1. This is an appeal by defendants 3 and 4 against the judgment of the Additional Subordinate Judge of Berhampur dated 31-10-1952. The facts giving rise to this appeal are: The plaintiff filed a suit for recovery of a sum of Rs. 1670-4-3 on the foot of a promissory note executed by defendants 1 and 2 in his favour on 19-9-1945. The promissory note was executed for a sum of Rs. 1500/-. On the same day, that is, on 19-9-45, defendants 3 and 4 sent a letter of guarantee to the plaintiff assuring payment of the said sum with interest, on demand, in the event of default on the part of the principal debtors. Defendants 1 & 2 made certain payments towards the interest accrued on the promissory note, the aggregate amount of which came to Rs. 775-6-0, the last payment having been made on the 19-3-1948.
Since the money, both principal and interest, due on the handnote was not paid by toe defendants 1 and 2, the plaintiff demanded the sum due from all the defendants and on their failure filed the suit on 21-2-1951, Defendants 1 and 2 did not deny the execution of the promissory note in question as also, the factum of payment. Defendants 3 and 4 who are appellants before this Court filed a joint written statement wherein they averred that they were not aware of the alleged payments made by defendants 1 & 2, nor of any endorsement made on the back of the promissory note. Even if there be any, it would not bind them, because neither have they paid the amount, nor was it paid on their behalf and thus the claim as against them stands barred by limitation. They also denied the demand.
2. The defendants 1 and 2 were set down ex parte. Defendants 3 and 4 adduced no evidence at the trial.
3. The trial Court on a consideration of the evidence on record decreed the suit ex parte against defendants 1 and 2, and dismissed the same against defendants 3 and 4. The plaintiff preferred an appeal against the said judgment of the trial court and the learned Additional Subordinate Judge of Berhampur who heard the appeal decreed the suit also against the defendants 3 and 4. It is against this appellate decree that the present second appeal is preferred.
4. Mr. A. Das, learned counsel on behalf of the appellants, raised rather a very interesting question of law regarding the liability or otherwise of the surety. First of all, he contended that the letter purported to have been written by the appellants on the 19-9-1945, is not a letter of surety. Secondly, he contended that even if it is a letter of surety, the claim it -barred as against them:
5. Before dealing with the question of law as raised by Mr. Das, I would set down the text of the promissory note in question which is Ext. 1, executed by defendants 1 and 2 in favour of the plaintiff. The promissory note runs as follows:
'On demand, we (1) Tangudu Narayan Murty and (2) Tangudu Lingaraju, sons of Tangudu Brundavanam of Berhampur promise to pay you. Konchada Ramamurty Subudhi of Berhampur or order, the sum of Rupees (1500-0-0) Fifteen hundred only together with interest at Rs. 12/- per hundred per annum for the value received in cash from you by us. We give our acquiescence to this. Being in need of money for our business, we have borrowed this sum from you.
sd/- Tangudu Narayanmurty,
sd/- Tangudu Lingaraju.
It would also, now, be necessary to refer to the letter of guarantee (Ext. 2) executed by defendants 3 and 4 which was to the following effect:
Sri Konchada Ramamurty Suhudi,
Dated 19th September, 1945.
In consideration of your lending a sum of Rs. 1500 at 12 P. C. P. M., on a promissory note dated 19-9-45, executed in your favour by Tangudu Narayanmurty & Tangudu Lingaraju, sons of Brundayanam of Berhampur, we, Vysyaraju Somanath Raju & Vysyaraju Adikondho Raju, sons of the late Papani Raju of Kullada, Uttara Godo Tholo Muttah, Ghumsur Taluk, Ganjam District, hereby guarantee the payment of the said sum to you with interest on demand, in the event of default of the same, on the part of the two said persons.
This guarantee is executed by us with our acquiescence.
Sd/- Vysyaraju Somanath Raju.
Sd/- Vyasyaraju Adhikondho Raju.
19th September, 1945.'
6. It is by now well-settled that a surety's liability depends upon the terms of the contract, because his is a collateral obligation. Therefore, it is always desirable to refer to the form in which such a contract is entered into between the surety and the creditor. The same is also the position under the English law. Reference may be made to two cases reported in In re, Brown's Estate; Brown v. Brown, (1893) 2 Ch 800 (A) and Bradford Old Bank, Ltd. v. Sutcfiffe (1918) 2 KB 833 (B). The law in India rather has been made more or less statutory now in the form of Indian Contract Act. I may refer here to Section 128 of the Indian Contract Act which runs as follows:
'The liability of the surety js co-extensive with that of the principal debtor, unless it is otherwise provided by the contract.'
Thus a promissory note payable on demand being a debt in praesenti & payable without demand, the limitation begins to run from the date of its execution, and the liability of the surety being collateral with that of the principal debtor, the position both in English and in Indian Law is that it will always depend upon the form of the contract as entered into between the surely and the creditor. The liability of the surety and the liability of the principal debtor are therefore co-extensive, subject of course to the provisions of the Limitation Act. The question has been well-answered by Cotton L. J. in Powers Lindsell v. Phillips (1885) 30 Ch D 291 (C), and followed in Ranjit Kumar Roy v. Kishori Mohan AIR 1940 Cal 401 (D). I would do well to quote a passage from the judgment of Lort Williams J. which is as follows:
'With respect, it seems to me that this is not a complete statement of the position in law. In cases of principal and surety there are two distinct contracts in respect of one debt common to both. There cannot be two distinct debts, otherwise payments on account of principal or interest by the principal would not, ipso facto, reduce the debt due by the surety, and vice versa, as they do.
It follows that payments of principal or interest by either principal or surety, and acknowledgments in accordance with the provisions of Section 20(1) of the Limitation Act, create a fresh period of limitation in respect of the common debt as against either the principal or the surety. The expression 'fresh period of limitation' is in general terms, and it was held by Mc Lean C. J. in Domi Lal Sahu v. Roshan Dobay ILR 33 Cal 1278 (E) that there is nothing in the section to indicate that the new period of limitation is only to operate against the person making the payment.
That no such restriction is intended is confirmed by the fact that Section 18, Limitation Act, expressly provides for such a restriction in cases of fraud only.'
Therefore the position in law boils down to this that the liability of the surety is co-extensive with that of the principal debtor and it depends upon the form of the contract as has been entered into between him and the creditor.
7. Mr. Das first of all relied upon a case reported in Nanak Ram v. Mehin Lal ILR 1 All 487 (F) in connection with his iirst contention that the letter did not amount to a letter of surety. That was a case in which the surety bond was executed two days after the bond in question, and it was held by their Lordships that the surety bond was executed not on behalf of the principal debtor who needed no assistance of the kind, but it was tor the benefit of Nanak Ram, the lender alone, and in that case there was undoubtedly no consideration within the meaning of Section 127 ot the Contract Act Hence, this case does not help the contentions as advanced on behalf of the appellants. Reading the document itself, one cannot but come to the conclusion that it was a letter of surety. The intentions ot the parties are quite clear from Ext. 2.
8. Now, coming to the second contention of Mr. Das, he relied upon a decision reported in Brojendra Kishore Roy v. Hindusthan Co-operative Insurance Society Ltd., AIR 1918 Cal 707 (G). What was held therein was that 'Repayment guaranteed by me'' endorsed on the promissory note itself, is a contract of guarantee by the person signing the endorsement whose liability as a surety arises under it from the date of the note, and no demand tor repayment is necessary to create such liability. It was further held that the payment of interest by the principal debtor with the knowledge and consent of the surety and even at his request does not, under Section 20 extend limitation as against the surety, unless the circumstances are such as to render the payment on behalf of the surety.
For the purposes of application of Section 20, undoubtedly the debt of the surety is distinct from the debt of the principal debtor, though both of them arise out of the same transaction. Section 128 of the Contract Act which males the liability of the surety coextensive with that of the principal debtor, has reference only to the quantum of the liability and is not intended to affect the application of the statute of limitations. Mr. Das further relied upon a decision of the same High Court reported in Charu Chandra v. Faithful, AIR 1919 Cal 636 (H). to the same effect. The next case relied upon by him is the case reported in Jnan Chandra Mukherjee v. Manoranjan Mitra AIR 1942 Cal 251 (I). What was decided in that case was that
'a stranger to a contract which reserves a benefit for him cannot sue upon it though the consideration need not move from the promise. There are two well-recognised exceptions to this doctrine. The first is whether a contract between two parties is so framed as to make one of them a trustee tor a third; in such cases the latter may sue to enforce the trust in his favour and no objection can be taken to his being a stranger to the contract. The other exception covers those cases where the promisor, between whom and the stranger no privity exists, creates privity by his conduct and by acknowledgment or otherwise. constitutes himself an agent of the third party.'
Their Lordships while dealing with the question of limitation held that a payment by a co-contractor would not entitle the creditor to get extension of time. as against the other co-contractors. Mr. Das further referred me to a decision in Gopal Daji v. Gopal Sonu, ILR 28 Bom 248 (J). His contention has been that the surety being a co-contractor with the principal debtor an acknowledgment or payment of the debt or repayment of the debt made by the principal debtor, would not keep the document alive so far as the surety is concerned. Therefore, defendants 1 and 2 by making certain payments of interest as accrued by them, cannot fasten the liability on defendants 3 and 4 whostood as guarantors for them.
It may be that the defendants 1 and 2 might have, by collusion with the creditor, made certain endorsements on the back of the promissory note to keep the debt alive. The payment may or may not be to the knowledge of the guarantor, but by the conduct of defendants 1 and 2, the sureties, that is, defendants 3 and 4, would be made liable even when the debt is barred by-limitation. But the question is whether or not the surety is a co-contractor. If not, the sureties are liable under the law, and if the debt is enforceable as against them, the question of fraud and collusion as between the creditor and the principal debtor would not arise. Mr. Chatterji appearing on behalf of the respondents relied upon a decision of the Nagpur High Court reported in Subhankhan Ram-jankhan v. Lalkhan Haji Umarkhan AIR 1948 Nag 123 (K). Hidayatullah, J. in that case held that a contract of guarantee must be construed strictly in favour of the surety. Under Section 128, the liability of 'a surety is co-extensive with that of the principal debtor, unless it is otherwise provided for by the contract.
The contract of guarantee has, therefore, to be construed to find out the exact point of time when the liability of the surety arises. In some cases, the surety's liability may begin simultaneously with the liability of the person guaranteed. But it often happens that the remedy against the principal is barred when the liability of the surety arises. The question depends on the terms of the contract of guarantee by which the surety has bound himself. In the Calcutta case reported in AIR 1918 Cal 707 (G), the surety and the principal debtor signed the bond itself simultaneously on the date of the execution, the surety having endorsed on the promissory note 'Repayment is guaranteed by me'.
Mr. Chatterjee contended that that being a case of co-contractors or co-executors, the principle decided in AIR 1918 Cal 707 (G) would not apply to this ease, because in the case of a co-contractor a debt cannot be kept alive against another when one or more of the contractors make or makes the payment and sign the endorsement, on the back of the contract. Mr. Chatterjee also tried to distinguish the case reported in AIR 1942 Cal 251 (I) on facts.
That was a case where a Hundi was executed and was clearly a case of co-contractors, and their Lordships on the facts of the case decided that the limitation cannot be saved by the payment having been made by one of the contractors. Thus, reviewing the law as it stands, it is now well settled that the question of limitation depends upon the form of the contract entered into between the surety and the creditor, and whether or not the principal debtor and the surety are co-contractors. In this case, I have quoted above, the contract of guarantee in extenso from which it is clear that the defendants 3 and 4 guaranteed the payment of the sum of Rs. 1500/-with interest on demand in the event of default of the same on the part of the principal debtors.
Thus, it cannot be held to be a case of co-contractors. This is a case of a principal debtor and surety simpliciter; and construing the document, Ext. 1 and the letter of guarantee, Ext. 2, it is clear that the liability of the surety accrues in the event of default by the principal debtor. Thus, the cases cited by Mr. Das being of co-contractors have no application to the facts of this case.
9. Hence, it is clear that though the liability oi the principal debtor and his surety arises under the same transaction, still they are distinct, because the liability of the surety does not in all cases arise simultaneously. The question depends upon the terms of the guarantee by which the surety binds himself. That being the clear position of law, I have no doubt that the defendants 3 and ,4 are equally liable. The decree passed by the learned Subordinate Judge is quite correct and should be affirmed.
10. I would accordingly dismiss this appeal withcosts.