Skip to content


Alfred Ernest Mitchell and Others Vs. Carr Lazarus Phillips and Others - Court Judgment

LegalCrystal Citation
CourtPrivy Council
Decided On
Case NumberPrivy Council Appeal No. 72 of 1930 (From Calcutta)
Judge
AppellantAlfred Ernest Mitchell and Others
RespondentCarr Lazarus Phillips and Others
Advocates:W.A. Greene and G.D. McNair, for Appellants; L. DeGruyther and A.T. Macmillan, for Respondents. Solicitors for Appellants, Morgan, Price, Marley and Rugg; Solicitors for Respondents, Nisbet, Drew and Loughborough.
Excerpt:
.....bengal reversed the judgment of the trial judge and dismissed the suit. on 14th february 1927 one galstaun mortgaged real estate in and near calcutta and personal estate of various kinds to arathoon stephen the appellants' testator to secure a loan of rs. 40,00,000 and interest. stephen in fact borrowed the money from the imperial bank in order to lend it to galstaun. on 9th february 1927 the respondents in connexion with the transaction had executed in favour of stephen a guarantee in writing in the following form : " 1. in consideration of your having at our request agreed to obtain a loan of rs. 40,00,000 bearing interest at six per cent per annum from the imperial bank of india for the sole benefit of john carapiet galstaun for the purpose of satisfying certain decrees and paying.....
Judgment:

Lord Tomlin:

In the suit out of which this appeal arises the appellants as legal personal representatives of a deceased creditor are seeking to recover from the respondents as guarantors part of a debt due and owing from the principal debtor. Before the trial Judge the appellants succeeded but on appeal the High Court of Judicature in Bengal reversed the judgment of the trial Judge and dismissed the suit.

On 14th February 1927 one Galstaun mortgaged real estate in and near Calcutta and personal estate of various kinds to Arathoon Stephen the appellants' testator to secure a loan of Rs. 40,00,000 and interest. Stephen in fact borrowed the money from the Imperial Bank in order to lend it to Galstaun. On 9th February 1927 the respondents in connexion with the transaction had executed in favour of Stephen a guarantee in writing in the following form :

" 1. In consideration of your having at our request agreed to obtain a loan of Rs. 40,00,000 bearing interest at six per cent per annum from the Imperial Bank of India for the sole benefit of John Carapiet Galstaun for the purpose of satisfying certain decrees and paying certain pressing debts such sum of Rs. 40,00,000 to bear interest at the rate aforesaid and the repayment thereof to be secured by a mortgage to be executed by the said John Carapiet Galstaun in your favour of the properties included in the mortgages held by Framroz Edulji Dinshaw and a second mortgage of the properties included in the mortgage executed by the said John Carapiet Galstaun in favour of the Prudential Assurance Co., Ltd. We the undersigned Carr Lazarus Phillips of No. 33, Alipore Park Road, Alipore, Arathoon Mackertoom Arathoon of No. 3, Rowdon Street, in Calcutta, and Arathoon Theodore Creet of Ghusick Colliery in the District of Raneegunge hereby guarantee to you the payment by the said John Carapiet Galstaun of the said sum of Rs. 40,00,000 to the limit of our aggregate and individual liability hereinafter prescribed."

"2. This guarantee shall be a continuing guarantee, but our aggregate liability thereunder shall not under any circumstances exceed the sum of Rs. 18,00,000 and the liability of each of us individually in respect of the said sum shall not exceed the sum of Rs. 6,00,000, being the sum placed opposite our respective signatures at the foot hereof and should the common liability be less than the said maximum aggregate sum, the share due from each one of us in respect thereof shall be in strict proportion to his individual liability hereunder and not otherwise."

''3. Within the aforesaid limit of liability this guarantee shall extend to and be applicable to the whole debt that shall ultimately be due to you from the said John Carapiet Galstaun in respect of such advance as aforesaid and not merely to so much thereof as shall be co-extensive with our aforesaid maximum liability hereunder."

"4. You shall be at liberty without discharging us from liability hereunder to grant time or other indulgences to the said John Carapiet Galstaun and to accept payment from him in cash or by means of negotiable instruments or otherwise."

On 14th May 1927 Stephen died and on 12th October 1927 the appellants as his executors and trustees demanded from Galstaun immediate payment of the loan and interest and gave him notice that in default of payment within three months they would sell the mortgaged properties. On 15th October 1927 the respondents were notified of the appellant's demand against the principal debtor. The principal debtor failed to pay and on 8th June 1928 the appellants notified the respondents of this fact and demanded under the guarantee payment of six lakhs from each of them. On 12th July 1928 this suit was instituted by the appellants against the respondents who had failed to satisfy any part of the demand made upon them. On 8th April 1929 the appellants instituted a suit against Galstaun to enforce the mortgage. What has happened in that suit does not appear. On 26th April 1929 judgment in the present suit was given in favour of the appellants for six lakhs and interest against each of the respondents.

The respondents appealed and on 29th August 1929 the judgment of a Division Bench of the High Court was given allowing the appeal and dismissing the suit. The Judges who heard the appeal appear to have taken the view (1) that upon its true construction the guarantee only provided for a guarantee of the balance which should remain owing after the creditor had exhausted his remedies under the mortgage against the principal debtor; and (2) that these remedies not having been exhausted the suit was premature and ought to be dismissed.

Ghose, J., who delivered the leading judgment was influenced by the fact that upon the construction for which the present appellants contend Galstaun might have been asked to repay immediately after the execution of the mortgage and that the guarantee would have then become immediately enforceable. He thought it must have been the intention of the parties that the security specified in the mortgage should be realized first and that the guarantee should only operate in respect of any deficiency remaining after such realizations. He further took the view that the word "ultimately" in Cl. 3 of the guarantee indicated that the guarantee only covered the final deficiency.

The other Judge, Mr. Page, came to the same conclusion but only after much consideration. He thought that all reference in the guarantee to the mortgage by Galstaun was unnecessary except upon the footing that the mortgage was to be realized first and as supporting the view which he adopted he laid stress upon the phrase "the whole debt that shall ultimately be due."

Their Lordships are unable to agree with the judgments of the appellate Judges. The language of Cl.1 is plain. By it the guarantors guarantee the payment by Galstaun of the sum of Rs. 40 lakhs to the limit of their aggregate and individual liability thereinafter prescribed.

Clause 3 is the clause commonly employed in the case of a limited guarantee to enable the creditor at any rate up to a point to retain as against the guarantor dividends received in the bankruptcy of the principal debtor.

The form of the guarantee appears to have been based upon a precedent appropriate to a continuing guarantee although the guarantee in question was not in fact a continuing guarantee, but one for a fixed sum. This may account for the presence of the word "ultimately." The word is not aptly employed, but in their Lordships' judgment the meaning of the clause in which it occurs is plain. A contrast is therein being drawn between (1) the whole of what may eventually become due from the principal debtor for principal and interest, and (2) a part of the total debt co-extensive with the guarantors' maximum liability and it is indicated that it is, the whole debt and not a part which is guaranteed, although part only has to be paid under the guarantee. In other words it does not cut down but reinforces the obligation imposed by Cl. 1.

Their Lordships are unable to appreciate the force of the criticism that the guarantors' liability might upon the construction of the guarantee contended for by the appellants become immediately enforceable.

The same criticism might be applied to every guarantee where there is a mortgage with a covenant by the principal debtor to repay on demand or at the expiration of some short period such as six months.

In transactions of this kind it is normal practice to make the liability to pay under the mortgage arise on demand or within a short period even though the anticipation of the parties may be that the loan will remain Outstanding for a substantial time.

Nor do their Lordships understand how the reference to the mortgage in the guarantee can be treated as unnecessary. Having regard to the rights of a surety in respect of the securities taken by the creditor it is a matter of first importance to the surety to know what those securities are. Further, the fact; that such a mortgage was to be taken may well have been the determining factor in inducing the guarantors to give their guarantee.

In this connexion their Lordships desire to point out that, while it is unnecessary for them in this appeal to express an opinion as to what will be the rights of the respondents in respect of the mortgage after their liability under the guarantee has been discharged, they must not be taken to approve the statement of Ghose, J., that

"not until the sureties in the present case have paid off the entirety of the mortgage debt due to Stephen would they be entitled to the securities which Stephen held, i. e., even if the sureties paid off a sum of Rs. 18 lakhs they would not be entitled to the said securities until the balance of 40 lakhs was realized. The sureties would in such a case be without any security whatsoever during the interval."

Lastly their Lordships do not think that the construction of the guarantee is in any way affected by the practice of the Courts in India under O. 34, Civil P. C., in relation to suits to enforce a mortgage.

In the result therefore their Lordships are of opinion that the appeal should succeed and that the judgment of the appellate Court should be reversed and that of the trial Judge restored. Their Lordships will humbly advise His Majesty accordingly. The appellants will have their costs here and below.

Appeal allowed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //