Indemnity versus guarantee: promissory notes were treated as indemnity, making the claim premature until actual loss arose.

Promissory notes were construed with their recitals and surrounding correspondence to determine whether they created an indemnity or a guarantee. The notes did not oblige the maker to discharge the principal debtor on default; instead, they operated as an undertaking to make good any loss arising from the maker's unauthorised dealing with the plaintiffs' money. The distinction mattered because a guarantee depends on a principal debtor's default and co-extensive liability, while an indemnity permits recovery only after actual loss. As the claim sought any deficit remaining after sale of the mortgaged property, liability could arise only when an actual deficit existed, so the suit was premature and the decree against the maker's estate was set aside.

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Issues: Whether the promissory notes executed by defendant No. 2 created a contract of indemnity or a contract of guarantee, and whether the claim against his estate was premature.

Analysis: The promissory notes were construed with their recitals and surrounding correspondence. They did not undertake to discharge the principal debtor's liability on default, but were treated as an undertaking to make good any loss caused by defendant No. 2's unauthorised dealing with the plaintiffs' money. The Court distinguished indemnity from guarantee by noting that a guarantee presupposes a principal debtor's default and co-extensive liability, whereas under indemnity the promisee can sue only after actual loss is suffered. Since the plaintiffs sought recovery of any deficit that might remain after sale of the mortgaged property, the claim against defendant No. 2 could arise only when an actual deficit occurred.

Conclusion: The promissory notes created a contract of indemnity, not guarantee, and the suit against defendant No. 2 was premature. The appeal was therefore allowed and the decree against defendant No. 2 was set aside.

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