1940 (3) TMI 9 - HC - Indian Laws

Summary

Issues Involved:
1. Nature of the contract: guarantee or indemnity.
2. Liability of the plaintiff for defaults by clients introduced.
3. Effect of compromises made by the defendant with clients without the plaintiff's consent.

Detailed Analysis:

1. Nature of the Contract: Guarantee or Indemnity
The primary issue was whether the contract, exhibit A, was a contract of guarantee or indemnity. The court analyzed the definitions under the Indian Contract Act, Section 124 (indemnity) and Section 126 (guarantee). The court concluded that exhibit A was a contract of indemnity. The reasoning was that the plaintiff, as a sub-broker, was interested in the subject matter of the contract because he received substantial payments under it. This interest made the contract one of indemnity rather than guarantee. The court referenced English cases, Harburg India Rubber Comb Company v. Martin and Montagu Stanley & Co. v. J. C. Solomon, Ltd., which supported this view. Additionally, the court noted that a contract of guarantee involves three parties-the creditor, the surety, and the principal debtor-and such a structure was not present in this case.

2. Liability of the Plaintiff for Defaults by Clients Introduced
The plaintiff was initially liable for defaults by clients he introduced, as per the terms of exhibit A. However, exhibit B modified this arrangement. The plaintiff agreed to pay a specified sum of Rs. 16,176, which was due from certain clients, and this amount was to be debited to his account. The court held that exhibit B was a contract to pay an agreed sum and not a contract of guarantee or indemnity. Therefore, the plaintiff was liable for the entire amount mentioned in exhibit B, regardless of the nature of the original contract.

3. Effect of Compromises Made by the Defendant with Clients Without the Plaintiff's Consent
The defendant compromised the amounts due from three of the six clients without the plaintiff's consent. The plaintiff argued that as a guarantor, he was discharged from his obligation due to these compromises. However, the court found that since the contract was one of indemnity, this argument did not hold. Moreover, under exhibit B, the plaintiff had agreed to pay a fixed sum, and the defendant was entitled to realize amounts from the clients in the ordinary course of business. There was no evidence of collusion or imprudent conduct by the defendant in arranging the compromises.

The court also noted that under Section 135 of the Indian Contract Act, the defendant was entitled to compromise the claims. The plaintiff could challenge the compromise only if he could show that he had suffered a loss due to it, which he failed to do.

Conclusion:
The court concluded that the plaintiff was liable to pay the amount specified in exhibit B, less any amounts already realized by the defendant from the clients. The plaintiff's contention that the compromises discharged his liability was rejected. The court ordered that the defendant was entitled to recover the amounts shown in exhibit B against the names of specific clients, less any amounts actually realized. The respondent was ordered to pay the costs of the appeal.