he may be compelled to pay in any suit in respect of any matter to which the promise to indemnify applies

2) all costs which he may be compelled to pay in any such suit if, in bringing or defending it, he did not contravene the orders of the promisor, and acted as it would have been prudent for him to act in the absence of any contract of indemnity, or if the promisor authorized him to bring or defend the suit;

3) all sums which he may have paid under the terms of any compromise of any such suit, if the compromise was not contrary to the orders of the promisor, and was one which it would have been prudent for the promisee to make in the absence of any contract of indemnity, or if the promisor authorized him to compromise the suit.

126. “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.

2007(1) AIR Kar R 513 V JAGANNATHAN,J.
Contract Act(9 of 1872) S.126-Invocation of bank guarantee – Injunction-Expression “without questioning the right of the principal to make such demand or the propriety or legality of the demand” used in bank guarantee – Clearly indicates that the bank was bound to pay the amount under the two bank guarantees without a question being asked-Bank guarantee is an unconditional guarantee-No injunction can be granted (Paras6,11,12)

2006(2) AIR Kar. R 633,Disting 2- Contract Act(9 of 1872) S.126
Invocation of bank guarantee – Injunction against – Contract for supply, erection and commissioning of Wind Energy Generators(WEG)-Clause of performance bank guarantee required that appellant should obtain certificate from certified agency that WEGs have not generated power as per authenticated power-curve of each machine before lodging claim for invocation of bank guarantee – Clause also requiring fulfillment of availability of machines as stated in supply order – Bank guarantee in question is a conditional performance bank guarantee – Same were not satisfied, appellant had no right to invoke bank guarantee-Order restraining appellant from invoking bank guarantees-proper.

2007(1) AKAR (NOC) 18 (CAL.)=AIR 2006 Calcutta 301
KALYAN JYOTI SENGUPTA,J.
(D)Contract Act (9 of 1872) S.126-Civil P.C. (5 of 1908) O.39 R 4- Bank guarantee-Invocation of-Injunction order  Vacation of-Contract for supply of goods-Plaintiff as suppliers discharged their obligations and delivered goods to defendant No.1 – There was no complaint from defendant No.1-Bank Guarantees had been furnished by plaintiffs through their Bankers /defendant No.3 – Despite repeated request defendant No.1 failed to cancel bank guarantees given by plaintiffs and therefore interim injunction was granted restraining defendant No.3 from invocation of bank guarantee – There had been no lawful invocation of bank guarantee at any time by any of beneficiaries before making present application – By subsequent event plaintiff was able to make out very strong prima facie case of element of fraud in connection with invocation of bank guarantee-Interim injunction cannot be therefore vacated.
2007(1) AKAR (NOC) 132 (DEL)=AIR 2007 Delhi 16

(B) Contract Act (9 of 1872) S.126-Bank Guarantee – Invocation of – Award of contract-Bank guarantee furnished by petitioner-Contractor to respondent-it was irrevocable Bank guarantee – Liability to honour same was unconditional, unequivocal – It was specifically mentioned therein that any notice issued to Bank to make payment would be binding on it notwithstanding differences arising between parties – Pendency of dispute by invocation of arbitration agreement-would be therefore no ground to prevent encashment of Bank guarantee-More so when no case of irretrievable injustice or fraud made out.

2007(5)AIR Kar R 113(Supreme Court)(From AIR 2005 Bombay 385)
S.B.SINHA & P.K.BALASUBRAMANYAM,JJ.
(B)Contract Act (9 of 1872) S.126-Bank Guarantee – Construction of -Surrounding circumstances – Court will not take recourse to surrounding circumstances unless an ambiguity exists.
AIR 1965 SC 1856, AIR 1966 SC 902,Disting;2006 AIR SCW 4235,Rel.on(paras17,22,26)

(C)Contract Act (9 of 1872) S.126-Guarantee Contra t -Bank Guarantee – Is a separate transaction – Must be construed on its own terms – Case law discussed
(1997) 9 SCC 179, 1999 AIR SCW 3747,2000 AIR SCW 3639,1997 AIR SCW 2415,2006 AIR SCW 721 Rel.on 2003 AIR SCW 1225,Disting(para27)

2007(5)AIR Kar R 461(Supreme Court)(From Karnataka)
TARUN CHATTERJEE AND B SUDERSHAN REDDY,JJ.
(A)Contract Act(9 of 1872)S.126-Interim injunction-Bank guarantee – Agreement to raise capacity of Sugar plant-Bank guarantee given by seller providing that guarantor had undertaken to pay to purchaser specified amount without demur – Sole discretion conferred on purchaser as to whether amounts became recoverable from seller or whether he had committed breach of agreement – Right of purchaser to recover amount from guarantor not affected on ground of dispute raised by seller as to his liability-Held that, it was unconditional guarantee – No injunction against invoking it on ground of dispute between parties or breach of terms of agreement, can be granted.

(B)Contract Act (9 of 1872) S.126-Bank Guarantee-Mere fact that bank guarantee refers to principal agreement without referring to any specific clause in preamble of deed of guarantee-Does not make guarantee furnished by bank to be conditional one .(para29)

2007(2) AKAR(NOC) 174 (DEL.)=AIR 2007 Delhi 75
Dr.MUKUNDAKAM SHARMA & Ms.HIMA KOHLI,JJ.

(A) Civil P.C.(5 of 1908) O.39 r 1,2-Contract Act(9 of 1872) S.126-Enforcement of Bank guarantee-Injunction-To be issued only in exceptional cases like fraud or irretrievable injustice.
(B)Civil P.C.(5 of 1908) O39 r 1,2-Contract Act(9 or 1872) Ss.126,17,18-Enforcement of Bank guarantee  Injunction-Bank guarantee is independent contract between Bank and beneficiary-Not even a whisper in the entire plaint to the effect that Bank had knowledge of the fraud in respect of primary contract awarded by Development Authority in favour of tenderer-Part of tender documents reveals that tenderer had knowledge about existence of nallah on project side – There was no fraud at all on part of Development Authority while entering primary contract with tenderer herein-Even otherwise, there is no fraud either alleged or proved in respect of Bank guarantee-Bank guarantees furnished are unconditional and irrevocable in nature and Bank is under an obligation to pay on demand-Injunction restraining encashment of bank guarantees cannot be granted.

127. Consideration for guarantee
Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.

Illustrations
a) B requests A to sell and deliver to him goods on credit. A agrees to do so, provided C will guarantee the payment of the price of the goods. C promises to guarantee the payment in consideration of A’s promise to deliver the goods. This is a sufficient consideration for C’s promise.

b) 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. This is a sufficient consideration for C’s promise.

c) A sells and delivers goods to B. C afterwards, without consideration, agrees to pay for them in default of B. The agreement is void.

128. 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.

Illustration
A guarantees to B the payment of a bill of exchange by C, the acceptor. The bill is dishonored by C. A is liable not only for the amount of the bill but also for any interest and charges which may have become due on it.

2007(1) AIR Kar R 267 D.V.SHYLENDRA KUMAR,J.
( C )Contract Act(9 of 1872),S.128-Suretys liability – Banker who issues Bank guarantee is in position of surety – Not open for surety Banker to question liability or otherwise of principal debtor or justification for principal debtor to have incurred liability-Bank not caring to honour guarantee for six months – Such a conduct on part of commercial organization, deprecated(Paras58,59,61)

2007(5) AKAR (NOC) 636 (GAU) = AIR 2007 Gauhati 113
U.B.SAHA,J.
Contract Act(o of 1872) S.128-Possession of mortgaged property of Guarantor – Cannot be taken by Financial Corporation without notice to guarantor – Corporation also cannot issue public notice for auction/sale of mortgaged property without notice to guarantor-reason being, liability of guarantor is secondary and arises only when borrower fails to make repayment-Guarantor is bound by his own separate agreement to which principal borrower does not join-Difference between surety and guarantor, stated.

129. “Continuing guarantee”
A guarantee which extends to a series of transactions is called a “continuing guarantee”.
Illustrations
a) A, in consideration that B will employ C in collecting the rent of B’s zamindari, promises B to be responsible, to the amount of 5,000 rupees, for the due collection and payment by C of those rents. This is a continuing guarantee.

b) A guarantees payment to B, a tea-dealer, to the amount of pound 100, for any tea he may from time to time supply to C. B supplies C with tea to above the value of pound 100, and C pays B for it. Afterwards B supplies C with tea to the value of pound 200. C fails to pay. The guarantee given by A was a continuing guarantee, and he is accordingly liable to B to the extent of pound 100.

c) A guarantees payment to B of the price of five sacks of flour to be delivered by B to C and to be paid for in a month. B delivers five sacks to C. C pays for them. Afterwards B delivers four sacks to C, which C does riot pay for. The guarantee given by A was not a continuing guarantee, and accordingly he is not liable for the price of the four sacks.

2007(3)AKAR (NOC) 344 (KER)= AIR 2007 Kerala 131 V.K.BALI,C.J. & S.SIRI JAGAN,J.
(A) Limitation Act (36 of 1963) S.55-Contract Act (9 of 1872) S.129 – Kerala Revenue Recovery Act (1 of 1810),S 69(2)-Enforcement of personal guarantee between creditor and guarantor – Limitation – Applicability to revenue recovery proceedings-Clause to guarantee entitling creditor/Financial Corpn.to act as if guarantor was principal debtor – Guarantee shall also remain in force till borrower pays full loan amount on demand – Personal guarantee executed – Limitation begins to run from refusal on part of guarantor to fulfill demand – Since revenue recovery notice itself is demand made on guarantor question of limitation does not arise.

130. Revocation of continuing guarantee
A continuing guarantee may at any time be revoked by the surety, as to future transactions, by notice to the creditor.

Illustrations
a) A, in consideration of B’s discounting, at A’s request, bills of exchange for C, guarantees to B, for twelve months, the due payment of all such bills to the extent of 5,000 rupees. B discounts bills for C to the extent of 2,000 rupees. Afterwards, at the end of three months, A revokes the guarantee. This revocation discharges A from all liability to B for any subsequent discount. But A is liable to B for the 2,000 rupees, on default of C.

b) A guarantees to B, to the extent of 10,000 rupees, that C shall pay all the bills that B shall draw upon him. B draws upon C. C accepts the bill. A gives notice of revocation. C dishonors the bill at maturity. A is liable upon his guarantee.

131. Revocation of continuing guarantee by surety’s death
The death of the surety operates, in the absence of any contract to the contrary, as a revocation of a continuing guarantee, so far as regards future transactions.

132. Liability of two persons, primarily liable, not affected by arrangement between them that one shall be surety on other’s default
Where two persons contract with a third person to undertake a certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to such contract, the liability of each of such two persons to the third person under the first contract is not affected by the existence of the second contract, although such third person may have been aware of its existence.

Illustration
A and B make a joint and several promissory note to C. A makes it, infact, as surety for B, and C knows this at the time when the note is made. The fact that A, to the knowledge of C, made the note as surety for B, is no answer to a suit by C against A upon the note.

133. Discharge of surety by variance in terms of contract
Any variance, made without the surety’s consent, in the terms of the contract between the principal 1[debtor] and the creditor, discharges the surety as to transactions subsequent to the variance.

Illustrations
a) A becomes surety to C for B’s conduct as a manager in C’s bank. Afterwards B and C contract, without A’s consent, that B’s salary shall be raised, and that he shall become liable for one-fourth of the losses on overdrafts. B allows a customer to overdraw, and the bank loses a sum of money. A is discharged from his surety ship by the variance made without his consent, and is not liable to make good this loss.

b) A guarantees C against the misconduct of B in an office to which B is appointed by C, and of which the duties are defined by an Act of the Legislature. By a subsequent Act, the nature of the office is materially altered. Afterwards, B misconducts himself. A is discharged by the change from future liability under his guarantee, though the misconduct of B is in respect, of a duty not affected by the later Act.

c) C agrees to appoint B as his clerk to sell goods at a yearly salary, upon A’s becoming surety to C for B’s duly accounting for moneys received by him as such clerk. Afterwards, without A’s knowledge or consent, C and B agree that B should be paid by a commission on the goods sold by him and not by a fixed salary. A is not liable for subsequent misconduct of B.

d) A gives to C a continuing guarantee to the extent of 3,000 rupees for any oil supplied by C to B on credit. Afterwards B becomes embarrassed, and, without the knowledge of A, B and C contract that C shall continue to supply B with oil for ready money, and that the payments shall be applied to the then existing debts between B and C. A is not liable on his guarantee for any goods supplied after: this new arrangement.

e) C contracts to lend B 5,000 rupees on the 1st March. A guarantees repayment. C pays the 5,000 rupees to B on the 1st January. A is discharged from his liability, as the contract has been varied, inasmuch as C might sue B for the money before the 1st of March.

134. Discharge of surety by release or discharge of principal debtor
The surety is discharged by any contract between the creditor and the principal debtor, by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor.

Illustrations
a) A gives a guarantee to C for goods to be supplied by C to B. C supplies goods to B, and afterwards B becomes embarrassed and contracts with his creditors (including C) to assign to them his property in consideration of their releasing him from their demands. Here B is released from his debt by the contract with C, and A is discharged from his surety ship.

b) A contracts with B to grow a crop of indigo an A’s land and to deliver it to B at a fixed rate, and C guarantees A’s performance of this contract. B diverts a stream of water which is necessary for irrigation of A’s land and thereby prevents him from raising the indigo. C is no longer liable on his guarantee.

c) A contracts with B for a fixed price to build a house for B within a stipulated time, B supplying the necessary timber. C guarantees A’s performance of the contract. B omits to supply the timber. C is discharged from his surety ship.

135. Discharge of surety when creditor compounds with, gives time to, or agrees not to sue, principal debtor
A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract.

136. Surety not discharged when agreement made with third person to give time to principal debtor.
Where a contract to give time to the principal debtor is made by the creditor with a third person, and not with the principal debtor, the surety is not discharged.

Illustration
C, the holder of an overdue bill of exchange drawn by A as surety for B, and accepted by B, contracts with M to give time to B. A is not discharged.

137. Creditor’s forbearance to sue does not discharge surety
Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.

Illustration
B owes to C a debt guaranteed by A. The debt becomes payable. C does not sue B for a year after the debt has become payable. A is not discharged from his surety ship.

138. Release of one co-surety does not discharge others
Where there are co-sureties, a release by the creditor of one of them does not discharge the others; neither does it free the surety so released from his responsibility to the other sureties1.

139. Discharge of surety by creditor’s act or omission impairing surety’s eventual remedy
If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.

Illustrations
a) B contracts to build a ship for C for a given sum, to be paid by installments as the work reaches certain stages. A becomes surety to C for B’s due performance of the contract. C, without the knowledge of A, prepays to B the last two installments. A is discharged by this prepayment.

b) C lends money to B on the security of a joint and several promissory note made in C’s favour by B, and by A as surety for B, together with a bill of sale of B’s furniture, which gives power to C to sell the furniture, and apply the proceeds in discharge of the note. Subsequently, C sells the furniture, but, owing to his misconduct and willful negligence, only a small price is realized. A is discharged from liability on the note.

c) A puts M as apprentice to B, and gives a guarantee to B for M’s fidelity. B promises on his part that he will, at least once a month, see M make up the cash. B omits to see this done as promised, and M embezzles. A is not liable to B on his guarantee.

140. Rights of surety on payment or performance. Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor.

141. Surety’s right to benefit of creditor’s securities
A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses, or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security.
Illustrations
a) C advances to B, his tenant, 2,000 rupees on the guarantee of A. C has also a further security for the 2,000 rupees by a mortgage of B’s furniture. C cancels the mortgage. B becomes insolvent, and C sues A on his guarantee. A is discharged from liability to the amount of the value of the furniture.

b) C, a creditor, whose advance to B is secured by a decree, receives also a guarantee for that advance from A. C afterwards takes B’s goods in execution under the decree, and then, without the knowledge of A, withdraws the execution. A is discharged

c) A, as surety for B, makes a bond jointly with B to C, to secure a loan from C to B. Afterwards, C obtains from B a further security for the same debt. Subsequently, C gives up the further security. A is not discharged.

142. 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.

143. Guarantee obtained by concealment invalid
Any guarantee which the creditor has obtained by means of keeping silence as to material circumstances is invalid.

Illustrations
a) A engages B as clerk to collect money for him. B fails to account for some of his receipts, and A in consequence calls upon him to furnish security for his duly accounting. C gives his guarantee for B’s duly accounting. A does not acquaint C with B’s previous conduct. B afterwards makes default. The guarantee is invalid.

b) A guarantees to C payment for iron to be supplied by him to B to the amount of 2,000 tons. B and C have privately agreed that B should pay five rupees per ton beyond the market price, such excess to be applied in liquidation of an old debt. This agreement is concealed from A. A is not liable as a surety.

144. Guarantee on contract that creditor shall not act on it until co-surety joins
Where a person gives a guarantee upon a contract that the creditor shall not act upon it until another person has joined in it as co-surety, the guarantee is not valid if that other person does not join.

145. Implied promise to indemnify surety
In every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety; and the surety is entitled to recover from the principal debtor whatever sum he has rightfully paid under the guarantee, but, no sums which he has paid wrongfully.

Illustrations
a) B is indebted to C, and A is surety for the debt. C demands payment from A, and on his refusal sues him for the amount. A defends the suit, having reasonable grounds for doing so, but is compelled to pay the amount of the debt with costs. He can recover from B the amount paid by him for costs, as well as the principal debt.

b) C lends B a sum of money, and A, at the request of B, accepts a bill of exchange drawn by B upon A to secure the amount. C, the holder of the bill, demands payment of it from A, and, on A’s refusal to pay, sues him upon the bill. A, not having reasonable grounds for so doing, defends the suit, and has to pay the amount of the bill and costs. He can recover from B the amount of the bill, but not the sum paid for costs, as there was no real ground for defending the action.

c) A guarantees to C, to the extent of 2,000 rupees, payment for rice to be supplied by C to B. C supplies to B rice to a less amount than 2,000 rupees, but obtains from A payment of the sum of 2,000 rupees in respect of the rice supplied. A cannot recover from B more than the price of the rice actually supplied.

146. Co-sureties liable to contribute equally. Where two or more persons are CO-sureties for the same debt or duty, either jointly or severally, and whether under the same or different contracts, and whether with or without the knowledge of each other, the co-sureties, in the absence of any contract to the contrary, are liable, as between themselves, to pay each an equal share of the whole debt, or of that part of it which remains unpaid by the principal debtor.

Illustrations
a) A, B and C are sureties to D for the sum of 3,000 rupees lent to E. E makes default in payment. A, la and C are liable, as between them selves, to pay 1,000 rupees each.

b) A, B and C are sureties to D for the sum of 1,000 rupees lent to E, and there is a contract between A, B and C that A is to be responsible to the extent of one-quarter, B to the extent of one-quarter, and C to the extent of one-half. E makes default in payment. As between the sureties, A is liable to pay 250 rupees, B 250 rupees, and C 500 rupees.

147. Liability of co-sureties bound in different sums
Co-sureties who are bound in different sums are liable to pay equally as far as the limits of their respective obligations permit.

Illustrations
a) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes default to the extent of 30,000 rupees. A, B and C are liable to pay 10,000 rupees.

b) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes default to the extent of 40,000 rupees. A is liable to pay 10,000 rupees, and B and C 15,000 rupees each

c) A, B and C, as sureties for D, enter into three several bonds, each in a different penalty, namely, A in the penalty of 10,000 rupees, B in that of 20,000 rupees, C in that of 40,000 rupees, conditioned for D’s duly accounting to E. D makes default to the extent of 70,000 rupees. A, B and C have to pay each the full penalty of his bond.

CHAPTER III

OF CONTINGENT CONTRACTS

31. ”Contingent contract” defined

A “contingent contract” is a contract to do or not to do something, if some event, collateral to such contract, does or does not happen.

Illustration

A contracts to pay B Rs. 10,000 if B’s house is burnt. This is a contingent contract.

32. Enforcement of contracts contingent on an event happening.-

Contingent contracts to do or not to do anything if an uncertain future event appends cannot be enforced by law unless and until that event has happened.

If the event becomes impossible, such contracts become void.

Illustrations

a) A makes a contract with B to buy B’s horse if A survives C. This contract cannot be enforced by law unless and until C dies in A’s lifetime.

b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy the horse.

c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The contract becomes void.

33.Enforcement of contracts contingent on an event not happening.-

Contingent contracts to do or not to do anything if an uncertain future event does not happen can be enforced when the happening of that event becomes impossible, and not before.

Illustration

A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can be enforced when the ship sinks.

34.When event on which contract is contingent to be deemed impossible, if it is the future conduct of a living person

If the future event on which a contract is contingent is the way in which a person will act at an unspecified time, the event shall be considered to become impossible when such person does anything which renders it impossible that he should so act within any definite time, or otherwise than under further contingencies.

Illustration

A agrees to pay B a sum of money if B marries C. C marries D. The marriage of B to C must now be considered impossible, although it is possible that D may die and that C may afterwards marry B.

35.When contracts become void which are contingent on happening of specified event within fixed time

Contingent contracts to do or not to do anything if a specified uncertain event happens within a fixed time become void if, at the expiration of the time fixed, such event has not happened, or if, before the time fixed, such event becomes impossible.

When contracts may be enforced which are contingent on specified event not happening within fixed time.-Contingent contracts to do or not to do anything if a specified uncertain event does not happen within a fixed time may be enforced by law when the time fixed has expired and such event has not happened or, before the time fixed has expired, if it becomes certain that such event will not happen.

Illustrations

a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be enforced if the ship returns within the year, ‘and becomes void if the ship is burnt within the year.

b) A promises to pay B a sum of money if a certain ship does not return within a year. The contract may be enforced if the ship does not return within the year, or is burnt within the year.

36.Agreement contingent on impossible events void

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made.

Illustrations

a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is void.

b) A agrees to pay B 1,000 rupees if B will marry A’s daughter C. C was dead at the time of the agreement. The agreement is void.