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TMI Blog1968 (4) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of all securities, either by public auction or by private contract and to apply the net proceeds of such sale towards the liquidation of the debt. It was also agreed that if any balance was still left the Bank shall be at liberty to apply any other money in the hands of the Bank standing to the credit of the said res- pondents towards repayment of the debt. The agreement between the Bank and the said respondents is Ex. P 1. By cl. 2 of the document the borrowers agreed not to pledge or encumber the security nor permit any act whereby the security hereinbefore expressed to be given to the bank shall be in any way prejudicially affected. Clause 3 provided as follows : "That the Borrowers shall with the consent of the be at liberty from time to time to withdraw any of the goods for the time being pledged to the Bank and forming part of the Securities the subject of this Agreement provided the advance value of the said goods is paid into the said account or goods of a similar nature and of at least equal value, are substituted for the goods so withdrawn. Provided always that with the previous consent of the Bank the Borrowers shall be at liberty to withdraw any of the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect the stipulated margin, the Borrowers undertake to make up the deficit on demand and to reimburse the Bank for all losses, damages or expenses incurred by the Bank on that account." On March 7, 1956, the appellant executed Ex. P-4, the letter of guarantee in favour of the Bank, guaranteeing the liability of the borrowers in respect of the cash credit account up to a limit of ₹ 1,00,000 and in respect of liability under bills discounted up to a limit of ₹ 45,000. Clause 5 of the letter of guarantee reads as follows : "To the intent that you may obtain satisfaction of the whole of your claim against the customer, I agree that you may enforce and -recover upon this guarantee the full amount hereby guaranteed and interest thereon notwithstanding any such proof or composition as aforesaid, and notwithstanding any other guarantee, security or remedy, guarantees, securities or remedies, which you may hold or be entitled to in respect of the sum intended to be hereby secured or any part thereof, and notwithstanding any charges or interest which may be debited in your account current with the customer, or in any other account upon which he may be liable." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in the terms of the contract between the principal debtor (s) and the creditor, discharges the surety as to transactions subsequent to the variance". It was pointed out that the maximum limit of ₹ 1,00,000 allowed as credit in Ex. P-1 was reduced to ₹ 50,000 and that it was again raised to ₹ 1,00,000 subsequently without consulting the appellant. The only evidence in support of this contention is certain entries in the pages of accounts maintained by the Bank of the "limit" as ₹ 50,000. It was also pointed out that the appellant had withdrawn ₹ 5,000 out of ₹ 10,000 deposited by him with the Bank towards security for advances to the firm. But there is no written agreement between respondent no. 1 Bank on the one side and the respondent-firm on the other side reducing the limit of cash credit accommodation under Ex. P-1. In view of the formal record in the agreements, Ex. P-1 and Ex. P-4 it is difficult to hold that the variation of the terms would have been made without any written record. The High Court has taken the view that the entry in the books of account of the Bank might well be a private instruction to the Cashier that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue, the principal debtor discharges the surety, unless the surety assents to such contract." In our opinion, there is no warrant for the argument of the appellant. It is manifest that the act of giving time to the borrowers to make up the quantity of the goods found to be short on weighment by the Bank cannot be considered to be a "promise to give time" to the borrowers as contemplated by s. 135 of the Indian Contract Act. In this connection reference should be made to cl. 9 of Ex. P-1 which provides that the borrowers shall be responsible for the quantity and quality of goods pledged and also for the correctness of the statements and returns furnished to the Bank from time to time. It is stated in Ex. P-1 that the borrowers have, declared and agreed that the goods pledged with the Bank have not been actually weighed or valued in order to verify the quantity and quality of the goods pledged. It is in the light of these clauses of the agreement that the act of giving time to the principal debtor has to be considered. The act of the B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;there was a possibility of defendants 1 to 5 taking away the goods". On behalf of the respondent Bank reference was made to cl. 5 of Ex. P-4 which has already been quoted. It was contended that on account of this clause in Ex. P-4 the appellant has opted out of the benefit of s. 141 of the Indian Contract Act. We are unable to accept the argument put forward by the Attorney-General on behalf of the respondent Bank. In our opinion, the expression "any security" in cl. 5 of Ex. P-4 should be properly construed as "any security other than the pledge of goods mentioned in the primary agreement, Ex. P-1 between the Bank and the firm." We consider that there is nothing in cl. 5 of Ex. P- 4 to indicate that the appellant is not entitled to invoke the provisions of S. 141 of the Indian Contract Act. In this connection it is necessary to consider the provisions of s. 140 of the Indian Contract Act, 1872 which states "Where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for is invested with all the rights which the creditor had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the security lost or parted with. In Wulff and Billing v. Jay(L. R. (1872) 7 Q. B. 756) Hannen, J. stated the law as follows : I take it to be established that the defendant became surety upon the faith of there being some real and substantial security pledged, as well as his own credit, to the plaintiff; and he was entitled, therefore, to the benefit of that real and substantial security in the event of his being called on to fulfil his duty as a surety, and to pay the debt for which he had so become surety. He will, however, be discharged from his liability as surety if the creditors have put it out of their power to hand over to the surety the means of recouping, himself by the security given by the principal. That doctrine is very clearly expressed in the notes in Rees v. Barrington-2 White & Tudor's L.C., 4th Edn. at p. 1002--As a surety, on payment of the debt, is entitled to all the securities of the creditor, whether he is aware of their existence or not, even though they were given after the contract of suretyship, if the creditor who has had, or ought to have had, them in his full possession or power, loses them or permits them to get into the possession of the deb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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