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M.V. Mahalinga Aiyar Vs. the Union Bank, Limited - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai
Decided On
Reported inAIR1943Mad216; (1942)2MLJ532
AppellantM.V. Mahalinga Aiyar
RespondentThe Union Bank, Limited
Excerpt:
.....known, that no one expected the 1st defendant to borrow any money from the bank and that every one understood that his sole liability was to guarantee the borrowing by srinivasan. 9. we are of opinion accordingly that the 1st defendant must fail not only upon the facts but also upon his attempt to enlist the sections of the contract act in his service and that he cannot in any way escape liability upon ex. ' 11. except for this slight modification the appeal must fail and is dismissed with costs......defendants of whom the case of the 1st defendant only need now be considered. it was based upon a promissory note signed by one v. e. srinivasan on the 21st august, 1935, and signed also by the 1st defendant v. m. mahalinga aiyar. that promissory note is for rs. 8,500 and both the executants bind themselves jointly and severally to pay the bank that sum with interest. the figure rs. 8,500 is found at the top left hand corner of the promissory note and above it are the words in english, the whole of the promissory note being also in english, 'security for overdraft'. it is the case of the bank that at that time v. r. srinivasan who was the managing director of the bank had an overdraft account. it was necessary for all persons having overdraft accounts to have a coobligant. the previous.....
Judgment:

King, J.

1. This suit was brought in 1938 by the Union Bank, Limited, Kumbakonam, against a number of defendants of whom the case of the 1st defendant only need now be considered. It was based upon a promissory note signed by one V. E. Srinivasan on the 21st August, 1935, and signed also by the 1st defendant V. M. Mahalinga Aiyar. That promissory note is for Rs. 8,500 and both the executants bind themselves jointly and severally to pay the bank that sum with interest. The figure Rs. 8,500 is found at the top left hand corner of the promissory note and above it are the words in English, the whole of the promissory note being also in English, 'security for overdraft'. It is the case of the bank that at that time V. R. Srinivasan who was the managing director of the bank had an overdraft account. It was necessary for all persons having overdraft accounts to have a coobligant. The previous coobligant, Swaminatha Aiyar, had virtually become insolvent, and it was therefore necessary for V. R. Srinivasan to find some one else. He accordingly induced the 1st defendant to join with him as co-obligant in the signing of this promissory note. In 1937, V. R. Srinivasan fell upon evil days and on the 7th February executed a trust deed putting all his property in the hands of trustees for the purpose of satisfying his creditors. As V. R. Srinivasan thus failed, the bank is proceeding against the 1st defendant in this suit. There is no dispute that the amount of the claim is correctly calculated, and is due on the state of V. R. Srinivasan's overdraft account. The 1st defendant raised many defences all of which have been rejected by the learned Subordinate Judge and the suit has been decreed. As a result the 1st defendant has filed this appeal.

2. The first question which arises is a question of fact. The 1st defendant denies that he executed any promissory note for Rs. 8,500 and denies that he executed any document as security for any overdraft. *****

3. [After discussing the evidence his Lordship concluded : ]

4. There can be no doubt, we think, that the 1st defendant did sign this document, Ex. A, knowing that he was signing a document for Rs. 8,500 and knowing that he was doing so as security for V. R. Srinivasan's overdraft.

5. All possible doubt on this matter is removed by Ex. E (1) the letter which the 1st defendant sent to the bank when the bank first made its demand upon him for the settlement of the overdraft account. That letter was dated the 20th March, 1937. No doubt the 1st defendant repudiates the letter entirely and explains that he had entrusted his uncle with a signed blank sheet of paper, and that all the statements made in that letter are the result of a conference held between his uncle and V. R. Srinivasan's advocate. We are utterly unable to believe this or to believe that the 1st defendant would give a signed blank sheet of paper to anybody. He also pretends that, although his uncle had been managing his affairs for many years, and they had been on good terms, he had never told his uncle the real facts about the transaction of 1935 before he handed over the sheet of paper into his uncle's hands. The whole story is, in our opinion, fantastic and we are quite certain that if the uncle negotiated on behalf of the 1st defendant he did so with knowledge of the facts and that the statements contained in Ex. E (1) are the result of the 1st defendant's own information.

6. It is no doubt sought to be argued on behalf of the 1st defendant that he did not think that he was rendering himself liable for an overdraft account, that he thought that the word overdraft meant merely that a single loan was about to be advanced by the bank and that his liability would cease the moment that loan was repaid. Not only is this explanation falsified by the common acceptation of the term overdraft but it is quite clear from the contents of Ex. E (1) that in 1937 the 1st defendant was unable to think of any such case. Of course if that had in fact been the contract between him and Srinivasan there would have been no impediment whatever to his stating so explicitly in his answer to the bank. There can be no doubt therefore that subject to what is now to be said the 1st defendant is liable upon Ex. A.

7. The 1st defendant however now relies upon an additional fact that V. E. Srinivasan executed a trust deed in February, 1937, and that the bank assented to the trust deed and was prepared to take whatever dividend might be rendered available by the trustees from Srinivasan's estate. It is argued that by this action Section 135 of the Indian Contract Act can be applied which says that a contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give to, or not to sue, the principal debtor, discharges the surety, unless the surety assents to such contract. It is not necessary for us here to say positively whether the bank assented' to this trust or not, although the learned Subordinate Judge finds that it did so assent. What seems clear to us is that the 1st defendant cannot possibly take advantage of Section 135 because in this suit he cannot plead that he is a surety. In order to plead that he is a surety at all under the Contract Act, he must come under the definition of that word in Section 12'6 and he, must be a party to a contract of guarantee. 'A contract of guarantee' the section runs 'is a' contract to perform the promise, or discharge the liability, of a third person in case of his default.' Now it is argued that the real contract here was well known, that no one expected the 1st defendant to borrow any money from the bank and that every one understood that his sole liability was to guarantee the borrowing by Srinivasan. That does not however affect the fact that the contract between the 1st defendant and the bank is expressed in a promissory note, and according to the provisions of Section 132 whatever the contract may have been between the 1st defendant and Srinivasan and whatever the knowledge of the bank may have been of that contract the liability of both of them under the promissory note is quite unaffected by that fact.

8. It was faintly suggested in argument that this promissory note ceased to be a promissory note because the words 'security for overdraft' are found printed upon it; but we can see no reason or authority for accepting such an argument. It seems to us that this is a particular kind of precaution which is taken by this bank and not uncommonly by other banks in this country in order to ensure that when a customer of theirs fails to meet his obligations they can proceed against the surety without any possibility of the surety setting up Section 135 of the Contract, Act against them.

9. We are of opinion accordingly that the 1st defendant must fail not only upon the facts but also upon his attempt to enlist the sections of the Contract Act in his service and that he cannot in any way escape liability upon Ex. A.

10. There is however one small error in the decree which has been brought to our notice. The learned Subordinate Judge has decreed to the plaintiff a sum of Rs. 9,981-1-9 with interest thereon at the rate of eight per cent. per annum from the 17th August, 1938, to the date of the decree. In doing so he has overlooked the fact that the sum of Rs. 9,981-1-9 includes interest calculated up to the date of the plaint and therefore that any interest awardable from the date of plaint to the date of the decree must be only upon the principal sum due. The decree will accordingly be modified by saying 'do pay to the plaintiff the sum of Rs. 9,981-1-9 with interest on Rs. 8,500 at the rate of eight per cent, per annum from the 17th August, 1938, to this date.'

11. Except for this slight modification the appeal must fail and is dismissed with costs.


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