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John Kuruvilla and anr. Vs. Parameswaran Pillai - Court Judgment

LegalCrystal Citation
SubjectContract
CourtKerala High Court
Decided On
Case NumberC.R.P. No. 3051 of 1978
Judge
Reported inAIR1980Ker87
ActsContract Act, 1872 - Sections 135 and 137
AppellantJohn Kuruvilla and anr.
RespondentParameswaran Pillai
Appellant Advocate George Varghese Kannanthanam,; P.C. Joseph Pazheperambil,;
Respondent Advocate C.K.S. Panicker,; P.G.P. Panicker and; U. Bhaskara Menon
DispositionPetition dismissed
Cases ReferredDalip Singh v. Kishan Chand
Excerpt:
contract - realization of loan - sections 135 and 137 of contract act, 1872 - suit for recovery of loan from surety - previous suit for realization of loan compromised by surety's guarantee - subsequently principal debtor was granted further time to discharge liability without consent of surety - said compromise entered without consent of surety absolves surety of his liability - held, suit for recovery filed against surety not maintainable. - - when these three elements are satisfied, the surety stands discharged. and the principle is laid down in general terms like this:.....order to determine whether a surety stands discharged or continues to be liable under the surety bond the real test to apply is to find out the terms of the bond and its scope, where the plaintiff and the defendant have entered into a compromise without the consent of the surety by which he is seriously prejudiced and according to which substantial departure if made from the terms of the surety bond under which the surety engages himself to pay the decretal money then of course the surety would be deemed to have been discharged and ceased to be liable on the surety bond as this would be in accordance with the principle governing sections 135 - 139 of the contract act but in a case where only a consent decree is passed on the basis of compromise and such decree was in the.....
Judgment:
ORDER

M.P. Menon, J.

1. Decree-holders in O. S. 84/74 are the revision petitioners. The suit was for recovery of money, and a bus belonging to the defendant was attached before judgment. It was released on the defendant and the respondent-surety executing Ext. A1 bond in favour of the court on 30-10-1974, whereunder some immovable property of the respondent was also offered as security for the amount that might be found due to the plaintiff. Subsequently, on 11-8-1975, the plaintiffs and the defendant compromised the matter and a compromise decree was passed, permitting the defendant to pay up the amount in 14 monthly instalments, and allowing the plaintiffs to recover the amount in a lump if three instalments were consecutively defaulted. The respondent-surety was not a party to this compromise.

2. The decree-holders took out execution in E. P. No. 172/77. The bus was brought to court and sold in auction. The surety then filed E. A. 353/77 for being absolved of his liability. The executing court held, following Kurian v. Alleppey C. C. M. S. Society (1974 Ker LT 541), that the surety stood discharged by reason of the compromise (effected without his consent) granting time for payment. And what is mainly urged on behalf of the revision petitioners is that the said decision cannot apply to the facts of the present case where Ext Al bond contained the following provision. (Matter in Malayalam omitted-Ed)

3. Sections 135 and 137 of the Contract Act are relevant, and they read:--

'135. A contract 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.'

'137. Mere forbearance on the part of the creditor to sue the principal debtor or to enforce any other remedy against him; does not, in the absence of any provision in the guarantee to the contrary, discharge the surety.' While Section 135 deals with a 'promise to give time', Section 137 deals with 'mere forbearance'. A distinction is thus made between the creditor simply holding his hands i.e. a unilateral act or omission, and a forbearance springing from agreement. The former does not operate to discharge the surety, but the latter does. The principle underlying the distinction seems to be this. A surety is entitled at any time to require the creditor to pay off the debt or himself pay off the debt and seek his remedy against the principal debtor; but where the creditor has given time to the principal debtor, the above course becomes unavail able for the surety. Viewed from a different angle, as was done in Oriental Financial Corporation v. Over-end. Gurney & Co. (1871), 7 Ch. App 142.-

'If you agree with the principal to give him time, it is contrary to that agreement that you should sue the surety because if you sue the surety you immediately turn him upon the principal, and therefore your act breaks the agreement into which you have entered with the principal'. Where a creditor agrees to give time to the principal debtor, the surety's remedy against the principal debtor gets impaired at least to some extent. To that extent, the surety's contract stands modified, without his consent, and the creditor's act 'is against the faith of his contract'.

'It is the clearest and most evident equity not to carry on any transactions without the privity of him who must necessarily have a concern in any transaction with the principal debtor. You cannot keep him bound and transact hisaffairs (for they are as much as your own) without consulting him' (1).

4. Leaving aside general principles, let us look at the language of Section 135. The Section is attracted when

(i) there is a contract between the creditor and the principal;

(ii) the contract is to give time; and

(iii) the contract is made without the surety's assent.

When these three elements are satisfied, the surety stands discharged. The Section may not apply in terms to a bond executed in favour of a court, but the principle cannot be different (2). And if that is so, the admitted facts of the present case should go to support the view taken by the court below. The creditor and the principal debtor had entered into a contract on 11-8-1975. The creditor gave time to the principal debtor thereunder. And the surety had not assented to the arrangement.

5. Learned counsel for the revision petitioners relied on Chakkunny v. Viswanatha Iyer (1960 Ker LT 866)' to contend that in view of the clear recital in Ext. A1 extracted earlier there could be no discharge of the surety unless fraud or collusion on the part of the creditor and the principal debtor is established. The question there was whether a compromise decree could be equated to a decree passed on contest. It was argued on behalf of the surety that his liability under the bond depended on adjudication by the court and not on a compromise entered into behind his back; and this argument was rejected by holding that so long as compromise was not expressly excluded by the terms of the bond, no such distinction could be upheld.

The decision leaned heavily on the observations of Rankin C. J. in Jai Bai v. Johar Mull ((1932) ILR 59 Cal 1450); and as pointed out in Kurian's case ((1974) Ker LT 541), a subsequent Division Bench of the Calcutta High Court (3) had explained that the principle was not universally applicable to consentdecrees 'providing for postponed payment or payment by instalments'. Chakkunny (1960 Ker LT 866) also does not make any pointed reference to the effect of granting time under a contract; the discussion is confined to the question whether a consent decree is the same thing as a decree passed on contest. And even on this limited question, the approach made by the Supreme Court in Dhanraj Girji's case (supra) is not exactly similar.

6. The Full Bench decision in Mohan Lal v. Surai Mani (AIR 1973 J & K 92) certainly supports the petitioners; and the principle is laid down in general terms like this:--

'In order to determine whether a surety stands discharged or continues to be liable under the surety bond the real test to apply is to find out the terms of the bond and its scope, where the plaintiff and the defendant have entered into a compromise without the consent of the surety by which he is seriously prejudiced and according to which substantial departure if made from the terms of the surety bond under which the surety engages himself to pay the decretal money then of course the surety would be deemed to have been discharged and ceased to be liable on the surety bond as this would be in accordance with the principle governing Sections 135 - 139 of the Contract Act But in a case where only a consent decree is passed on the basis of compromise and such decree was in the contemplation of the parties to the suit including the surety when the latter became a surety and there is nothing in the decree which shows that the compromise is at variance with the terms of the surety bond then notwithstanding the fact that the surety was not present at the time of compromise entered into between the parties to the suit pursuant to which the consent decree is passed the surety continues to remain liable and does not stand discharged'.

But I am bound by the decision in Kurian's case (1974 Ker LT 541); and with great respect, the operation of Section 135, going by its language, does not appear to depend entirey on the terms of the suretyship contract or on substantial departure therefrom and a consequent serious prejudice to the surety. As forprejudice or damage caused to the surety, this is what Blackburn J. had stated in Polak v. Everett (1876) 1 QBD 669:--

'..............on the principles of equitya surety is discharged when the creditor, without his assent, gives time to the principal debtor, because by so doing he deprives the surety of part of the right he would have had from the mere fact of entering into the suretyship, namely, to use the name of the creditor to sue the principal debtor, and if this right be suspended for a day or an hour, not injuring the surety to the value of one farthing, and even positively benefiting him nevertheless, by the principles of equity, it is established that this discharges the surety altogether.'

That apart, it has to be remembered that Ext. A1 bond was executed in 1974 whereas the bus brought to court and sold more than three years later. It is possible that the vehicle would have fetched a higher price at the time the bond was executed and the postponement under the compromise might have substantially affected the remedy the surety had.

7. The Supreme Court decision in Dhanraj Girji's case (1963) 3 SCR 921 directly deals with the question of grant of time under a compromise decree, in the following terms:--

'Besides, it is clear that the compromise agreement gave time to respondent No. (1) and the decree was, therefore not executable immediately after it was passed. In substance, by the decree, time was granted though it is true that time was granted to both the parties to discharge their respective obligations under the compromise. That is another reason why we think the liability of respondents Nos. 2 and 3 under the surety bond is discharged as a result of the compromise decree'.

8. In my view, the rule laid down in Kurian's case (1974 Ker LT 541) should apply whenever the creditor grants time to the principal debtor without the surety's concurrence, irrespective of the nature of the prejudice caused, unless the terms of the bond exclude its operation. Ext. Al does not provide for any such exclusion. And on the facts, prejudice could not also be ruled out, if it is relevant.

9. In the above view, it is unnecessary to examine the respondent's contention, based on the language of Ext. A1 (Matter in Malaylam is omitted--Ed), that what was contemplated by the parties was not a compromise decree. It is enough to notice that such an approach is possible in the light of the decision in Dalip Singh v. Kishan Chand (AIR 1937 Lah 34).

In the result, the decision of the court below should stand, and the C. R. P. has to be dismissed. I do so, leaving the parties to suffer their own costs.


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