GARVIN S.PJ.—Ameresinghe v. Perera
1934^' Present: Garvin S.PJ. and Poyser J.AMERESINGHE v. PERERA.
338—D. C. Negombo, 5,259.
Surety—Party to a mortgage bond—Partial loss of security through act ofcreditor—Surety’s right to have his liability reduced.
Where a person has bound himself as surety under a mortgage bondand where, by the act of the creditor, a part of the securities hypothecatedfor the debt have been lost, the surety is entitled to claim that hisliability be reduced by the amount which might have been realized bythe sale of the securities so lost.
^J^PPEAL from a judgment of the District Judge of Negombo.
N. E. Weerasooria (with him Aluwihare), for second defendant,appellant.
C. V. Ranawake, for plaintiff, respondent.
Cur. adv. vult.
January 26, 1934. Garvin S.P.J.—
By a bond bearing No. 5,612 dated July 18, 1928, the first defendantas principal and the second and third defendants as sureties boundthemselves to pay to the plaintiff and one Cecilia Fernando or eitherof them the sum of Rs. 1,750 with interest at 13£ per cent, per annum..For securing the payment of the said sum the fir^t defendant in and bythe said bond hypothecated three parcels of land. Interest was paid upto July 17, 1929, and on September 1$, 1930, a further sum of Rs. 300,being the proceeds of sale of two of the three aforesaid parcels of landreleased by the plaintiff for the purpose, was paid. The plaintiff thenbrought this action praying for judgment for the sum of Rs. 1,975 beingprincipal and balance interest payable up to March 17, 1931.
The first defendant did not file answer. The second and thirddefendants however did file answer and pleaded that they as suretieswere absolutely discharged from their obligations by the act of theplaintiff in releasing two out of three lands hypothecated by firstdefendant as security for the payment of the debt.
The learned District Judge gave judgment for the plaintiff as prayedfor less a sum of Rs. 200 which represents the measure of relief to whichthe Judge thought the second and third defendants were entitled onwhat appeared to him to be the broad, equitable ground that the landsreleased being worth Rs. 500 and not Rs. 300, the plaintiff should not havereleased them in consideration of a payment of Rs. 300 to the prejudiceof the sureties who, he thought, were entitled to ask that they should becredited with the full value of the security thus released.
The second defendant has appealed from this judgment.
GARVIN SP.J.—Ameresinghe v. Perera
It was urged in support of this appeal—
that the second and third defendants were sureties and only liable
as such and not as principles ;
that they were discharged from their obligation as sureties when
the plaintiff released the two parcels of land above referred tofrom the hypothecation and thereby disabled himself fromceding to them all his actions against the first defendant.
The first of these points does not present any great difficulty. Thebond shows that the second and third defendants bound themselvesin terms “ as sureties hereto for further securing the payment of principaland interest, we hereby renouncing the benefits which sureties are legallyentitled to and also without distinction as to debtor or surety ”.
The passage is not well drafted but it is reasonably clear that thoughthe second and third defendants bound themselves as sureties theyrenounced all the benefits appertaining to persons who become suretiesso that there should be in the matter of the obligation created by thebond no distinction between the principal debtor and the sureties.
It is apparently in this view the District Judge held that the secondand third defendants were in effect principal debtors on thebond.
Although the interpretation of the language employed discloses anintention on the part of the sureties to renounce all the benefits to whichsureties are entitled, it is well settled that such a general renunciationis insufficient in law unless the surety who makes it is himself a lawyeror declares in the writing that he has full knowledge of the rights he isso renouncing—vide Wijeyewardene v. Jayawardene1.
There is here no such declaration nor have the privileges been speci-fically renounced. There is therefore nothing to prevent the secondand third defendants claiming all or any of the benefits to which theyas sureties are in law entitled.
Among the privileges to which sureties are entitled are the beneficiumexcussionis and the exceptio cedendarum actionum. The beneficiumexcussionis has not been specially pleaded and there is no reason there-fore for considering what the position of the parties would have beenhad that privilege been pleaded. It is necessary however to bear inmind that that privilege has not been renounced. What the appellantpleaded was the exceptio cedendarum actionum. He contends thatinasmuch as the plaintiff has by his own act released a part of the propertyhypothecated as security for the debt he is discharged.
A surety is entitled on payment of the debt to obtain from the creditora cession of all his actions against the principal debtor. When a creditorhas by his own act incapacitated himself from ceding his actions thesurety is discharged—vide Pothier on Obligations, p. 2c. 6, Article 1(Pothier—Evans9 Translation, p. 260).
i (1917) 19 N. L. R. 449.
308GARVIN S.P.J.—Ameresinghe v. Perera
So also in a case in which a creditor has by his own act lost his rightsin respect of property hypothecated the exceptio cedendarum actionummay be opposed to him. A creditor is a trustee of a surety for thesecurity which he holds for the debt (Mohatnmedo Tamby v. Areme-cutty ’).
The question arises whether a surety is absolutely discharged orwhether he is only discharged to the extent of the loss occasioned by thedefault of the creditor.
Now Pothier says:“ When the creditor has by his own act inca-
pacitated himself from ceding to the surety his actions, either againstthe principal debtor, or against the other sureties, whether becausehe has discharged them, or because he has by his neglect allowed hisdemand against them to be dismissed, the surety may, per exceptionemcedendarum actionum, obtain a declaration, that the demand of thecreditor is inadmissible, for so much as the surety might have procuredby the cession of actions, which the creditor has disabled himself fromdoing”— Pothier, p. Ill, c. 1, Article 6 (Pothier—Evans’ Translation,p. 362).
The inference may be drawn that the surety is only discharged tothe extent of the amount he might have received had he obtained cessionof action.
In a case such as the one under consideration where by the act of thecreditor a part of the securities hypothecated for the debt have beenlost, the surety may justly claim that his liability should be reduced bythe amount which might have been realized by the sale of the securitiesso lost; but there seems to be no reason or equity which entitles him toclaim to be absolutely discharged from all obligations arising from thecontract of suretyship.
In the case of Wijewardene v. Jay awar dene", Bertram C.J. in thecourse of a judgment where the law is fully discussed concluded asfollows:—“In the case, however, of the exceptio cedendarum actionumit appears to be clear that the law, as laid down by Pothier and by theAmerican jurists, limits the discharge of the surety to the loss that canbe shown to have accrued to him from the creditor’s misfeasance ”.
It only remains to apply the principle laid down in Wijewardene v.Jayewardene (supra) to the facts of this case. The property releasedfrom the hypothecation was sold for Rs. 300. The whole of this sumwas paid to the creditor on the bond and has been set off against themonies due thereunder. It was urged however that Rs. 300 was con-siderably less than the true value of the land. The learned DistrictJudge considered the evidence adduced on this point and came to theconclusion that the land was worth Rs. 500. There seems to be noreason for setting any higher value on the land. The surety was there-fore entitled to claim that his liability should be reduced by that amount.
1 3 Lorensz’ Reports 354.
2 (1933) 24 N. L. R. 336.
DALTON S.PJ.—Goonesekere v. Ramapillai.
The District Judge has directed that the creditor shall, in addition tothe Rs. ?fl0 for which credit has been given, further reduce his claimagainst the sureties by Rs. 200, the difference between the price saidto have been paid and the amounts which the Judge thought shouldhave been realized at a properly conducted sale. The sureties havetherefore had their liability diminished by the amount of the loss whichthe Court found they had sustained by the release of this property fromthe hypothecation.
For these reasons the judgment will stand affirmed with costs of thisappeal to the respondents.
Poyser J.—I agree.
AMERESINGHE v. PERERA