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SUPREME COURT OF INDIA
S. CHATTANATHA KARAYALAR
Versus
central Bank of India Limited
Decided on, March 9, 1963
SURETYSHIP - OVERDRAFT ACCOUNT - STATUS OF CO-OBLIGANT - INTERPRETATION OF DOCUMENTS - ADJUSTMENTS IN ACCOUNTS - DISCHARGE OF SURETY - REMAND FOR DETERMINATION OF ISSUE.
Fact of the Case:
The appellant, a co-obligant in a promissory note and overdraft account, challenged the High Court's finding that he was a co-obligant and not a surety. The appellant argued that the various documents executed between the parties, including the promissory note, letter of continuity, and hypothecation agreement, demonstrated his status as a surety. The respondent argued that the appellant was a co-obligant and that the provisions of the Contract Act did not apply to the case.
Finding of the Court:
The Supreme Court held that the appellant was a surety and not a co-obligant. The Court found that the documents, when read together, clearly indicated that the appellant's status was that of a surety. The Court also rejected the respondent's argument that the provisions of the Contract Act did not apply, holding that the requirements of Section 126 of the Contract Act were satisfied.
Issues: 1. Whether the appellant was a surety or a co-obligant in the overdraft account. 2. Whether the adjustments made by the respondent in the various accounts discharged the appellant from his liability as a surety.
Ratio Decidendi: 1. The Court held that the appellant was a surety and not a co-obligant based on the following factors: a) The promissory note, letter of continuity, and hypothecation agreement, when read together, clearly indicated that the appellant's status was that of a surety. b) The respondent had addressed the appellant as a "guarantor" in several letters. c) The appellant had furnished a guarantee for the loan. 2. The Court did not decide the issue of whether the adjustments made by the respondent discharged the appellant from his liability as a surety, as the High Court had failed to consider this issue. The Court remanded the case to the High Court for determination of this issue.
Final Decision: The Supreme Court allowed the appeal, set aside the judgment and decree of the High Court, and remanded the case for rehearing and redetermination by the High Court in accordance with the observations made in the judgment.
Judgment-
RAMASWAMI
( 1 ) THIS appeal by certificate is brought on behalf of the 3rd defendant against the judgment and decree of the High Court of Kerala dated 18/07/1962 in A. S. No. 561 of 1961 which affirmed the judgment and decree of the Court of the Subordinate Judge of Alleppey in O. S. No. 114 of 1957.
( 2 ) BY a resolution Ex. BD dated 25/11/1946 the Board of Directors of the 1st defendant Company authorised the 2nd defendant to obtain financial accommodation from the plaintiff-bank to the extent of Rs. 15 lakhs under different kinds of loans. Pursuant to this resolution the Company by its letter Ex. DE dated 26/11/1946 asked for accommodation for Rs. 1 lakh under clean overdraft, for Rs. 4 lakhs under open loan and for S. 10 lakhs under out agency and key loans. On 26/11/1946 all the three defendants executed a promissory note Ex. B in favour of the plaintiff-bank for a sum of Rs. 4 lakhs. The promissory note was sent to the plaintiff-bank along with a letter Ex. A styled letter of continuity dated 26/11/1946. Ex. A reads as follows :
"alleppey, 26/11/1946.
THE Agent,
THE Central Bank of India Limited, Alleppey.
DEAR Sir,
WE beg to enclose an on demand pro note p. Rs. 4,00,000/ - (Rupees Four lacs only) singed by us which is given to you as security for the repayment of any overdraft which is at present outstanding in our name and also for the repayment of any overdraft to the extent of Rs. 4,00,000 / - (Rupees four lacs only) which we may avail of hereafter and the said Pro-Note is to be a security to you for the repayment of the ultimate balance of sum remaining unpaid on the overdraft and we are to remain liable to the Pro-Note notwithstanding the fact that by payments made into the account of the over-draft from time to time the overdraft may from time to time be reduced or extinguished or even that the balance of the said accounts may be at credit.
YOURS faithfully,
FOR CASHEW Products Corporation Ltd.
FOR General Agencies Ltd. , (Respondent 2)
SD/- P. S. George
MANAGING Director,
MANAGING Agents
SD/- P. S. George,
(RESPONDENT 3)
SD / - S. Chattanatha Karayalar
( 3 ) THE first question presented for determination in this case is whether the status of the 3rd defendant in regard to the transaction of overdraft account is that of a surety or of a co-obligant. It was argued by Mr. Desai on behalf of the appellant that the High Court has misconstrued the contents of Exs. A and B in holding that the 3rd defendant has undertaken the liability as a co-obligant. It was submitted that there was an integrated transaction constituted by the various documents-Ext. A, B and G executed between the parties on the same day and the legal effect of the documents was to confer on the 3rd defendant the status of a surety and not of a co-obligant. In our opinion, the argument put forward on behalf of the appellant is well founded and must be accepted as correct. It is true that in the promissory note-Ex. B all the three defendants have "jointly and severally promised to pay the Central Bank of India Ltd. or order a sum of Rs. 4 lakhs only together with interest on such sum from this date", but the transaction between the parties is contained not merely in the promissory note-Ex. B.- but also in the the letter of continuity dated 26/11/1946-Ex. A which was sent by the defendants to the plaintiff-bank along with promissory note- Ex. B on the same date. There is another document executed by defendant No. 1/11/1946-Ex. G-Hypothecation agreement. The principle is well established that if the transaction is contained in more than one document between the same parties they must be read and interpreted together and they have the same legal effect for all purposes as if they are one document. In Manks v. Whiteley, 1912-1 Ch 735 at p. 754, Moulton, L. J. stated :
WHERE several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as are relevant to this case as if they were one deed. Each is e
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