TMI Blog1977 (4) TMI 178X X X X Extracts X X X X X X X X Extracts X X X X ..... sh Credit Agreement with the plaintiff and secured cash credit facility to the extent of ₹ 2,00,000 for the purpose of its business,. By way of security the moveable assets of the firm were hypothecated in favour of the creditor-Bank. in addition, under a in mortgage by deposit of title-deeds certain immovable properties situate at Wadgaon, Belgaum, Mahadevpur and Angol were offered as security for the said loan. On 28-12-1967, second defendant issued what is styled Bank Loan/Cash Credit Indemnity Policy , as per Exhibit P-6, by which in consideration of the payment of ₹ 3,000 by the first defendant, the second defendant undertook to indemnify the plaintiff against losses that may be suffered by the plaintiff in consequence of any default on the part of the first defendant in due repayment of all moneys at any time payable by the first defendant to the plaintiff, provided that the liability under that Policy did no exceed the principal sum of ₹ 2,00,000. The first defendant having committed default in the matter of repayment of the moneys borrowed from the plaintiff, plaintiff instituted the present suit against both the defendants and sought recovery of 11.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) that at all events, Ext P-6 by its express terms, could be invoked in respect of the advances made and liability incurred only after 26-12-1967 and that the present suit-claim which represents advances which had been made earlier would not attract the Indemnity under Ext. P-6; (c) that the liability of the Insurers would, at all events, arise only after the plaintiff had exhausted its remedy against the principal debtor, and, that therefore, the quit claim is premature; (d) that the suit in so far as it seeks the enforcement of mortgage security is in substance a suit for sale on a mortgage and the personal decree against the partners of the firm could only be made after the proceeds of sale of hypothecate are found insufficient and only to the extent of such insufficiency; and that consistently with this position the liability of the Insurance Company could not be larger than that of the principal debtors and accordingly, the liability of the second defendant must be limited to such part of the decretal sum, if any, as may remain unsatisfied by the proceeds of sale of the security; and (e) that the Court below, in granting the decree as prayed for, has fai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of Sri Cheluvaraju is that Ext. P-6 came into being in the context of and envisaged a prospective transaction between the plaintiff on the one hand and the first defendant on the other, and having regard to the intendment of Ext. P-6 and its actual terms, the liability against the appellant could arise only in respect of any lending in fact made after the date of the policy viz., 28-12-1967. Sri D. Cheluvaraju inviting our attention to what he considers a crucial admission stated to have been made by P.W. I to the effect that after 28-12-1967, bank has not made any new advances to the 1st defendant , strenuously contended that in the light of this admission and upon proper construction of Ext. P-6 no liability could be fastened on appellant. It is no doubt true that even on the date when the Policy, Ext. P-6, was issued there was a subsisting liability of the first defend-ant in favour of the plaintiff in the sum of ₹ 2,09,510-42. Even assuming that the construction Sri 0. Cheluvaraju seeks to put on Exhibit P-6 is correct, it is seen from the statement of account, Ext. P-5, that even after 28-12-= the first defend-ant was permitted to make withdrawals from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract of guarantee, there must always be three parties in contemplation; a principal debtor (whose liability may be actual or prospective), a creditor, and a third party who, in consider of some act or promise on the part of the creditor, promises, to discharge the debtor's liability, if the debtor failed to do so. In a contract of indemnity, however, the promisor makes himself primarily liable and undertaken to discharge the liability in any event. The liability may arise out of tort or as well as out of contract. It may also boa prospective at the time the promise is made or may be past provided some new consideration is, given. The risk of default 'by a debtor can be insured against as effectively as the debt can be guaranteed. In any view of the matter, whether the contract in the instant case is viewed as a contract of indemnity or as one of guarantee and whether, correspondingly, the liability is to pay a new debt arising under the contract to indemnify or to pay the original debt, the claim, in our Opinion, cannot be said to be premature. The liability on the part of the appellant under Ext. P-6 arises in consequence of default of the borrowers in due repayment on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transaction. Notwithstanding the fact that they may stem from the same transaction, the I two liabilities are distinct. The liability of the surety does not also, in all cases, arise simultaneously. This proposition finds support in a passage from Halsbury's Laws of England (Third Edition, Volume 22 para 819): 819. Proceedings by assured against debtor: Except where the policy so provides, the creditor is not bound to sue the debtor or to enforce his security first: he is entitled. as soon as there is a default within the meaning of the policy, to claim payment from the insurers. The Policy may, however, be limited to cover only the deficiency which remains after the creditor has exhausted his remedies ,against the debtor or his sureties. 13. In the Bank of Bihar Ltd. v. Dr. Damodar Prasad [1969]1SCR620 , dealing with the liability of a surety envisaged in S. 128 of the Contract Act, the Supreme Court observed: 4. Before payment the surety has no right to dictate terms to the creditor and ask him to pursue his remedies against the principal in the first instance. As Lord Eldon observed in Wright v. Simson, (1802) 6 Ves 714 at p. 734 : 31 ER 1272 at p. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proper course. We are unable to agree with this contention. It is true that when a person is personally liable under a mortgage document, it is the policy of the law that the mortgagee should not enforce the personal liability before exhausting his remedy against the property except in cases where the mortgagee is prepared to abandon the security,. But by the very reason of the thing this can apply only as between the mortgagor and the mortgagee. In the present case the appellants had nothing whatever to do with the security bond. Their liability did not arise under the security bond; nor was the liability under the promissory note merged in that under the mortgage bond. Their relation to the plaintiff was therefore not of a mortgagor al all. We do not therefore see any ground on which they can invoke the aid of the provisions of S. 68 of the Transfer of Property Act. The contention, therefore, that the decree against the appellant should be limited to and be co-extensive with what should be the subject-matter of a personal decree under R. 6 of 0. 34, C.P.C. against the mortgagors does not appear to be supportable. We, accordingly, answer point (d) against the appellant. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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