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Issues Involved:
1. Status of the 3rd defendant: Surety or co-obligant. 2. Discharge of liability by the 3rd defendant due to the conduct of the plaintiff-bank. 3. Basis of the suit: Promissory note or overdraft account. Detailed Analysis: 1. Status of the 3rd Defendant: Surety or Co-obligant The primary issue was whether the 3rd defendant was a surety or a co-obligant in the transaction of the overdraft account. The High Court had held that the 3rd defendant was a co-obligant. However, the Supreme Court disagreed, stating that the High Court misconstrued the contents of Exhibits A and B. The Supreme Court emphasized that the transaction was an integrated one, constituted by Exhibits A, B, and G, which were executed on the same day. The principle established is that if a transaction is contained in more than one document between the same parties, they must be read together and have the same legal effect as if they were one document. The Court noted that Exhibit A, the letter of continuity, clearly stated that the promissory note (Exhibit B) was given as security for the repayment of the overdraft. Furthermore, the hypothecation agreement (Exhibit G) also supported this interpretation. The Court concluded that the 3rd defendant's status was that of a surety and not a co-obligant. This conclusion was further supported by various letters (Exhibits AF, AM, CE, CG, AS, V, IV, and O) where the 3rd defendant was referred to as a "guarantor." 2. Discharge of Liability by the 3rd Defendant Due to the Conduct of the Plaintiff-Bank The 3rd defendant argued that he was discharged from liability as a surety due to the plaintiff-bank's conduct, which allegedly violated the terms of the agreement (Exhibit G). It was claimed that the plaintiff-bank made adjustments in the open loan account and the clean overdraft account without the consent of the 3rd defendant, granted loans against goods covered by the open loan agreement, and converted secured loans into simple loans by releasing goods covered by Bills of Lading against trust receipts. The Supreme Court noted that this issue was a mixed question of law and fact and criticized the High Court for not properly addressing it. The case was remanded to the High Court of Kerala to determine whether the 3rd defendant was discharged from liability due to the plaintiff-bank's conduct. 3. Basis of the Suit: Promissory Note or Overdraft Account The plaintiff-bank's suit was based on the balance due on the overdraft account and not on the promissory note (Exhibit B). The Supreme Court found no substance in the argument that the suit was based on the promissory note. The Court examined the plaint and noted that there was no mention of the promissory note dated December 21, 1949, except as security for the repayment of the overdraft balance. The notices sent by the plaintiff-bank (Exhibits O and L) also referred to the open loan accounts and not to the promissory note. Thus, the suit was based on the overdraft account, and the 3rd defendant was liable for the balance due on it. Conclusion: The Supreme Court allowed the appeal, set aside the judgment and decree of the High Court of Kerala, and remanded the case for rehearing and redetermination in light of the Supreme Court's observations. The parties were ordered to bear their own costs up to that stage.
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