L.B. FINANCE LTD
COURT OF APPEAL.
JAYASINGHE . J.
19th MARCH. 1990.
Liability of a Guarantor – Guarantee Bond – Demand necessary – Cause ofaction.
Liability of the guarantors arise only if and when a demand is made(Guarantee Bond clause 12(2)) upon the termination of the constract.
There ought to be an averment in the plaint that the demand wasmade (consequent to such termination) and that such demand was nothonoured.
Termination of the contract and the demand made on the hirer willnot help the Plaintiff to invoke jursisdiction of Court against theguarantors..
APPEAL from the Judgment of the District Court of Colombo.
Harsha Amerasekera for Plaintiff – Appellant.
S.F.A. Cooray with S. Liyanage for Defendant – Respondent.
Cur. adu. uult.
September 01, 1999.
JAYASINGHE. J.The Plaintiff instituted action against one PerumalKandasamy the l61 Defendant, the hirer and the 2nd and 3rdDefendants as guarantors for the recovery of monies due on ahire purchase agreement marked P1. When the trial againstthe 3rd Defendant was taken up the said 3rd Defendant raisedissues 7 to 12 and moved that issues 9 and 10 be tried as
LB. Finance Lid. v. Manchanayake (Jayaslnge, J)
preliminary issues in terms of Section 147 of the CivtlProcedure Code. Issue No. 9 related to the failure to terminatethe con tract sought to be enforced by the Plaintiff and issue No.10 was in respect of Plaintiffs failure to plead that the demandwas made prior to institution of the action. The liability of theguarantors are stipulated in clause 12 of PI which is pleadedas part and parcel of the plaint. Clause 12 provides that;
the guarantors jointly and severally guarantee to theowners the regular and punctual payment of all themonthly hire and the performance and observance bythe hirer of the several stipulations contained in theguarantee bond and that the guarantors hold themselvesjointly and severally liable for any default or breach of anyof the terms of this agreement to the same extent as thehirer.
The guarantors bind themselves jointly and severally topay on demand to the owners at Colombo all monieswhich may become payable under this agreement.
(ill) that the owner shall be at liberty to sue the hirer and theguarantors jointly and/or severally and the guarantorsfurther agree that the owner shall be entitled to proceedagainst the guarantors or either of them only in the firstinstance should the owners desire so to do and theguarantors bind themselves jointly and severally to pay ondemand at Colombo to the owners the amount of anyjudgment with costs that the owners may obtain againstthe hirer.
(iv) the guarantors renounced the rights to claim that thehirer should be excussed in the first instance and all otherbenefits to which the sureties are by law entitled and thatthe guarantors are and each of them be liable in allrespects to the same extent and in the same manner as thehirer including the liability to be sued before recourse ishad to the hirer.
Sri Lanka Law Reports
120001 2 Sri L.R.
An examination of the said provision clearly shows thatunder the said guarantee bond the guarantor's liability ariseson demand as found in 12(2) and it also provides that theowner may choose to proceed against either the owners or theguarantors in the manner he chooses to exercise his rights andthat the guarantors had renounced all their rights under thisagreement. Even though Mr. Coorey did not press that theagreement ought to be terminated before the Plaintiff decidesto proceed against the guarantors it seems that the Plaintiffif he chooses to proceed against either the hirer or theguarantors he must in the first instance terminate theagreement. I am inclined to the view that since the liability ofthe guarantors arise only if and when a demand is made uponthe termination of the contract and as Mr. Coorey submittedthere ought to be an averment in the plaint that the demandwas made (consequent to such termination) and that suchdemand was not honoured, there is no cause of actiondisclosed against the 3rd Defendant. Termination of thecontract and the demand made on the hirer will not help thePlaintiff to invoke jurisdiction of Court against the guarantors.For the reasons set out above the appeal is dismissed withcosts fixed at Rs. 2100/-.
EDUSSURIYA, J.Appeal dismissed.
L. B. FINANCE LTD v. MANCHANAYAKE