Document Fragment View

Matching Fragments

1. This is an appeal by the plaintiff. Plaintiff is a Bank. The suit was for recovery of an amount of Rs. 71,986.50. Plaintiff claimed that defendants are liable to pay the said amount.

2. There are three defendants in this case. First defendant is the principal debtor. Defendants 2 and 3 guarantors. They have executed a continuing guarantee taking up the responsibility that they will also be liable to pay the amount to the Bank. It seems that the amount was advanced for the purchase of a fishing boat and the boat was also hypothecated by the first defendant to the Bank, by the hypothecation goods agreement dt. 21-8-1970. The defendant did not re-pay the amount due to the Bank. The Bank instituted the suit against the defendants for recovery of the amount found due as per the accounts. There is no serious contention about the quantum of liability. The first defendant did not hold out any serious contentions. After considering the contentions raised by the first defendant the court below found that the plaintiff is entitled to a decree for the amounts claimed. Thus the court below decreed the suit as against the first defendant.

3. Defendants 2 and 3 took up the contention that they are not liable to pay the amount even though they have executed a continuing guarantee, The continuing guarantee was executed on 21-8-1970. According to the Bank, the debt was kept alive on account of the acknowledgment of the liability of the debt by the first defendant. The plea of defendants 2 and 3 was that the acknowledgment made by the first defendant is not binding on defendants 2 and 3 and so as regards defendants 2 and 3, there is no cause of action for the Bank since the same has been barred by limitation.

12. Here the question is, what is the real content and width of the contract of guarantee executed by defendants 2 and 3. It has to be understood from the contract of guarantee executed by defendants 2 and 3. Admittedly, it is a Continuing guarantee and the main clause of the guarantee stipulates that this guarantee shall be a continuing security binding on defendants 2 and 3. When in the agreement, defendants 2 and 3 unequivocally agree that they undertake a guarantee that it shall be a continuing security, the court has to examine as to what is the exact meaning purpose and nature of this obligation of the guarantor. For what purpose, the security is given is made clear in Ext.A.2 agreement. The security is for whatever amount that is due to the Bank from the principal-debtor. So long as the agreement Ext.A2 is alive and in force, defendants 2 and 3 are liable for the amount due to the Bank because they have secured the amount by executing the agreement. The effect of such an agreement has been considered very clearly by the Supreme Court in AIR 1979 SC 102 (Margaret Lalita v. Indo Commercial Bank Ltd.). The Supreme Court observed thus:--

15. Considering the question of a continuing guarantee, Raman Nayar, J. as he then was, said :--

"The claims being alive as against the 1st defendant, it seems to me from the terms of the guarantee bond, Ext.P4, that they are alive so far as the 2nd defendant's guarantee also is concerned, For, Ext.P4 is in very wide terms. Clause (b) shows that it is a continuing guarantee determinable only after three months' notice -- there is no case that it has been so determined -- and Clause (c) states that the guarantee shall be applicable to the ultimate general balance that may become due from the principal, the term, "General balance" being defined in the opening sentence of Ext. P4 as inclusive of all sums of money which may then or at any time be owing to the bank from the principal."