JUDGMENT*

In this appeal the 1st defendant is the appellant. There is also a Memorandum of Cross-objections filed by the plaintiff-respondent. The suit, O.S No. 8 of 1930, in the Court of the District Judge of Ramnad, Madura, was upon a security bond in favour of the District Judge of Ramnad at Madura, registered on the 22nd February 1928. The appeal is against the decree of the trial Court making the 1st defendant liable to pay into Court the sum of Rs. 17,367-14-7. The other defendants are concerned as interested in the property charged with the payment of a sum which may become liable, on a final decree being passed, to be sold should default be made in the payment of the aforesaid sum. The decree thus is a preliminary decree for the payment of a sum of money by a certain time, and the preliminary decree will be followed by a final decree for sale of the charged property if the sum is not paid. The appellant in this appeal urges that his liability is nothing. The cross-objection is filed by the plaintiff claiming that the liability should be more than Rs. 17,367-14-7. The increase claimed in the Memorandum of cross-objections is Rs. 516-15-9 and is due to the fact that the learned trial Judge has not allowed the full Rs. 13,500 for which the security bond was given but that sum less Rs. 516-15-9, Rs. 17,367-14-7 being made up of Rs. 12,983-0-3 plus interest and costs. If the appeal succeeds the Memorandum of cross-objections fails.

The necessary history leading up to the giving of the security bond can be shortly stated. There was an O.S No. 1 of 1927 brought by seven plaintiffs against three defendants, of whom one defendant was, as a result of agreement between the parties, appointed receiver. The said one defendant was D.K Syed Ibrahim Sahib. The giver of the security bond was his brother D.K Mohammad Ehiya Sahib who was not a party to the action. The terms of the compromise were incorporated in a consent order passed on the 10th February 1928 by the High Court (that was received in the District Court, Ramnad, on the 16th February 1928) whereby it was ordered

“(1) that the 1st defendant be appointed receiver on his giving independent security to the satisfaction of the District Court of Ramnad for Rs. 13,500 within a fortnight from the date of receipt of this order by the said District Court,”

“(2) that the defendants do guarantee the payment of Rs. 13,500 every year to the plaintiffs from the date of this order till the disposal of the suit O.S No. 1 of 1927, as the income of every year.”

Then it required the defendants to pay into Court every six months Rs. 6,750.

Then it is provided that the plaintiffs when it is paid in may draw it out and credit it for interest on the amount sued for. Then in paragraph 5 it is provided, that

“if the defendants commit default in the performance of any of the above conditions, the plaintiffs do have another person appointed as receiver of the properties in the place of the first defendant aforesaid without any objection by the defendants.”

The security bond that was given is dated the 22nd February, 1928 and recites that

“The first defendant in the said suit has been appointed by a consent order of the High Court dated the 10th February 1928 to receive the rents and profits of the immovable properties of the defendants in the said suit as receiver thereof.”

The bond obliges the giver of it to secure the payment to the plaintiffs or into Court a sum of Rs. 6,750 every six months; that is, on the 1st May, 1928 and thereafter on the 1st October 1928, and thereafter on the 1st April and the 1st of September in every succeeding year till the disposal of the suit. The amount of the bond is Rs. 13,500. The amount that was thus to be paid on the 1st October 1928 was, save as to a small amount, not paid; but the plaintiffs gave time to the defendant receiver.

The first question is as to whether that giving of time absolves the surety.

Shortly after, the defendant-receiver became an insolvent. The plaintiffs did not, despite the fact that the receiver had defaulted, apply to have another person appointed as receiver, nor did they so apply when he became an insolvent. The first default was on the 1st October 1928. The insolvency was on the 14th February 1929.

The second question is whether the failure by the plaintiffs to apply to remove the receiver on default, alternatively, on his becoming an insolvent, discharges the surety.

A third question is raised. In order to understand that question it is necessary to note that on the 7th August 1929 the surety applied to have himself discharged from his suretyship for the reasons stated in the affidavit then filed Ex. II-A. It is said that this is a contract of suretyship of a continuing nature which can be determined by notice at any moment by the surety and that the application of the 7th August 1929 is such a notice. We dispose of that point shortly, following the decision in National Guarantee and Suretyship Association v. Prayag Deb Banerji, on the ground that where a bond is given to the Court the liability continues until the surety is discharged by the Court and such liability cannot be determined at any moment by the surety giving notice. In point of fact, in this case the application for discharge from the suretyship was dismissed. That leaves outstanding the first two questions.

The former of these questions requires a consideration of two cases in particular. The first is The Croydon Commercial Gas Company v. Dickinson. The other is Midland Motor Showrooms v. Newman(3). In the first case the facts were that a principal contracted to take tar from a gas company, the tar to be delivered monthly and payment to be made for each month's supply within the first fourteen days of the ensuing month unless a longer time were allowed for payment. After the expiration of the first fourteen days of a particular month the gas company took a promissory note from the principal for the amount due. That was in respect of the July amount. Default was made for July, August and September. It was held that as time had been given for the July amount the surety was not liable for the July amount but that the surety was liable for the August and September amounts. The various judgments are a little difficult to reconcile. The head-note puts the reason of the decision on the ground that the contract being separable, and the position of the sureties as to those amounts not being affected by the giving of time for payment for the amount for July, the sureties were bound for the August and September amounts. This ground for the decision is the one that was accepted as the ground of distinction in the case reported in Midland Motor Showrooms v. Newman, where the contract was for the hire-purchase of a car, the price to be paid by instalments monthly extending over a considerable number of months. In that case time was given in respect of certain arrears and a cheque on account was accepted in respect of those arrears, the motor car company stipulating that the rest of the arrears should be paid within a month; which arrears not being paid within a month, the owners took back the car under the powers conferred upon them by the hire-purchase agreement. They then assigned their rights under the agreement to the plaintiffs who claimed all the amounts due from the surety. It was held that the surety was absolved and that the agreement for payments under the agreement was one and indivisible and the defendant was entirely discharged. The Court of appeal distinguished the earlier case on the ground that the contract was separable and that in the case then under discussion the contract was, as in the case of Eyre v. Bartrop(4), indivisible. It is said on the one hand that here the obligation was indivisible, that is to say, the obligation arising out of the compromise that ended in the order appointing the receiver was a contract that was indivisible and required the receiver to receive and pay sums of Rs. 6750 every six months; on the other hand it is said that obligation is divisible into a number of separable obligations and that, if time is given in respect of one six monthly payment, that absolves the surety in regard to that six months but does not absolve him in respect of the next succeeding six months. Now one thing at least is clear in our opinion; if there is any variation in however small a particular in the original contract the performance of which the surety is securing, then the surety is absolved. This principle has been enunciated in the clearest possible terms by the Judicial Committee in Pratapsing Moholal bhai v. Keshavlal Harilal, where Lord Atkin says,

“The principle is that the surety, like any other contracting party, cannot be held bound to something for which he has not contracted. If the original parties have expressly agreed to vary the terms of the original contract, no further question arises. The original contract has gone, and unless the surety has assented to the new terms, there is nothing to which he can be bound, for the final obligation of a principal debtor will be something different from the obligation which the surety guaranteed.”

We are further of the opinion that where a security bond is given to a Court to secure the performance by a receiver appointed by the Court of the duties of that receiver, then, at least where that order appointing the receiver is a consent order made as the result of a compromise, the position is as though the parties to the compromise and consent order are in the position of contracting parties and as though the order appointing the receiver were expressing the terms of that contract. If therefore at a later stage those persons vary the terms of that contract, the surety will be discharged unless of course he be a consenting party to the variation.

Now in this case either that contract was whole and indivisible or it was not. If it was not, it is as though it can be divided up into a number of separate contracts whereby the receiver undertakes to receive and pay under each separate contract a particular sum at a particular time. If the former is the true view, then it appears to us that the case in Midland Motor Showrooms v. Newman is applicable, and the giving of time entirely absolves the surety; if the latter, then the case in The Croydon Commercial Gas Company v. Dickinson, is applicable, and the giving of time, as the learned trial judge held, does not discharge the surety save in respect of the sum due and for which time was given. But this latter position is only arrived at on the assumption that the receiver in effect agreed to receive and pay in April 1929 by a contract separate from the contract whereby he agreed to receive and pay in the October of 1928. In the latter case it is desirable to refer to the case of Watts v. Shuttleworth. There, H agreed with W to complete certain fittings for a warehouse for £ 3450, payment to be made by instalments. The contract which was between H and W contained the stipulation that W “shall and may insure the fittings from risk by fire,” the cost to be deducted from the contract price. The surety guaranteed the performance by H of his part of the bargain. He had notice of the terms of that contract. Substantial advances of money were made during the progress of the work and when the fittings supplied amounted to the value of £ 2300 the whole was destroyed by fire. W had not insured. It was held that W was bound to insure. He had not done so. The result was that the surety was liable for an uninsured instead of for an insured principal and therefore he was discharged. It will be noted that the surety was not a party to the contract between W and H and that he merely had notice of it. Now in this case we are of the opinion that the plaintiffs by the compromise undertook on default to apply to discharge the receiver, and the defendants undertook on such application being made not to resist the application. That contractor compromise was not merely between the plaintiffs and the receiver but between the plaintiffs and the defendants, and the defendants guaranteed the performance by the receiver. The learned trial Judge has taken the view that the critical clause “the plaintiffs do have another person appointed” is not a clause imposing any obligation upon the plaintiffs but is one made solely for the benefit of the plaintiffs; but, with respect, we are unable to agree with this view. It was important not only to the surety but also to the guaranteeing two defendants that the defaulting receiver should not be left in the position to receive these rents.

The surety was given notice of that term, for the consent order was referred to in the recital to the security bond. So far the matter seems to be on all fours with the case in the Exchequer Chamber reported in Watts v. Shuttleworth already cited. In that case the result was that for an insured was substituted an uninsured principal. In this case the result was the substitution for a non-defaulting of a defaulting receiver. That appears to us to be a material variation in the contract. Or if the contract is not to be regarded as whole and entire but divisible into a number of contracts, it appears to substantially change the contract relating to the position of the party in 1929. On either view it seems to us the surety is discharged. In this view it is not necessary to consider the further ground as to whether the principal creditors were not obliged on the insolvency of the receiver at least to take steps to have him removed. But it does strengthen the view that there is an important difference between securing the performance by a non-defaulting receiver in May of 1928 and the securing (on the assumption that we are dealing with separate contracts) the performance by a defaulting and insolvent receiver in the April of 1929. If one asks oneself, would the surety have signed this surety bond on the 1st of April 1929 had he known that what he was securing was the performance by this receiver of his obligations to receive and pay with knowledge that the receiver was (1) a defaulter in respect of past payments and (2) an insolvent, one can hardly doubt that he would not have become a surety. It is urged that the fact that the surety has given a bond for Rs. 13,500 shows that he was liable even though the receiver had defaulted and had not been removed; but this, in our opinion, is not so. Immediately the receiver defaults, by necessity Rs. 6,750 has become due and he has entered upon his second half-year term of office. Assuming that the plaintiffs take immediate steps to remove him from his receivership, he will still have become a receiver in respect of the rents and profits due for a second six months and it might well be that before he is removed and a new receiver appointed a second Rs. 6,750 will have become due and in such circumstances the surety will be liable for the whole Rs. 13,500. We add that there is in our opinion an additional reason for discharging the surety in this case which in our opinion comes within Phillips v. Foxall rather than within Mayor Etc. of Durhan v. Fowler. This is a case of person having power to apply to the Court for the discharge of a receiver, the only persons having power to oppose binding themselves not to oppose if such receiver should appear to be a defaulter. The performance of that receiver's duties is the thing assured. Phillips v. Foxall decided that where what is assured is the integrity of a servant, and the employer knowing that the servant is dishonest elects instead of, as he could, dismissing him to retain him in his service, the surety is discharged. It is true there is a difference between the two cases. That would be perhaps a vital difference in an ordinary case of receivership where the removal of the receiver might be matter of contest; but where, as here, the plaintiffs, though through the hand of the Court, were empowered by the consent order to substitute another receiver by mere application which could not be in contest, we see little difference in principle between the position of the plaintiffs in O.S No. 1 of 1927 and the employer of a dishonest servant. The plaintiffs could have removed the receiver; the employer can remove the dishonest servant.

In view of the conclusion above arrived at the question raised by the memorandum of cross objections does not arise. We are, however, of the opinion that the learned trial Judge was clearly right in the conclusion he came to as to quantum assuming the surety was liable at all.

Appeal allowed with costs throughout. Memo of cross objections dismissed.

Appeal allowed.

N.R.R