Punchanun Ghose vs G.H. Daly and Another

Phear, J.—In this case both the defendants admit that they are the makers of the promissory note upon which the plaintiff sues; and on the part of Dr. Daly, no defence is offered. But Mr. Kemp says that, although on the face of the note he appears as a principal in the contract to pay, yet he was, in fact as between himself and Dr. Daly at any rate, only surety to the knowledge of the plaintiff and that the plaintiff has given time to the principal debtor. On this ground Mr. Kemp urges, or rather it baa been urged on his behalf, that he is in equity discharged from liability. A defence of this kind, at first sight, does not seem as if it can be right. One signs a promissory note jointly with his friend, in order that the latter may obtain the loan of a sum of money, the money-lender refusing to advance the money without the second name on the note. In consequence of his so signing, the money is advanced, time runs en, the friend pays interest for a while, and next requires pressing for it; then various communications take place between him and the money-lender, who at last, finding that he cannot get his money from that quarter, turns to the second promisor, and he at once says: "Oh ! you have been giving time to my friend; equity relieves me from my promise." The unfortunate money-lender on being thus met, may well be excused if the thought occurs to him that the rule appealed to, if operative, must be wrongly designated.

If this case depended upon English law alone, I think, on the materials before me, that the defence would fail.

Many cases of this class arose in the Common Law Courts at Westminster, shortly after the introduction of equitable defences in those Courts by the Common Law Procedure Act. The results of these were reviewed by the Court of Exchequer Chamber in Greenough v. McClelland 6 Jur., N.S., 772; S.C., 2 E. & E., 424, a case very similar, in many respects, to the present, and Williams, J.; in delivering the judgment of the Court, was at much pains in ascertaining the true nature of the rule of equity which was to be applied. The facts were as follows:--

A person of the name of Titterington, requiring a loan of �150, applied to the defendant upon the subject, and the defendant wrote the plaintiff a letter, requesting him to call on Titterington, which the plaintiff did. Titterington then asked the plaintiff to lend the �150 to him. The plaintiff drew a cheque for the money, less three months'' interest, at the rate of �20 per cent., and gave it to Titterington, and it was duly paid. He also drew out a joint and several promissory note, being the note in question, and gave it to Titterington, telling him to sign it himself, which he did, and to obtain the defendant''s signature to it as his surety, and then to return it so signed to him (the plaintiff). This Titterington did, and the plaintiff received the said note accordingly, signed by the defendant as maker. When the note became due, Titterington paid to the plaintiff another three months'' interest, at the rate of �20 per cent., and in advance, and received from the plaintiff the following receipt:--

�7-10 . . . . . . . . 1858, June 26th.

Received from Mr. Titterington �7-10 for interest due the 26th September next, on his joint note.

Jos. Geeknough.

And on the expiration of that period, Titterington paid to the plaintiff another three months'' interest in advance, and received from the plaintiff the following receipt--

�27-10 . . . . . . . . . 1858, September 28th.

Received from Mr. Titterington �27-10, for renewal of his joint note to the 26th December next.

Jos. Geeknough.

These payments were made without any consent or knowledge of the defendant, and the defendant was not informed, nor did he know of them, until the latter end of October, when Titterington became insolvent. The jury found that the defendant was surety as between himself and Titterington, and that the plaintiff knew that fact, but that he did not agree, nor did the defendant stipulate, that he should be considered or treated by the plaintiff as surety, or otherwise than as maker. The question for the Court was whether, on these facts, the giving of time to Titterington, which was assumed to have taken place, had the effect of discharging the defendant. It was argued, with much apparent reason, that unless the plaintiff, at the time of making the contract, expressly or impliedly agreed that the defendant, although he appeared as principal on the paper, should, nevertheless, be regarded only in the situation of surety for Titterington, it ought to be matter of indifference to the plaintiff what was in fact the relation between the defendant and Titterington; but the Court held, on the authorities that this was not so. The plaintiff was, no doubt, entitled to treat the defendant as maker of the note and a principal debtor, but, nevertheless, as soon as he came to knew of his real relation to Titterington, it was fraud on him to give time to the latter. Why this should be so, unless the giving of time to Titterington was against the faith of the plaintiff''s original agreement with the defendant, it is difficult to see; and Williams J., who delivered the judgment of the Court of Exchequer Chamber, seems to have had some misgiving on this point.

In a later case, Bailey v. Edwards 11 Jur., N.S., 134, at p. 136; S.C. 4 B. & S. 761, at p. 771, the same question was dwelt upon by Blackburn, J., in delivering the Judgment of the Court of Queen''s Bench. That learned Judge said:--"Whether, if the matter were res integra , it might not have been better to confine the surety''s right in such cases to compensation in damages for this injury, which is generally only nominal, it is not now open to us to consider. A long series of decisions, many of which may be found collected in the notes to Bees v. Berrington 2 Wh. & Tu. L. Ca. in Eq., 4th Ed., 974, have settled that such an alteration in the position of the surety discharges him, even though the delay may be shown to be for his benefit. Lord Elden, in Samuell v. Howarth 3 Mer., 272, at p. 279, gives, as a reason for the apparent harshness, that ''the law has said that the surety shall be the judge of that, and that he alone has the right to determine whether it is or it is not for his benefit.'' "The principle has been imported from the Courts of Equity into those" of law, and is clearly stated by Williams, J., in Strong v. Foster 17 C.B. 201. After quoting from this case, Blackburn, J., proceeds to say:--"There are authorities, amongst others Strong v. Foster 17 C.B. 201,--tending to show that, in order to enable a surety to raise at law a defence, upon the ground that time has been given to the principal, it necessary to show that the original contract between the plaintiff and the defendant was that of creditor and surety. Bow this may be at law, we are not now called upon to decide. We are determining this case as a Court of Equity. It was decided in this Court, in Pooley v. Harradina 7 E. & B., 431; S.C., 3 Jur., N.S., 488, on an equitable plea, that the equity on which the Court should act ''does not depend on any contract with the creditor, but on its being inequitable in him knowingly to prejudice the rights of the surety against the principal.'' By this judgment we are bound even if we did not agree with it as we do. In Pooley v. Harradine 7 E. & B., 431; S.C., 3 Jur., N.S., 488, the plea alleged that the creditor, at the time when he became holder of the bills, as well as when he gave time, had notice of the relationship of principal and surety between the defendant and his co-debtor; and the decision did not go further; but it had previously been determined by Sir J. Leach, M.R., that even though the relationship of principal and surety was created, by an arrangement between them after the parties had become liable to the creditor as joint debtors, the creditor, by giving time to the principal, with notice of this arrangement, discharged the surety; and this decision was affirmed by Lord Brougham and by the House of Lords--Oakeley v. Pasheller 4 Cl. & Fin., 207; S.C.10 Bligh., N.S., 548."

It seems to me clear, however, that Oakeley v. Pasheller 4 Cl. & Fin., 207; S.C. 10 Bligh., N.S., 548, thus referred to, does not extend so far as Blackburn, J., supposes. Lord Lyndhurst there asks at p. 232. 4 Cl. & Fin "Can you cite any authority to the effect that two original principal debtors could, by arrangement among themselves, convert one into a surety only for the other principal debtor"; and the answer is that the creditor had accepted the arrangement, and the judgment of the House of Lords was moved by Lord Lyndhurst upon that ground.

Also, the opinion of Lord Cottenham, expressed in Holler v. Eyre 9 Cl. & Fin., 1, upon which the Exchequer Chamber relied in Greenough v. McClelland 6 Jur., N.S., 772; S.C., 2 E. (sic) E., 424, does not as it appears to me, support the conclusion drawn from it. He says 9 Cl. & Fin., p. 51:--

The judgment of the Court below proceeded entirely upon the ground that the plaintiff was throughout the whole transaction a surety only. If, therefore, the ground fails, the decree cannot be supported. I am, however anxious to explain my view of the state of the law upon the subject assuming that the plaintiff was only a surety from the beginning; that is, CM between himself and the co-grantors of the annuity; for as between him and the grantees, I think it quite clear that he was a principal grantor. To affect the grantees in that case with any equities arising from the plaintiff being only a Surety, they must have had notice of it at the date of the transaction.

This point is dealt with in Pooley v. Harradine 7 E. & B., 431; S.C., 3 Jur., N.S., 488, though the consideration of it was not necessary to the decision of the case, and, consequently, the remarks upon it of Coleridge, J., who delivered the judgment of the Court, amount to nothing more authoritative than opinion upon opinion. These remarks, referring to Lord Cottenbam''s judgment, are 3 Jur, N.S., 489, & 7 E. & E., 435:--"That learned Lord uses the expression,'' at the date of the transaction,'' which the reporters, in the marginal note of the case, seem to have understood as meaning the date of the original grant; but from the context, and the passages which follow in the same page, we are disposed to understand it as referring to the time of the transaction or dealing alleged to amount to a discharge of the surety."

With the greatest deference to the learned Judge, I cannot help thinking that the reporters were right. It is plain to me, from the context, that the "transaction" spoken of was the original grant. And the words in which Lord Elden, expresses the rule in Samuell v. Howarth 3 Mer., 272., at p. 278 seem to show that it is the original situation and knowledge of the parties, as in reason it ought to be, which is the foundation of the equity:--"The rule is this, that, if a creditor, without the consent of the surety gives time to the principal debtor, by so doing he discharges the surety; that is, if time is given by virtue of positive contract between the creditor and the principal--not where the creditor is merely inactive. And in the case put, the surety is held to be discharged, for this reason, because the creditor , by so giving time to the principal, has put it out of the power of the surety to consider whether he will have recourse to his remedy against the principal, or not; and because he, in fact, cannot have the same remedy against the principal, as he would have had under the original contract."

I may add that it is apparent from the form of the equitable plea in the recent case of Petty v. Cooke L.R., 6 Q.B., 790, it is still in practice considered essential in the Common Law Courts at Westminster to allege that the creditor took the note with knowledge of the suretyship.

Notwithstanding, then, the leading common law authorises which I have referred to, and which have been supposed to govern a case like the present, I think the first question which arises before me under English law is, did Mr. Kemp, to the knowledge of the plaintiff when he took the promissory note sign the note only as surety for Dr. Daly?

And the second question is, if so, did the plaintiff afterwards, by positive contract with Dr. Daly, give him time to pay the debt?

I do not think the evidence is sufficient to establish the affirmative of either of these. No doubt the plaintiff knew enough to enable him to make a shrewd guess that Dr. Daly was the person for whose sole benefit the money was borrowed, and, therefore, that as between the two promisors, Mr. Kemp and Dr. Daly, the relationship was probably that of surety and principal. But I think a guess, however well founded, is not sufficient to determine the first question against the plaintiff.

But, however this may be, I think that the second must certainly be found in the plaintiff''s favor. There is nothing in the evidence serving to prove that the plaintiff on any occasion ever bound himself, to use Lord Eldon''s words, by positive contract, to give time, however short to Dr. Daly, for payment of the debt. Dr. Daly''s answers to the interrogatories, afford the only evidence on the point favorable to the defence and this falls very far short of anything of the kind. The endorsement of payment of the back of the promissory note do not help the defendant. And the memoranda by which Dr. Daly speaks were manifestly not made at the times of the payments, and are altogether untrustworthy. But even if they be taken to the letter in confirmation of Dr. Daly''s testimony the utmost that is proved is that, on certain occasions, Dr. Daly, in consequence of pressure from the plaintiff, paid him money, not only for arrears of interest due at the time, but also by way of advance of interest for six weeks or two months. It might, no doubt, have been the case that this advance of interest, small as it is, was made as consideration for an under taking, express or implied, not to sue for the interval to which the advanced interest relates, but I see no indication of this having been so. It may equally well have been only part of the consideration for the plaintiff''s forbearing to sue for the principal and interest actually due at the time of the demand. The defendant Daly would not have been peculiarly prejudiced if the plaintiff had sued next day. It seems to me that a binding contract to give time cannot be rightly inferred from the mere receipt by the creditor of interest in advance; and this was the view of the Court of Exchequer, expressed in the case which I lately quoted in Dwarkanath Mitter v. Daly1.

I therefore think that, on the ground of English law, the plaintiff is entitled to a decree against both defendants.

I had arrived at the foregoing conclusions, and put my reasons on paper, when my attention was drawn to the recent enactment of the Indian Contract Act, 1872; and certainly the matter in this country seems to be put beyond all doubt by s. 132 of that Act, taken together with its illustration. This runs as follows:--"Where two persons contract with a third person to undertake a certain liability, and also contract with each other that one of them shall be liable only on the default of the other, the third person not being a party to each contract, the liability of each of such two persons to each third person under the first contract is not affected by the existence of the second contract, although such third person may have been aware of its existence."

Illustration.--A and B make a joint and several promissory note to C. A makes it, in fact, as surety for B, and C knows this at the time when the note is made. The fact that A, to the knowledge of C. made the note as surety for B, is no answer to a suit by C against A upon the note.

The result is that the plaintiff is entitled to a decree against both defendants for the amount of the note, with interest thereon, according to the terms of the note, from 25th September 1873 to the date of the plaint. I trust Dr. Daly''s statement as to the time when the last payment of interest was made in preference to the testimony of the plaintiff on the point, because I do not think the plaintiff was in all respects truthful in the evidence which he gave. The plaintiff must have his costs on scale No. 2, but I give no interest after decree.

1 Before Mr. Justice Phear.

The 7th and 8th July 1875

Dwarkanath Mittkr v. G.H. Daly And Another.

Dwarkanath Mitter v. A.J.C. Birch.

Principal and Surety - Promissory Note--Receipt of Interest in Advance--Giving time to Principal.

The more taking, by the holder of a promissory note, of interest in advance from the principal debtor does not operate as an agreement not to sue daring the time covered by the interest, and therefore does not constitute such a giving of time to the principal as would release the surety.

These were two suits on a promissory note in the following form, made by the defendants in favor of the plaintiff, and dated 28th September 1871.--"Three months after date, we jointly and severally promise to pay to Baboo Dwarkanath Mitter, or order, the sum of Rs. 3,000 for value received."

(Sd.) G.H. Daly.

A.J. Colvine Birch.

Guo. G. Nelson.

The two suits were heard together by the order of the Court; the first having been brought during Birch''s absence in England, and the second on his return.

The further material facts are stated in the judgment.

Mr. Branson and Mr. W. Jackson for the plaintiff.

M. Lowe for the defendants.

Phear, J.--It is not disputed that the defendants executed the promissory note on which the plaintiff sues, and in the case of Dr. Daly no defence is set up. But with regard to the other two defendants (I treat the two cases as if they were one, for they have been heard together by order of the Court), it is said that they,--that is Nelson and Birch,--only signed the note as sureties for Daly, and that the plaintiff has so given time to Daly that they are not in equity liable to be sued.

Now, all three defendants appear on the written document itself as principals, and I need hardly say that, in-order to get Nelson and Birch into the situation of sureties, it is not enough to prove that the parties, defendants, agreed among themselves that it should be so, but it must be made out that Nelson and Birch signed the note upon this understanding, and that the plaintiff took the note with these signatures, knowing that they had so intended to sign. If this were made out, then, no doubt, the plaintiff would be held in equity to have assented to the defendants, Nelson and Birch, being liable only in the alternative as sureties to the principal. Daly. It appears to me, however, upon the evidence which has been adduced before the Court, that the defendants Nelson and Birch have failed to make out that this was the case. The plaintiff and his witness Khetternath absolutely deny that any undertaking of the sort ever came to their knowledge. I am quite willing to accede to Mr. Lowe''s argument that these person are worthy of very little credit indeed. There can be no doubt that in this case there has been an attempt made by the plaintiff and Khetternath to falsify facts in such a way as to make it appear that Khetternath was entirely independent of, and not in the slightest degree the agent of the plaintiff'' as between the plaintiff and the makers of this note. It seems to me very plain that Khetternath is really the confidential servant of the plaintiff, and that be was not in this matter a mere basar dalal. But however this may be, I repeat that these persons positively swear that they had no knowledge that Nelson and Birch only signed this note upon the condition of being sureties, and there is very much to support this assertion, because it does not seem to be pretended that there was any communication of any sort between the plaintiff or Khetternath and there gentlemen). According to Khetternath''s account, they were sent for by Dr. Daly. They were told that their signatures were wanted, and, at his request, they signed the note. Nothing was said as to their being anything other than the principals, which they appear to be on the face of the note, and, however untruthful Khetternath may be as to some of his statements, he was not cross examined upon this point at all. It then stands upon the evidence that Capt. Nelson and Capt. Birch did nothing, when the note was signed, to represent that they signed in the character of sureties, and not in the character of principals. Dr. Daly, no doubt, says that he was the person who was borrowing, and I may take it that the plaintiff was perfectly well aware that Daly was the man who wanted money. Daly also says that his friends only signed as his sureties, and that the plaintiff knew this was the fact. When he is asked how he knows it, he gives as his reason that he told Khetternath that he was the person who was borrowing. He does not go so far as to say that he told Khetternath that if the names of Nelson and Birch were put upon this note as jointly with his, they would be put there only as sureties, or anything equivalent to that; and, no doubt, the two names were added to Daly''s because the plaintiff would not agree to lend to Daly alone. I see, therefore, nothing in the evidence to lead me to the conclusion that in equity the defendants Nelson and Birch, though in fact, they appear as principals on this note, ought to be treated as only sureties for Daly.

But even if I had thought otherwise, and if I had been of opinion that Nelson and Birch are entitled to such advantage as they might get in this matter from being sureties only, and not principals, I should find it almost impossible to come to the conclusion that the rest of the defence was made out, viz., that the plaintiff had given time to the principal.

The note upon which the suit is brought is a promise to pay on the expiration of three months, and it is said that, on the expiration of those three months, the plaintiff took a three months'' advance of interest from the defendant Daly, and in that way gave him time; and that when those three months had expired, a further advance of interest for three months was made, and that so, in the same way, time was given again, and, I think, this was said to hare happened several times to the end off 1873.

Now, in order to constitute a giving of time, such as to release the surety, there must be an obligation in law or equity upon, the creditor preventing him from suing the debtor during the time which is supposed to be given. But I do not understand that the taking of interest in advance alone of itself operates as an, obligation upon the creditor to refrain from suing his debtor. If he sues, the debtor will have the benefit of having paid that money. These is nothing in the transaction itself to alter the situation of the pasties. It would be otherwise if the creditor obtained the advance from his debtor upon the distinct representation that he bound himself not to sue for the time in respect of which the interest was advanced. In that case, of course, there would be a binding agreement between the parties, which would be effective both in law and in equity, to prevent the creditor from suing; and this, I imagine; was the case in all the instances which are cited in support of the defendant''s contention, with the single except ion of a case in this Court--Kali Prasanna Roy v. Ambica Charan Bose 9 B.L.R. 261. In that case a decision was given by an Appeal Bench of this Court, which seems, no doubt, to have the effect of laying down that the mere facts of payment of interest in advance, for however slight a period, would, in equity, bind the creditor who received it, not to sue daring that period. With the greatest deference to the learned Judges who decided that case, I cannot arrive at that opinion. The cases which are cited in support of it seem to me to fall Tory far short of it indeed. My learned colleague, Markby, J., says.--"Bearing in mind, and applying the principle as it is explained in Samuell v. Howarth 3 Mer., 272 and Strong v. Foster 17 C.B., 201 and, I most say, as it seems to me, though perhaps, not quite so clearly in Oakeley v. Pashallar 10 High, N, S., 548; S.C. 4 Cl. & Fin., 207 also, there is, I think, little difficulty in disposing of the present case. The creditor had accepted interest in advance from the principal debtor, and he had thereby not only put it out of his own power to sue the principal debtor for a certain period, but bad also put the principal debtor in a position in which it would be a hardship that he should be sued by any one at all during that period."

I must confess that I am unable to see that the mere acceptance in advance of interest of itself puts it out of the power of the creditor to sue the principal debtor; and I think that all the oases cited contained other facts which; taken with that fact, amounted to an agreement not to sue. The whole principal lies in a very small compass. If the creditor has bound himself by an agreement with the principal debtor so that he cannot sue, the surety paying off the debt would not be put in the position of being able to recover from the principal. It appears to me that the mere payment of interest in advance, such as has been made in this case, does not of itself constitute a binding contract on the part of the creditor not to sue, and that the sureties, if they had paid the debt, might, notwithstanding that advance of interest have at once sued the principal and recovered, giving credit, of course, for the amount of interest which had been advanced.

It, perhaps, would have been necessary for me, holding this view, to have referred the case to a Full Bench, if it had not been for the case of Rayner v. Fussy 28 L.J., Ex., 132 cited to me by Mr. Branson which seems to be almost entirely paralleled to the present case, and which was not cited before the Appeal Bench in the case of Kali Prasanna Roy v. Ambica Charan Bose 9 B.L.R., 261. I may add that the so-called giving of time, which has occurred successively on a series of occasions in the present case, was nothing more than the same giving of time i.e., taking interest in advance, which occurred at the inception of the contract itself. In other words, it was a continuation of the same contract. It would be, to say the least of it, very remarkable, if this alone had the effect of putting an end to the liability of the sureties.

I think there must be a decree for the amount of the note against the defendants in each suit, with costs on scale No. 2, including the cost of the interrogatories to Dr. Daly. There will be only one set of costs from the date of the order that the two suits should be heard together, Interest at 6 per cent. will run on the amount of the decree.