Patanjali Sastri, J.
1. This appeal and cross-appeal arise out of a suit to enforce an indemnity bond. The plaintiff's claim having been partly allowed and partly disallowed both parties have preferred appeals. Between 1926 and 1929 the defendant borrowed various sums of money on promissory notes from the plaintiff's father who died in February 1930; In July 1930 there was a settlement of account and a sum of Rs. 11859-5-0 having been found to be due from the defendant the latter assigned to the plaintiff in full satisfaction of the debt ten promissory notes of the value of Rs. 4182-15-0 and two mortgages of the value of Rs. 4583-10-0 executed in his own favour by third parties, and paid Rs. 1071-7-0 in cash aggregating in all to Rs. 9838, the balance-being remitted by the plaintiff. The promissory notes were endorsed and delivered and for the mortgages which were of the years 1911 and 1929 two assignment deeds were executed on 3rd July 1930. The principal and interests due under each mortgage up to the date of the assignment was calculated and specified in the deeds which were in similar terms, and the plaintiff was authorized to
recover directly the above amount of principal and interest as well as the interest that will accrue hereafter according to the terms of the hypothecation deed.
2. And in each deed there was a stipulation that 'if in the matter of such recovery any dispute ('kalan') arises I shall make good (the loss)' The defendant also executed on 5th July 1930 so called 'receipt' which was really in the nature of an indemnity bond. In this document, after reciting the settlement of account between the parties and the assignment of the promissory notes and mortgages in full satisfaction of the debt due to the plaintiff, the defendant stipulated as follows:
I shall make good the loss if any dispute (kalan)' should arise owing to the renewal of the said bonds or in realizing the dues on the renewal of the said bonds I agree to pay the costs of going to Court and, the costs which might be ordered by the Court. I agree to make good the loss if any dispute (kalan) should arise in realizing the amounts on the above mentioned deeds. I hold myself responsible until the cash in respect of assigned deeds and bonds is realized.
3. In 1935 the plaintiff sued in the Court of the District Munsif, Ranipet, to enforce the mortgage of 1929 which was assigned to him for Rs. 1409-12-0 and obtained a decree for Rs. 3015. This decree was, however, scaled down to Rs. 1165 on 26th October 1938 at the instance of the mortgagor who claimed the benefit of the Madras Agriculturists Relief Act, 1938. The plaintiff also brought O.S. No. 13 of 1937 in the Court of the Subordinate Judge of Vellore claiming Rs. 6409-5-7 on foot of the other mortgage assigned to him for Rs. 3173-14-0, but the said Act having come into force during the pendency of the suit and the mortgagor in this case too having claimed its benefit, a decree for Rs. 63-13-0 only was passed after scaling down the debt in accordance, with the provisions of that Act. The plaintiff thereupon issued a notice of demand on 7th October 1939 requiring the defendant to make good the loss by paying the difference between the amounts realised by him on the mortgages as aforesaid and the full amounts payable there under, and failing to obtain satisfaction of his claim instituted the present suit for recovery of the amount (Rs. 7833-3-7) with interest at six per cent, per annum from the date of demand. The defendant pleaded, inter alia, that the covenants to indemnify the plaintiff contained in the deeds of assignment and the so called receipt did not cover losses arising out of the operation of the Madras Agriculturists' Relief Act, 1938, as neither of the parties could have foreseen in 1930 the passing of such an Act by the Legislature, and that, in any event, the indemnity extended only to the sum of Rupees 4583-10-0 the amounts due on the two mortgages on the date of assignment, i.e., 3rd July 1930 and not to be interest accruing due subsequent to that date. He also claimed such relief as he might be found entitled to under the Madras Agriculturists Relief Act, 1938, as ho was an agriculturist within the meaning of that Act. The Court below rejected the first plea but accepted the second and passed a decree for Rs. 4583-10-0 with interest at 6 1/4 per cent, per annum less the amounts realised by the plaintiff on the mortgages, i.e., for Rs. 4176-1-1. From this decree the plaintiff has preferred App. No. 95 of 1943 claiming the balance of the amount sued for, and the defendant has preferred App. No. 108 of 1943 contending that the covenant for indemnity does not cover losses due to the new Act.
4. It is obvious that the two assignment deeds and the so called receipt are parts of the same transaction and must be read together. There was some controversy as to the exact connotation of the Tamil word 'kalan' so commonly used in conveyances in this part of the country. Mr. Rajah Ayyar for the plaintiff suggested that it signified a defect in title referring to Annathuri Iyer v. Ramanuja Chariar 12 M.L.J. 411 where the word was understood in that sense, and urged that the covenant contemplated only losses due to some invalidating fact such as fraud, want of due execution, absence of consideration etc., vitiating the mortgages assigned. We are unable to accept this restricted interpretation of the covenants. It is most unlikely that the parties, while foreseeing and guarding against such contingencies, would have failed to provide against the much more obvious and probable contingency of the debtor's default in payment. 'Kalan' is a word of some what loose connotation and its official translation as 'dispute' is supported by Winslow's Dictionary and would seem to fit the context best. In this sense the covenant must be taken to provide for indemnification of the plaintiff against loss arising out of any dispute raised by the debtors in the matter of realising the mortgage debts assigned to him by the defendant. The contract being thus absolute in terms must, prima facie, be taken to cover losses attributable even to a change of the law which the parties could not have foreseen at the time of the contract.
5. Mr. Rajah Ayyar, however, contended that people must ordinarily be taken to contract with reference to the law as existing at the time, and that a term or condition should be implied that the obligation should cease if the law was subsequently altered so as to affect the rights of parties in a manner not contemplated by them. On this principle, it was urged that, when the Madras Agriculturists' Relief Act was passed eight years later resulting in the scaling down of the debts assigned to the plaintiff, the debtors being agriculturists, the indemnity ceased to be operative. There is no warrant either in principle or in precedent, for the broad proposition contended for by the learned Counsel. No doubt contracts absolute in their terms have sometimes been construed as subject to implied conditions qualifying the obligation. In England, where, there is no positive rule of law such as is enacted in Section 56, Contract Act, declaring contracts void for supervening impossibility of performance, Courts have often implied a condition, as a matter of construction, that the contract, though absolute in terms, shall be discharged if its substratum or essential foundation disappears or performance becomes impossible. Many of the decisions cited in the course of the argument before us are only illustrations of cases where the Courts have implied or refused to imply such a condition in contracts absolute in terms Baily v. De Crespigny (1869) 4 Q.B. 180, Newby v. Sharpe (1878) 8 Ch. D. 39, Walton Harvey Ltd. v. Walker and Homfrays Ltd. (1931) 1 Ch. 274. It is unnecessary to discuss these and other similar decisions to which we were referred as the rule of construction applicable in such cases has been recently expounded in. the House of Lords. In Joseph Constantine Steamship Line Ltd. v.Imperial Smelting Corporation Ltd. 1942 A.C. 154 , Lord Wright observed:
It is true that a contract, absolute in terms, may be absolute also in effect. The contractor if he cannot perform, must pay damages. Prima facie, the actual language governs. But a contract absolute in terms is not necessarily absolute in effect;... It is a question of the construction of the particular contract whether the obligation is absolute or whether it is qualified. It will thus, bell seen that the Court is not claiming to exercise A dispensing power, or to modify or alter contracts. The parties did not express the qualification because they did not think of the possibility of the occurrence, but as Lord Watson said in Dhal v. Nelson, Donkin & Co.(1881) 6 A.C. 38 , when one or other of these possibilities becomes a fact the meaning of the contract must be taken to too not what the parties did intend (for they had neither thought nor intention regarding it) but that which the parties as fair and reasonable men would presumably have agreed upon', if having such possibility in view they had made express provision as to their several rights and liabilities in the event of its occurrence.' In short, in ascertaining the meaning of the contract and its application to the actual occurrences, the Court has to decide, not what the parties actually intended, but what as reasonable men they should have intended. The Court personifies for this purpose the reasonable man.
6. It will be seen that this statement of the law affords no support to the broad contention of Mr. Rajah Ayyar that a change in the law affecting the rights of parties makes a contract unenforceable in virtue of an implied term to that effect. It is a question of cons-traction in each case regard being had to the language used, the nature of the contract and the surrounding circumstances.
7. The question then is whether the defendant is absolved from his liability to indemnify the plaintiff by reason of the enactment of the Madras Agriculturists' Relief Act 1938, in the circumstances of this case. As has been stated, the contract is absolute in terms. The new Act does not prohibit the payment of debts due by agriculturists; it only confers on them certain benefits by providing for a scaling down of their debts. There is no question of the mortgagors' covenant to pay or the defendant's covenant to indemnify having been rendered impossible of performance. And what are the surrounding circumstances? On the date of the contract, the defendant owed Rs. 11,854 to the plaintiff and, being unable to pay the amount in cash, he assigned to the plaintiff certain promissory notes and mortgages of lesser value (Rs. 9833) in full satisfaction, undertaking to indemnify the plaintiff against loss in realising the debts. In that situation, if the possibility of a law scaling down these debts had occurred to the parties, would they 'as fair and reasonable men' have agreed that the obligation to indemnify should be at an end? We think not. Indeed, to imply such a term would be inconsistent with the intention of the parties and defeat the very object of the settlement arrived at. We may refer, in this connexion, to the decision of this Court in Subramaniam Chettiar v. Bacha Rowther A.I.R. 1942 Mad. 145 where it was held that the obligation of a surety was not affected (except, of course, in so far as he is himself an agriculturist) by the principal debtor obtaining relief under the Act, though the point now raised was not argued in that case. The question next arises as to what sum the defendant is liable to pay under the covenant for indemnity. We are unable to agree with the learned District Judge's conclusion on this point. The learned Judge assumed that the loss to the plaintiff arose on the date of the assignment itself, i.e., 3rd July 1930, and finding that the defendant was an agriculturist, within the meaning of the new Act, proceeded to scale down the liability by disallowing all interest on the amount of the loss till 1st October 1937. This is clearly wrong as the plaintiff's loss arose only when the mortgage debts were scaled down, i.e., 31st August 1938 and 26th October 1938 respectively, and such loss was, plainly, the difference between the full amounts payable under the bonds and the amounts actually realized by the plaintiff, i.e., Rs. 7833-3-7 the sum claimed in the suit. The only relief which the defendant could claim as an agriculturist under the Act is in respect of interest for the period subsequent to the dates aforementioned, but the plaintiff has claimed interest only from the date of his demand, viz. 7th October 1939, and that at six per cent, per annum which is less than the statutory rate. No question, therefore, arises of awarding relief to the defendant as an agriculturist. We may notice here, in order to reject, a suggestion, founded on the last clause in the so called 'receipt' quoted above, that the transaction was only a contract of guarantee and that the liability of the defendant as a surety having arisen on 3rd July 1930, all subsequent interest on the amounts due in respect of the mortgages as on that date should be wiped out under the new Act as he has been found to be an agriculturist. No such suggestion was made in the Court below, and whatever may be the legal effect of the clause relied upon if it had stood alone, we are satisfied that the document read as a whole and with the covenants in the assignment deeds is clearly a contract of indemnity and must receive effect accordingly. In the result A.S. No. 95 of 1943 is allowed and the plaintiff will have a decree as prayed for with costs throughout. Appeal No. 108 of 1943 is dismissed with costs. One advocate's fee in both appeals.