Honourable Supreme Court of Gaul and Impedimenta

Table of Contents
Statement of Facts   4

Statement of Issues   5

Summary of Arguments   6

Arguments Advanced    7

THE INJUNCTION TO ENCASHMENT OF THE BANK GUARANTEE IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT. 7

[A] The rejection of the plea for injunction is inconsistent  7

[B] An Injunction be granted; as the Guarantee is obtained fraudulently. 8

1872. THE IMPOSITION OF LIABILITY ON THE SURETY IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT, 1872. 9

[A] Imposition of liability on the surety is consistent with Section 141 of the ICA. 9

[B] Surety is not discharged as there was no voluntary act. 10

III.     THE IMPOSITION OF LIABILITY ON HAWAII COCOA FARMS TO INDEMNIFY CHARLIE   11

Index of Authorities   13
Statement of Facts

• Preliminary Facts:

Charlie entered into an agreement with Hawaii Cocoa Farms for supply of cocoa to reach Charlie at a specified period, failing which Charlie would incur a loss.

• Facts leading the case:

• After having contracted with Charlie, Cocoa Farms contracted with Jack Sparrow & Co. to deliver the consignment to Charlie. However, Jack Sparrow being a newbie, Cocoa Farms was hesitant to contract with it. However, in light, that even Captain Cook was its client, Cocoa Farms changed its mind and entered a contract with Pretzel Bank giving the surety for the transaction in case Cocoa Farms fails to do so within the stipulated period of time. However, when the ship was at sea, pirates attacked the ship at the goods were lost.
• Charlie, being out of options, went to the local supplier, Baburao on the surety of Anila Ambani to supply 30 tonnes of cocoa. Moreover, Baburao gave an additional security of five gold sets after the guarantee contract to satisfy Charlie. However, Charlie lost the sets and Baburao failed to deliver the cocoa, now Charlie wants to invoke the guarantee.

• Litigation filed:

In light of the facts:

• Cocoa Farms invoked the bank guarantee, wherein the trial court gave order in favour of Cocoa Farms, nevertheless, Pretzel Bank and Jack Sparrow appeal to the Supreme Court of Gaul praying for an injunction.
• Charlie sued Anila Ambani to evoke the guarantee and have him pay for the losses caused to him in the Court Impedimenta
• Charlie being informed of the misfortune of the ship, sued Hawaii Cocoa Farms to indemnify him for the losses caused to him that were clearly stated in the contract that they signed.

Statement of Issues

THE INJUNCTION TO ENCASHMENT OF THE BANK GUARANTEE IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT

[A] The rejection of the plea for injunction is inconsistent; the guarantee being conditional.
[B] An Injunction be granted; as the Guarantee is obtained fraudulently.
II. THE IMPOSITION OF LIABILITY ON THE SURETY IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT, 1872.
[A] Imposition of liability on the surety is consistent with Section 141 of the ICA.
[B] Surety is not discharged as there was no voluntary act of the creditor that led to the security being lost.
III. THE IMPOSITION OF LIABILITY ON HAWAII COCOA FARMS TO INDEMNIFY CHARLIE

Summary of Arguments

THE INJUNCTION TO ENCASHMENT OF THE BANK GUARANTEE IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT

The guarantee obtained from the Bank was based on a fraudulent act of Jack Sparrow & Co. as the company had stated that Captain Cook & Co. were their clients, which was one of the main reasons why Cocoa Charlie entered into a contract with Jack Sparrow. Moreover, fraud is an exception to the rule of bank guarantee and therefore cannot be encashed. Nevertheless, the bank guarantee is a conditional one and not on-demand, the onus is on the Respondent to satisfy the condition before encashing the guarantee.

II. THE IMPOSITION OF LIABILITY ON THE SURETY IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT, 1872.
Anila Ambani, the surety is not discharged as per Section 141 of the Indian Contract Act, 1872 as the additional security given by Baburao was after the contract of guarantee was signed by the parties. Therefore, the surety is not discharged as Section 141 only applies to cases where the security is given at the time of the contract being signed.

III. THE IMPOSITION OF LIABILITY ON HAWAII COCOA FARMS TO INDEMNIFY CHARLIE
Hawaii Cocoa Farms are liable to indemnify Charlie as there was an implied indemnity between the parties wherein Cocoa Farms had assured that the shipment would reach in time and by the acts of the indemnifier the loss was caused and therefore that loss should be compensated for.
Arguments Advanced

I. THE INJUNCTION TO ENCASHMENT OF THE BANK GUARANTEE IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT.

• A Bank guarantee is unconditional and on-demand unless there is a condition attached to it. In the present case, the Appellant submits that the Bank Guarantee is a conditional one [A]. In any event, the Guarantee agreement was entered into fraudulently [B] and therefore an injunction should be granted.

[A] The rejection of the plea for injunction is inconsistent; the guarantee being conditional.

• The invocation of the guarantee has to be made as per the terms of the guarantee. To find out whether a bank guarantee is conditional or unconditional, it is the guarantee document, which has to be scanned.[1] If the bank guarantee is a conditional one, then the person who wants to invoke it has to satisfy the conditions stated in the bank guarantee. It is only thereafter that he becomes legally entitled to invoke the bank guarantee.[2] In the present case, the bank guarantee stipulates that the bank will pay the amount of ten lakhs only and only if Shipping Company is unable to fulfill the terms of the contract with cocoa farms within the stipulated period of time. In other words, the bank guarantee is not unconditional. It may be on demand, but the terms warrant satisfaction with regard to the failure on the part of Jack Sparrow & Co. and only after the stipulated period of time.[3] Therefore, the bank guarantee can be evoked only after the stipulated period as stated in the bank guarantee and not on-demand. The condition as stated has to be satisfied, whose onus lies on the beneficiary to prove that it has been satisfied.

[B] An Injunction be granted; as the Guarantee is obtained fraudulently.

• Section 142 invalidates a guarantee obtained by misrepresentation whereas; Section 143 invalidates a guarantee obtained by concealment. In the present case scenario, the Respondents entered into an agreement with Jack Sparrow Shipping Co. (Appellant 1) because it had been transacting with Captain Cook & Co. However, Captain Cook & Co. was not their client as of December 20 2014. Therefore, either the Jack Sparrow willfully misrepresented or actively concealed the information that Captain Cook & Co. were no longer their clients. Keeping silence implies intentional concealment and is therefore fraudulent.[4] In the contract, since the condition precedent for entering into the contract was Captain Cook & Co. transacting with Jack Sparrow, it is a material part of the contract. Since this material part of the contract was actively concealed, as Cocoa Farms had ‘confirmed the same with Jack Sparrow Shipping Co.’, the agreement is voidable at the option of the Appellants. Since fraud is an exception for the general rule of bank guarantees, an injunction be granted.[5] Moreover, Jack Sparrow has had a history of whittling clientele, wherein; their clients have accused them of misappropriation of goods and due care not taken of the goods. This is a case therefore of continued fraudulent behavior. It should be presumed in this case then that they had used fraudulent methods to get into the contract.

II. THE IMPOSITION OF LIABILITY ON THE SURETY IS CONSISTENT WITH THE PROVISIONS OF THE INDIAN CONTRACT ACT, 1872.

• The Indian Contract Act stipulates that if the creditor looses a security given by the principal debtor or the surety at the time of making the contract, then the liability of the surety is discharged to the value of the goods lost. In the present case however, the security was provided forth after the Contract was signed [A] and there was no voluntary act of the creditor that led to the security being lost [B].

[A] Imposition of liability on the surety is consistent with Section 141 of the ICA.

• The Act emphasizes that the surety is entitled to the benefit of every security, which the creditor has against the principal debtor at the time of when the contract of suretyship was entered into. A surety who pays a debt due by his principal acquires the benefit of all the security held by the creditor against the principal at the date of the contract of suretyship.[6] Therefore, to say that the surety will have a right over the gold sets, being given after the guarantee agreement is inconsistent with the provisions of the Act. Moreover, the five gold sets were given as additional security after the contract of suretyship came into being and therefore do not fall under the ambit of Section 141. Therefore, the act of loosing the said security will not discharge the surety from his liability to the Creditor and the lower court has erred in their judgement in this regard.

[B] Surety is not discharged as there was no voluntary act of the creditor that led to the security being lost.

• Stating without accepting, as an arguendo, that the jewels were given as security at the time of the contract, even then the Surety will not be discharged as there was no voluntary act on the part of the Creditor which led to the security being lost. The expression ‘if the creditor looses’ means and implies a voluntary act by reason whereof the creditor loses the security and which thus tantamount to be without the consent of the surety. The word ‘or’ in between the expressions ‘creditor looses’ and ‘without the consent of the surety’ and the coma read in its proper sphere after the word ‘loses’ and ‘surety’ stands out to be significant since the same qualifies only the latter part of the second limb, namely, parting with such security. The expression ‘creditor looses’ does not mean an involuntary act but by reason of an act without the knowledge of the surety is a contra situation but affords a meaning to the words used in the first para, to wit, ‘the creditor loses’.[7] This section would lose its efficacy and the Act would render totally nugatory if the expression is held as contemplating both voluntary and involuntary acts of the creditor. The contract of guarantee though is not a contract regarding a primary transaction; but it is an independent transaction containing independent and reciprocal obligations. The definite volition is required to come within the ambit of Section 141, this section thus involves of an issue of deliberate action on the part of the creditor and not a mere fortuitous situation beyond the control of the creditor.[8]
• In light whereof, the act of the creditor, was not a voluntary act. Since the alleged thieves were his own relatives. There was no breach of security, which led to jewelry be stolen by a professional thief. This was on the contrary, an act from his relatives, whom he considered innocent. Therefore, the Creditor’s act cannot discharge the Surety under Section 141 of the Act.

III. THE IMPOSITION OF LIABILITY ON HAWAII COCOA FARMS TO INDEMNIFY CHARLI

• A contract for indemnity is a contract by which one party promises to save the other from loss caused to him by the conduct of the promisor himself.[9] In indemnity, the possibility of risk of any loss happening is contingent against the indemnifier.[10] It is a general principle of law that when an act is done by one person at the request of another which act in itself is not manifestly tortious to the knowledge of the person doing it and such act turns out to be injurious to the rights of a third party, the person doing it is entitled to an indemnity from him who requested that it should be done.[11]
• Similarly, in the present case, the indemnity is implied by virtue that it was specifically mentioned by the Chocolate Factory that if the shipment does not arrive within the specified time period, then they would suffer a loss. Cocoa Farms assured them that it would reach within the specified time. This causes an implied indemnity wherein Cocoa Farms becomes the indemnifier and Chocolate Factory becomes the indemnity holder, and a loss having incurred by the act of the indemnifier, it is the duty of the indemnifier to indemnify the indemnity holder.[12]

Index of Authorities

STATUTES
Indian Contract Act, 1872

JUDICIAL DECISIONS

• Sovenska Handeisbanker v. Indian Charge Chrome, AIR 1994 SC 626
• Ansal Properties & Industries (P) Ltd. v. Engg. Projects (India) Ltd., AIR 1998 Del 176.
• Rajesh Business and Leisure Hotels P.Ltd. v. Indian Overseas Bank
• Karam Chand Thapar v. Hindustan Construction Company Limited.
• N. Kirtikar v. Bank of Bengal, (1891) 15 Bom 585.
• Escorts Limited v. Modern Insulators Ltd., 1989 (1) Civil LJ 220;
• State of Gujarat v. Daya Shamji Bhai, AIR 1996 SC 133, 134-135
• Divarikesh Sagar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., (1997) 6 SCC 450;
• Daewoo Motors India Ltd. v. Union of India, AIR 2003 SC 1786, 1789:
• Mahammad Mahmad Ali v. Kalyan, 18 All 189
• Barkatunnissa v. Mahbub, 42 All 70
• Industrial Finance Corp. of India Ltd. v. Cannanore Spinning & Weaving Mills Ltd., AIR 2002 SC 1841. Para 31
• Tarachand Ghanshyamdas v. Commissioner of Income Tax. (1966) 59 ITR 378
• Tilak Ram and Ors. v. Surat Singh and Ors. AIR 1938 All 297
• Crompton Greaves Ltd. v. Shri Ram Co. Ltd., (1986) 2 Bom CR 165

[1] Sovenska Handeisbanker v. Indian Charge Chrome, AIR 1994 SC 626

[2] Ansal Properties & Industries (P) Ltd. V. Engg. Projects (India) Ltd.,AIR 1998 Del 176.

[3] Rajesh Business and Leisure Hotels P.Ltd. v. Indian Overseas Bank; Karam Chand Thapar v. Hindustan Construction Company Limited.

[4] V. N. Kirtikar v. Bank of Bengal, (1891) 15 Bom 585.

[5] Escorts Limited v. Modern Insulators Ltd., 1989 (1) Civil LJ 220; State of Gujarat v. Daya Shamji Bhai, AIR 1996 SC 133, 134-135: (1995) 5 SCC 746; see also Divarikesh Sagar Industries Ltd. v. Prem Heavy Engineering Works (P) Ltd., AIR 1997 SC 2477, 2483: (1997) 6 SCC 450; see also Daewoo Motors India Ltd. v. Union of India, AIR 2003 SC 1786, 1789: (2003) 4 SCC 690: (2003) 114 Comp Cas 19

[6] Mahammad Mahmad Ali v. Kalyan, 18 All 189 ; Barkatunnissa v. Mahbub, 42 All 70: 52 IC 684

[7] Industrial Finance Corp. of India Ltd. V. Cannanore Spinning & Weaving Mills Ltd., AIR 2002 SC 1841. Para 31

[8] Ibid. Para 31-33.

[9] Tarachand Ghanshyamdas v. Commissioner of Income Tax. (1966) 59 ITR 378

[10] Tilak Ram and Ors. v. Surat Singh and Ors. AIR 1938 All 297

[11] Crompton Greaves Ltd. v. Shri Ram Co. Ltd., (1986) 2 Bom CR 165

[12] ibid. supra n. 9