1931 (9) TMI 10 - HC - Indian Laws

Court sets aside decree against sureties for substantial contract variation. Sureties not liable for new contract terms.

Keshavlal Harilal Setalvad Versus Pratapsing Moholalbhai Sheth

Keshavlal Harilal Setalvad Versus Pratapsing Moholalbhai Sheth - TMI Issues Involved:1. Liability of sureties due to variation in the original contract.2. Admissibility of Exhibit 93 in evidence.3. Effect of the variation on the sureties' liability.4. Impact of the alleged extension of time on the sureties' liability.5. Negligence in realizing rent and its impact on sureties' liability.Issue-wise Detailed Analysis:1. Liability of Sureties Due to Variation in the Original Contract:The plaintiffs sued to recover Rs. 1,14,000 based on a mortgage-bond dated October 17, 1921, and a surety bond dated October 24, 1921. A decree was granted against defendant No. 1, and against the sureties, defendants Nos. 2 and 3, except for Rs. 5,875 plus interest. The sureties contended they were not liable due to a substantial variation in the original contract between the plaintiffs and defendant No. 1 without their consent and because time was given to the principal debtor without their consent. The lower court held that the document evidencing the new contract, Exhibit 93, could not be admitted in evidence, and thus, there was no variation discharging the sureties. However, the sum of Rs. 5,875 paid to defendant No. 1 was considered a variation of the original contract, discharging the sureties to that extent.2. Admissibility of Exhibit 93 in Evidence:The learned Subordinate Judge held that Exhibit 93 was inadmissible without registration and did not affect the mortgage deed of October 17, 1921. However, it was argued that Exhibit 93 was admissible for a collateral purpose, i.e., to show that a substituted contract was arrived at on May 14, 1922. The court accepted this argument, stating that Exhibit 93 and the entries in Exhibit 124 (plaintiffs' accounts) were admissible to prove the change in the original transaction. The plaint itself showed that the transaction carried out was not the same as the one entered into on October 17, 1921.3. Effect of the Variation on the Sureties' Liability:The court held that the change in the contract was material and made without the sureties' consent, absolving them from liability. The original contract intended to redeem four properties with Rs. 1,25,000, but only three properties were redeemed with Rs. 1,00,000. The court emphasized that the sureties should judge whether to consent to the new contract. The substantial variation in the contract without the sureties' consent discharged them from their liability under the surety bond. The court cited several cases to support this principle, including Smith v. Wood and Holme v. Brunskill.4. Impact of the Alleged Extension of Time on the Sureties' Liability:The court found no agreement to give time, only forbearance by the mortgagees, which did not discharge the sureties. The plaintiffs' delay in filing the suit was due to forbearance, not an agreement to extend time.5. Negligence in Realizing Rent and Its Impact on Sureties' Liability:The appellants argued that the mortgagees' failure to realize rent increased their liability. The court dismissed this argument, stating that the rent-note was for interest on the loan, not the property's rental value. Defendant No. 1 paid Rs. 10,000 towards interest, covering the year's interest, and the suit was filed within a few months after the second year.Conclusion:The decree against the appellants (defendants Nos. 2 and 3) was set aside, and the appeal was allowed with costs. The court held that the substantial variation in the original contract without the sureties' consent discharged them from liability. The contract was single and indivisible, not a series of transactions, and the sureties were not bound by the new contract. The alleged extension of time and negligence in realizing rent did not affect the sureties' liability.