1. This Civil Revision Petition arises out of a Small Cause Suit on a promissory note executed by the first defendant, an agriculturist and guaranteed by the second defendant, a non-agriculturist. The letter of guarantee is in the following terms:
Please get a pronote from S. Chinnamuthu Batcha Rowther the bearer of this letter and give Rs. 300. In the event of his not discharging it by paying principal and interest, I also shall be liable and pay the amount.
2. The debt of the first defendant was only partially discharged and the suit was filed. Against the first defendant, the plaintiff gave effect to the defences open to him as an agriculturist and claimed only Rs. 95-9-0. Against the second defendant the plaintiff claimed Rs. 157-14-4, the full amount due under the contract. In the lower Court the second defendant successfully claimed that he was entitled to the benefit of the reduction of the principal debtor's liability by reason of the terms of Section 128 of the Contract Act. It is contended in the revision petition that this decision is wrong. Section 128 of the Contract Act provides that the liability of the surety is co-extensive with that of the principal debtor unless it is otherwise provided by the contract. It cannot be contended that there is any special provision in the present contract making the liability of the guarantor different from the liability of the principal debtor. It is, however, argued that Section 128 of the Contract Act lays down only the general principle governing the interpretation of contracts of guarantee and does not purport to govern the relations between the parties as a result of subsequent events after the contract has been entered into. Those, it is contended, are governed by the later sections such as Sections 133,134, 135 and soon. It is also contended that though the release of the principal debtor by the act or omission of the creditor has the legal consequences of discharging the surety under Section 134 of the Contract Act, no such result follows when the discharge of the principal debtor is by operation of law. In support of this proposition reliance is placed on the leading case of Ex parte Jacobs (1875)10 Ch. App. C. 211 where it was held that where the acceptor of a bill of exchange presents a petition for liquidation or composition under the Bankruptcy Act, 1869, and the creditors pass a resolution for liquidation or composition, the acceptor must be considered as discharged by operation of law, and the drawer is not thereby discharged from his liability. The rule enunciated in this decision has been set forth very clearly in another case, In re Fitzgeorge (1905) 1 K.B.D. 462 where Bigham, J., says:
I think in this case that the creditor is entitled to prove for the value of the guarantee that the debtor has given. It is said that, because the principal debt is gone, therefore the liability under the guarantee to pay the interest on the debenture is also gone. I do not agree with that view. The principal debt is gone no doubt, but not by any act of the creditor. It is gone by operation of Jaw. The principal debt will never be repaid, but in my opinion the obligation of the debtor to pay the interest under his guarantee remains.
3. The same principle is laid down in Rowlatt On Principal and Surety at page 272. That the rule enunciated in Ex parte Jacobs (1875)10 Ch. App. C. 211 applies to India has been recognised by a Bench of this Court in Bombay Company Limited v. Official Assignee of Madras (1920) 40 M.LJ. 404: I.L.R. Mad. 381, and it may be said that the principle underlying that rule is recognised in the two insolvency Acts. Section 44 of the Provincial Insolvency Act which is similar in its terms on this point to Section 45 of the Presidency Towns Insolvency Act enacts that:
An order of discharge shall not release any person who, at the date of the presentation of the petition, was a partner or co-trustee with the insolvent, or was jointly bound or had made any joint contract with him or any person who was surety for him.
4. This provision seems to involve the assumption that notwithstanding the disappearance of the debt of the principal debtor, the liability of the surety continues and consequently it seems in effect to recognise the principle that a discharge of the principal debtor by operation of law does not discharge the surety. It is unnecessary to quote cases relating to guarantors of minors' debts and cases relating to debts barred as against the principal debtor but alive as against the surety. Though these cases may serve as indications that Section 128 of the Contract Act is not intended to govern all future changes in the liabilities of the parties, yet the continuance of the guarantor's liability in such cases may be justified on special grounds. It is sufficient for the purpose of this, case to hold that, when a new statutory provision has had the effect of granting a partial discharge to the principal debtor and the creditor has taken no part in releasing the principal debtor from his liability, the remedy of the creditor against the guarantor will not be affected.
5. It follows that the lower Court was wrong in restricting the relief as against the second defendant to the amount of the debt as scaled down in the Act. The lower Court has also found that even if the view taken on the effect of Section 128 of the Contract Act is wrong, the second defendant can be made liable only for interest at 15 per cent, by reason of the terms of the Madras Debtors Protection Act. This finding is not questioned before us.
6. In the result the revision petition is allowed with costs and the plaintiff will get a decree as against the second defendant for the principal sum due with interest at 15 per cent. up to the date of the plaint and proportionate costs, with subsequent interest. at 6 per cent. till realisation. The. decree as against the first defendant stands.