- Bookmark
- Share
- CaseIQ
Charu Chandra Bandopadhaya v. L. Faithful
Factual and Procedural Background
Defendants 1 and 2 borrowed a sum of money from the plaintiff via a registered promissory note payable on demand. Defendants 3 and 4, in a letter to the plaintiff, agreed to be fully liable for the borrowed sum and the monthly interest payments, effectively acting as sureties for the loan. The suit was instituted more than three years after the date of this letter. The lower Court overruled the plea of limitation raised by defendants 3 and 4 and decreed the suit against all defendants. The present Rule was issued under Section 25 of the Small Cause Courts Act by defendants 3 and 4 to challenge the correctness of the limitation decision.
Legal Issues Presented
- Whether the suit against the sureties (defendants 3 and 4) is barred by the law of limitation.
- The applicability of the Limitation Act articles to the liability of sureties under a promissory note payable on demand.
- Whether the contract of guarantee between the sureties and the plaintiff creates simultaneous liability with the principal debtor or arises separately.
Arguments of the Parties
Plaintiff's Arguments
- The plaintiff argued that since the contract between the debtor and creditor was in writing and registered, and the sureties had made themselves responsible for the due performance of that contract, Article 116 of the Limitation Act applies to the sureties' liability.
- The plaintiff relied on various precedents to support the contention that a written contract signed by one party can be enforced against another and that limitation should be governed accordingly.
Defendants 3 and 4's Arguments
- The defendants contended that the liability of the sureties arose simultaneously with the principal debtor's liability at the time of the advance, making the suit barred under Article 115 of the Limitation Act.
- They relied on the principle that the liability of sureties depends on the terms of the guarantee contract and that in this case, limitation began when the debt was created.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sreenath Roy v. Peary Mohan | Promissory note payable on demand constitutes a present debt; surety's liability arises simultaneously with principal debtor. | Held that the suit against sureties is barred by limitation under Article 115 as their liability arose with the advance. |
| Ambalavana Pandaram v. Vaguran | Enforcement of contracts signed by one party against another. | Distinguished as irrelevant to the present case involving distinct contracts for principal and sureties. |
| Sheshachala Naickar v. Varada Chariar | Similar principle to Ambalavana Pandaram on contract enforcement. | Not applicable to the issue of limitation for sureties' liability here. |
| Panehanan Das (Girish Chandra Das) v. Kunja Behari Malo | Contract enforcement principles involving third-party beneficiaries. | Held irrelevant to the question of limitation for sureties in this case. |
| Deb Narain Dutt v. Ramsadhan Mandal | Contract enforcement involving third parties. | Not applicable to the distinct liability and limitation question here. |
| Challaphroo v. Banga Behary Sen | Contractual obligations and third-party rights. | Distinguished from the present case on limitation grounds. |
| Khwaja Muhammad Khan v. Husaini Begum | Equity enforcement of contracts for third-party benefit. | Not relevant to the limitation issue of sureties' liability here. |
| Brojendro Kissore Roy v. Hindustan Co-operative Insurance Society | Distinction between principal and surety liabilities and limitation under Contract Act Section 128. | Applied to hold surety's liability distinct and limitation applies separately, favoring defendants. |
Court's Reasoning and Analysis
The Court examined the nature of the contracts involved, noting that defendants 3 and 4 acted as sureties under a letter agreeing to be fully liable for the debt and interest. The Court emphasized that the liability of sureties depends on the terms of their contract and that, in this case, their liability arose simultaneously with the principal debtor’s liability at the time the advance was made. The Court referred to the precedent in Sreenath Roy v. Peary Mohan, which held that a promissory note payable on demand constitutes a present debt and that the surety’s liability arises simultaneously. The Court rejected the plaintiff’s contention that Article 116 of the Limitation Act applies, clarifying that the limitation period for the sureties runs from the date they became liable, not from the date of the principal contract.
Further, the Court relied on the authority of Brojendro Kissore Roy v. Hindustan Co-operative Insurance Society to affirm that the liabilities of the principal and surety, though arising from the same transaction, are distinct and governed separately for limitation purposes. The Court held that the suit against the sureties was barred under Article 115 of the Limitation Act and that the lower Court erred in overruling the limitation plea.
Holding and Implications
The Court made the Rule absolute and set aside the decree of the Subordinate Judge insofar as defendants 3 and 4 were concerned, dismissing the suit against them with costs. The petitioners (defendants 3 and 4) were entitled to their costs, and a hearing fee was assessed.
Holding: The suit against the sureties (defendants 3 and 4) is barred by limitation under Article 115 of the Limitation Act, and the decree against them is set aside.
Implications: The decision directly affects the parties by relieving the sureties from liability due to limitation. The Court clarified the principle that the limitation period applicable to sureties depends on their own contract and arises simultaneously with the principal debt when the contract so provides. No new precedent was established beyond affirming existing legal principles.
1. In this case defendants 1 and 2 borrowed a certain sum from the plaintiff on a registered promissory note payable on demand Defendants 3 and 4 in a letter addressed to the plaintiff agreed as follows:
“My brother Shib Chandra Bandopadhaya is for his own necessities, borrowing from you Rs. 150. There is no objection to your paying, him the money and we make ourselves fully liable for it. On that account you need have no-anxiety. He will pay your interest month by month. As to that there will be no excuse or objection.”
2. The suit was instituted more than three years from the date of this letter. The lower Court overruled the plea of limitation raised by defendants 3 and 4 and decreed that suit against all the defendants.
3. The present Rule was issued under Section 25 of the Small Cause Courts Act, at the instance of defendants 3 and 4, and the only question for our consideration is whether the decision on the question of limitation is correct. I feel very little difficulty in holding that the suit against the sureties is barred. In the case of Sreenath Roy v. Peary Mohan (1) it was held that a promissory note payable on, demand is a present debt payable without any demand and that the liability of the surety in such cases arises simultaneously with that of the debtor, i.e with the making of the advance. The liability of a surety does not necessarily in all cases arise simultaneously with that of the principal. It often happens that the remedy against the principal is barred when the liability of the surety arises. The question depends on the terms of the contract of guarantee by which the surety has bound himself. In this case, having regard to that, the liability of the sureties arose simultaneously with the making of the advance and as such the suit against them is barrel under Article 115, Lim. Act. It has however been argued that the contract between the debtor and the creditor being in writing registered and the sureties having rendered themselves responsible for the due performance of that contract, the article of the Limitation Act applicable even against the sureties, is Article 116.
4. In support of his contention the learned Vakil for the plaintiff who has appeared to show cause has relied on Ambalavana Pandaram v. Vaguran (2), Sreenath Roy v. Peary Mohan , Sheshachala Naickar v. Varada Chariar (3), Panehanan Das (Girish Chandra Das) v. Kunja Behari Malo (4), Deb Narain Dutt v. Ramsadhan Mandal (5) and Challaphroo v. Banga Behary Sen (6). These are either cases in which it has been held that when a person has entered into a contract with another and that contract is reduced into writing and signed by one of the parties alone the person who has not signed may sue on that contract or be sued on it, or cases in which, following the decision of their Lordships of the Judicial Committee in Khwaja Muhammad Khan v. Husaini Begum (7), it has been held that where there is a contract between two persons for the benefit of a third party, the person for whose benefit the contract is entered into, though no party to it, may proceed in equity to enforce it. In all such cases the question of limitation will no doubt depend on the nature of the contract sued upon. These cases to my mind do not touch the present question. Here there are two contracts by two different parties and the liability of each can only arise upon his own contract. I am not aware of any other principle that can be applied to such cases. In Sreenath Roy v. Peary Mohan the question was whether the limitation to enforce the contract of guarantee in that case was governed by Article 65 or Article 115, and the Court held that the case was governed by the latter article. That decision does not help the plaintiff, and in so far as the decision on the question of limitation was based not on a consideration of the nature of the contract entered into by the plaintiff debtor, but of the contract entered into by the surety, it is against the plaintiff. In De Colyar's Law of Guarantees, Edn. 3, p. 462, on the authority of reported English decisions, the law is thus:
“In the case of a guarantee not under seal after six years have elapsed from the period at which the surety first became liable to make payment to the creditor, the right of the creditor to compel him to do so will be barred by 21 Jac. II c. 16, s. 3. If however the guarantee be under seal the creditor's rights against the surety will not be barred until the expiration of twenty years.”
5. This shows clearly that limitation in such cases depends on the sureties' own contract. The case of Brojendro Kissore Roy v. Hindustan Co-operative Insurance Society (8) clearly lays down that the liabilities of the principal and the surety, though arising under the same transaction, are distinct and that Section 128 of the Contract Act, only defines the measure of liability and has no reference to the extinction of the liability by the operation of the Statute of Limitation. This is a direct authority in favour of the defendants, the petitioners before us. I would therefore make the Rule absolute and set aside the decree of the learned Subordinate Judge in so far as the defendants 3 and 4 are concerned and dismiss the suit against them with costs. The petitioners are entitled to their costs in this Rule. We assess the hearing-fee at one gold mohur.
V.B/R.K
6. Rule made absolute.
Alert