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A.K.A. Khan Ghuznavi Vs. National Bank of India, Ltd. - Court Judgment

LegalCrystal Citation
CourtKolkata
Decided On
Judge
Reported in33Ind.Cas.34
AppellantA.K.A. Khan Ghuznavi
RespondentNational Bank of India, Ltd.
Cases ReferredLondon Chatham & Dover Railway Co. v. South Eastern Rallway Co.
Excerpt:
contract act (ix of 1872), sections 183 and 139 - guarantee, contract of, when discharged by new transaction between creditor and principal debtor--interest, liability to pay, as damages--interest act (xxxii of 1839)--surety's right to control appropriations of money paid in by principal debtor--appropriation of payments, rule of, and its variation--surety, liability of. - lancelot sanderson, c.j.1. this was an action by the bank for the recovery of rs. 25,454-12-9 alleged to be due from the defendant a.k. ghuznavi upon a contract in writing, dated the 10th june 1913.2. it appears that the defendant's brother a.h. ghuznavi, trading under the name of a.h. ghuznavi & co., as jute bailer and shipper, had an account at the bank: advances were made by the bank to a.h. ghuznavi & co. against shipping documents in relation to jute in course of shipment: the form of overdraft being known here as advances against shipping lien,' the rate of interest charged being 1 per cent, over bank of bengal rate with a minimum of 5 per cent.3. during the course of business it was discovered that certain dock receipts and bills of lading, which had been handed to the bank by a.h......
Judgment:

Lancelot Sanderson, C.J.

1. This was an action by the Bank for the recovery of Rs. 25,454-12-9 alleged to be due from the defendant A.K. Ghuznavi upon a contract in writing, dated the 10th June 1913.

2. It appears that the defendant's brother A.H. Ghuznavi, trading under the name of A.H. Ghuznavi & Co., as jute bailer and shipper, had an account at the Bank: advances were made by the Bank to A.H. Ghuznavi & Co. against shipping documents in relation to jute in course of shipment: the form of overdraft being known here as advances against shipping lien,' the rate of interest charged being 1 per cent, over Bank of Bengal rate with a minimum of 5 per cent.

3. During the course of business it was discovered that certain dock receipts and bills of lading, which had been handed to the Bank by A.H. Ghuznavi & Co., were spurious, and consequently a considerable amount of the overdraft was unsecured.

4. Certain securities were pledged with the Bank by A.H. Ghuznavi & Co., but they were insufficient to cover the amount due and the Bank called for additional security.

5. The result was that after certain interviews between the Bank and the defendant, the defendant gave the Bank a letter which was to the following effect: 'In consideration of your having agreed at my request to extend the time for payment of moneys overdrawn by Messrs. A.H. Ghuznavi & Co., upon their current account with you, I the undersigned A.K.A.A.K. Ghuznavi hereby agree with you as follows.' I will pay to you on the 30th September 1913 to the extent of Rs. 3,00,000--all money then due to you from Messrs. A.H. Ghuznavi & Co., on current account or otherwise howsoever, including all interest charges and other expenses which you may charge against Messrs. A.H. Ghuznavi & Co.

No possession of any guarantee from any other person or of any other security shall determine, prejudice or lessen my liability hereunder.

6. Between the 10th June 1913 and 30th September 1913, the date specified for payment in the letter, memoranda showing the state of the account were frequently sent to the defendant, and, according to the evidence of Mr. Stewart, who was at that time sub-manager of the Calcutta Branch of the Bank and whose evidence is uncontradicted, the defendant was in the habit of calling on the Bank whenever he was in Calcutta during that period and seeing Mr. Stewart, he asked the Bank not to press his brother or to foreclose, and he wanted his brother to continue doing his business.

7. On the 10th June 1913, the overdraft was Rs. 5,41,653-2-0, and on the 30th September 1913, the overdraft including interest was Rs. 86,343-5-0. During the above-mentioned period the account had not been drawn upon by A.H. Ghuznavi & Co., bat the overdraft had been reduced by payment by A.H. Ghuznavi & Co. and by crediting to the account the proceeds of sales of the securities lodged with the Bank.

8. Mr. Stewart did not see the defendant after the 30th September 1913, and it appears that he learnt from the newspapers that the defendant had gone to Mecca and that he did not return to Calcutta until February 1914.

9. On October 16th, 1913, A.H. Ghuznavi went to the Bank and wanted to open an account to enable him to continue his business. He had Rs. 20,000 which he wished to deposit provided the Bank would allow him to draw against this sum by cheques: that is to say, the Bank were not to take it in payment of the amount due to them.

10. Consequently a, No. 2 account was opened by the Bank to enable A.H. Ghuznavi & Co. to continue his bailing business, the Bank stipulating that any profits on such business should be paid to the credit of the overdrawn account, and agreeing to take A.H. Ghuznavi's word for the actual amount of profits.

11. Apparently A. II. Ghuznavi continued his business and No. 2 account was used, as far as it can be seen from the evidence, as a current operative account from the 16th October 1913 until the end of the year in the ordinary course of business.

12. Certain sums were transferred from the No. 2 account to No. 1 account purporting to be profits of the business according to the statement of A.H. Ghuznavi & Co.

13. Such payments reduced the balance on the overdrawn account.

14. As far as Mr. Stewart could say, the defendant was not aware of this arrangement made between the Bank and A.H. Ghuznavi.

15. On December 31st, 1913, there was standing to the credit of A.H. Ghuznavi & Co. on the No. 2 account Rs. 40-13-2 only, and for all practical purposes, as far as this case is concerned, that account may be said to have come to an end shortly afterwards.

16. Subsequently the Bank claimed from the defendant payment of the balance on the overdrawn No. 1 account and a copy of the account of A.H. Ghuznavi & Co. was at the request of the defendant sent to him. This appears from the letter of the 23rd March 1914 so that an examination of the account in March 1914 must have shown the defendant that a No. 2 account had been in existence in November and December 1913 and that considerable sums of money had been transferred from such account to the overdrawn account.

17. In spite of this the defendant in his letter of April and June 1914 to the Bank did not dispute his liability, but on the contrary assured the Bank that he would see that what was owing from his brother should be fully paid.

18. The defendant now alleges that his position was that of a surety and that in consequence of the arrangement, made by the Bank with A.H. Ghuznavi & Co. in October 1913 and their subsequent transactions with him, he, the defendant, has been discharged from his liability to the Bank.

19. The points urged before this Court were that the matter was governed by Section 139 of the Contract Act which runs as follows: 'If the creditor does any act which is inconsistent with the rights of the surety, or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged.'

20. The first ground was that it was to be implied from the letter of 10th June 1913 and the way in which the Bank dealt with the overdrawn account that A.H. Ghuznavi was to pay off his overdraft, and consequently the Bank were acting contrary to such implied agreement when they allowed A.H. Ghuznavi to use the Rs. 20,000 for opening the No. 2 account and to draw against it, instead of applying it for the payment of overdraft on the No. 1 account, and that consequently the Bank had done an act inconsistent with the rights of the surety within the meaning of Section 139 of the Contract Act.

21. In my judgment that argument will not assist the defendant.

22. The answer to it is that it was not within the power of the Bank to appropriate that sum to the overdrawn account: A.H. Ghuznavi, as I read the evidence, would only deposit the sum on the condition that the No. 2 account was opened and he was allowed to draw against it for the purpose of continuing his business: and the Bank, if they took that money at all, could only take it on that condition, and could not appropriate it to the overdraft on the No. 1 account. It was further argued, though not very strenuously, by learned Counsel for the defendant that the two accounts should be treated as one account and that if that course were adopted, and inasmuch as some Rs. 60,000 had been paid into the said account in October 1913, the overdraft now sued for would have been wiped off by such payments, reliance being placed upon the rule in Clayton's case (1816) 1 (sic). 572 : 15 R.R. 161 : 35 E.R. 781.

23. The answer to that argument is, that the rule in Clayton's case (1816) 1 (sic). 572 : 15 R.R. 161 : 35 E.R. 781 applies only to the items in one current account and when there is no specific appropriation by the debtor. In this case there was in fact a specific appropriation by A.H. Ghuznavi when he insisted on a new account being opened with the Rs. 20,000 and his being allowed to draw against that sum: and there were in fact not one account, but two accounts.

24. The main ground, however, which was relied upon was that it was the duty of the Bank to the defendant to inform him of the transaction between the Bank and the defendant's brother in October 1913, and, inasmuch as they did not do so, the defendant is released, and reliance was placed upon the cases of Polak v. Everett (1876) 1 Q.B.D. 669 : 46 L.J.Q.B. 218 : 35 L.T. 350 : 24 W. R 689 and Holme v. Brunskill (1878) : 3 Q.B.D. 495 at p. 505 : 47 L.J.Q.B. 610 : 38 L.T. 838 and Rees v. Berrington (1795) 2 Ves. (Jun.) 540 : 3 R.R. 3 : 30 E.R. 765 : 2 Wh. & T.L.C. (7th Ed.) 568.

25. In my judgment in this case there was no duty to communicate with the defendant with reference to the opening of the No. 2 account in October. In my opinion this was not contrary to the nature of the defendant's engagement, to use the words of Lord Lough borough: on the contrary I think it is clear from the evidence that it was in accordance with the arrangement made by the defendant with the Bank. In his interviews during the period between June and September 1913 he had expressed his wish that his brother should be allowed to continue his business, obviously in the hope that by so doing A.H. Ghuznavi would be able to pay his debt to the Bank and that the defendant would not be called upon in respect thereof.

26. I do not see how the defendant's brother, having regard to the nature of his business, could continue his business without having a banking account upon which he could draw in the ordinary course of his business, and, when the defendant intimated that he wished his brother to be allowed to continue his business, he must have contemplated some such arrangement as was in fact made by the Bank, and, therefore, it may be said that he impliedly consented to such an arrangement being made.

27. It was argued by Mr. Langford James that having regard to the letter of 10th June 1913 and the way in which No. 1 account was treated by the Bank, that the ''carrying on of business' contemplated by the defendant was merely the realising of the securities held by the Bank and the receiving of payments from the debtor for the liquidation of his debt; but this to my mind is an unreasonable inference to draw from the uncontradicted evidence of Mr. Stewart, and it was evidently not so understood by the Bank.

28. This would be alone sufficient to decide the case on this point against the defendant, but it must be remembered that under Section 139 of the Contract Act of 1872 in order to discharge the surety it must be shown that not only has the creditor omitted to do some act which his duty to the surety required him to do, but also that the eventual remedy of the surety himself has thereby been impaired.

29. Even if my judgment on the above mentioned matter is not correct, I do not think that it has been shown in this case that the eventual remedy of the defendant against his brother has been impaired, and, therefore, in my judgment this part of the defence fails and the learned Judge's judgment should be upheld.

30. The next point argued was that interest after the 30th September 1913 could not be recovered. Upon this point it is necessary to see how the matter stands upon the correspondence between the parties.

31. By the letter of 10th June 1913 the defendant agreed 'to pay to the Bank on the 30th September 1913 to the extent of Rs. 3,00,000--all money then due from A.K. Ghuznavi and Co., on current account or otherwise, including all interest, charges and other expenses which you may charge against A.H. Ghuanavi and Co.' The rate charged upon the account was 1 per cent over Bank of Bengal rate with a minimum of 5 per cent.

32. After September 30th correspondence passed, the Bank on one side asking the defendant for payment and the defendant asking for time.

33. On the 30th September 1913 the Manager of the Bank wrote as follows:

We beg to advise that after crediting the proceeds of 1,386 remittance from London of which we informed you privately yesterday, the account of Messrs. A.H. Ghuznavi and Co., after adding interest to date, is Dr. Rs. 86,343-5-0. In terms of your guarantee, dated 10th June 1913, we shall be glad to receive payment of this amount to-day.

34. On the 1st of October he wrote again reminding the defendant of that fact and asking for payment.

35. On the 26th of February the Bank again wrote setting out the amount that was due and saying that Mr. A.H. Ghugnayi had apparently come to the end of his resources and they were unable to obtain payment from him, and then wrote saying, 'All the shares in our hands have been sold with the exception of 50 Dunbar Mills ordinary shares and 22 Goosery Mills ordinary shares which are practically worthless, and we must, therefore, ask you to pay us the amount due with interest to date in terms of your guarantee.'

36. On the 5th of March the Bank again wrote asking for payment, saying, 'As we have received no reply, we presume you have not received our letter and beg to enclose a copy thereof. Nothing further has been paid to the account of Messrs. A.H. Ghuznavi and Co., and we shall, therefore, be glad if you will send us a remittance in liquidation of the account in terms of your guarantee.'

37. On the 21st the Bank again wrote saying, The settlement of the account is a matter of the utmost importance and we must ask you to give it your immediate attention. Failing a prompt settlement, it will be necessary for us to place the matter in the hands of the Bank's Solicitors.'

38. On the 23rd they wrote again saying, 'As desired in your letter of the 22nd instant, we beg to hand you herewith a copy of the firm's account from June last to date showing a balance of Rs. 24,958-9-9 still due to us exclusive of interest from 1st January 1914.' This to my mind clearly shows that the Bank were charging interest upon the account.

39. On the 4th of April the defendant wrote a letter to which I have already referred. In the paper-book it was dated the 4th of March: it was agreed that it was the 4th of April. This is a long letter which I do not intend to read all through. Towards the end of it he said, 'When I still assure you that I shall see that what is now owing to you from my brother is fully paid up, I trust you will not be wanting in that consideration which is so ordinarily extended. Please let me know whether the different shares belonging to my brother, which you hold, have now all been sold up and credited to the account.'

40. I think that correspondence, the Bank, on the one hand, showing by their letters and by the copies of the accounts which, they sent that they were charging interest upon the account and the defendant taking no objection to it, amounted, in my opinion, to an agreement to pay what was then owing in consideration of time being given by the Bank.

41. On the 15th of April, there was a further letter sent by the Bank which is significant, because at the bottom of that letter they set out the amount of the debit--it is at page 37 of the Paper-book as Rs. 24,948-9-9 and interest up to the 20th of April making the total of Rs. 25,561-1-9. That, to my mind, clearly set out that interest was being claimed by the Bank, and there was no objection raised by the defendant in any shape or form.

42. Then on the 7th of June the defendant writes again a letter in which he points out that it will be much better for the Bank to allow his brother further time. He says, 'In the first place, the recovery of your balance by means of a suit will take four times more time than is actually necessary to recover it in a friendly way by showing some little further consideration. In the second place, my brother tells me that after receiving my letter he has begun making some payments to you and has promised to make weekly payments. The whole thing really depends on his being able to proceed with his business which he hopes to do by the 15th of July as arrangements are almost complete, and he will be able to make you substantial payments. At any rate you could wait till August to see whether his expectations turn out to be correct, if in the meantime he goes on making you some payments. I would, therefore, again ask you to be so kind as to wait till then and also to instruct your Solicitors accordingly.'

43. The defendant in my judgment must have known that the interest on the overdraft was running on, even if it had not been expressly drawn to his attention as it was in the letters, e.g., 23rd March 1914 and 15th April 1914, and when he asked for forbearance and time and gave his undertaking to see the Bank paid, in my opinion, he must be taken to have agreed to pay the usual interest charged by the Bank until the balance was paid.

44. On the 16th July 1914 the Bank wrote a letter which is at page 40 of the paper book, and after claiming payment of the amount due, demanded interest at the rate of 2 per cent, over the Bank rate, and after that date, there appears to have been no further correspondence. I do not think that interest can be charged at any but the rate which was usual on the account, viz., 1 per cent over Bengal Bank rate, and if it has been charged at 2 per cent over the Bank rate the account must be adjusted.

45. As regards the last point that the whole account should be re-opened, I think that no sufficient ground has been shown by the defendant for re-opening the accounts, and I agree with the judgment of the learned Judge on this part of the case.

46. In my judgment the appeal should be dismissed with costs. The learned Counsel for the Bank having stated that he was prepared to take judgment of the amount due on the 16th July 1914, viz., Rs. 25,178-2-9, the decree will be varied by substituting the above-mentioned sum for the amount of Rs. 25,454-12-9 mentioned in the decree.

John Woodroffe, J.

47. The agreement of guarantee of 10th June 1913 on which the plaintiff Bank sues is admitted, but the defendant's liability thereunder is said to have been discharged by dealings prejudicial to him between the creditor and debtor. The defendant, secondly, denies his liability to pay interest after date of the agreement; and lastly in the event of these two issues being decided against him, then he asks that an account be taken of what is due by him. The guarantee was given by the defendant for his brother's debts to the plaintiff Bank which at its date amounted to over 5 lakhs of rupees, because it was discovered that documents given by A.H. Ghuznavi, his brother, to the Bank were forged with the result that A.H. Ghuznavi's overdraft was largely unsecured. The defendant-appellant in consideration of favourable treatment by the Bank towards his brother agreed to pay the Bank on the 30th September 1913 to the extent of three lakhs all money then due by his brother on current account including all interest, charge and other expenses. The manager Mr. Stewart says that the appellant asked him not to press his brother and not to foreclose but to allow him to continue doing business. There is no question that the amount then due was Rs. 86,343-50 including interest. A demand for payment of this sum elicited no response from the appellant. He was repeatedly written to, given information of the state of account and asked for payment, but sent no reply until several months had passed, when he at length asked for further time, assuring the Bank that they need not have any anxiety, for that he would see that the amount due by his brother was fully paid up. During this time, owing to several credits, the amount of the debt of A.H. Ghuznavi was reduced to Rs. 25,454-12-9, the amount claimed in the plaint. During his period also there took place the act which is the chief subject-matter of this appeal. The appellant did not pay up the sum due, and his brother on 16th October 1913 asked the Bank to open a separate account, called account No. 2, to enable him to continue his business. He had then Rs. 20,000 which he wished to deposit provided only the Bank would allow him to withdraw it by cheques, that is to say, it was not to be taken in payment of the amount due on the former account, called account.No. 1. The Bank agreed to open No. 2 account to be kept separate from No. 1 account, the original overdraft account. The bank, however, took the money with the stipulation on its part that any profits made on account No. 2 should go to the credit of account No. 1. This was done and the debit balance reduced. It is admitted that the Bank did not advise the appellant of this arrangement which, the latter claims, discharged him of all liability under the agreement.

48. It is to be noted on these facts that no complaint is made against the Bank in respect of any matter prior to the 30th September 1913. The Bank did nothing which increased or affected the liability of the surety to pay the sum mentioned on the date stated. This is, therefore, not a case where during the pendency of the agreement, and before it had matured, the creditor does something which increases the surety's liability or impairs his rights. Had the Bank sued the surety on the 1st October for recovery of the sum agreed to be paid on the preceding day, no question as to the latter's liability could have arisen. But the surety did not pay though repeatedly pressed to do so. The rights of the Bank having thus fully matured to the payment of both principal and interest, what, if any, were their duties to the guarantor? They were entitled to close the account against him and claim what was due on it. They were, on the other hand, bound to credit any subsequent payments made by the debtor for the purpose of clearing his debt. It is not denied that they did this, that is, the Bank credited the payments made to it for that purpose. It is not and could not be argued that if the debtor had money and refused to pay it to the Bank in discharge of his debt, that this would make the Bank liable. What is said is that the debtor had Rs. 20,000 which he might have paid towards his debt, but did not, refusing to make it over to the Bank except upon the express condition that the sum so received by them was not to be employed in reduction of the debt on account No. 1, but only the profits arising from account No. 2 opened with the sum mentioned. It is said that the Bank injured the guarantor's rights by acceding to this request and opening a second account. It is obvious that the first account was not thereby directly affected, for the second was a separate account. What is said is that if the debtor had paid the Rs. 20,000 to credit of the first account instead of opening a second account, the first account would have been reduced by the difference between that sum and the profits earned in the second account, viz., some Rs. 18,000. But the debtor was not desirous of paying this sum of Rs. 20,000 in discharge of his debt, nor could the Bank compel him to do so. They might have refused to open this second account and the debtor might have taken his money elsewhere. This would not have benefited the guarantor in any way. On the contrary what they did do was, so far as it went, for his benefit. For they stipulated that the sum earned in the second account should he credited to the discharge of the first account, and in this way the debt, and therefore, the appellant's guarantor's liability, was actually reduced. To the extent of such reduction he has been benefited by what has been done. A suggestion is, however, made that if the Bank had communicated its transaction to the guarantor who went to Arabia, the latter would have done batter for himself than merely getting the profits on account No. 2, for he might have insisted that his brother should not continue his business in this way but should pay the Rs. 20,000 towards payment of his debt under account No. 1, and that if he refused he could have enforced his wishes by legal means taken against his brother. This suggestion is I, think, without any reality. I do not believe that the appellant would have done anything of the kind, and think that the contention is an afterthought with a view to defeat a claim which has already been delayed. The defendant has not given his evidence to say what he would have done, or in what way ha has been damnified, nor was any suggestion made on this head to Mr. Stewart in cross-examination. On the contrary the unrebutted evidence is that the appellant wished that his brother should continue his business, which he could not have done if all the available sum were appropriated by the Bank towards the discharge of the debt due on account No. 1. Apart from this the objection when examined is that the Bank did not refuse to open account No. 2 and did not do what they could not have compelled the debtor to do, viz., insist upon his paying the Rs. 20,000 to the credit of account No. 1 and so further reduce the amount payable by the appellant. In opening the new account the Bank in fact stipulated that the profits arising therefrom should go to the credit of the first account which was in fact reduced in this way. The objection now taken is put forward here in Court for the first time. On the 4th March 1914 the appellant wrote to the Bank 'I shall assure you that I will see that what is now owing to you from my brother is fully paid up.'

49. It is suggested that this meant that he would see that his brother paid and not that he would pay. This is not the way in which it was understood by the Bank, who were thus asked for time and who on the 15th April 1914 wrote 'We note your assurance that you will see that the amount due to us by your brother is fully paid. We wish, however, the matter settled now, etc.' In my opinion upon the facts the surety as not discharged.

50. As regards interest the appellant's contention in substance is that though, if he had done what he agreed to do, viz., pay what was due for principal and interest on the 30th September, he would have had to pay interest, yet because he did not, but was given time by the Bank, he is not to pay interest at all as the sum due on the 30th September has been wiped out by appropriation of the Bank, and the agreement does not provide for interest subsequent thereto. In effect the appellant asks us to penalise the Bank for its indulgence towards him. It would have been better if the Bank had expressly provided against this contingency not impossibly it did not occur to them that the appellant would take the kind of objections which have been argued before us. However this may be that contention fails. The Bank was entitled to interest on the 30th September, and, if necessary, I would declare that the appellant do pay such interest crediting subsequent payments to principal only. But this is not necessary as I agree with Chaudhuri, J., that the appellant is liable for interest, and if not he would be liable for the same amount as and by way of damages. The Bank cannot be reasonably made to suffer for the appellant's default. The sixth and only ground of appeal touching interest does not raise the point argued. As regards the rate of interest I agree with the Chief Justice.

51. The appellant further says that he would like to have particulars of the claim, and that, therefore, an account should be taken.

52. The Bank has put forward their claim as a correct statement of account and the defendant has not impugned it. He was informed from time to time of the state of the account and never at any time disputed its correctness. The present request for information appears to be dictated more by a desire to gain time than to know how the account is made up.

53. On June 7th, 1914, the appellant wrote to the Bank's manager when asking for further time. 'The recovery of your balance by means of a suit will take four times more time than is actually necessary to recover it in a friendly way.' There is no reason why this should be so if the matter is not purposely delayed. In my opinion the appellant has failed to establish that the judgment of Chaudhuri, J., is wrong and I would dismiss the appeal with costs.

Asutosh Mookerjee, J.

54. This is an appeal by A.K. Ghuznavi, the defendant, in an action for recovery of money due on a contract of guarantee. The brother of the appellant, A.H. Ghuznavi, who carried on business in Calcutta as a jute bailer and shipper under the name of A.H. Ghuznavi & Co., had a current; account with the plaintiff-respondent, the National Bank of India. In 1913 the Bank discovered that securities which had been put in by A.H. Ghuznavi to cover advances made by them were spurious and that a large overdraft was consequently unsecured. The Bank thereupon required him to supplement the securities he had already pledged. The defendant, who wanted that his brother should continue the business, interviewed the manager of the Bank, requested him not to foreclose and offered to hold himself responsible, should the Bank allow his brother to continue. The Bank accepted the offer and the terms of the agreement were set out in a document as follows:

In consideration of your having agreed, at my request, to extend the time for payment of the moneys overdrawn by Messrs. A.H. Ghuznavi & Co., upon their current account with you, I, the undersigned Abdul Karim aim Ahmed Khan Ghunavi hereby agree with you as follows:

I will pay to you on the 30th September 1913 to the extent of Rs. 3,00,000, all money then due to you from Messrs. A.H. Ghuznavi & Co., on current account or otherwise howsoever, including all interest, charges and other expenses which you may charge against Messrs. A.H. Ghuznavi & Co.

No possession of any guarantee from any other person or of any other security shall determine, prejudice or lessen my liability hereunder.

55. On the 10th June 1913 when this guarantee was given by the defendant for the benefit of his brother, the overdraft by the latter on the Bank stood at Rs. 5,41,653-2-0. Thereafter, various payments were made by A.H. Ghuznavi from time to time, and sums were also realised by the Bank by the sale of securities held by them. There was practically no fresh overdraft, and on the 30th September 1913 the sum due, inclusive of interest, had been reduced to Rs. 86,343-50. It is plain that, under the agreement of guarantee, the defendant did, on that date, become liable to the Bank to the extent of the sum just mentioned. Notwithstanding protracted negotiations, the Bank failed to recover anything from the defendant, and on the 12th November 1914, they instituted this suit for recovery of Rs. 25,454-12-9. In claiming this sum the Bank have allowed credit for various payments made by A.H. Ghuznavi & Co., since the 30th September 1913 in reduction of the overdraft, but they have also charged interest on the sum overdue. The defendant resisted the claim substantially on the ground that the guarantee was discharged, first, because the Bank, without his consent, on the 16th October 1913 opened another account with his brother, who then deposited in cash a sum of Rs. 20,000, and secondly, because the Bank failed in their duty towards him as surety, as they did not intimate to him the transactions with his brother which commenced on the 16th October 1913 and went on apparently to the 3rd March 1914. These contentions have, in my opinion, been rightly overruled by Mr. Justice Chaudhuri.

56. In support of the first branch of the argument, reference has been made on behalf of the appellant to the decision in Sherry, In re, London and County Banking Co. v. Terry (1884) 25 Ch. D. 692 at p. 705 : 53 L.J. Ch. 404 : 50 L.T. 227 : 32 W.R. 394 but that case, when carefully analysed, does not assist his contention. It is well settled that, in the absence of special agreement, a guarantor has no right to control the appropriation, by customer or banker, of moneys paid in, subject to the qualification that the banker is bound to deal with the accounts in the ordinary way of business: Kirby v. Marlborough (1813) 2 M. & S. 18 : 14 R.R. 573 : 105 E.R. 289; Lysaght v. Walker (1831) 5 Bligh. (N.S.) 1: 5 E.R. 208 : 2 Dow. & Cl. 211 : 35 R.R. 1. Thus, payments in may be appropriated to a pre-existing debt which is not covered by the security and of which the surety had no knowledge: Williams v. Rawlinson (1825) 3 Bling. 71 : 10 Moore 362 : R. & M. 233 : 3 L.J.C.P. 164 : 28 R.R. 584 : 130 E.R. 440. On the termination of the guarantee, the account may be closed and a new one opened to which all payments in may be carried; though the banker is not entitled, where an account is guaranteed to a limited extent, to split that account during the continuance of that guarantee and appropriate all payments in to the unsecured balance: Bechervaise v. Lewis (1872) 7 C.P. 372 : 41 L.J.C.P. 161 : 26 L.T. 848 : 20 W.R. 726 : Ex parte Hanson (1811) 18 Ves. 232 : 34 E.R. 305. It is perfectly intelligible that so long as an account is unbroken, a surety should not be prejudiced by any departure from the rule of appropriation of items in order of date, as enunciated in Clayton's case (1816) 1 (sic). 572 : 15 R.R. 161 : 35 E.R. 781, unless his consent to such departure is expressed or can be implied from the character of his engagement: Cory Brothers & Co. Ltd. v. Mecca (1897) A.C. 286 at p. 295 : 66 L.J.P. 86 : 76 L.T. 579 : 45 W.R. 667 : 8 Asp. M.C. 266. But I cannot appreciate how, after the liability of the defendant under the contract of guarantee had become fixed on the 30th September 1913, he can maintain that the guarantee was discharged merely because a now account was opened by the Bank with the principal debtor on the 16th October 1913; there is clearly no room for the application of the doctrine that it is contrary to ordinary business and good faith to open a new account during the currency of the guaranteed one and carry all payments in to the new account,--a principle based on the self-evident position that the real rights of the surety cannot be prejudiced by the method of book-keeping, for as Lindley, M.R., said in Mutton v. Peat (1900) 2 Ch. 79 at p. 85 : 69 L.J. Ch. 484 : 82 L.T. 440 : 48 W.R. 486, it is immaterial 'how the bankers may have manipulated their books or how many accounts they may have kept.' If this is borne in mind, the observation of Cotton, L.J., in Sherry, In re, London and County Banking Co. v. Terry (1884) 25 Ch. D. 692 at p. 705 : 53 L.J. Ch. 404 : 50 L.T. 227 : 32 W.R. 394 as to the effect of an attempt by a Bank to make a new account before the guarantee terminates, whereon Mr. Langford James strongly relied, proves valueless for the purposes of his argument: See also City Discount Co. v. McLean (1874) L.R. 9 C.P. 692 : 43 L.J.C.P. 344 : 30 L.T. 883; York City and County Banking Co. v. Bainbridge (1880) 43 L.T. 732 : 45 J.P. 158; Booth, In re Browning v. Baldwin (1879) 40 L.T. 248 : 27 W.R. 644. We must further bear in mind the fundamental fact that A.H. Ghuznavi offered to open the second account with the Bank, only on condition that he would be permitted to draw upon it for the purposes of his business in other words, that his deposit would not be applied in reduction of the overdraft on the first account. The position then was that if the Bank accepted the condition, they could not apply the deposit contrary to their engagement; if they refused to accept the deposit subject to the condition imposed, A.H. Ghuznavi would not have opened a second account. In either event, the surety could not by any possibility be prejudiced. It is an elementary rule that any specific direction regarding the appropriation of a deposit must be observed by the Bank. In the case before us, the agreement between the Bank and the depositor made it impossible for the Bank to apply the deposit in reduction of the overdraft on the first account; consequently the fact that the deposit was not so applied, does not justify the contention that the Bank were at fault and the surety must be deemed discharged; there was thus no room for the application of the rule in Clayton's case (1816) 1 (sic). 572 : 15 R.R. 161 : 35 E.R. 781. As an illustration, reference may be made to Wilson v. Dawson (1876) 52 Ind. 513 there a buyer of cattle, who was indebted to a Bank as principal upon a note that had matured, deposited an amount greater than the note, under special agreement that the deposit would be applied only in payment of cheques drawn by him in favour of sellers of cattle. This arrangement was made without the assent of the surety who had guaranteed the promissory note; yet it was ruled that the surety was not released by the failure of the Bank to apply the deposit in discharge of the note.

57. In support of the second branch of the argument of the appellant, reliance has been placed upon Rees v. Berrington (1795) 2 Vcs. (Jun.) 540 : 3 R.R. 3 : 30 E.R. 765 : 2 Wh. & T.L.C. (7th Ed.) 568; Polak v. Everett (1876) 1 Q.B.D. 669 : 46 L.J.Q.B. 218 : 35 L.T. 350 : 24 W. R 689 and Holme v. Brunskill (1878); 3 Q.B.D. 495 at p. 505 : 47 L.J.Q.B. 610 : 38 L.T. 838 and particular stress has been laid upon a passage in the judgment of Loughborough, L.C., in the case first mentioned: 'it is the clearest and most evident equity not to carry on any transaction without the privity of him (the surety) who must necessarily have a concern in every transaction with the principal debtor. You cannot keep him bound and transact his affairs (for they are as much his as your own) without consulting him. You must let him judge whether he will give that indulgence contrary to the nature of his engagement.' On this, the argument is sought to be founded that the Bank failed in their duty to the appellant when they carried on transactions with his brother under the second account without any intimation to him. This contention is, I think, wholly unsubstantial. In the first place, the statement of the rule in Rees v. Rerrington (1795) 2 Ves. (Jun.) 540 : 3 R.R. 3 : 30 E.R. 765 : 2 Wh. & T.L. C (7th Ed.) 568 must be taken subject to the qualification formulated by Brett, L.J. in Holme v. Brunskill (1878) : 3 Q.B.D. 495 at p. 505 : 47 L.J.Q.B. 610 : 38 L.T. 838. The true rule is, as Chitty, J. observes in Bolton v. Salmon (1891) 2 Ch. D. 48 at p. 54 : 60 L.J. Ch. 239 : 64 L.T. 222 : 39 W.R. 589 that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if there is any alteration, which is not obviously either unsubstantial or for the benefit of the surety, he is to be the sole Judge whether he will remain liable. This is substantially in accord with Section 139 of the Indian Contract Act, which provides that if the creditor does any act which is inconsistent with the rights of the surety or omits to do any act which his duty to the surety requires him to do, and the eventual remedy of the surety himself against the principal debtor is thereby impaired, the surety is discharged. The rule thus enunciated fits in with the statement of Story (Equity Jurisprudence, Section 325) adopted by the Court of Exchequer in Watts v. Shuttleworth (1860) 5 H. & N. 235 : 29 L.J. Ex. 229 : 120 R.R. 559, affirmed 7 H. & N. 353 : 7 Jur. (N.S.) 945 : 5 L.T. (N. s.) 58 : 10 W.R. 132 : 126 R.R. 471. Reference may also be made to the rule enunciated in Section 133 of the Indian Contract Act which embodies a familiar principle relating to the discharge of a surety by variance in terms of the contract, recognised in a long line of decisions, amongst others, in Bonar v. Macdonald (1850) 3 H.L.C. 226 at p. 238 : 14 Jur. 1077 : 7 Bell. 379 : 10 E.R. 87 : 88 R.R. 60; Ward v. National Bank of New Zealand (1883) 8 App. Cas. 755 at p. 763 : 52 L.J.P.C. 65 : 49 L.T. 315 and Taylor v. Bank of New South Wales (1866) 11 App. Cas. 596 at p. 603 : 55 L.J.P.C. 47 : 55 L.T. 444. The judgment of the Judicial Committee delivered by Sir Robert Collier in Ward v. National Bank of New Zealand (1883) 8 App. Cas. 755 at p. 763 : 52 L.J.P.C. 65 : 49 L.T. 315 is specially instructive and approves of the decisions in Polak v. Everett (1876) 1 Q.B.D. 669 : 46 L.J.Q.B. 218 : 35 L.T. 350 : 24 W. R 689 and Holme v. Brunskill (1878); 3 Q.B.D. 495 at p. 505 : 47 L.J.Q.B. 610 : 38 L.T. 838. In the second place, it is clear to my mind that what the Bank did when they opened the second account with A.H. Ghuznavi was exactly in conformity with what had been the intention of the appellant; his desire throughout was that the Bank should not foreclose, that his brother should carry on the business, and should have facilities for that purpose. This has been precisely the result of the opening of the second account, and the appellant himself has been to some extent benefited thereby, as monies taken from the second account have, from time to time, been placed to the credit of the first account for the reduction of the overdraft therein. There is no reality in the contention that if the appellant had been apprised in time of the transactions in the second account, he might have taken effective measures to protect himself against his brother. I feel no doubt that the defendant would never have taken any action of the kind now suggested; this is plainly shown by his conduct after he had become aware of the transactions in the second account, He not only never protested but he actually took time repeatedly to satisfy the dues of the Bank. Assume that this does not affect his legal rights, but his conduct affords valuable evidence of his true intention. In my opinion, the argument of the appellant fails in both its branches; this is clearly not a case where we can say that the Bank had the means of satisfying the overdraft, either actually or potentially, in their control or within their possession, and yet, to the prejudice of the surety, did not choose to avail themselves thereof; nor can we say that the Bank entered into fresh transactions with the debtor which constituted a variation of the original contract or in any way impaired the eventual remedy of the surety against the principal debtor. The claim of the Bank must consequently be sustained.

58. There remain two subordinate questions which require a brief examination: first, is the appellant entitled to have the accounts opened; secondly, is he liable for interest after the 30th September 1913, and it so, at what rate? I think the contention that the appellant is entitled to an account, is, in the circumstances of this case, illusory. The appellant was informed from time to time as to how the accounts stood as between the Bank and his brother; he never disputed the correctness of the accounts; in fact, he never even expressed a desire to test them. The suggestion of the respondent that this question has now been raised with a view to gain time, is, I think, not quite groundless, and receives support from the fact that no serious attempt has been made to challenge any specific items in the account before us or even to indicate that there are any entries which required explanation or investigation. No ground, in my opinion, has been made out to justify an order for enquiry into the accounts. As regards the claim for interest, it is contended that there was no agreement to pay interest after the 30th September 1913, and that the elements necessary to support a claim under the Interest Act of 1839 have not been established. This may be conceded; but it is plain that the Bank can rightly claim interest by way of damages for the detention of the money due to them. Authority for this position may be found in the decision of the Judicial Committee in Chajmal Das v. Brij Bhukan 22 1. A. 109 : 17 A. 511 : 6 Sar. P.C.J. 624 and in a long line of cases reviewed in Mohamaya Prosad Singh v. Ram Khelawan Singh 15 Ind. Cas 911 : 15 C.L.J. 684 and Ramjiban Shah v. Dhiku Singh 16 Ind. Cas. 246 : 16 C.L.J. 264 at p. 270, which show that the strict rule of the English Common Law, as enunciated in London Chatham & Dover Railway Co. v. South Eastern Rallway Co. (1893) App. Cas. 429 : 63 L.J. Ch. 93 : 1 R. 875 : 60 L.T. 637 : 58 J.P. 36, has not been followed in this country. I think also that this is pre-eminently a case where interest should be allowed; the defendant repeatedly obtained time from the Bank; his conduct may well be deemed to imply an undertaking to pay interest, for no commercial man would agree to an extension of time, unless he understood that the sum overdue would carry interest during the extended time. As regards the rate, I think, the Bank can reasonably claim only what was originally agreed upon between them and the debtor, and not the higher rate demanded from the appellant in their letter of the 16th July 1914. No contract was made for payment of interest at the higher rate and none can be implied from the conduct of the parties. The decree, consequently, requires to be varied in this respect.

59. Subject to the variation indicated, the decree must be affirmed, and with costs, as the appeal has substantially failed.


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