Nallappa Reddi vs Vridhachala Reddi and Another

The question raised in this case is one of some importance. The second defendant had agreed, while the plaintiff was a minor, to manage the

plaintiff''s properties and to hand over possession to him after his attainment of majority. One of the duties that the second defendant undertook to

perform was the payment of interest due on the debts. He did not pay the interest on one of the debts and in consequence the creditor instituted a

suit (Original Suit No. 521 of 1897) in the Kulitalai District Munsifs Court. The plaintiff and the second defendant were both parties to that suit, the

second defendant being the third defendant there. He contended in that suit that he had paid up the interest, but failed to adduce evidence to prove

his contention. The plaintiff subsequently paid the amount to the creditor, and instituted this suit to recover the damages sustained by him in

consequence of the second defendant''s failure to pay.

The Lower Appellate Court has held that the second defendant is bound by the finding in Original Suit No. 521 of 1897, and cannot now be

permitted to allege or prove that, as a matter of fact, the interest due to the creditor had been discharged by him prior to the previous suit. Mr.

Seshagiri Ayyar contends that the rule of res judicata is not applicable to the case as the plaintiff and the second defendant were co-defendants in

the previous suit and as it was not necessary to determine the question as between them to give relief to the plaintiff there. We consider it

unnecessary to determine whether the case would really come strictly within the rule of res judicata as we have no doubt that the second defendant

must be held to be equitably estopped from raising the contention that he had really paid the interest due to the creditor. He, as co-defendant in the

previous suit, had an opportunity to prove it. It was his duty to do so in order to prevent a decree being passed against the plaintiff here. He failed

to do so. He had undertaken to indemnify the plaintiff if, in consequence of the breach of the covenant or his part to pay the interest on debts, the

plaintiff was put to any loss. Owing to his failure to adduce evidence a decree was passed against the plaintiff and he was obliged to pay the

creditor. It would be monstrous in the circumstances to allow the second defendant now to do that which by his fail to do before he put tie plaintiff

to loss. The case of the plaintiff however might be put even on broader grounds than in the circumstances it is necessary to do. It has been held by

both the English and American courts that, where there is a contract to indemnify, if a decree has been passed against the person entitled to

indemnity, the correctness of that decree cannot be impeached by the person bound to indemnify. The contract of indemnity might no doubt strictly

be said to require that it should be proved that the indemnifier acted in violation of his duty, as well as that his act caused loss to the party entitled

to indemnity. But the courts have held, and we think rightly, if we may say so, that the contract is substantially broken when the court has found in a

suit honestly defended by the party entitled to indemnity that there has been a violation of duty by the indemnifier which has entitled a third party to

the damages for which the indemnity has been given. It has further been held that, if both the indemnifier and the party entitled to indemnity were

parties to the action by the third party, as in this case, or if the indemnifier had notice given to him of the suit against the party entitled to the

indemnity, the judgment would be conclusive against the indemnifier even as an adjudication by court.

Whether the technical doctrine of res judicata is applicable or not, there can be no doubt that the second defendant must be held to be estopped

from contending that the debt was discharged. It is unnecessary to refer to the authorities at length.

The earlier cases are referred to in the judgment of Mellish, L.J., in Parker v. Lewis (1873) L.R. 8 Ch. App. Cas 1035 . See also Mercantile

Investment and General Trust Company v. River Plate Trust, Loan, and Agency Company (1894) 1 Ch. 578. Verman on Estoppel and Res

judicata, pages 171 to 173 and Bigelow''s Law of Estoppel, pages 131 to 145. Our judgment is also in accordance with the decision of this court

in Krishnan Nambiar v. Kannan ILR (1898) Mad. 8. We dismiss the Second Appeal with costs.