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1934 Supreme(SC) 54
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ATKIN, LORD ALNESS, AND SIR SHADI LAL.
PRATAPSING MOHOLALBHAI - Appellant
Versus
KESHAVLAL HARILAL SETALWAD (DEFENDANTS) - Respondents
On Appeal from the High Court at Bombay.
Decided On : Nov. 27. 1934.
Solicitors for appellants :Hy. S. L. Polak & Co. Solicitors for respondents: T. L. Wilson & Co.
A surety is bound strictly to the terms of their engagement. If the actual performance of the contract between the creditor and principal debtor differs from the specific contract guaranteed, the surety is discharged, as they cannot be held liable for an obligation they did not contract to guarantee.
Headnote:(A) Indian Contract Act, 1872 - Sections 128, 133, 141 - Liability of surety - Discharge of surety due to variance in performance - A surety is bound strictly to the letter of his engagement; if the performance of the original contract is altered such that the final obligation of the principal debtor differs from the obligation guaranteed, the surety is discharged.
(B) Indian Registration Act, 1908 - Sections 17(b) and 49 - Admissibility of unregistered documents - A document that releases a charge upon immovable property falls within the scope of mandatory registration and is inadmissible in evidence if unregistered.
(C) Indian Evidence Act, 1872 - Sections 91 and 92 - Exclusion of oral evidence - Where a document is inadmissible due to lack of registration, secondary evidence or oral evidence cannot be used to prove the contents of that document for the express purpose of showing the release of a charge.
Facts of the case:
A suit was brought on a surety bond guaranteeing a loan to be advanced on the security of a consolidation mortgage over four properties. The agreement provided that the loan would be used to redeem the four properties. However, only three properties were redeemed, and a smaller amount was advanced than originally agreed. The creditors assented to the debtor selling the fourth property to a third party, thereby extinguishing the security for that property.
Findings of Court:
The court found that the unregistered document intended to vary the mortgage terms was inadmissible as it released a charge on immovable property. However, it was established that the transaction actually carried out was not the one guaranteed by the sureties.
Issues: Whether the sureties are discharged when the actual performance of the contract between the creditor and the principal debtor differs from the specific contract guaranteed, and whether an unregistered document releasing a charge on property is admissible.
Ratio Decidendi: The court held that a surety is bound only to the proper meaning and effect of the written engagement entered into. If the performance is altered such that the guaranteed performance becomes impossible or the obligation changes, the surety is discharged. The promisee must show performance of the specific contract guaranteed before the surety can be held liable. While the liability of the surety is co-extensive with that of the principal debtor under Section 128, this only extends to the liability on the contract actually guaranteed and not to a different obligation.
Result: Appeal dismissed.
Legal Category Hierarchy
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contract law
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guarantee and indemnity
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discharge of surety
- material alteration of performance
- variance in contract terms
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discharge of surety
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guarantee and indemnity
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practice and procedure
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evidence
- admissibility of unregistered documents
- registration act
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evidence
Judgement
Appeal (No. 30 of 1933) from a decree of the High Court (September 17, 1931) reversing a decree of the Subordinate Judge at Ahmedabad (February 12, 1926).
The appellants instituted a suit against the respondents claiming under a bond dated October 24, 1921, by which the respondents guaranteed to the appellants repayment by Krishnalal Narsinhlal of a loan of Rs. 1,25,000. The defence material to the present appeal was that there had been, without the consent of the respondents, an alteration in the transaction intended between the appellants and Krishnalal Narsinhlal, and set out in a registered deed of mortgage dated October 17, 1921, in relation to which the surety bond had been given.
The facts appear fully from the judgment of the Judicial Committee.
The High Court, reversing the trial judge, dismissed the suit. Nanavati J. held that there was admissible evidence which proved that the transaction actually carried out between the plaintiffs and Krishnalal Narsinhlal was not that of October 17, 1921. In his opinion the case was not covered by the provisions of the Indian Contract Act, and that being so, the Court was bound to follow the principles of the common law. It was well established by authorities that a variation of the kind proved released the sureties. Baker J. by a separate judgment came to the same conclusion. The appeal is reported at I. L.
R. 56 B. 101.
Chapter VII of the Indian Contract Act, 1872, which deals with contracts of indemnity and guarantee, contains the following among other sections —
Sect. 128 " The liability of the surety is co-extensive with that of the principal debtor, unless it is otherwise provided by the contract."
Sect. 133 " Any variance, made without the suretys consent, in the terms of the contract between the principal and the creditor, discharges the surety as to transactions subsequent to the variance.” Five illustrations follow.
Sect. 141 " A surety is entitled to the benefit of every security which the creditor has against the principal debtor at the time when the contract of suretyship is entered into, whether the surety knows of the existence of such security or not; and, if the creditor loses or, without the consent of the surety, parts with such security, the surety is discharged to the extent of the value of the security." Three illustrations follow.
1934. Oct. 29, 30 Nov. 1, 2. Jinnah for the appellants. There was no admissible evidence of a variation of the contract of October 17, 1921, between the appellants and the principal debtor. The document of May 14, 1922, was inadmissible as it was not registered Indian Registration Act, 1908, s. 17, sub-s. 1 (b), and s. 49. It was tendered to prove that a right, namely the security upon the fourth property, had been extinguished, not for a collateral purpose so as to be admissible although unregistered. The evidence other than the document was inadmissible under ss. 91 and 92 of the Indian Evidence Act, 1872. Even if the variation alleged was proved the respondents were not thereby released from liability under their guarantee. By s. 133 of the Indian Contract Act, 1872, a variance of the contract without the respondents consent discharged them only as to transactions subsequent to the variance, but here the advances in respect of which the guarantee was sought to be enforced were made before the variance. The section is not confined to continuing guarantees referred to in s. 129 ; that appears from illustration (e). The English decisions with regard to the liability of a surety cannot be applied; it cannot be assumed that the Indian legislature intended to adopt the law in England without alteration Ramdas Vithaldas v. 5. Amerchand & Co. (( 1916) L. R. 43 I. A. 164, 170.), followed in Official Assignee of Madras v. Mercantile Bank of India, Ld. (( 1934) L. R. 61 I. A. 416.) It is conceded that, as was held in Irrawaddy Flotilla Co., Ld. v. Bugwandass (( 1891) L. R. 18 I. A. 121.) and Jwaladutt Pillani v. Bansilal Motilal
