1939 (9) TMI 10 - HC - Indian Laws

Summary

Issues:
Interpretation of promissory notes as guarantee or indemnity, Liability of defendant No. 2, Nature of contract under promissory notes, Premature claim against defendant No. 2, Validity of consideration in the agreement.

Analysis:
1. The case involved a dispute where the plaintiffs sought to recover Rs. 8,000 from defendant No. 1 through a mortgage decree and, if a deficit remained, proceed against defendant No. 2's estate. The trial court interpreted promissory notes as creating liability for defendant No. 2 and passed a mortgage decree. The legal representatives of defendant No. 2 appealed against this decision.

2. The court analyzed whether the promissory notes constituted a contract of guarantee or indemnity. The distinction lies in a guarantee being conditional on the default of the principal debtor, while indemnity is to save the promisee from loss. The court held the contract to be one of indemnity based on the wording of the promissory notes.

3. The promissory notes indicated defendant No. 2's promise to pay Rs. 5,000 with future interest, not specifically guaranteeing defendant No. 1's debt. The plaintiffs' claim against defendant No. 2 was based on indemnity for any loss caused by his actions, not as a surety for defendant No. 1.

4. The court found the claim against defendant No. 2 to be premature as the cause of action under indemnity arises when actual loss is suffered. The plaintiffs could only sue for the deficit amount once it occurred, not in anticipation.

5. Lastly, the court addressed the validity of consideration in the agreement. The plaintiffs argued that their acceptance of the mortgage transaction without consent constituted consideration for defendant No. 2's indemnity agreement. However, the court did not conclusively decide on the validity of this consideration.

6. In conclusion, the court allowed the appeal, deleting the order against defendant No. 2 and dismissing the suit against him and his legal representatives. The plaintiffs were ordered to bear the costs in both courts.