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Chunduri Panakala Rao Vs. Atmuri Venkata Sarvesam - Court Judgment

LegalCrystal Citation
SubjectFamily;Civil
CourtChennai
Decided On
Reported inAIR1936Mad342
AppellantChunduri Panakala Rao
RespondentAtmuri Venkata Sarvesam
Cases ReferredIn Brandon v. Brandon
Excerpt:
- - defendant 2 having failed to pay the said sum of money due under the promissory note, the plaintiff was called upon by the bank to pay the amount, and on 18th august 1925 the plaintiff paid to the bank the sum of rs. the bank granted a receipt to him on 21st august 1925 and sent the pronote to the plaintiff with the payment duly endorsed......main question in this case is whether the plaintiff as surety having paid the amount due to the bank is entitled to recover the said amount from defendant 1. it is settled law that a surety who has paid the debt of his principal is subrogated to all the remedies and rights which the creditor has not only against the principal but against the others and to all the securities and rights of action generally which the creditor had in respect of the debt. it is immaterial that when the surety entered into the obligation he was unaware of the existence of the said rights and securities. though the transaction in respect whereof the plaintiff became surety for defendant 2 was the individual transaction of defendant 2, still, so far as the bank is concerned, it must be deemed to be a joint.....
Judgment:

Venkataramana Rao, J.

1. The facts necessary for the disposal of this second appeal may be briefly stated. Defendants 1 and 2 are brothers and were members of an undivided Hindu family till January 1926. In or about 1913 it appears that some paddy trade was being carried on by defendant 2 in partnership with D. W. 3. At that time defendants 1 and 2 with a view to get loans from the Imperial Bank of India for the trade entered into an agreement with the bank, Ex. A, dated 18th January 1913, in and by which they intimated to the bank that they were trading for their joint family benefit and interest and that they will hold themselves jointly and severally liable in respect of moneys advanced to any of them. Ex. A runs as follows:

We, the undersigned : (1) Atmoori Venkatasarvesam, A.L.N. (2) Atmoori Lakshmi Nara-simham, do hereby request you to take notice that we are trading for our joint family benefit and interest, and we further request you to note that all transactions entered into by any of us, whether jointly or individually, and all documents signed by any of us jointly or severally or in the name of our firm as per specimens of signature at foot, may be regarded by you as entered into for and on behalf of our joint family account and interest, and that we hereby jointly and severally bind ourselves, our heirs, executors or administrators and trustees liable in respect of all or any of such transactions and documents.

2. The effect of this agreement is that any transaction entered into by either defendant 1 or defendant 2 will be a joint transaction in the sense that both of them will be primarily liable to the bank and the bank has a right to sue both and realise the amount advanced personally and out of their joint family properties or their separate properties. On 31st March 1922 both defendants 1 and 2 also gave a further undertaking not to alienate their properties so long as they were indebted to the Bank. In or about November 1924, defendant 2 wanted a loan from the bank and the bank apparently seemed to have demanded a surety and the plaintiff accommodated defendant 2 by executing a promissory note (Ex. 0) dated 28th November 1924 for a sum of Rs. 3,000 in favour of defendant 2 which was neegotiated in favour of the bank. Defendant 2 having failed to pay the said sum of money due under the promissory note, the plaintiff was called upon by the bank to pay the amount, and on 18th August 1925 the plaintiff paid to the bank the sum of Rs. 3,180 in full discharge of the principal and interest due under the said promissory note. The bank granted a receipt to him on 21st August 1925 and sent the pronote to the plaintiff with the payment duly endorsed. On the very same day, i.e., 18th August 1925, when the plaintiff paid the amount the plaintiff got a promissory note from defendant 2 for a sum of Rs. 3,732 made up of the said sum of Rs. 3,180 and another sum of Rs. 552 being the principal and interest due in respect of a pair of earrings purchased by defendant 2.

3. The plaintiff has instituted this action to recover the amount due under the said promissory note from defendants 1 and 2 or in the alternative to recover the sum of Rs. 3,180, the amount paid by the plaintiff to the bank, from both the defendants with interest from the date of payment. This claim is resisted by defendant 1. Defendant 1 denied that the suit promissory note was executed for any family necessity and also that the promissory note in favour of the bank was the sole transaction of defendant 2, the amount borrowed thereunder having been utilised by him solely for his own purposes and that he could not be made liable therefor. The principal Subordinate Judge of Narasapur who tried the suit gave a decree to the plaintiff for the amount paid by the plaintiff to the bank with interest. The learned District Judge reversed the decision of the Subordinate Judge holding that the transaction with the bank was the sole concern of defendant 2 and defendant 1 could not be made liable therefor. It is clear from the evidence that the amount borrowed from the bank was borrowed for the individual purposes of defendant 2 and the accommodation of the plaintiff was at the request of defendant 2. It has been concurrently found by both the lower Courts that the plaintiff was a surety for defendant 2 in regard to the transaction with the bank.

4. The main question in this case is whether the plaintiff as surety having paid the amount due to the bank is entitled to recover the said amount from defendant 1. It is settled law that a surety who has paid the debt of his principal is subrogated to all the remedies and rights which the creditor has not only against the principal but against the others and to all the securities and rights of action generally which the creditor had in respect of the debt. It is immaterial that when the surety entered into the obligation he was unaware of the existence of the said rights and securities. Though the transaction in respect whereof the plaintiff became surety for defendant 2 was the individual transaction of defendant 2, still, so far as the bank is concerned, it must be deemed to be a joint transaction of defendants 1 and 2 and that the bank had a right of action for realising the amount advanced to defendant 2 from defendant 1 also. The plaintiff therefore became subrogated to this right of action against defendant 1. Whatever may be nature of the liability of defendant 1 to the bank, whether it was that of a primary liability or only that of a guarantee, still the stipulation of defendant 1 in Ex. A may even be held to be a security as held by Fry, L.J., in salting Ex parte, in re Sortition (1884) 25 Ch D 148. In that case, the learned Judge held that

A guarantee by one partner for the debt of the firm which gives the creditor a right of proof against the separate estate of that partner, in addition to his right of proof against the joint estate of the partnership, is a security within the meaning of the principle laid down in Ex parte Alston (1869) 4 Ch 168.

5. Thus whether it is viewed in the nature of a security or a right of action, the plaintiff must be deemed to have become subrogated to that right. The fact that the plaintiff intended to accommodate only defendant 2 does not take away this right. In Tirumalai Savuri Naicker v. Royor : AIR1921Mad530 where a surety for one of the joint judgment-debtors was held entitled to recover from the others on payment, his Lordship Ramesam, J., observed:

In my opinion there need be no privity between the principal debtor and a surety and all debtors whose unpaid debts a surety promises to pay are the principal debtors though they are not the objects of his benevolent intention. In this view the plaintiff is entitled to a decree under Section 140, Contract Act.

6. Prima facie therefore he will be entitled to realise the amount paid by him to the bank from defendant 1 also. But Mr. Somasundaram contends that the action of the plaintiff in having taken a promissory note from defendant 2 alone must be construed as a waiver of the rights which he had against defendant 1 and for this position he relies on Cooper v. Jenkins (1863) 32 Beav 337 and a passage in Sheldon on Subrogation, Section 110, and also on the evidence of the plaintiff when he stated that he debited the amount covered by Ex. E, the promissory note, in the katha of defendant 2 and did not give any registered notice to defendant 1. In the first instance, there is no plea of waiver in the written statement of defendant 1. The Principal Subordinate Judge observes that

it is not the case of defendant 1 that he was liable in the first instance but was released afterwards by plaintiff.

7. The learned District Judge says that he would not consider the plea because it was not raised in the written statement. Cooper v. Jenkins (1863) 32 Beav 337 only illustrates the principle that a surety can always agree with the principal debtor to waive the benefit of the securities given by the latter to the creditor. At the date of the contract an independent security was taken from the principal debtor. From the circumstances of the transaction in that case the Court inferred that he waived his right to the benefit of any other security which the principal debtor gave to the creditor. The facts were that A was tenant for life of lots 1 and 2 to which B was entitled in remainder. B and A as his surety mortgaged lot 2, B alone covenanting to pay. By a contemporaneous deed B conveyed his interests in the other lot on trusts to indemnify A as his surety. It was held that A by payment of the debt was not entitled to the benefit of the security on lot 2, but must realise only from the security which he took, namely on lot 1, and Sir John Romilly observed:

If a surety pays off the mortgage he is entitled to the benefit of all the securities. But here the plaintiff has contracted with the mortgagor, for whom he is surety, that he should receive a particular species of indemnity if he pays off any part of the principal or interest of the mortgage. That indemnity he is entitled to, and not to the benefit of the mortgage paid off.

8. No such contract can be implied in this case. In Brandon v. Brandon (1859) 3 De G & J 524 where the facts were : a receiver of an estate was entitled to certain shares therein by descent and he acquired certain further shares by purchase; all the shares were made security for his due accounting to the estate. To the persons who stood sureties for him he gave security of the shares to which he became entitled by descent eliminating the shares he acquired by purchase; it was held that unless there was an express release the sureties were entitled to the security of all the shares on payment; the order made; was that the sureties should be directed to realise the amount in the first instance from the shares got by descent and for the deficiency from the other shares. The passage in Sheldon on Subrogation, Section 110, is to this effect:

If, after a surety for two principals has paid the debt, he takes from one of the principals a security for his reimbursement, he has been held to waive his right to the benefit of a security which had previously been given by the other principal to the creditor.

9. This passage does not warrant the conclusion that the right of action against the other principal is released. There is no security given by defendant 1 to the bank which the plaintiff is trying to realise. From the mere taking of a promissory note from defendant 2 on the date when he made the payment to the bank it cannot be inferred that on that date the plaintiff intended to release his right of action against defendant 1. In my opinion therefore the facts do not establish any waiver and the plaintiff is entitled to a decree against defendant 1. I therefore reverse the decree of the learned Judge. The amount the plaintiff is entitled to will be the sum of Rs. 3,187 from both the defendants. But as against defendant 1 he will be entitled to interest only at 8 per cent, till date of plaint and thereafter at 6 per cent. Again it must be noticed that the plaintiff has chosen to enforce the pronote he has taken from defendant 2. The plaintiff will therefore be entitled to realise from defendant 1 only the balance due after giving credit to the payments made. I direct defendant 1 to pay the plaintiff half the costs of this appeal and direct each party to bear his own costs in both the lower Courts. (Leave to appeal is refused.)


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