Page 41 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Meaning of “ignorantia juris non excusat”. It means ignorance of law is no excuse. A contract is not
voidable because it was caused by a mistake as to any law in force in India. Thus, where A and
B make a contract grounded on the erroneous belief, that a particular debt is barred by the
Limitation Act; the contract is not voidable. (s.21) Further, “A mistake as to a law not in India has
the same effect as a mistake of fact”.
Mistake of foreign law. The above maxim - “ignorance of law is no excuse” is inapplicable to
foreign law. The mistake of foreign law is to be treated as a mistake of fact.

Consequences of mistake on contracts. Mistake renders the contract void and as such in case of
a contract which is yet to be performed the party complaining the mistake may repudiate it, i.e.,
need not perform it. If the contract is executed the party who received any advantage must
return it or make compensation for it as soon as the contract is discovered to be void.

Self Assessment

Fill in the blanks:
11. Broadly there are two kinds of mistake which are Mistake of ……….and Mistake of law.

12. When both the parties to the agreement are under a mistake of fact essential to the
agreement, the mistake is called a ……………mistake

2.7 Contract of Guarantee

2.7.1 Purpose of Guarantee

The contracts of guarantee are among the most common business contracts and are used for a
number of purposes. These are:
(i) The guarantee is generally made use of to secure loans. Thus, a contract of guarantee is for
the security of the creditor.
(ii) The contracts of guarantee are sometimes called performance bonds.

Example: In the case of a construction project, the builder may have to find a surety to
stand behind his promise to perform the construction contract.

Also employers often demand a type of performance bond known as a fidelity bond from
employees who handle cash, etc., for the good conduct of the latter. If an employee
misappropriates then the surety will have to reimburse the employer.

(iii) Bail bonds, used in criminal law, are a form of contract of guarantee. A bail bond is a
device which ensures, that a criminal defendant will appear for trial. In this way a prisoner
is released on bail pending his trial. If the prisoner does not appear in the court as desired
then the bond is forfeited.

2.7.2 Definition and Nature of the Contract of Guarantee (S.126)

A contract of guarantee is defined as “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
‘surety’; the person for whom the guarantee is given is called the ‘principal debtor’, and the
person to whom the guarantee is given is called the ‘creditor’. A contract of guarantee may be
either oral or in writing.

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