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Kakatur Linga Reddi Vs. Yerabolu Subbarami Reddi and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1942Mad202; (1941)2MLJ1008
AppellantKakatur Linga Reddi
RespondentYerabolu Subbarami Reddi and ors.
Excerpt:
- - the object of this section must be to prevent dishonest trustees from pleading the act in order to retain the fruits of their dishonesty, that is to say, this exception, just like the other exceptions enumerated in section 4, is based on grounds of public policy, not on a desire to benefit one class of creditors as compared with another class of creditors. and the failure of the person who has borrowed that money on a mortgage to pay his creditor, will certainly not amount to a breach of trust......trust, because according to the affidavits the money drawn by the guardians on the strength of the surety bond was subsequently invested in a mortgage executed by the surety himself and it is alleged that the surety's default to the guardians is primarily responsible for the guardians' default to the minors. there is no reference to this contention as having been raised before the learned district judge and necessary facts do not appear to have been established. even assuming them to be as alleged, it seems to us apparent that there was no breach of trust on the part of the guardians in investing the money which they had drawn; and the failure of the person who has borrowed that money on a mortgage to pay his creditor, will certainly not amount to a breach of trust. it seems to us,.....
Judgment:

Wadsworth, J.

1. These two matters both arise out of an application under Section 19 of the Madras Act IV of 1938. The question is as to the effect of Section 4(f) of the Act which excludes from the operation of the Act liabilities of an agriculturist falling under the head of 'any liability arising out of a breach of trust'. The applicant was a surety for the next friend of certain minors who realised a sum of Rs. 6,385 and odd in a suit filed on behalf of the minors and drew this money out of Court on the strength of a security bond given under O.32, Rule 6, Civil Procedure Code, by the present applicant. When the minors came of age they brought a suit against their guardians for an account, claiming this money as money to which they were entitled. In that suit the surety was impleaded and after a decree had been obtained against the guardians, I.A. No. 76 of 1937 was filed to enforce the security bond to the extent of the amount for which the guardians were found liable. The surety filed the present application under Section 19 to scale down the decree passed against him in I.A. No. 76 of 1937 and his application has been rejected by the learned District Judge on the ground that his liability under the security bond is a liability arising out of a breach of trust.

2. It seems to us that this decision is wrong. When a third party gives security for the due discharge by a person under a fiduciary relationship of his duties, the surety incurs towards the beneficiary a contractual liability which is enforceable only in case the trustee commits a breach of trust, but the proximate or immediate basis of the surety's liability is the contract. The breach of trust is a more remote cause from which the liability can be said to arise only indirectly. No doubt the surety will not be obliged to pay anything so long as the person whom he guarantees fulfils his obligations completely; but when the claim is made against the surety, it is made primarily on the basis of the contractual liability which the surety has undertaken, though the extent of the claim and the time at which it is made will be determined by the default of the person guaranteed. It seems to us that the words of this clause 'arising out of a breach of trust' should not be read so as to cover any liability which is in any way connected with a breach of trust. As we read this clause, its object is not to place creditors who have lost money owing to a breach of trust in a more favourable position than creditors who have merely placed excessive confidence in their debtors. The object of this section must be to prevent dishonest trustees from pleading the Act in order to retain the fruits of their dishonesty, that is to say, this exception, just like the other exceptions enumerated in Section 4, is based on grounds of public policy, not on a desire to benefit one class of creditors as compared with another class of creditors. An attempt has been made to argue that in the circumstances of the case the surety must himself be deemed to have incurred a liability arising out of a breach of trust, because according to the affidavits the money drawn by the guardians on the strength of the surety bond was subsequently invested in a mortgage executed by the surety himself and it is alleged that the surety's default to the guardians is primarily responsible for the guardians' default to the minors. There is no reference to this contention as having been raised before the learned District Judge and necessary facts do not appear to have been established. Even assuming them to be as alleged, it seems to us apparent that there was no breach of trust on the part of the guardians in investing the money which they had drawn; and the failure of the person who has borrowed that money on a mortgage to pay his creditor, will certainly not amount to a breach of trust. It seems to us, therefore, that the decision of the learned District Judge rests on a misunderstanding of Section 4, Clause (f) and that the applicant is not, by reason of Section 4, Clause (f) precluded from getting the benefits of Section 19 of the Act.

3. The Civil Revision Petition is, therefore, allowed with costs and the application is remitted to the trial Court for disposal in the light of this judgment.

4. The Civil Miscellaneous Appeal does not lie and is dismissed. No separate costs.


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