1939 (3) TMI 9 - HC - Indian Laws

Summary

Issues Involved:
1. Liability of the respondent as guarantor.
2. Substitution of new trustees and its effect on the liability.
3. Application of Order 23, Rule 1, and Order 1, Rule 10 of the Civil Procedure Code.
4. Interpretation of Sections 134 and 139 of the Indian Contract Act.
5. Effect of procedural regulations on the enforceability of contracts under Section 2(j) of the Indian Contract Act.

Detailed Analysis:

1. Liability of the Respondent as Guarantor:
The respondent, although not a party to the contract, had orally guaranteed the due performance by the trustees. The appellant fulfilled his contract and claimed a sum due from the trustees and the respondent. The trial court found the respondent liable as guarantor. However, the Appellate Bench held that the respondent's liability was discharged because the appellant had forgone his claim against the original trustees.

2. Substitution of New Trustees and Its Effect on the Liability:
After the original trustees were removed, the appellant substituted the new trustees in place of the old ones. The trial judge suggested that the liability of the original trustees was personal and did not attach to the new trustees. Consequently, the appellant's application to replace the original trustees was refused. The suit proceeded against the new trustees, who were dismissed from the case, and the respondent was found liable as guarantor.

3. Application of Order 23, Rule 1, and Order 1, Rule 10 of the Civil Procedure Code:
The appellant contended that the substitution of new trustees was made under Order 1, Rule 10, which allows the court to strike out or add parties. However, the court held that the effect of withdrawing the suit against some defendants should be ascertained from Order 23, Rule 1. The court may permit a fresh suit after withdrawal, but if it does not, the plaintiff is precluded from instituting a fresh suit on the same subject matter. The court concluded that merely preventing the appellant from suing the principal debtor did not release or discharge the debt.

4. Interpretation of Sections 134 and 139 of the Indian Contract Act:
The court found that Sections 134 and 139 are declaratory of the English law. Section 134 discharges the surety if the principal debtor is released, and Section 139 discharges the surety if the creditor's actions impair the surety's remedy against the principal debtor. The court held that the appellant's act of continuing to sue the surety, despite withdrawing the action against the principal debtors, was a clear reservation of his rights, thus preserving the creditor's rights against the surety.

5. Effect of Procedural Regulations on the Enforceability of Contracts under Section 2(j) of the Indian Contract Act:
The respondent argued that Section 2(j) should be read broadly, implying that any unenforceable contract becomes void. The court rejected this interpretation, stating that Section 2(j) applies only to contracts unenforceable by substantive law, not procedural regulations. A mere failure to sue within the limitation period or due to procedural rules does not void a contract. The court concluded that the debt remained a debt, and the surety's liability was not discharged.

Conclusion:
The court held 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 the Privy Council.