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Present: Viscount Cave, Lord Dunedin, and Lord Carson.WIJEYEWABDENE v. JAYAWABDENE.
C. Colombo, 45,217.
Surety—Guarantee—Plaintiff forbearing to tue -debtor at defendant'srequest—Bond by defendant agreeing to pay after twelve months what-ever sum may then be due from debtor—Plaintiff to execute anassignment of debtor's bond to defendant on his paying the money due—Provision in defendant's band that “ this guarantee shall be acontinuing guarantee ”—Construction of bond—Effect of descriptiveterms " guarantee ” in bond.
When W who held a bond from the Ceylonese Union Companywas about to put his bond (5,112) in suit, J intervened and grantedhim a bond (5,279) which contained, inter alia, the followingclauses: —
In consideration of W granting the indulgence aforesaid, andforbearing at the request of J to claim and enforce paymentof the moneys diie to him by the Company, J doth herebycovenant with W as follows:—
That J shall and will, at the expiration of twelve months from
date hereof, if there shall be due, owing, and payable to Wupon the said bond (5,112) the whole or any part of theprincipal …. well and'faithfully pay to W the fullamount so due.
Upon such payment W shall execute an assignment in J’s
favour of the said bond (5,112), but with the express provisionthat the defendant shall have no remedy or recourse againstW, if J, from any reason or cause, fails to recover the saidmoneys.
8. This guarantee shall be a continuing guarantee, and’ shallextend to and be applicable to the full amount of the princi-pal due and owing and to become due and owing to W asaforesaid.
In order to give full effect to the provisions .of this guarantee,
J doth hereby expressly waive all suretyship and otherrights inconsistent with such provisions, and which hemight otherwise be entitled to claim and enforce.
W, invconsideration of the guarantee and covenant aforesaid,
hereby covenants with J that he will not, during the term oftwelve months from the date hereof enforce his claim forthe moneys due and owing to him.
Held, that under the bond (5,279) J was liable as principal debtorand not merely as surety.
The words “ this guarantee shall be a continuing guarantee ” didnot change the character of the obligation created by paragraph 1into one of suretyship. The mere use. of a descriptive term cannotaffect the reality of the transaction.
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HE faotn &re set out in the judgment. The judgments ofthe Supreme Court are reported in 19 N. L. B. 449 and 24
N.L. R. 336.
De (fruyther, K.C. (with him R. W. Lee and B. F. de SUva)9for the appellant.
Dunne, K.C. (with him IF. E. Bisschop), for the respondents
Cur. ode. cult.
July 30, 1924. Delivered by Lord Carson:—
This is an appeal by the plaintiff from a judgment of the SupremeCourt of the Island of Ceylon dated March 20, 1928, setting asidea decree of the District Court of Colombo in favour of the plaintiffdated July 17, 1922..
The action was brought by the appellant as plaintiff against therespondent as defendant to enforce a deed No. 5,279 datedAugust 3, 1914, which is hereafter set out in full. This deedwas entered into under the following circumstances:—The plaintiffwas a director of a company known as the Ceylonese UnionCompany, the proprietors of a certain newspaper, and up to October28, 1913, be had financed the company to the extent of Bs. 10,200.On October 28, he took a bond from the company to secure thepayment of that sum and such other sums of money as be mightadvance to, the company. In 1914 the debt due to the plaintiffby the company amounted to Es. 46,8^5.59. He was about toenforce his bond, when the defendant, who was himself a director< of the company and bad been appointed to the post of managingdirector, intervened, whereupon the deed sued upon in this actionwas entered into between the plaintiff and the defendant, and isin the following terms:—
“ Whereas the Ceylonese Union Company Limited (hereinaftercalled and referred to as the company), is indebted onto the saidDon Philip Alexander Wijeyewardene for moneys lent and advancedto it by him, the payment whereof is secured by the bond and mort-gage No. 5,112 of the 28th day of October, 1913, and* attested byArthur William Alvis of Colombo, Notary Public, and upon whichsaid bond there is due, owing, and payable by the company the sumof Bt. 46,875.59 computed up to the 31st day of July 1914:
“ And whereas the said Theodore Godfred Jayawardene, who in ,the managiog director of the .company, hath requested the saidDon Philip Alexander Wijeyewardene to forebear from enforcinghis said claim against the company, and to give one year's timefor the payment of 'the moneys so due and to become due to him,he, the said Theodore Godfred Jayawardene, undertaking andmaking himself anewereable and responsible to the said Don PhilipAlexander Wijeyewardene for the payment to him of the full amountof the said moneys with interest thereon:'
( 1®5 )'* And whereas the said Don Philip Alexander Wijeyewardcue hasoonsented so to do upon the said Theodore Godfred Jayawardeneentering into these presents and the covenants and agreementsherein contained on his part:''
** Now this indenture witnesseth that in consideration of thesaid Don Philips Alexander Wijeyewardene granting the indulgenceaforesaid, and forebearing at the special request of the said Theo-dore Godfred Jayawardene to claim and enforce payment , of themoneys due to him by the company, he, the said Theodore GodfredJayawardene, doth hereby for himself, his heirs, executors, andadministrators covenant with the said Don Philip AlexanderWijeyewardene, his heirs, executors, administrators, and assigns,as follows, that is to say:—
“* 1. That he, the said Theodore Godfred Jayawardene, shall andwill, at the expiration of twelve months from the datehereof, if there shall be due, owing, and payable to the said*Don PhilipAlexanderWijeyewardene,or.to hisheirs,
executors, administrators, or assigns, upon, under, and inrespect of the said inpart recited bondand mortgage
No. 5,112 of the 28th day of October, 1913, the whole or anypart of the principal moneys and interest secured therebyand payable thereunder well and faithfully pay to the saidDon PhilipAlexanderWijeyewardene,orto hisafore-
written, the full' amount so due and owing at the qpid date.
44 2. Upon such payment the said Don Philip Alexander Wijeye-wardene shall, at the cost of the said Theodore GodfredJayawardene,execute anassignment inhisfavourof the
said bond No. 5,112 of the 28th day of October, 1913, butwith the express provision that the said Theodore GodfredJayewardene shall have no remedy or recourse against andto him, the said Don Philip Alexander Wijeyewardene, andhis property and estate, if he, the said Theodore GodfredJayawardene, from any reason or cause whatsoever, failsto recover the said moneys or any part or parts thereof.
44 3. This guarantee shall be ‘ a continuing guarantee, and shallextend to and be applicable to the full amount of theprincipal due and owing and to become due and owing tothe said Don Philip Alexander Wijeyewardene as aforesaid.
44 4. In order to give effect to the provisions of this guaranteethe ‘ said Theodore Godfred Jayawardene doth herebyexpressly waive all suretyship and other rights inconsis-tent with such provisions, and which he might otherwisebe entitled to claim and enforce.
“ And this indenture further witnesseth that the said Don PhilipAlexander Wijeyewardene, in ‘consideration of the guarantee andcovenant aforesaid, hereby covenants with the said TheodoreGodfred Jayawardene that he will not, during the term of twelvemonths from the date' hereof, enforce his claim for the moneys dueand owing to him as aforesaid.
** In witness whereof the said parties have to these presents andto two others of the same tenor and date set their hands at Colomboon the day, month, and year first above-written. *’
The plaintiff claimed that there was due and owing to him by thesaid company .under the bond of October 28, 1913, up to March 31,1917, the sum of B$. 58,654.34 in account, and accordingly brought
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this action to recover the amount due. The respondent defendant,pleaded as a matter of law (Roman-Dutch law being applicable) that*the action was not maintainable, as he was a surety only, unless anduntil the plaintiff had sued and had failed to recover the amountclaimed from the Ceylonese Union Company, Limited. He alsodenied his liability in respect of certain items in the account ofparticulars with which their Lordships are not now concerned, asthe plaintiff's counsel agreed on the hearing of the appeal that hewould not press his claim in regard to them, thereby reducing the-amount of his claim to Rs. 46,375.59. The action came on fortrial on March 23,. 1917, before the District Judge, who held in hisjudgment on April 23, 1917, that Upon the true construction of thedeed of August 3, 1914, the defendant was liable as a guarantormerely and not as a principal debtor, and further that the words inparagraph 4 of the deed were not sufficient to waive the rights of asurety under the Roman-Dutch law applicable in Ceylon, and wereineffectual to preclude the defendant from requiting that theplaintiff should, before proceeding against the defendant, excussthe Ceylonese Union Company, Limited, and he ordered accordinglythat the action should stand out of the trial roll until the principaldebtor had been excussed.
Against this judgment and order the plaintiff by appeal datedMay 3, 1917, appealed to the Supreme Court, who by order of July5, 1917, confirmed the judgment and order , of the District Court-In consequence of this decision, the appellant on August 15, 1917,proceeded to excuss the assets of the Ceylonese Union Company „Limited, instituting an action against that company on his mort-gage bond. During the pendency of . that case, the company wentinto liquidation, and a liquidator was appointed. It is unnecessary,in the view that the Board take of the construction of the deedof August 3, 1914, and of their disagreement with the judgmentson this matter of the District Judge and the Supreme Court, tofollow out the proceedings in such action further than to say thatafter the excussion of the assets of the debtor and of the liquidatorit ended without having produced practically anything.
The appellant thereupon moved the District Court to restore theaction against the respondent for a recovery of the debt after theexcussion of the debtor's assets had produced practically nothing.The action was restored to the trial roll, and by judment dated July17, 1922, the District Judge decided contrary to the contention of therespondent that the mortgage property had been properly excussed,and in consequence that the respondent had not been released fromhis liability as guarantor towards the Appellant. Upon appeal,however, the ■ Supreme Court allowed the appeal with costs,and declared the respondent as surety altogether dischargedby reason of certain alleged defaults in the conduct of theexcussion.* '
The first question that arises in the case is whether upon con-struction of the deed of August 3, 1914, the defendant was liable asprincipal debtor and not merely as surety, and as their Lordshipsare of opinion that the answer to this question must be in the affinn-aetive, it will be unnecessary to discuss the second branch of the
case, namely, whether through the misfeasance of the creditor in the ^a^aWQr^fbeconduct of the proceedings for excussion, the surety has lost thebenefit of the security to which he was entitled.
Turning then to the deed of August 3, 1914, the question to bedecided is whether on the proper construction of the deed thedefendant has bound himself to the plaintiff as principal debtor orhas made himself liable only as a surety. This question must beanswered by consideration of the deed as a whole. It was notseriously disputed at the hearing before this Board by counsel for therespondent that the covenant contained in clause 1 was an absolutepromise to pay the full amount that would be due and owingon the expiration of twelve months from the date of the deed,and indeed it would be difficult to frame a clause more clearly impos-ing such a liability. It was, however, alleged that the statementin clause 3 " that this guarantee shall be a continuing guarantee "changed the character of the obligation created by paragraph 1into one of suretyship only. Their Lordships cannot agree withthis contention, and do not think that such a description of thedocument can alter the real nature of the contract as appearingin the express terms contained in paragraph 1. It is settled lawthat the mere use of a descriptive term cannot affect the realityof the transaction. Their Lordships are further confirmed in thisview by the terms of clause 2, under which the plaintiff undertookupon payment of the money to execute an assignment to therespondent of the security held by him, namely, the bond of October28, 1913, and which provision would have been entirely unnecessaryif the deed was one of guarantee only. There was a good deal ofdiscussion before the Board as to the effect of clause 4; and it wasargued that assuming the deed to be apart from this clause a deed ofguarantee, the words of this clause “ doth hereby expressly waiveall suretyship and other rights inconsistentwith such
provisions and which he might be entitled to claim and enforcewere not sufficient to bring about a renunciation of thesurety’s rights of excussion which could only, it was alleged, beeffected by a recital of the special rights it was intended towaive.
In the view, however, which has already been-expressed of thetrue construction of the contract, it is unnecessary to determine thisquestion, and it appears to their Lordships that whatever might*have been the legal effect of clause 4, if the contract had been heldto be one of suretyship, its introduction can be readily explained
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by a desire upon the part of the.ebntraeting parties to make it clearthat the contract was not intended to have the incidents of thecontract of suretyship.
It is perhaps worth noticing that on the day on which the deed_ of August 3, 1914, was executed, the defendant took from the
Jayawafdene ^^p^y a bond 0f indemnity in respect of any payments that hemight be obliged to make to the plaintiff under the deed of August,and although this fact cannot be called in aid to assist in .the con-struction of the deed, it is entirely consistent with the conclusionthe Board has arrived at, and seems to show that the defendantconsidered he was entering into a liability as co-debtor and not as asurety only. Their Lordships are, therefore, of opinion that thejudgments of the Supreme Court of July 5, 1917, and of March 20,1928, should be set aside, and that judgment should be entered forthe plaintiff in the terms of the judgment dated July 17, 1922, andpronounced by the District Judge.
The defendant must pay the costs of the proceedings in the Courtsbelow and the costs of this appeal.
Their Lordships will humbly advise His Majesty accordingly.
WIJEYEWARDENE v. JAYAWARDENE