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Kanisetti Audilaxamana Rao Vs. Attipalli Raghurami Reddi (Died), Attipalil Mallareddi and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtAndhra Pradesh High Court
Decided On
Case NumberSecond Appeal No. 538 of 1963
Judge
Reported inAIR1970AP158
ActsIndian Contract Act, 1872 - Sections 127; Hindu Law
AppellantKanisetti Audilaxamana Rao
RespondentAttipalli Raghurami Reddi (Died), Attipalil Mallareddi and ors.
Appellant AdvocateY.G. Krishana Murty, Adv.
Respondent AdvocateV. Venkataramanaiah, Adv.
Excerpt:
.....10th defendant. as a result of the arrangement on 22-3-1954, the creditor obtained a promissory note of the debtors as well as the letter guarantee. it was clearly found that the letter and promissory note were parts of the same transaction. the circumstances of the case point to the strong probability of the truth of the case of the defendants 1 to 5. they pleaded that the creditor's forbearance was the quid pro quo for the guarantee. granting this criticism to be well founded we have, even on our own appraisal of the evidence, no hesitation in finding that time was in fact given by the creditor. the request of the guarantor is clearly implied to the delivery of the guarantee letter and the acceptance thereof by the creditor. in that case, the question is whether, if the guarantor..........his brothers and that the properties of the family are to be partitioned on the footing that the decree debt does not bind the junior coparceners. the decree debt has devolved on the defendants 1 to 5 after the death of the original decree-holder, and in enforcement of the decree, they had an item of the property sold.5. as generally happens in suit of this description, the father chose to remain absent and took no part in the proceedings. the brothers of the plaintiff (defendants 7 to 9) supported him. the defendants 1 to 5 resisted the suit and pleaded that the 10th defendant guaranteed the repayment of a debt due by one venkatasubbaya and his son. a letter of guarantee dated 22-3-1954 was executed by the 10th defendant and another person. the principal debtors wanted time for.....
Judgment:

Parthasarathi, J.

1. A question having arisen whether the decision in lakhsmadu v. Ramudu, ILR (1940) Mad 123 = (AIR 1939 Mad 867), requires reconsideration, this Second Appeal, which was heard in the first instance by one of us (Parthasarathi J) was referred to a Division Bench consisting of Venkatesam and Kondayya, JJ. they shared the view that the above-mentioned decision requires to be re-examined as it is inconsistent with the decision of a Full bench in Perisasami Mudaliar v. Seetharama Chettiar, (1904) ILR 27 Mad 243. Accordingly, the entire case was refered by them for consideration by a Full Bench.

2. In addition to the question specifically dealt with in the order of reference. Other matters were also argued before the Division Bench, as also at the earlier stage. On an examination of the position, we have come to the conclusion that this appeal has to be decided on a ground which renders it unnecessary to consider whether the authority in ILR (1940) Mad 123 = (AIR 1939 Mad correct principle of law. The facts of the case and the question debated before us may now be set out.

3. The plaintiff in a partition action is the appellant in this second appeal. The plaintiff and the defendants 7 to 9 are brothers, and their father is the 10th defendant. The defendants 1 to 5 are the sons of one Sundaraama Reddi who is now dead. The deceased obtained a decree in O. S. against the 10th defendant and some others. The 6th defendant was impleaded in this action a judgment creditor of the 10th defendant, whose decree in O. S. Nos. 151 and 153 of 1956 was impugned by the plaintiff. For the purposes of this appeal, no further reference need be made to the 6th defendant.

4. The plaintiff pleads, inter alia, that there was no debt due to Sundarama Reddi by his father and that the decree in O. S. No. 119 of 1956 does not impose any binding obligation on him and his brothers and that the properties of the family are to be partitioned on the footing that the decree debt does not bind the junior coparceners. The decree debt has devolved on the defendants 1 to 5 after the death of the original decree-holder, and in enforcement of the decree, they had an item of the property sold.

5. As generally happens in suit of this description, the father chose to remain absent and took no part in the proceedings. The brothers of the plaintiff (defendants 7 to 9) supported him. The defendants 1 to 5 resisted the suit and pleaded that the 10th defendant guaranteed the repayment of a debt due by one Venkatasubbaya and his son. A letter of guarantee dated 22-3-1954 was executed by the 10th defendant and another person. The principal debtors wanted time for payment, and the creditor (father of the defendants 1 to 5) gave him time for payment on condition of the debtors obtaining guarantee as to repayment. Pursuant to the understanding, the debtors made a promissory note agreeing to pay the debt; and the guarantors, the 10th defendant and another, passed on the same date, a letter of guarantee. The creditor sued on foot of the promissory note and the guarantee and obtained the decree in O. S. No. 119 of 1956, Where under the 10th defendant was made liable for the satisfaction of the debt.

6. The trial Court negatived the plea of the plaintiff and his brothers, held that the decree debt in O. S. No. 119 of 1956 was binding on them, and granted a preliminary decree for partition, subject to the liability of the junior members to discharge the decretal liability.

7. On appeal, the learned District Judge Nellore, confirmed the decision of the trial Court. The case pleaded by the defendants 1 to 5 that the 10th defendant undertook the liability as guarantor as part of the same transaction under which the creditor guaranteed time to the principal debtors by accepting a promissory note of theirs.

8. When the second appeal was heard by a single Judge, a two-fold argument was presented for the appellant. It was contended that the finding that there was in fact a subsisting debt of the father which was sued upon, was erroneous. It was also said that there was, in law, no valid or lawful consideration for the father's (19th defendant) undertaking and that there was consequently no debt in existence as could be enforced against the sons on the pious obligation doctrine. The contention rested on existence, because there was no consideration for the promise made by the father. If this promise is well founded, the consequence is that the doctrine of pious obligation is not applicable and the decree does not affect the plaintiff and other sons of the 10th defendant. The second argument advanced for the appellant was that the fact that the creditor obtained a decree against the father is no impediment to the sons attack that the foundation for their pious obligation did not exist. In other words, the plea is that though the decree against the father has become unimpeachable or final, this does not preclude a challenge by the sons to the existence of the very debt, which has been pronounced by a Court of law to be enforceable or actionable.

9. It will be noticed that if the true principle is that the decree obtained by a creditor in a suit which is not alleged to be collusive or fraudulent, gives rise to a fresh liability of the father, and the decree debt itself is a distinct and independent source of the pious obligation of the sons, no attempt to impugn the decree can be countenanced. The argument presented on behalf of the appellant that there was in fact no debt in existence, can arise only if the sons are allowed by law to question the decree that has become final and conclusive. Both aspects were gone into by the Courts below and their findings thereon were recorded.

10. The initial step is for the plaintiff to establish that there is no impediment caused by reason of the decree suffered to become final by the father. On this aspect, the ruling in (1904) ILR 27 Mad 243 (FB) Supra, was to the effect that independently of the alleged debt arising from the original transaction, the decree against the father, by its own force, creates a debt as against him, which is sons are under an obligation to discharge, unless they show that such debt was illegal or immoral. This was the principle emerging from the answer to the question refereed to the Full Bench in that case. In AIR 1939 Mad 867, Supra a Division Bench of the Madras High Court expressed the opinion that the principle stated above does not constitute the ratio decidendi of the Full Bench ruling and was no more than an obiter dictum.

11. Since then, other High Courts had considered the question. It is obvious that it merits a re-examination; but, in the instant case, it need not be done inasmuch as the Courts below have come to the definite conclusion that there was in fact a debt of the father in existence. If this finding is correct, the consideration of the validity of the rule in AIR 1939 Mad 867 Supra becomes academic. We accordingly addressed ourselves, in the first instance, to the question whether the plaintiff has established that there was no actionable claim in existence against the 10th defendant.

12. The primary or material facts bearing on this point were already adverted to by us. The respective pleas of the parties and the findings may be set out in a broader outline. The plea of the defendants 1 to 5 is that one Venkata Subbayya and his son became indebted to the father of the defendants one to five in a sum of Rs. 3, 000. The liability arose prior to 22-3-1954. The creditor was pressing for payment. The debtors wanted time for payment. But, the creditor refused to forbear unless a guarantee of third parties was forthcoming. Then the 10th defendant and another person were persuaded by the debtors to guarantee the payment of debt. The creditor accepted the guarantee and granted time. As a result of the arrangement on 22-3-1954, the creditor obtained a promissory note of the debtors as well as the letter guarantee. When the suit O. S. No. 119 of 1956 was filed, the 10th defendant admitted the execution of the letter of himself aloof in this suit and has not chosen to give evidence rebutting any of the details pleaded by the defendants 1 to 5.

13. The trial Court held that the forbearance to sue is sufficient consideration for the letter of guarantee and it was of opinion that there was an enforceable debt against the father.

14. Mr. Y. G. Krishnamurty contends on behalf of the appellant that the 1st defendant gave evidence as D. W. 1 and purported to give evidence as to the origin or genesis of the guarantee. Learned Counsel seeks to draw support form the comment made by the District Judge on the evidence of D. W. 1. The District Judge observed that the 1st defendant was barely 17 years of age then and was obviously not present at the relevant time and his evidence as to the execution of the letter of guarantee is not creditworthy. But the inability of D. W. 1 to give cogent evidence of the transaction if immaterial as the 10th defendant himself admitted in O. S. No. 119 of 1956 that the letter was executed by him. The plaintiffs admission as P. W. 1 is also not without significance. It was clearly found that the letter and promissory note were parts of the same transaction. The inference drawn was the it was in consideration of the creditor's acceptance of the promissory note and his promise to stay his hand for some time, that the guarantee was given. We do not see any reason for rejecting the inference of fact which constitutes the basis for the finding of the lower appellate Court.

15. The appellant's Advocate relies on Section 127 of the Indian Contract Act, and urges that there was nothing done by the promise for the benefit of the debtors contemporaneously with the surety's undertaking and the guarantee is, therefore, devoid of consideration. The answer to this is obvious. The circumstances of the case point to the strong probability of the truth of the case of the defendants 1 to 5. They pleaded that the creditor's forbearance was the quid pro quo for the guarantee. We are, as stated already, inclined to agree with the inference drawn by the lower appellate Court which was in concurrence with the view of the trial court. It is submitted that there is no definite finding of the District Judge about the creditor's forbearance. Granting this criticism to be well founded we have, even on our own appraisal of the evidence, no hesitation in finding that time was in fact given by the creditor. In this context, it is necessary to bear in mind that the two principal debtors and the two guarantors were, at the relevant time, trading as partners. And when the guarantors saw that their partners were under pressure of their creditor, they went to the rescue of their partners by guaranteeing the repayment, thereby obtaining a valuable respire to their partners. This was the basis of the plaint in O. S. No. 119 of 1956, a copy of which was tendered as additional evidence on behalf of the appellant.

We find no ground for the admission of the additional evidence, which, apart form other arguments against its reception at this stage, cuts at the rot of the appellant's argument. The simultaneous execution of the promissory note and the guarantee letter, affords the clearest indication that they constituted a single transaction and the acceptance of the promissory note by the creditor was because of the inducement of the guarantee. The request of the guarantor is clearly implied to the delivery of the guarantee letter and the acceptance thereof by the creditor. If follows that at the desire of the guarantor, the creditor agreed to take the promissory note from the debtors without resorting to legal action then for the recovery of the debt.

16. Our attention was invited to the decision in Crears v. Hunter, (1887) 19 QBD, 341, where the fats were that the defendant signed a promissory note making himself jointly and severally liable along with his father, for the purpose of inducing the promise to give time to the defendant's father for payment of a debt. The Master of the Rolls lord Esher pointed out that the promissory note that was drawn up, on its face, did not provide for any delay in payment because the father's liability on the note arose instantaneously after the note was drawn up and signed, and then made observations which are very aptly applicable to the instant case:

'The note does nevertheless indicate on the face of it that, though there was no binding agreement to forbear, the parties did contemplate that the note might not be sued on for some time'

and further it was said:

'It may be true that there was no evidence of any request in express terms by the son that the plaintiff would forbear to sue the father, but what was the substance of the transaction contemplated in the minds of the parties?'

17. The observations extracted above are directly in point in this case. The situation in the case on hand is exactly identical with the one dealt with in that case. There is no recital in the deed of guarantee that it was given in consideration of the forbearance of the creditor. The letter, on its face, did not say, so. But the facts bear no other construction than that time would be given and the obligation was not to be instantly enforced by a suit. The guarantee was given as an integral part of that transaction. There was in fact the forbearance of the creditor although there was no express promise to that effect made by him to do so. To adopt what was said by Lord Esher, M. R. in that case,

'The question is whether, if the guarantor requests the creditor to forbear from suing and the creditor on such request, although he does not a time bind himself to forbear does in fact forbear to sue, there is a good consideration for the guarantee.'

The answer should be in the affirmative. It scarcely admits any doubt that, if at the request of the guarantor, express or implied, the creditor does in fact forbear, there is a sufficient consideration to bind the guarantor. The contention that the request to forbear must be express is not warranted by any principle. The precedent to the contrary is well established.

18. The observations made by Lindley, L. J., in the case also bear quotation:

' Looking at the document and the history of the transaction, I cannot invent any rational theory by which to account for the defendant's giving the note except that it was for the purpose of benefiting his father by procuring for him time to pay the debt. To say otherwise appears to me inconsistent with human nature and the whole character of the transaction.'

The letter of guarantee in the present case is inexplicable on any other hypothesis except that it was the inducement for the granting of time by the creditor to the principal debtors. The promissory note was no doubt, payable on demand. But, as pointed out by the Court of appeal in the decision cited above, the creditor in fact gave time for payment and such forbearance is valid consideration though it did not emanate from an express promise to forbear.

19. This principle has received wide recognition, and, in 18, Halsbury's Laws of England, at pages 420 and 421, it is stated that actual forbearance at the request, express or implied, of the surety affords valid consideration for the surety's promise. Forbearance need not even be for a definite period. Even if its for an indefinite period, the parties will be presumed to have contemplated forbearance for a reasonable period.

20. The learned counsel for the appellant placed reliance on a passage in 18, Halsbury's Laws of England, at page 419, which expresses the principle that the mere existence of the debt of another person is not sufficient to support the surety promise to the creditor. It is sufficient to pointout, that in the present case there was in fact something done or refrained form being done by the creditor, which sustains the promise of the guarantor. It is unnecessary for us to consider the question whether the further statement of law in paragraph 781 of 18, Halsbury's Laws of England, 'that a surety's promise to the creditor must in all cases be founded on a new consideration' is to be taken as unexceptionable in view of the well settled rule that the existence of a precedent debt is sufficient consideration for a subsequent promise to pay that debt. We may, however, refer to the decision in Wigan v. English & Scottish Law Life Assurance Association, 1909-1ChD 291 though it was not cited before us. In that case, the principle that mere existence of a debt is not sufficient valuable consideration for the debtor giving the creditor security to secure the debt, was coupled with the modification that if circumstances exist from which the Court can infer an agreement of forbearance on the part of the creditor, the obligation will be sustained at law. In Fullerton v. Provincial Bank of Ireland, 1903 AC 309 at 313, Lord Macnaghten observed:

'In such a case as this it is not necessary that there should be an arrangement for forbearance for any definite or particular time. It is quite enough if you can infer from the surrounding circumstances that there was an implied request for forbearance for a time, and that forbearance for a reasonable time was in fact extended to the person who asked for it.'

Several other authorities had been referred to by Parker, J., in 1909-1 Ted 291 Supra. There is clear and abundant authority that a surety's promise or security given by the debtor could be validly enforced if there is an agreement, express or implied, to give time, or if there is an actual forbearance which, ex post facto, may become the consideration to support it.

21. We have, therefore, no hesitation in holding that the letter of guarantee given by the 10th defendant and another person was supported by adequate and valuable consideration. A finding to the same effect has been concurrently recorded by the Courts, below. We are, therefore, of opinion that the second appeal must fail because of the conclusion that in fact there was in existence a debt of the father which the sons were bound to discharge. As the plaintiff's plea that there was no debt in existence has to be negatived on merits, there is no need to express any opinion on the question whether the existence of an operative and conclusive decree against the father is not an impediment to the enquiry into the question as to whether the precedent debt was in existence or supported by consideration. We, therefore, refrain from going into that question.

In support of the contention that it is open to a son to attack the validity of a decree on the ground that it was based upon an unenforceable debt or on a debt which did not in fact exist, the learned Counsel for the appellant relied on the observations of the Supreme Court in Faquir Chand v. S. Harnam Kaur, (1967) 2 SC. 811 = (AIR 1967 SC 727). There is, no doubt, an observation of the Supreme Court that the son is bound by an execution sale unless he showed that the debt was non-existent or was tainted with immorality or illegality. But on an examination of the facts and contentions in that case, it is apparent that the controversy in that case did not turn on the question whether the debt of the father on which the decree was based, did in fact exist.

22. In conclusion, the learned counsel for the appellant submitted, relying on a passage at page 351 of the Principles of Hindu Law by Mulla, 13th Edition, that the liability of the surety in this case is purely personal and does not extend to the sons. The argument is that according to the text of Yajnavalkya, a distinction is to be drawn between cases where a father as surety binds himself personally to pay the loan and cases of another category where a father gives a security for the performance of the obligation. It is said that the obligation in the former category is entirely personal.

We are unable to accept this argument in view of the authority in Tahangathammal v. Arunachalam Chettair, ILR 41 Mad 1071 = (AIR 1919 Mad 831). In that case, a Hindu father executed a surety bond stating that he would make the debtor pay within two months the amount due on a promissory note already executed by the latter and that, in default of payment by the debtor, he would pay. The decision of a Division Bench of the Madras High Court was to the effect that the surety was one for payment and that the sons of the surety were liable under Hindu Law for the payment. It was also laid down that it made no difference to their liability that the money had already been lent to the creditor before the surety bond was executed. The text of Yajnavalkya has been understood in the sense that where the suretyship is one for payment, the surety's sons are also bound to pay the debts. We are unable to hold that the present case is distinguishable on principle form the decision in ILR 41 Mad 1071 = (Air 1919 Mad 831) supra. The appeal is, thereofre, dismissed with costs.

23. Appeal dismissed.


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