TMI Blog1933 (9) TMI 8X X X X Extracts X X X X X X X X Extracts X X X X ..... nder it and he was only a surety for the 2nd defendant, and that as the plaintiff entered into a composition deed with the 2nd defendant he was exonerated from liability in the transaction. To this argument the plaintiff's reply was that the 1st defendant was not merely a surety and that, even if he was, under the composition deed of the second defendant the rights against the 1st defendant were reserved. The District Munsif decided in favour of the plaintiff on the second plea. On appeal the District Judge also found that the money was really taken by the 2nd defendant and that therefore the note was really an accommodation note; and he therefore held that the 2nd defendant was the principal debtor and the 1st defendant was the surety. He next held, differing from the District Munsif, that Section 39 of the Negotiable Instruments Act does not apply to the case of a note and that therefore the reservation in the composition deed does not help the plaintiff. He refers to three cases, namely, a decision of the Oudh Chief Court (Bellew, F.W. v. Bank of Upper India, Ltd. (1910) 7 I.C. 727), a decision of this Court (Ramakistnayya v. Kassim (1889) I.L.R. 13 Mad. 172) and the decisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an accommodation bill to the knowledge of the endorsee, the acceptor should be considered only as a surety for the drawer and he was therefore discharged by the endorsee giving time to the principal debtor. Again in another case, Collott v. Haigh (1812) 3 Camp. 281 : 170 E.R. 1382 Lord Ellenborough held that the acceptor is a surety and the drawer is the principal debtor and giving time to the acceptor would not discharge the drawer. The doctrine of Lord Ellenborough was soon doubted by Gibbs, J. in Kerrison v. Cooke (1813) 3 Camp. 362 : 170 E.R. 1411 and by Lord Mansfield in Raggett v. Axmore (1813) 4 Taunt. 730: 128 E.R. 517 and Fentum v. Pocock (1813) 5 Taunt. 192 : 128 E.R. 660 and held not to apply where the acceptor promised to pay the bill when demand was made at maturity. The decision in Fentum v. Pocock (1813) 5 Taunt. 192 : 128 E.R. 660 was in the Court of Common Pleas and up to 1853 this judgment of Lord' Mansfield was regarded as the settled doctrine of the Courts of Common Law in England, the last of such decisions being the one in Manley v. Boycot (1853) 2 E1. B1. 46 : 118 E.R. 686 decided just before the introduction of equitable pleas: all the decisions betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e received the instrument, the better opinion is that that circumstance does not alter his rights or duties, as such party has held himself out and obligated himself in a certain character, and has no just ground to demand or expect greater consideration than that legally incident to that character which he has assumed. If he intended to insist on the privileges of a surety, he should have refused to bind himself except in a recognised form of suretyship. Furthermore, it may be observed, that while the indulgence or release of an acceptor (or other principal) materially affects the remedies of the drawer (or other surety) who is thereby delayed or entirely deprived of recourse against the acceptor upon the bill itself, to which he would be entitled and upon which he might sue the acceptor on making payment, no such injury can possibly be inflicted on the acceptor for accommodation by indulgence to or release of the drawer. The acceptor may at any time at or after maturity of the bill pay it, and no matter what may be the arrangements between the holder and the drawer, sue the latter not upon the bill but for money paid to his use. 6. Again in paragraph 1335 it is observed: Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the common law doctrine of Lord Mansfield in Fentum v. Pocock (1813) 5 Taunt. 192 : 128 E.R. 660 is plain from Section 37. It is noticeable that so far as the application of the law of guarantee to the relations between parties to negotiable instruments is concerned, the subject has not been codified in England there being no sections like Sections 37 and 39 of the Negotiable Instruments Act in the Bills of Exchange Act. So that, though the law of negotiable instruments is now codified in the Bills of Exchange Act of 1882, so far as the application of the law of suretyship to parties to negotiable instruments is concerned it is left open for evolution and development by case-law; and we have seen that it was finally settled only by the decision of the House of Lords in 1894 by adopting the doctrine of the Equity Courts. But long before 1894, the Indian Legislature has adopted the doctrine of the Common Law Courts. Not only has it not adopted the doctrine that even if the fact relating to accommodation is not known it is immaterial but it has also gone to the extent that even if it is known at the time of the endorsement it is equally immaterial. Not knowledge but actual contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. There is no such contract to the contrary that has been pleaded or that can be found in this case. The decision of the lower appellate Court must, therefore, by reason of my conclusion on the first point, be reversed, and the plaintiff given a decree against the 1st defendant also with costs here and in the lower appellate Court and the decree of the District Munsif restored. 11. Coming to the second point, I observe that my learned brothers Venkatasubba Rao and Reilly, JJ. held in Annadana Jadaya v. Konammah (1932) I.L.R. 56 Mad. 625 : 64 M.L.J. 386 that entering into an agreement with a principal debtor granting him time will not discharge the surety if the right against the surety is reserved. Mr. Rajah Aiyar has not contended that that decision is erroneous. He only relies on Section 39 of the Negotiable Instruments Act. The mere fact that Section 39 of the Negotiable Instruments Act provides in respect of a Bill of Exchange for such reservation does not show that the main principle recognised as part of the law of contracts does not apply to other negotiable instruments. Section 39 would, therefore, seem to be a provision inserted ex abundanti cautela. On this point al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , whether this is the true effect of Section 37. 14. To sustain his position, Mr. Rajah Aiyar has had to contend that the words a contract to the contrary in the section refer to a contract between the maker and the payee. The section deals with the rights of the holder and provides that at his instance the maker shall be liable as principal debtor. What then, can the contract to the contrary mentioned in the section, have reference to? It must refer to a contract which displaces the normal right which the holder possesses in law. Moreover, according to this contention, the section goes further than even the rule as understood in English Law, for under the English decisions, a contract between the maker and the payee is not by itself sufficient, but further the holder must have notice of it. If Mr. Rajah Aiyar's argument be accepted, the question of notice on the part of the holder becomes immaterial, as the moment a note is shown to be an accommodation note, the payee vis-a-vis the holder becomes the principal debtor. As the section stands, it does not provide that in the case of an accommodation note a different rule shall prevail; it recognises no exception, but enact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not by contract but by notice only . (Rowlatt on Principal and Surety, 2nd Ed., p. 5) : Vide Davies v. Stainbank (1855) 6 De G.M. G. 679 : 43 E.R. 1397, Pooley v. Harradine (1857) 7 E1. B1. 431 : 119 E.R. 1307, and Greenough v. M'Clelland (1860) 30 L.J.Q.B. 15 Overend Gurney Co. v. Oriental Finance Co. (1874) L.R. 7 H.L. 348. This marks the third stage. The last and the fourth stage was reached when the decision was given by the House of Lords in Rouse v. Bradford Banking Co. (1894) A.C. 586, already referred to. Owing to the loose reporting of Oakley v. Pasheller (1836) 4 C. F. 207 : 7 E.R. 80 and the decision in Swire v. Redman (1876) 1 Q.B.D. 536 it was regarded doubtful whether a notice to the holder given not at the time of his taking the bill but later would bind him to respect the position of the accommodation party as surety only. But the doubt seems to have been set at rest finally by the decision in Rouse v. Bradford Banking Co. (1894) A.C. 586. It is now indisputable that, irrespective of any actual assent by the holder, any indulgence given by him after obtaining knowledge of the real position to the party accommodated, has the effect of discharging the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the 2nd defendant (the payee) must be treated as the principal, it is conceded that under the agreement in question, the holder's right to proceed against the maker (on this hypothesis, the surety) has been reserved. In such a case by giving indulgence to the principal, the creditor does not discharge the surety. I dealt with this point at length recently in Annadana Jadaya v. Konammal (1932) I.L.R. 56 Mad. 625 : 64 M.L.J. 386, decided by Reilly, J. and myself. Mr. Rajah Aiyar accepts the correctness of this decision, but contends that the general law as to the reservation of remedies has no application to the case of negotiable instruments, except to the limited extent recognised in Section 39 of the Act. That section runs thus: When the holder of an accepted bill of exchange enters into any contract with the acceptor which, under Section 134 or 13S of the Indian Contract Act, 1872, would discharge the other parties, the holder may expressly reserve his right to charge the other parties, and in such ease they are not discharged. 21. Why the Legislature has thought fit to enact a special section in these terms, it is not easy to tell; but I am not prepared to hold that ..... 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