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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 CONSIDERATION OF ISSUES.
Fact of the Case:
The plaintiff-bank sued the defendants, including the appellant, for the balance due on an overdraft account. The appellant claimed that he was a surety and not a co-obligant, and that he had been discharged from his liability by reason of the plaintiff-bank's alleged conduct in violating the terms of the agreement or by its fraudulent or negligent conduct in other ways.
Finding of the Court:
The court held that the appellant was a surety and not a co-obligant, and that the plaintiff-bank had not established that the appellant had been discharged from his liability.
Issues: 1. Whether the appellant was a surety or a co-obligant. 2. Whether the appellant had been discharged from his liability by reason of the plaintiff-bank's alleged conduct.
Ratio Decidendi: 1. The court held that the appellant was a surety and not a co-obligant based on the interpretation of the documents executed between the parties, including the promissory note, the letter of continuity, and the hypothecation agreement. The court found that the appellant had undertaken the liability as a surety and not as a co-obligant. 2. The court held that the plaintiff-bank had not established that the appellant had been discharged from his liability. The court noted that the appellant had alleged that the plaintiff-bank had made adjustments in the open loan account and in the clean overdraft account with the 1st defendant by debiting and correspondingly crediting in other accounts without the consent of the appellant. The court also noted that the appellant had alleged that the plaintiff-bank had granted loans to the 1st defendant against goods covered by open loan agreement and that it had converted secured loans into simple loans by releasing goods covered by the Bills of Lading against trust receipts. However, the court found that the High Court had not properly dealt with this issue and had not given a finding on whether the appellant would be discharged from the liability as a surety for the overdraft account because of the alleged conduct of the plaintiff-bank.
Final Decision: The court allowed the appeal, set aside the judgment and decree of the High Court, and remanded the case for being reheard and redetermined by the High Court in accordance with the observations made in the judgment.
Judgment
RAMASWAMI, J.
( 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. Georgemanaging Director,managing Agentssd/- 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
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