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S. Muthuswami Maniagaran Vs. P.E.R.M. Annamalai Chettiar Firm - Court Judgment

LegalCrystal Citation
SubjectContract
CourtChennai
Decided On
Reported inAIR1937Mad1
AppellantS. Muthuswami Maniagaran
RespondentP.E.R.M. Annamalai Chettiar Firm
Cases ReferredBhawal Sahu v. Baijnath Pertab Narain Singh
Excerpt:
- - , money had to be borrowed, that the income from the properties of the minor were hardly sufficient even for paying interest on the debts, that the lands were not leased out but were kept under pannai cultivation of the family which required naturally a large establishment, that these circumstances being known to the plaintiff there was no necessity to make an elaborate enquiry as to the purpose of the loan, that these facts clearly showed to the mind of the plaintiff that, for urgent family and litigation expenses, the money was required and therefore the circumstances in which the loan was taken showed clearly that there was a necessity for the loan, namely for the purpose of carrying on the ordinary vocation of agriculturists by which crops had to be raised for the purpose of.....venkataramana rao, j.1. the suit is upon a promissory note executed by defendants 1 and 2 in favour of the plaintiff for rs. 2,000 on the 1st august 1929. defendant 3 is the son of defendant 1. the father of defendant 3 died on 8th may 1923, leaving behind him a widow who is defendant 1 and a minor son defendant 3 herein and two unmarried daughters. the properties left by the father were managed by defendant 1 as defendant 3's guardian. in 1926 she purported to execute a power of attorney in favour of defendant 2 authorising him to manage the estate on her behalf. on the 27th september 1927 both defendants 1 and 2 borrowed a sum of rs. 1,000 from the plaintiff on a promissory note ex. a-l bearing the said date. the said promissory note runs as follows :promissory note executed on 27th.....
Judgment:

Venkataramana Rao, J.

1. The suit is upon a promissory note executed by defendants 1 and 2 in favour of the plaintiff for Rs. 2,000 on the 1st August 1929. Defendant 3 is the son of defendant 1. The father of defendant 3 died on 8th May 1923, leaving behind him a widow who is defendant 1 and a minor son defendant 3 herein and two unmarried daughters. The properties left by the father were managed by defendant 1 as defendant 3's guardian. In 1926 she purported to execute a power of attorney in favour of defendant 2 authorising him to manage the estate on her behalf. On the 27th September 1927 both defendants 1 and 2 borrowed a sum of Rs. 1,000 from the plaintiff on a promissory note Ex. A-l bearing the said date. The said promissory note runs as follows :

Promissory note executed on 27th September 1927, in favour of P.A.R.M. Annamalai Chettiar A vergal by us both jointly, viz., (1) Kamakshi Ammal, wife of Nithyananda Muthuswami Moniyagarar, residing at Puthayakudi, Ayakudi Zamin, Palni Taluk and (2) her authorized Agent, Vadivelu Maniyagarar, son of Viswanatha Maniyagarar, residing at the said place.

We have on this date received in cash Rs. 1,000' from your partner Periakaruppan Chettiar Avergal,. for our family expense and for pannai, etc., expense. We shall on demand bring and pay you. or order in cash the same together with interest, thereon at 2 per cent per mensem from this date. and get back this.

2. Two other promissory notes were executed : one on 28th November 1927 for Rs. 200 and another on 8th January 1928 for Rs. 100. In renewal of these three promissory notes on 1st August 1929 defendants 1 and 2 executed the suit promissory note Ex. A for Rs. 2,000. The said promissory note is in these terms :

Promissory note executed in favour of P.A.R.M. Annamalai Chettiar Avergal, son of Valayapatti Nagappa Chettiar, by us both jointly, viz.,. (1) Kamakshi Ammal, wife of Nithyananda Muthuswami Maniagarar, residing at Pudhiyakudi, Ayakudi Zamin, Palni Taluk, and (2) her authorized agent, Vadivelu Maniagarar, son of Viswanatha Maniagarar, the said place :

The sum due to you by us as on this date inclusive of the principal and interest in respect of our looking into the account with your partner Periakaruppan Chettiar Avergal, as regards the three pronotes executed by us in your favour for Rs. 1,000 on the 11th Purattasi of Prabhava (27th September 1927) and for Rs. 200 on the 13th Karthikai and for Rs. 100 on the 24th Margali is Rs. 2,000. We shall on demand bring and pay you or order in cash the same together with interest thereon at 2 per cent per mensem from this date and get back this.

(Sd. on four one-anna stamps) Kamakshi Ammal.

' ' ' V. Vadivelu Maniagarar.

3. The defence on behalf of defendant 3 is that on the promissory notes he cannot be rendered liable and further that there was no necessity to incur the said debt. The District Munsif who tried the case was of opinion that in so far as Ex. A-1 was. concerned, there was necessity and therefore he would support the plaintiff's claim to the extent of the amount advanced under Ex. A, and gave a decree for Rupees 1,000 with interest thereon against the defendants. The learned Subordinate Judge confirmed his decision to the extent of the amount covered by Ex. A-1. On the evidence he came to the conclusion that on the date of the promissory note Ex. A-1 the resources of the family were considerably crippled with the result that for purposes of cultivation, etc., money had to be borrowed, that the income from the properties of the minor were hardly sufficient even for paying interest on the debts, that the lands were not leased out but were kept under pannai cultivation of the family which required naturally a large establishment, that these circumstances being known to the plaintiff there was no necessity to make an elaborate enquiry as to the purpose of the loan, that these facts clearly showed to the mind of the plaintiff that, for urgent family and litigation expenses, the money was required and therefore the circumstances in which the loan was taken showed clearly that there was a necessity for the loan, namely

for the purpose of carrying on the ordinary vocation of agriculturists by which crops had to be raised for the purpose of maintaining the family and also for the expenses of the litigation which was actually pending;

4. In second appeal before me it is contended by Mr. Sitarama Rao on behalf of the minor defendant 3 that the decree of the Subordinate Judge is wrong for more than one reason. His main contentions are: (1) On the promissory note the minor cannot be rendered liable and this action is not maintainable; (2) even if the claim is based upon the consideration and not on the note, there is no borrowing on behalf of the minor and therefore his estate could not be rendered liable. From the form of the note it is clear that none but the executants were intended to be made liable. In Sadasuk Janki Das v. Sir Kishen Pershad AIR 1918 PC 146, their Lordships of the Privy Council have definitely laid down that the, promissory notes must be so drawn that in form they bind the person intended to be made liable and that it is of the utmost, importance that the name of the person or firm to be charged upon a negotiable instrument should be clearly stated on the face or on the back of the document and it

is contrary to all established principles that in an action on a bill of exchange or promissory note against a person whose name properly appears as a party to the instrument, it is open either by way of claim or defence to show that the signatory was in reality acting for an undisclosed principal.

5. This statement of the law gives effect to the view taken by Davis, J. in Krishna Ayyar v. Krishnaswami Ayyar (1900) 23 Mad 597 and overrules that of Subramania Aiyer, J. in that case where the learned Judge observed :

No doubt according to the English law none but those whose signatures appear on a bill of exchange or a negotiable promissory note can be sued thereupon. No authority was cited to show that that rule has been adopted in this country.

6. Their Lordships of the Privy Council in the said case Sadasuk Janki Das v. Sir Kishen Pershad AIR 1918 PC 146 also stated that :

It would have been open to the plaintiffs, had they thought fit, to have framed their case in an alternative form and to have sued both on the; hundis and alternatively upon the consideration.

7. Therefore in this case having regard, to the allegations in the plaint, especially para. 6, the plaint may be treated as having made a claim in the alternative upon the consideration. To this Mr. Sitarama Rao contends that under the recent ruling of the Full Bench in Ramaswami Pillai v. Murugiah Padayachi AIR 1936 Mad 179, that where the loan and the note are simultaneous, action on the consideration is not permissible and you cannot sue upon the consideration apart from the note. But there are two answers to this contention, viz., (1) there was an antecedent liability covered by Ex. A-1 and (2) further so far as the minor defendant 3 was concerned, the action cannot be viewed as one on the note. The obligation so to speak, as described by Shepherd, J. in Krishna Ayyar v. Krishnaswami Ayyar (1900) 23 Mad 597, 'is external to the obligation arising on the making of the promissory-note' and in such cases the bar of Ss. 91 and 92, Evidence Act, will not apply, because the minor defendant 3 was not a party to the note: vide Hari Mohan Ghose v. Surendra Nath : AIR1925Cal1153 and Chockalinga Chettiar v. Palaniappa Chettiar : AIR1935Mad23 . I am therefore of opinion that the suit is maintainable.

8. The next argument of Mr. Sitarama Rao deserves more consideration. It is settled law that a guardian has no power to make contracts in the name of his ward so as to impose a personal liability upon him and that a minor cannot be bound by contracts entered into by the guardian winch dp not purport to charge his estate: vide Waghela Rajsanji v. Shekh Masludin (1887) 11 Bom 551 (PC) and Maharana Shri Ranmal Singh v. Vadilal Vakhat Chand (1896) 20 Bom 61. When it is said that a minor is not personally liable it means not only exemption from liability to arrest but also that a decree cannot be passed against his estate (vide the observations of Wallis, C.J. in Ramajogayya v. Jagan Nadhan, AIR 1919 Mad 641). But there are two exceptions engrafted on this rule (1) where the contract is for necessaries supplied to or on behalf of the minor, (2) where the liability is one to which the minor is subject under the personal law, in this case the Hindu law. The latter exception is thus enunciated by the Pull Bench of the Madras High Court in Ramajogayya v. Jagan Nadhan, AIR 1919 Mad 641:

No decree should be passed against a minor or his estate on a contract entered into on his behalf by a guardian under which covenant no charge is created on the estate except in cases in which the minor's estate would have been liable for the obligation incurred by the guardian under the personal law to which he is subject.

9. The reason for the rule is thus stated by Seshagiri Ayyar, J.:

Where an infant's estate would be liable but for the interposition of the guardian, I fail to see why the latter undertaking that liability should not bind the estate.

10. Thus two essential requisites for fasten, ing the liability on the estate on a contract entered into by the guardian apart from any question of necessaries are (1) the liability must be one imposed by the personal law and (2) the contract should purport to be on behalf of the minor. Therefore the test is not a mere question of benefit nor the mere fact that the debt was incurred for necessary purposes (vide also Zamindar of Polavaram v. Maharaja of Pithapuram AIR 1931 Mad 140), the observations made in some of the cases that where the debt is one incurred by the guardian for necessary purposes his estate can be rendered liable, are too broadly made. In Maharana Shri Ranmal Singh v. Vadilal Vakhat Chand (1896) 20 Bom 61, where a suit was brought against, a minor to recover the money advanced to his mother and guardian, it was proved that a greater portion of the moneys advanced was for legal and necessary purposes of the minor and the Subordinate Judge who dealt with the case gave a decree against the estate of the minor. Their Lordships of the High-Court reversed the decision. Foulton, J. observed as follows :

The case in Hanuman Prasad v. Mt. Bobooee, (1854) 6 MIA 393 was one in which the guardian had exercised her powers of mortgaging the estate, and the ruling that in respect of such a transaction a bona fide creditor should not suffer when he had acted with due caution cannot in our opinion be extended to a case in which it is sought to make the ward personally liable for the debt.

11. That this is the correct view in Hanuman Prasad v. Mt. Bobooee, (1854) 6 MIA 393 derives support from the observations of the Privy Council in Indur Chunder Singh v. Radha Kishor Ghose (1892) 19 Cal 507 and Benares Bank Ltd., v. Hari Narain . The result of the case law is in my opinion correctly summed up thus by Trevelyan in his book on minors at p. 169 :

Although a guardian may under certain circumstances sell or charge his ward's property, he cannot bind his ward personally by a simple contract debt, by a covenant or by any promise to pay money or damages, unless such promise is made merely to pay or to keep alive a debt for which the ward's property was liable.

12. Mr. Sampath Ayyangar contended that the expression 'personal law' in the answer to the reference to the Full Bench in Ramajogayya v. Jagan Nadhan, AIR 1919 Mad 641 should not be understood as referring to Hindu law but must be understood in contradistinction to the statute law, and that the cases referred to by Seshagiri Ayyar, J. at p. 195 support his contention. I do not think his contention tenable. I am inclined to agree with Curgenven, J. that by 'personal law' is meant only Hindu law : vide Zamindar of Polavaram v. Maharaja of Pithapuram AIR 1931 Mad 140; also Wallace, J. in Ramakrishna Reddiar v. Chidambara Swamigal AIR 1928 Mad 407. This is also clear from the following observations of Seshagiri Ayyar, J., at pp. 194 and 195 :

Almost all the High Courts have, since Waghela Rajsanji v. Shekh Masludin (1887) 11 Bom 551 (PC), held that the liability of the minor under Hindu law is not affected by the fact that the guardian has incurred that obligation.

13. After referring to a number of cases in support of his view the learned Judge wound up by saying that 'Serjeant, C.J., Telang, Mookerjee, and Muthuswami Ayyar JJ. are among the Judges who enunciated this view.' Besides, the examination of some of the cases referred to by him at p. 195 tends to confirm the view that an exception was intended to be made only in the case of a liability imposed by Hindu law: Nathuram v. Shoma Chhagan (1890) 14 Bom 562, one of the cases referred to by him, is a ease decided by Serjeant, C.J. and Telang, J. In that case the debt was incurred for the funeral ceremony of the father and Serjeant, C.J. observes thus:

He was the nearest male relative and guardian according to Hindu law, of the orphan minor, whose duty it was to provide for the funeral ceremonies of his deceased father.... So far, therefore, as the loan was required for the proper discharge of that duty, it was a charge on the estate of the deceased.

14. Maharana Shri Ranmal Singh v. Vadilal Vakhat Chand (1896) 20 Bom 61 has already been referred to by me Subramania Ayyar v. Arumuga Chetty (1903) 26 Mad 330 was a clear case of liability under Hindu law. As pointed out by the learned Judges:

At the time of the execution of the note the defendant's share of the ancestral estate was liable in respect of the original debt.

15. Referring to the Privy Council cases in Waghela Rajsanji v. Shekh Masludin (1887) 11 Bom 551 (PC) and Indur Chunder Singh v. Radha Kishor Ghose (1892) 19 Cal 507 the learned Judges make the following observations:

In these cases the guardian purported to contract on behalf of a ward so as to impose a personal liability on the latter, there being no preexisting liability on the part of the ward at the time the guardian entered into the contract. In the present case the effect of the guardian's contract was to keep alive a liability to which, at the date of the contract, the minor's share of the ancestral estate was already subject.

16. Siva Narayan Ghosh v. Kamakhya Ghose AIR 1914 Cal 500 was a case decided by Ashutosh Mookerjee and Beachcroft, JJ. In that case the mother of the minor son executed a bond to pay the debt of his deceased father. Referring to Maharana Shri Ranmal Singh v. Vadilal Vakhat Chand (1896) 20 Bom 61 and Bhawal Sahu v. Baijnath Pertab Narain Singh (1908) 35 Cal 320, the learned Judges observe as follows:

But the cases mentioned are clearly distinguishable. Here, as the recitals in the bond amply indicate, the debt had been contracted during the life time of the father of defendant 1. He was under a pious obligation to pay the debt and it could have been recovered by the creditor out of the assets in his hands. Under the bond the mother entered into an arrangement with the creditor for repayment of this money in instalments convenient to the infant. It is impossible for us to hold that defendant 1 is not liable for repayment of the ancestral debt the satisfaction of which was undertaken on his behalf by his mother under the bond mentioned. The view we take is supported by the decision in Subramania Ayyar v. Arumuga Chetty (1903) 26 Mad 330.

17. In Padma Krishna Chettiar v. Nagamuni Ammal AIR 1916 Mad 677 Seshagiri Ayyar, J., himself a party to that decision, observed at p. 917 as follows:

As we are not hampered by any legislative provision regarding documents executed on behalf of a minor, we must be guided by the principles of Hindu law in deciding such cases.

18. There can be no doubt that what the learned Judges meant in Ramajogayya v. Jagan Nadhan, AIR 1919 Mad 641 by the expression 'personal law' is Hindu law. The next case relied on by Mr. Sampath Ayyangar was the decision of a Bench reported in The Imperial Bank of India, Madras, v. Veerappan : AIR1934Mad595 , where Pandrang Row, J. made the following observations:

To put the case of the minor at its lowest, the appellant Bank can succeed in fixing the liability on the minor in respect of the promissory-note only if it is shown that the Bank' after making reasonable enquiry into the necessity for the execution of the promissory-notes believed in good faith that there was a real necessity for the execution of the promissory-notes.

19. I do not think the learned Judge meant to lay down any principle which would conflict with the principles laid down in the cases referred to by him in the earlier part of his judgment. After referring to Waghela Rajsanji v. Shekh Masludin (1887) 11 Bom 551 (PC) and Indur Chunder Singh v. Radha Kishor Ghose (1892) 19 Cal 507, as laying down that on a covenant or a contract entered into by a guardian, though beneficial to the minor, the estate of the minor cannot be rendered liable, he cites Sankakrishnamurthi v. The Bank of Burma (1912) 35 Mad 692 and Ramajogayya v. Jagan Nadhan, AIR 1919 Mad 641 and concludes:

These Madras decisions have stood unchallenged all these years and must be considered to be good law as far as this presidency is concerned.

20. After expressing himself thus, the learned, Judge considers that even assuming the power of the guardian is the same as that of a manager of a joint family and applying the test enunciated in regard to him, the estate of the minor cannot be rendered liable. Both the cases, Hanuman Prasad v. Mt. Bobooee, (1854) 6 MIA 393 & Ramkrishna Muraji v. Ratanchand , referred to by him in making the said observations, deal with the case of a charge created by the manager of an infant heir on the infant's estate on the one hand and the manager of a joint family estate on the other. As pointed out by the Privy Council in Indur Chunder Singh v. Radha Kishor Ghose (1892) 19 Cal 507, the considerations by which the validity of a charge is judged are not the same in adjudging the binding nature of a contract or a covenant entered into by the guardian. Meenakshisundaram Chetty v. Ranga Ayyangar : AIR1932Mad696 is again a case of a liability under the Hindu law coming within the principle enunciated in the Full Bench ruling in Ramajogayya v. Jagan Nadhan AIR 1919 Mad 641; also Duraisami Reddi v. Muthial Reddi (1908) 31 Mad 458. Mr. Sampath Ayyangar also relied on the recent Pull Bench decision in Satyanarayana v. Mallayya AIR 1935 Mad 447 and some of the observations therein. It was again the case of a father's debt and, therefore, a Hindu law liability coming directly within the decision in Ramajogayya v. Jagan Nadhan, AIR 1919 Mad 641. Referring to this decision Ramesam, J. observes at pp. 739 and 740 :

This decision has always been followed in this Court as settling the law, and I do not think that anything has happened since to induce me to depart from that decision. Its effect, as stated by Curgenven, J. in Zamindar of Polavaram v. Maharaja of Pithapuram AIR 1931 Mad 140, is that any liability to which the minor would be subject under the Hindu law is not the less a liability because it was incurred by his guardian on his behalf.

21. This supports the view that I have already indicated. Ramesam, J. on the same p. 740 proceeds to refer to The Imperial Bank of India, Madras, v. Veerappan AIR 1934 Mad 595, and the observations of Pandrang Row, J. referred to by me already, and winds up as follows :

That decision implies that the minors may be liable on a promissory note under such circumstances.

22. I do not know whether Ramesam, J. intended to express his concurrence with that view, namely, the, belief in the existence of a necessity would entitle a creditor to recover a debt on a promissory note executed by a guardian in respect of a liability which is not imposed by Hindu law from the minor's estate without a charge being created on the estate. If so it is in direct conflict with what he has previously expressed. Reliance was next placed on a commentary on the text of Cautyayana on p. 14 of Colebrooke's Digest, Vol. 1, which states that a loan may be advanced to a guardian on a deed executed by him in his ward's name. The same commentary itself mentions there is no text in support of this view but it is proved by the frequent practice of wise men.

23. Mr. Sampath Ayyangar next contended that it would work real hardship in practice that a guardian should be obliged to borrow only on a charge being created on the estate where the liability is not imposed by Hindu law. So long as the view expressed by the Full Bench of the Madras High Court on an interpretation of Waghela Rajsanji v. Shekh Masludin (1887) 11 Bom 551 (PC) and Indur Chunder Singh v. Radha Kishor Ghose (1892) 19 Cal 507 prevails, the question of hardship is not a matter for consideration. Again if the contract was entered into by the guardian in his own name and does not purport to be on behalf of the minor, no decree can be passed against the estate of the minor on such a contract. This is clear from the decision of their Lordships of the Privy Council in Indur Chunder Singh v. Radha Kishor Ghose (1892) 19 Cal 507. In that case both the grandmother and the adoptive mother of a minor renewed a lease agreeing to pay a certain annual rent. A suit was brought for the recovery of rent against the minor on the strength of that lease. They were at the time of renewal admittedly managing the estate and it was during the course of such management this renewal was made. Their Lordships refused to pass a decree against the estate of the minor. Dealing with an argument advanced on behalf of the plaintiff that the lease was taken really for the minor and for his benefit, based on Hanuman Prasad v. Mt. Bobooee, (1854) 6 MIA 393, their Lordships observe :

In that case, however, the managers of an infant estate were actually dealing by way of mortgage with a portion of that estate, and it was held that the manager might do so in a case of need or for the benefit of the estate. In the present case the mother and widow of Gopi Mohun Ghose were not dealing with, and did not purport to deal with or affect his estate, but merely incurring new obligations which it is now sought to transfer from them to the estate, (The italics are mine.) It may be that, as between them and the infant, they might be able, in some circumstances, to show that the estate ought to bear the burden they had taken upon themselves, but that is not the question raised in this case, in which the plaintiffs seek to establish a direct relation between themselves and the estate of the infant and a liability on the part of the infant now that he is of age, and of his estate, to fulfil the obligations entered into by the lessees in their own name.

24. It is contended by Mr. Sampath Ayyangar that the borrowing must be deemed to be also on behalf of the minor. But the only evidence of the debt is the promissory note and it connotes prima facie an obligation incurred by the guardian and it cannot at the same time be inferred that the obligation was also on behalf of the minor. It seems to me, therefore, that though the money borrowed for cultivation expenses may be for a necessary purpose, still the estate of the minor defendant 3 cannot be rendered liable.

25. It is contended by Mr. Sampath Ayyangar that the cultivation and the litigation expenses may be deemed to be necessaries, and, therefore, the minor's estate can be rendered liable. But when the supplies were not necessaries, but the moneys were advanced for the purchase of necessaries,it must be shown that the money was actually expended on necessaries. Therefore, the actual application of the money for the necessaries must be shown. In fact an issue was raised in the first Court, Issue 3, viz.:

Whether the estate of defendant 3 or defendant 3 has derived any benefit out of the consideration of the promissory note and whether the suit debt is binding on defendant 3.

26. The finding of the learned District Munsif on this issue is as follows :

The plaintiff admits that he has not made enquiries as to the actual utilization of the amounts borrowed from him and there is no evidence to the effect that the estate of defendant 3 has been benefited from the amounts borrowed.

27. But the learned Subordinate Judge after holding in para. 3 of his judgment that the plaintiff believed in the existence of a necessity and, therefore, lent the money and that the requirements of the law were satisfied, proceeded to find in para. 4 thus :

The loan was for the purpose of cultivating the minor's lands. The litigations were litigations against the minor and the amounts were utilized and spent by defendant 1, certainly as guardian of defendant 3, and not in her personal capacity.

28. Mr. Sitarama Rao attacks this finding on the ground that there is absolutely no evidence on record to justify this observation of the learned Judge. The learned Judge does not find whether the amounts borrowed under Ex. A-1 was spent for litigation and cultivation expenses and how much for each. No evidence has been pointed out to me by Mr. Sampath Ayyangar on which the observation or the finding is based. In fact the plaintiff himself admits in his evidence :

I am responsible for the language in Ex. A-1. I did not think it necessary to refer to Court expenses. I have not made any subsequent enquiry as to how the sum of Rs. 1,000 lent under Ex. A-1 was actually utilized.

29. Therefore on the record as it stands there is absolutely no evidence that any portion was actually utilized either for cultivation or litigation expenses, except the hare recital in the promissory note which does not refer to any Court expenses at all. Another argument advanced is that as between the minor and the guardian, the guardian would be certainly entitled to be reimbursed, and therefore the guardian would be entitled to indemnity from the minor's estate, and in such circumstances the creditor can be subrogated to his right and can have direct recourse against the estate of the minor. For this contention reliance is placed on Sankakrishnamurthi v. The Bank of Burma (1912) 35 Mad 692, and on the observations of the learned Judges of the Full Bench in Ramajogayya v. Jagan Nadhan, AIR 1919 Mad 641. It is not in every case that such a decree can be given. Before such a decree can be given facts must be established and foundation must be laid for such a decree. The nature and extent of the right of indemnity is thus stated by Jessel, M.E. in In re Johnson Shearman v. Robinson (1880) 15 Ch D 548:

With regard to the point that has been argued, I understand the doctrine to be this: that where a trustee is authorized by a testator, or by a settlor--for it makes no difference--to carry on a business with certain funds which he gives to the trustee for that purpose, the creditor who trusts the executor has a right to say: 'I had the personal liability of the man I trusted, and I have also a right to be put in his place against the assets, that is I have a right to the benefit of indemnity or lien which he has against the assets devoted to the purposes of the trade.' The first right is his general right by a contract, because he trusted the trustee or executor; he has a personal right to sue him and to get judgment and make him a bankrupt. The second right is a mere corollary to those numerous cases in equity in which persons are allowed to follow trust assets; But if the trustee has wronged the trust estate, that is, if he has taken money out of the assets more than sufficient to pay the debts, and instead of applying them to the payment of the debts has put them into his own pocket, then it appears to me there is no such equity, because the cestui que trust are not taking the benefit. The trustee having pocketed the money, the title of the creditor, so to speak to be put in the place of the trustee is a title to get nothing, because nothing is due to the trustee.

30. Thus it must be shown in each case that, the guardian has a right of indemnity and as pointed out in Bhawal Sahu v. Baijnath Pertab Narain Singh (1908) 35 Cal 320:

It would have to be proved that the guardian was entitled to indemnity against the estate of the infant for the whole of the transactions of her guardianship: vide also In re Evans (1887) 34 Ch D 597.

31. Till that is done no decree can be given against the estate. So far as I' know there seems to be no machinery for ascertaining that indemnity in an ordinary suit brought by a creditor to enforce a debt. All that the creditor will be entitled to will be a declaration that he should be subrogated to the guardian's right of indemnity leaving the creditor to work out his rights against the estate of the minor in an appropriate action. Any how in this case no foundation is laid for passing a decree against the . estate because it cannot be known if, when the entire accounts of the transactions of the guardian are taken into consideration, the guardian will be entitled to a right of indemnity or not. In the result I allow the appeal and reverse the decree of the Subordinate Judge and dismiss the suit against defendant 3 with costs. Memorandum of objections dismissed. No costs.


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