Chokalinga Chettiar v. Dandayuthapani Chettiar

Madhavan Nair, J.:— The short question for consideration in this Letters Patent Appeal is whether the plaintiff-appellant is entitled to get a decree for the suit amount against defendant 2 along with defendant 1. The plaintiff's suit was for the recovery of the money due under a promissory note executed by defendant 1. Under Ex. B-1, a letter, defendant 2 guaranteed the payment of this promissory note debt. In it, he stated as follows:

Kuppuswami Chatty……who executed a pro-note on this date in your favour for Rs. 380 will pay you the principal and the interest amount thereof within three months' time. If he does not so pay, I shall have the note assigned to my name and pay you the principal and interest.

2. As the money was not paid either by defendant 1 or 2, the plaintiff instituted the suit out of which this Letters Patent appeal arises against the two defendants and obtained a decree against both of them in the District Munsif's Court of Tiruthuraipundi. On appeal by defendant 2, the learned Subordinate Judge of Tanjore set aside the decree so far as it affected him and this decree was confirmed by Wallace, J. It was alleged in the plaint that when defendant 1 did not pay the amount within the three months' time, information was given to defendant 2 and when he was asked to have the aforesaid promissory note assigned in his name he did not pay the money. This allegation was denied by defendant 2 in his written statement. As there was no clear finding as to which party was responsible for the breach of the conditions in Ex. B-1, the learned Judge before deciding the case called upon the lower appellate Court to submit a finding on the following issues:

Has there been any breach of the contract set out between the plaintiff and defendant 2 in Ex. B-1? and if so, which of these two parties is responsible for that breaths.

3. The finding submitted was that defendant 2 was called upon by the plaintiff to pay the amount under Ex. B and to take over the promissory note; but that be failed to do so; and that defendant 2 is solely responsible for the breach of the contract in Ex. B-1. This finding was not challenged before the learned Judge. On this finding, the learned Advocate General argues that the appellant is entitled in law to get a decree against defendant 2 also. The learned Judge's reason for refusing the decree against defendant 2 may be thus stated in his own words:

The only person entitled to sue on the promissory note at present is the plaintiff and he wants a decree against defendant 1 on that note. If he has such a decree, he cannot enforce against defendant 2 a contract one term of which was that he should transfer the promissory note to defendant 2 so that the latter might be in a position to enforce it.

4. This reasoning is now pressed before us with great force by Mr. Ramachandra Aiyar on behalf of the respondent. He argues that the plaintiff's suit is for the specific performance of the contract contained in Ex. B-1 and as he has by instituting the suit against defendant 1 disabled himself from performing his part of the contract, that is, assigning the note to defendant 2, he is not now entitled to get a decree against him; and he also points out that the delivery of the promissory note to defendant 2 is, in the circumstances of the case, valueless as it has now become clearly time barred. It appears to me that this argument as well as the argument that the plaintiff is also not entitled to get damages alternatively as he has not put an end to the contract is based upon a misconstruction of the terms of Ex. B-1. Reading the document as a whole, it is clear that its terms make defendant 2 a “surety” for the payment of the promissory note debt. Under Section 128 of the Contract Act, the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. The only limitation on defendant 2's liability is the provision which allows a period of three months for the payment of the debt by defendant 1. The liability of defendant 2 will arise if defendant 1 does not pay up the debt within three months' time. The argument addressed to us assumes that the liability of defendant 2 as a surety has been expressly negatived by the terms of Ex. B-1 and that in its place a special contractual liability, i.e, payment of money by defendant 2 on the delivery of the promissory note by the plaintiff has been substituted. This argument appears to me to be entirely unfounded. The provision regarding the assignment of the promissory note on payment of the money is only a statement in express language of the rights and obligations of a creditor and surety implied under Section 141 of the Contract Act, and nothing more. It is true that on payment of the money by defendant 2, the plaintiff is bound to assign the promissory note to him and if he does not do so, the surety is discharged from his liability. But the finding on this point is clearly against defendant 2. Since the default was on his part, he cannot escape the surety's liability of paying the debt which he had undertaken under Ex. B-1. It therefore follows that defendant 2 is equally liable with defendant 1 for the suit amount and when he makes the payment, by having recourse to Section 140 of the Contract Act, he will have his remedy against defendant 1.

5. In the view that I have taken viz., that the suit against defendant 2 is for the enforcement of his liability “as a surety” under Ex. B-1 and not for the specific performance of a special contract contained in it, it is not necessary to examine the decision in Jatindra Nath Basu v. Payer Daye Debi(1); relied on by Mr. Ramaohandra Ayyar. I may, however, point out that decision does not apply to the facts of the case before us. In that case, as stated in the head-note, the plaintiffs brought a suit for specific performance of an agreement made between them and the defendant by which the latter contracted to purchase a mortgage decree and all rights appertaining thereto, which decree was to be duly transferred to the defendant. The decree, however, before assignment became barred by limitation, and he refused to take it. It was held by the Privy Council that what the plaintiffs had agreed to assign to the defendant was a decree capable of execution and that when the decree became barred by limitation the plaintiffs were asking for specific performance by the defendant of an agreement which they were themselves unable to perform and no such relief could be granted. No question as regards the surety's liability for the payment of the debt which he had guaranteed arose for decision in that case. The consideration for the payment of money in that case was the assignment of a decree capable of execution and when that consideration failed, the obligation to pay the money also came to an end. In the present case, the consideration for defendant 2's undertaking to pay the promissory note debt to the plaintiff was the loan made by him to defendant 1, the principal debtor (Section 127 of the Contract Act). The plaintiff having furnished the loan to defendant 1 acquires a right to proceed against defendant 2 for the recovery of the debt in the event of its non-payment by defendant 1.

6. For the above reasons, I would set aside the decree passed by the learned Judge.

7. In the result, the decree of the District Munsif is restored with the costs of the appellant in the Sub-Court and in the second appeal as well as in the Letters Patent Appeal.

8. Thiruvenkatachariar, J.:— This is an appeal from the judgment of Wallace, J., dismissing Second Appeal No. 402 of 1921 which was preferred by the plaintiff in the suit against that portion of the decree dismissing his claim against defendant 2. The question which we have to decide in this appeal is whether defendant 2 is also liable to the plaintiff along with defendant 1 for the amount sued for. The suit was brought to recover the amount due on a promissory note (Ex. B) dated 13th December, 1915, executed by defendant 1 in plaintiff's favour. Defendant 2 was impleaded as surety for defendant 1 in respect of the said debt, under an agreement in writing (Ex. B-1), executed by him in plaintiff's favour on the same date as Ex. B. In that agreement defendant 2 after referring to the pronate (Ex. B) executed by defendant 1 in plaintiff's favour, says that the said defendant 1, will repay the principal and the interest amount thereof within three months time. If he does not so pay, I shall have the note assigned to my name and pay you the principal and interest.

9. The facts found in the case are that defendant 1 did not repay to the plaintiff the amount due under Ex. B within three months or subsequently. The plaintiff thereafter called upon defendant 2 several times for payment of the amount due under Ex. B offering to assign the pronote to him on such payment. But defendant 2 did not comply with the demand as he was bound to do and he thereby committed a breach of the agreement (Ex. B-1) for which he must be held responsible to the plaintiff. Upon these findings the trial Court passed a decree against both defendants for the amount claimed. Defendant 2 alone appealed against that decree, his main ground being that the breach of the agreement Ex. B-1 was not on his part as he tendered the amount to the plaintiff, but it was the latter who refused to assign the suit pronote to him and that thereby the plaintiff himself was responsible for the breach. He contended also that even if the breach of the agreement Ex. B-1 was on his part, the only remedy open to the plaintiff is to sue for specific performance of the contract, that is, to enforce his taking over the suit note and paying to the plaintiff the consideration therefor, namely the amount due under Ex. B.

10. The Subordinate Judge who heard the appeal was apparently inclined to the view that the plaintiff had not made out that defendant 2 refused to accept plaintiff's offer to endorse and deliver the pronote to him. But without giving a definite finding on that question, he took the view that even if the breach was on defendant 2's part, plaintiff's remedy against defendant 2 was to sue him for specific performance of the agreement Ex. B-1. The plaintiff by suing defendant 1 on the pronote had disabled himself thereafter from assigning the note to defendant 2 as provided in Ex. B-1 and was no longer in a position to sue for such a relief against defendant 2, and hence the present suit as against him must be dismissed. Against the decree of the Subordinate Judge dismissing the suit as against defendant 2, a second appeal was preferred to this Court and it came on for hearing before Wallace, J. The learned Judge considering that there was no clear finding by the lower appellate Court as to which party was responsible for the breach of the agreement Ex. B-1 called upon the lower appellate Court for a finding upon that question. The case came on before another Sub-Judge and he returned the finding that it was defendant 2 who was responsible for the breach. He upheld the plaintiff's case as true, namely, that defendant 2 was called upon by the plaintiff to pay the amount due under Ex. B and to take over the said note but that the latter failed to do so and that defendant 2's case, that he was ready with the money and asked for an endorsement of Ex. B but was met with a refusal by the plaintiff is not true. That finding being one on a question of fact was not contested on behalf of the respondent. The learned Judge has however, held that, though the default of the agreement. Ex. B-1 was on the part of defendant 2, the plaintiff cannot have any relief against him in this suit as framed. He says that the plaintiff cannot ask for a decree against defendant 2 for the amount due under the suit note Ex. B-1 because no can no longer perform the correlative obligation of assigning the said pronote to defendant 2. His only remedy is to sue defendant 2 for damages for the breach of the agreement Ex. B-1 but those damages cannot be assessed and decreed in this suit as the amount of damages will depend upon what amount the plaintiff is unable to recover in this suit from defendant 1. The plaintiff will have to recover that amount, if necessary, in a separate suit. In that view the learned Judge dismissed the second appeal.

11. The learned Advocate General who appears for the appellant contends that, upon the finding that the breach of the agreement Ex. B-1 was on the part of the defendant, the plaintiff is entitled to a decree in this suit as against defendant 2 also as surety for the principal debtor. He argues that under the terms of Ex. B-1 the only restriction imposed in respect of the concurrent liability of the surety (defendant 2) with the principal debtor, (defendant 1) is the provision for allowing three months time for repayment of the debt due under Ex. B. As regards the further provision therein that plaintiff should assign the pronote Ex. B to defendant 2 on receiving payment thereof, he argues, that it is only an express statement of what the law itself implies as enacted in Section 141 of the Contract Act, and that the breach being on the part of defendant 2 in not paying the amount when called for and taking over the pronote which the plaintiff was ready and wiling to assign, it must be held that his liability as surety accrued irrespective of any further act on the part of the plaintiff. It is further pointed out that though defendant 2 cannot have an assignment of the promissory note which was due to his own default, and a decree against him also is passed for the suit debt, he has still his rights as surety for defendant 1, which he may enforce against the latter under Section 140 of the Contract Act. Mr. T.R Ramohandra Aiyar who appears for the respondent contends on the other hand that, notwithstanding defendant 2's default, the only remedies open to the plaintiff are (1) to treat the contract (B-1) as still subsisting and to seek specific performance thereof, or (2) to put an end to that contract and claim damages for its breach.

12. As regards the first relief, he says that the plaintiff can no longer claim it because by suing defendant 1 on the pronote, the plaintiff has disabled himself from thereafter assigning it over to defendant 2. Moreover even if the plaintiff was in a position to assign the pronote hereafter, it would be of no use inasmuch as any suit on the note after such assignment would be barred by limitation. If the plaintiff wanted to enforce his remedy against defendant 2 by way of specific performance, he should have sued defendant 2 for that relief before the note be came barred by limitation. In support of that contention the learned advocate relies on the decision of their Lordships of the Privy Council in Jatindra Nath Basu v. Peyer Deye Debi. That was a suit to enforce specific performance of an agreement between the plaintiff and the defendant therein by which the defendant agreed to purchase a decree from the plaintiff for Rs. 19,000. The contract sought to be specifically enforced was made at a time when the decree was alive and could be executed. But at the time of the institution of the suit, the execution of the decree had become jarred by limitation and the decree became, in the language of their Lordships, a dead decree. Their Lordships held on that ground that the agreement was incapable of performance owing to the default on the part of the plaintiff in not keeping the decree alive, as what they have to transfer under the agreement was a decree capable of being executed and not a dead decree. That case has no application to the present. The transaction in that case was one of sale of a decree, the sole consideration for the payment 4th the price being the assignment to the purchaser of an enforceable decree. When the decree ceased to be enforceable owing to the negligence or default on the part of the vendors, the consideration for the purchase wholly failed. But the transaction in this case is of a different nature. It is based on defendant 2 standing as surety for the debt due by defendant 1. The real consideration for the transaction was the money lent to defendant 1 on the faith of the guarantee. In the absence of any express contract between the surety and the creditor, the liability of the surety will be co-extensive with that of the principal debtor. See Section 128 of the Contract Act, Here the only limitation placed upon the liability of the surety is that he cannot be Galled upon for the amount lent to the principal debtor within three months time from the date of Ex. B. As regards the assignment of the pronote on payment, I think that it expresses no more than what the law otherwise implies and that strictly it is not a condition at all. No doubt if defendant 2 tenders the money and asks for an assignment of the note, the plaintiff will be bound to comply with such request. If he does not do so, he would be in default with the effect that such default might discharge his security. That was the defence which defendant 2 put forward, but negatived and the finding is that it is he who, when called upon for payment committed the breach, the plaintiff being always willing and ready to assign the note to defendant 2. Defendant 2 as surety cannot take advantage of his own default to escape liability for the payment of the debt which he had guaranteed. To uphold the contention for the respondent that in such a case the creditor is put to election and that he has to choose whether he is to proceed against the principal debtor or the surety would be to out at the very root of the transaction of suretyship, the object of which is to provide additional security to the creditor for his debt by making the surety a co-obligor with the principal debtor. I think therefore it must be held that he is equally liable with the principal debtor for the amount claimed. The creditor can pursue his remedies concurrently against both the principal debtor and the surety and obtain a decree against both in the same suit, provided, as I find in this case, that the surety is also at the date of the suit liable for the amount due by the principal debtor. One other distinguishing circumstance between the present case and that in 43 Cal. 990 is that if the surety satisfies the decree passed against him, he has his remedy against the principal debtor in virtue of Section 140 of the Contract Act, whereas in the other case the purchaser would be getting only a dead decree and has no remedy against any other person. I respectfully think for the reasons already stated that the view taken by the learned Judge that the suit as against defendant 2 must fail as it was framed not as a suit for damages for breach of contract but as surety, is erroneous. In my opinion the defendant 2 was rightly impleaded as surety, in which capacity he joined the transaction evidenced by Exs. B and B1 and that so far as the plaintiff is concerned the terms of B-1 must be held to have been fully complied with. I would therefore allow this appeal with the result that the second appeal preferred by the plaintiff must be allowed. The decree of the lower appellate Court in so far as it dismissed the suit against defendant 2 should be set aside and the decree of the District Munsif against both the defendants must be restored. Respondent defendant 2 should pay the costs of the appeal in the lower appellate Court and also that, of the second appeal and the Letters Patent Appeal in this Court.

P.R.S/S.N

13. Decree set aside.