1939 (3) TMI 11 - HC - Indian Laws

Guarantor remains liable despite trustee substitution, creditor's rights preserved.

The court held that the respondent, as a guarantor, remained liable despite the substitution of new trustees. The liability of the original trustees did ... - Issues Involved:1. Liability of the respondent as a guarantor.2. Substitution of new trustees and its legal implications.3. Applicability of Order XXIII, Rule 1 of the Code of Civil Procedure.4. Interpretation of Sections 2(g), 2(j), 134, and 139 of the Indian Contract Act.5. Legal consequences of striking out original trustees from the action.Issue-wise Detailed Analysis:1. Liability of the respondent as a guarantor:The primary issue was whether the respondent, who had orally guaranteed the due performance of the contract by the trustees, remained liable after the appellant substituted the original trustees with new ones. The court held that the respondent was liable as a guarantor since the appellant's act of continuing to sue the surety, even after withdrawing his action against the principal debtors, constituted a clear reservation of his rights. The judgment emphasized that the creditor's rights against the surety were preserved, as illustrated by Indian authorities such as Murugappa Mudaliar v. Munusami Mudali and Nur Din v. Allah Ditta.2. Substitution of new trustees and its legal implications:The appellant initially substituted the new trustees in place of the original four trustees who were removed from their position. The trial judge later suggested that the liability of the original trustees was personal and did not attach to the new trustees. The appellant's subsequent application to replace the names of the original trustees was refused. The court held that the new trustees could not be held liable for the obligations of the original trustees, and the appellant's remedy lay against the original trustees only.3. Applicability of Order XXIII, Rule 1 of the Code of Civil Procedure:The court examined whether the appellant's application to substitute the new trustees was made under Order XXIII, Rule 1, or Order I, Rule 10. The court concluded that the effect of withdrawing the suit against some of the defendants should be ascertained from Order XXIII, Rule 1. This order precludes the plaintiff from instituting a fresh suit in respect of the same subject-matter unless the court grants permission to withdraw with liberty to institute a fresh suit.4. Interpretation of Sections 2(g), 2(j), 134, and 139 of the Indian Contract Act:The court analyzed Sections 2(g) and 2(j) to determine whether the contract became void when it ceased to be enforceable by law. It held that not every unenforceable contract is declared void, but only those unenforceable by substantive law. Sections 134 and 139 were interpreted to mean that the surety is discharged only if the principal debtor is released by a contract or if the creditor's act or omission legally discharges the debtor. The court found that the appellant's withdrawal of the suit against the original trustees did not release or discharge the debt, thereby preserving the surety's liability.5. Legal consequences of striking out original trustees from the action:The court held that striking out the original trustees from the action did not release or discharge the principal debt. The debt remained a debt, and the creditor's inability to bring an action due to procedural rules did not discharge the surety's liability. The judgment emphasized that the respondent's remedy against the original trustees was not impaired, and the legal consequences did not discharge the surety.Conclusion:The court concluded that the respondent was not relieved of his liability under the guarantee. The appeal was allowed, the decree of the High Court on its appellate side was set aside, and the decree of the trial judge was restored. The respondent was ordered to pay the appellant's costs of the appeal before the appellate court and their Lordships' Board.