TMI Blog2011 (8) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... has observed: ''That depends upon the terms under which the guarantor bound himself. Under the law he cannot be made liable for more than he has undertaken.'' It is clear that the contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. If the entire document in question, i.e, exhibit P14 is read as a whole, the same nowhere reveals that the appellant has entered into a contract or an agreement with respondent No. 1 to discharge the liability of respondent No. 2 herein (principal debtor) in case of its default. All through, respondent No. 1 as well as other parties including the appellant has understood the document exhibit P14 as a letter of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly. - Mohan Shantanagoudar And K. Govindarajulu, JJ. JUDGMENT Mohan Shantanagoudar, This appeal is filed questioning the order dated January 16, 2007, passed by VI Additional City Civil Court in Misc. No. 435 of 1999 holding that the appellant is also liable to pay the sum as ordered, jointly or severally. 2. The records reveal that respondent No. 1 herein sanctioned a loan of ₹ 70 lakhs in favour of respondent No. 2 herein. The loan agreement dated March 6, 1996, was executed by respondent No. 2 and respondent No. 1. The third and fourth respondents herein executed surety agreement dated March 6, 1996, giving collateral security of Schedules I and II properties. The appellant executed a letter of comfort ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of respondent No. 2, in case, respondent No. 2 or the guarantors, i.e, respondents Nos. 3 and 4 fail to repay the loan amount to respondent No. 1. In other words, according to him, exhibit P14 is not a letter of guarantee, but, is a mere letter of comfort. 3. The said submissions are opposed by Sri D.S Joshi, learned counsel appearing on behalf of respondent No. 1. He contended that exhibit P14 though titled as letter of comfort is clearly a letter of guarantee , inasmuch as, the wordings used in the said document amply reveal that the appellant has undertaken to repay the loan of respondent No. 2, in case of non-payment of loan by respondent No. 2 or respondents Nos. 3 and 4 herein. 4. In order to decide this matter, the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its financial commitments. 6. The said letter of comfort nowhere reveals that the appellant stood as guarantor for the loan disbursed by respondent No. 1 in favour of respondent No. 2. It merely states that the associate company (debtor company) will meet the financial and contractual obligations and that the appellant herein undertakes all reasonable steps to ensure that the debtor company conducts its operations efficiently to meet its obligations in the usual course of business. The comfort letter is more in the nature of recommendatory letter. If a person has not stood as guarantor or surety, he cannot be treated a guarantor or surety without there being a specific undertaking by him that he would discharge the liability of the thir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re than he has undertaken. It is often said that a surety is a favoured debtor, for in the expressive phrase of Lord Westbury L.C in Blest v. Brown, [1862] 4 De G.F and J. 367 at page 376: you bind him to the letter of his engagement. Beyond the proper interpretation of that engagement you have no hold upon him. These observations have been recalled in cases of guarantee and suretyship by the Judicial Committee and also this court. See for example Pratapsing Moholalbhai v. Keshavlal Harilal Setalvad, 62 I.A 23 at page 33; AIR 1935 PC 21 at page 24 and M.S Anirudhan v. Thomco'S Bank Ltd. ., [1963] 33 Comp Cas 185; [1963] (Supp) 1 SCR 63 at page 77; AIR 1963 SC 746 at page 752. To this there are some exceptions. In case of ambigui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the appellant has not undertaken under exhibit P14 that he would repay the amount in case Page: 297respondents Nos. 2 to 4 herein commit default in payment of the loan. In the light of clear admission of PW1 and having regard to the language employed in exhibit P14, it is clear that the appellant has not undertaken that it would repay the loan amount in case of default by respondents Nos. 2 and 4 herein. 11. In this context, we may usefully refer to the definition of letter of comfort , as found in P. Ramanatha Aiyar's Advanced Law Lexicon, which reads thus: Letter of comfort.-A document that indicates one party's intention to try to ensure that another party complies with the terms of a financial transaction without gua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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