SAIBO v. MOHIDEEN et al

005-NLR-NLR-V-44-SAIBO-v.-MOHIDEEN-et-al.pdf


Sat bo v. Mohideen.
25
1942Present: Soertsz and de Kretser JJ.SAIBO v. MOHIDEEN et al.
303—D. C. Colombo, 10,724.
Surety—Security by bond for payment of goods sold to another—Repudiationof liability by surety—Notice to obligee—Assignment of bond.
Where a person given security by bond for the payment of goodssold to another up to a certain amount, it is within the power of thesurety to determine his liability by notice after a part only of the goodshas been sold.
T
HIS was an action on a mortgage bond by which the second defendantgave security for the first defendant, who was Liptons agent, for
the sale of certain goods. It was provided by the bond that the seconddefendant’s security should cover the indebtedness of first defendant toLiptons in a stun of Rs. 4,861.32 and should extend to furthercredit up to a sum of Rs. 7,500.» After some time second defendantgave notice to Liptons not to give credit to first defendant and determinedhis liability. At that time the liabiliy of the first defendant stood atRs. 1,369.72. Liptons continued to give credit until the amount duerose to Rs. 4,038.67. Liptons, thereafter, assigned the bond to theplaintiff who sued upon the assignment. The learned District Judgeheld that the second defendant was not entitled to determine his liabilityby notice.
V. Perera, K.C. (with him C. V. Ranawake, C. Thiagalingam.
B. Wikremanayake and H. W. Jayewardene), for the second defendant,appellant.—On the question of fact it is submitted that the bond P 5was fully discharged and the assignment to the plaintiff took place toolate, after the bond had been discharged.
Alternatively, the appellant would be liable only up to Rs. 1,369.72.Where a person who is in reality a surety binds himself as a co-principalhe remains in law a surety. With regard to the bond P 5 it is clear thatthe second defendant was really a surety for the first defendant. OnApril 11, 1938, the liability was for Rs. 1,369.72. On that date thesecond defendant wrote to Liptons not to give further credit to the firstdefendant. The second defendant is not liable in respect of any sumlent to the first defendant after April 11, 1938. This case can be dis-tinguished from Wijeyewardene v. Jayawardene'. The second defendantin the present case was in the position of a surety and was entitled in law,after giving due notice, to withdraw from his position as surety in respectof any debts that might be given by Liptons to the first defendant,after the date of the withdrawal. See Van der Vyver v■ De Wayer et al*:Voet 46.124 (Swift and Payne’s Translations p. 61) ; Pothier on Law ofContracts, Vol. I, Part II., ch. 6, s. 4 (2). Apart from any questionof suretyship, the matter can be looked at from the point of view of offerand acceptance. There was no more than a standing offer on the partof the appellant which could at any time be revoked before acceptance.
1 (1924) 26 N. L. S. 193.* (1861) 4 Searle 27.
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DE KRETSEH J.—Saibo v. Mohideen.
N.Nadarajah, K.C. (with him S. Subramaniam), for the plaintiff,-respondent.—The appellant cannot claim to be in the position of asurety. The bond must be considered as a whole. The two debtorsbind themselves as principals. Vide Wijeyewardene v. Jayewardene[supra).
Once a security bond has been granted it cannot be withdrawn unlessthe obligations on the bond have been completely discharged. A suretycannot claim that the creditor shall release him from his suretyship,unless he can show that the principal obligation has been fulfilled—
3 Maasdorp’s Institutes (3rd ed.) 401-2. Even if withdrawal was possibleit could not be effected by merely giving notice. The notice shouldhave been accompanied by actual tender of the money due on the date,of notice—Burge’s LaXJ of Suretyship, p 138; Voet 46.3.29; Voet 46.1.38.
The first and second dependents being both in the position of principalsone of them alone could not withdraw. See Egbert et al. v. NationalCroton. Bank *.
V. Perera, K.C., in reply.—This is not a case of a surety seeking towithdraw while the principal obligation already exists. There was acontinuing offer on the part of the appellant, and he cannot be madeliable for sums given to the first defendant after the notice of repudiation.
Cur. adv. vult.
November 13, 1942. de Kretser J.—
According to the evidence, the first defendant did a small business inBristol Buildings in the Fort and was Liptons’ sole agent for the sale oftea, biscuits and condensed milk in the Fort area. He was allowed■credit facilities and had deposited a sum of money by way of security.In March, 1938, he was indebted, to Liptons in the sum of Rs. 4,861.32,and he arranged with the second defendant, the appellant, that theappellant should give Liptons security in the form of a mortgage and sorelease the money he had deposited, and Liptons agreeing to the arrange-ment the bond P 5 was drawn up. About this time the first defendantseems to have tempted the appellant by offering to make him a partnerin his business, and he even went the length of informing the Registrarof Business Names that he was taking the appellant and one Haniffa,first defendant’s brother, as partners. Once P 5 was drawn up, however,the partnership deed was not executed and the partnership terminated.
It was agreed during the argument that the partnership had nothingto do with the present case, although plaintiff seems to have been mostanxious to bring it in as colouring to his case. The bond P 5 recited theexisting arrangement between Liptons and the first defendant (the-plural form “obligors” is used occasionally, presumably because theappellant was taking responsibility for the existing debt), and the bondcontinued that the obligors had requested the Company to continue tosupply the" first defendant with such further goods as he may order in•connection with his trade and to afford the obligors (plural) furtherpecuniary aid and assistance but always only at such times and to suchextent as the Manager of the Company may think fit, provided the totalvalue of goods already supplied and to be thereafter supplied did not
1 (1918) A. C. on at 907.
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DE KRETSER J.—Saibo v. Mohideen.
exceed Rs. 7,500 at any one time. The appellant was to give thesecurity mentioned in the bond and each of the defendants undertookto pay to the Company the Rs. 4,861.32 already due and all moneysfalling due later. The bond specially provided that the Company coulddecline to supply further goods to the first defendant without notice.Provision was made for the bond continuing to be effective even thoughat any particular time the full sum due may have been paid, and theappellant undertook to insure the premises mortgaged and also to payall rates and taxes and empowered the company, in case of default, topay them and charge the expenses to the sum due on the bond.
Now, the recitals and terms of the bond make it clear that it was thefirst defendant with whom Liptons would be dealing and that the appellantfurnished the security. It is true he was liable-as a principal debtorbut not one of the parties could have failed to realise that he was reallyguaranteeing first defendant’s credit with Liptons. The acceptedevidence makes the position doubly plain. The trial Judge thought theevidence of the plaintiff and the appellant equally unreliable but heseems to have had a better opinion of the evidence of the witness Moham-med Mohideen. The appellant seems to have shaped badly in the witness-box but a close examination of his evidence shows that it is intrinsicallyreliable in the main and that it is the plaintiff who is utterly unreliable.However, accepting the trial Judge’s findings, what do we get ? InJanuary, 1938, at the first defendant’s request, Mohammed Mohideenarranged with the appellant for a loan to the first' defendant. Firstdefendant alleged that he desired to have a partner and Mohideenarranged for appellant to be a partner. The two defendants andMohideen saw Mr. Spurrier of Liptons about a month and a half beforethe bond P 5 was executed. Oh February 20 the appellant refused tosign any bond unless he was admitted as a partner in writing, the firstdefendant having failed “ to come to the scratch ” (to use Mohideen’swords). The first defendant then made application (2 D. 58 of February 25)for the alteration of the particulars in the Register of Business Names by-bringing in the appellant and Haniffa as partners. On March 1 anagreement was signed by the defendants and it is alleged that the firstdefendant took the agreement to India to have it signed by his brother,Haniffa. The agreement was not produced at the trial. The plaintiffis closely related to the first defendant, who has failed to appear, and isinterested in establishing a partnership but no document has beenproduced. Therefore, it must be that there was no such agreementthough many details of it and the fiarhe of the attesting notary havebeen given, or there was only an incomplete agreement, as appellantsays. On the strength of the agreement apparently P 5 was executed.Mohideen went into the first defendant’s place of business as the represent-ative of the appellant and he alleges that on April 9, a little over a month. from the execution of P 5, he reported to appellant that he was dissatisfied:with the way things were going. By 2 D.61 dated March 31, first-defendant reported to the Registrar of Business Names that the partner-ship had terminated on March 31 and requested the deletion of therelevant items. On April 11, the first defendant left for India andreturned on May 22. On April 11, the appellant informed Liptons by
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D£ KRETSER J.—Sdiko v. Mohideen.
2D2 that differences had arisen between first defendant and himselfregarding certain accounts and he, therefore, requested them not to givehim any more credit and he offered to see them and explain matters.A copy of this letter seems to have been sent to Messrs. F. J. & G. deSaram, Liptons’ lawyers, on May 23. Liptons ignored this request andby letter dated April 12 stated that they had no objection to an interview.Mr. Mackie admits that the first defendant’s liability at that date was>Rs. 1,369.72. Liptons continued to give credit to first defendant and' eventually the amount due by him rose to Rs. 4,038.67. Shortly afterApril 12 an interview took place and there is a divergence of evidenceas to what transpired at it. Mackie, when giving evidence, originallywas reticent regarding the interview and expressed reluctance to producecertain correspondence, and plaintiff’s Counsel closed his case reservinghis right to re-examine .this witness! On the trial being resumedCounsel withdrew from this position and examined Mackie afresh.Mackie then said that another person had accompanied appellant at theinterview but did not think he could identify the man and he had toldthe second defendant that he could do nothing until he had seen thefirst defendant. In re-examination later he alleged that the appellanthad not asked him definitely to stop credit to first defendant and thathe had explained that they had to carry on their business. Letter 2 D2had tjeen definite enough and Mackie had refused to stop credit withoutconsulting the first defendant. On May 20 appellant caused 2 D3 to besent by a proctor. This letter shows what took place at the interviewand states that Mackie had said he would continue to deal with firstdefendant in spite of the appellant’s protest. There was no writtenreply denying this allegation. The letter (2 D3) warned Liptons of theposition the appellant would be taking up with regard to liability afterApril 11. The letter was drafted by plaintiff’s Counsel, who later changedsides. There are aspects of this case and of the trial which are un-satisfactory but I deliberately confine myself to a bare recital of thefacts.
On receipt of 2 D3 Liptons consulted their lawyers, who apparentlygot a copy of 2 D2, and thereafter Liptons stopped giving credit to thefirst defendant. Their bill had by now risen, to Rs. 4,038.67. On thefirst defendant’s return to Ceylon an attempt seems to have been madeto settle the differences between the parties. It is alleged that plaintifftook a leading part but this is denied by him. But if he took no part inthe arbitration proceedings ” he certainly took an active part infinancing first defendant’s . business. On quite inadequate groundsplaintiff was ■ allowed to give evidence and to call witnesses after thedefendant had closed his case. Plaintiff admitted he had made loans tofirst defendant and had helped him to borrow money from Chettiars,sums amounting to Rs. 1,000 Qr Rs. 2,000. In August plaintiff openedan account with the Indian Bank, being introduced by first defendant.He had had no banking account before and seems to have been a man ofsmall means. He says first defendant owed him money and could notpay and then told him about the bond P 5 and plaintiff offered to take anassignment of it, though first defendant had told him. of his indebtednessto Liptons.
DE KRETSER J.—Saibo v. Mohideen.
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The first cheque issued by plaintiff on opening his bank account isP 6. His banking career started on August 13, and ended on January 20,1939, and during that time most of the cheques had been drawn in firstdefendant’s favour.
Of course, if the first defendant had paid Liptons, there would be nofurther liability on appellant’s part. It was suggested during the trialthat the plaintiff’s banking account and payment by him was only adevice to disguise a payment really made by the first defendant. Thetrial Judge rejected this view and it was not mentioned in appeal.
One matter which might have re-paid investigation was why Liptonsrefrained from taking action. They stopped credit to first defendantand dealt with him on a cash basis. They knew he was a man of strawand appellant had given substantial security. There is not a wordsuggesting any desire on their part to take action. Mackie, for somereason, preferred not to say when the question of an assignment firstarose and he was allowed to retain his preference, although he professedabsolute disinterestedness in the case and said the firm only wanted tobe paid and he left the matter to his lawyers. It seems a likely possibilitythat Liptons knew that their claim against the appellant for any sumbeyond Rs. 1,369.72 was at least doubtful and that the intervening timewas taken in negotiations carried on by his lawyers.
The trial Judge rejected the evidence as to arbitration as almost absurdand I shall not disturb his view, but it seems to me that “ arbitration ”was only an interpreter’s word and that all that was meant was thatsome friends had tried to settle matters. There is no question but thatrwo of the alleged arbitrators are dead and there is nothing suspiciousabout that nor can appellant be blamed for their death, and in an effortof the kind indicated it is not likely that written evidence was taken orwritten awards made. In fact, it is not said that any award was made.The trial Judge’s view is not, therefore, free from criticism and it seems tome that unless some such negotiations were on foot the delay on Liptons’part to sue is inexplicable and Mackie’s reluctance to produce corre-spondence even more so.
During the trial, the appellant raised the question that he had notbeen given notice of the assignment before he received the letter ofdemand. That fact does not affect the case.
But I have rather anticipated matters. I should have said that onAugust 16 plaintiff issued cheque P 6 in favour of Liptons for Rs. 4,038.67.He was not then in funds and alleges he had arranged with Liptons’lawyer to present the cheque the next day. But the cheque was presentedand dishonoured, and plaintiff paid the amount in cash next day. Thearrangement was that on payment Liptons should assign their rights onbond P 5. He got part of the cash by drawing a cheque for Rs. 3,000on the Bank and it was the first defendant who cashed it. Liptonsissued a receipt in favour of the first defendant and it was not tillAugust 30, 1938, that the assignment was made, Liptons expresslystating that they would not warrant the assignment.
There was no argument at the trial that plaintiff was an innocentassignee but only that he was an assignee for value, and this was to meetappellant’s contention that it was really the first defendant who was
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DE KRETSER J.—Saibo v. Mohideen.
paying. It was not contended at the trial nor on appeal that plaintiff'rights on the assignment could be any greater than Liptons’ rights onthe bond and I do not see how they could have been greater. All theevidence clearly points to his knowledge of the relations between theparties to the bond, and he had been made aware that Liptons would notwarrant the assignment and so put specially on guard. What more couldthe appellant have done than what he did do ? He gave notice to theonly party then entitled to notice, viz., Liptons. On receiving noticeof the assignment he promptly disclaimed liability. Even if plaintiffwas not personally aware of the affairs of his close relative whose businesshe was financing (a most unlikely state of things), Messrs, de Sarair.knew the true position and it is scarcely likely they hoodwinked theplaintiff and kept him in ignorance. But it is really unnecessary totrouble on this score for Counsel have not raised any argument on thispoint and they are not likely to have missed any available argument.
I have recited the facts at considerable length. On these facts twoquestions were argued : —
Was the bond discharged when Liptons gave their receipt and was
it too late for them to assign it later ?
in any case, is appellant liable beyond the sum due when he gave
notice of repudiation, viz:, Rs. 1,369.72 ?
With regard to (a) it is clear that it was understood between Liptons'lawyers and plaintiff that there should be an assignment of the bond andplaintiff paid on that footing. The receipt was an acknowledgment of themoney paid but it did not discharge the bond in terms and it cannot besaid it discharged it in fact. It is useful to remember that accordingto the terms of the bond payment did not discharge it.
With regard to (b), I think too much emphasis has been laid on- theterms “ surety ” and “ co-debtor ”, and that what really matters is thetrue nature of the transaction. A and B may deal with C and theagreement may be that C should supply A and that B should be surety,and B may renounce all privileges and make himself a principal debtor,A and B may also deal with C and B may tell C to supply goods to A on*his (B’s) account, or that for the goods so supplied he would be liable,with A,, in solidum. A and B may also take goods individually or togetherand each agree to be liable in solidum for the value of goods taken byboth. There is a difference in form undoubtedly but is there any real differ-ence in substance ? As a matter of procedure C may sue B alone in eachinstance but C knows quite well that B is paying for what A owes and Aknows -that, and whether B is called a surety, a guarantor, a mandator, aprincipal debtor, or a co-debtor, the relations are the same.
The real question, seems to me to be—Is the contract so fixed anddetermined that B cannot withdraw, and that may depend on whetherit is a single transaction or a series of possible contracts. Considerationsproper to a single transaction obviously cannot apply to a running seriesof transactions. We are familiar with that in the case of prescriptionand have held that each item in a shop bill gets prescribed from the dateof each separate contract of sale and-not from the close of the runningaccount.
DE KRET5ER J.—Saibo v. Mohideen.
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f C has entered into a contract with A on the strength of B’s mandate,both C and A cannot resile from it and it is only reasonable that B shouldnor be allowed to do so, even though delivery under the contract may bedeferred. But where no contract has been entered into, why should notB be-free to resile on notice to C ? The strangest results would otherwiseensue. If a man authorises a shop to give his wife or child credit hewould not be free to countermand his authority! In the presentagreement Liptons were free agents, so was the first defendant. Was theappellant alone.to be a slave to it? We repel agreements in restraintof trade and are strict in interpreting fetters placed on the free dispositionof property, are we not to apply the same principle to a human being ifit can be done regarding something not yet in being ? Faced with thisdifficulty Counsel for respondent could only say that a man can terminatehis obligation in a way known to the law, assuming calmly that he maynot terminate it by giving notice, the very point we have to decide.According to him, if I understood him aright, appellant had to pay whatwas due in order to be free. But this is not true, for the bond providedthat payment by itself did not put an end to the agreement. So thenhe really meant that Liptons had to agree to release appellant, which wasexactly the position they took up until advised by their lawyers. Theynever asked for payment, appellant was solvent and had given amplesecurity, he had not repudiated liability for the past. That was not thedifficulty. Liptons imagined they could bind him for as long as theychose to deal with the first defendant.
The position regarding Guarantors seems clear in the English law.In Offord v. Davies *, it-was held that a guarantee to secure moneys to beadvanced to a third party on discount, to a certain extent, for the spaceof twelve calendar months, was countermandable within that time.Hie defendants pleaded that before plaintiff had discounted the bills andadvanced the moneys they had countermanded the guarantee andrequested plaintiff not to advance such moneys. The plaintiff allegedThis was no defence and that defendants had no power to countermandwithout the assent of the person to whom the guarantee was given.The plaintiffs there took up exactly the position taken up by the plaintiffin this case.
The arguments of Counsel and the comments of the Judges areinteresting. Many cases were cited and reliance was placed on anAmerican work of great authority, Parsons on Contracts, where it wassaid—“ A promise of Guarantee is always revocable, at the pleasure ofthe guarantor, by sufficient notice, unless it be made to cover somespecific transaction which is not yet exhausted and unless it be foundedupon a continuing transaction, tfie benefit of which the guarantor cannotor does not renounce. If the promise be to guarantee the payment ofgoods sold up to a certain amount and, after a part has been delivered,the guarantee is revoked, it would seem that the revocation is good
Erie C.J., in giving the judgment of the Court, said—“ This promise byitself creates no obligation. It is in effect- conditioned to be bindingif the plaintiff acts upon it, either to the benefit of the 'defendants or to
^j-j1 English Reports Hi Common Pleas, p. 1330.
DE KRETSER J.—Saibo v. Mohideen.
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the detriment of himself. But, until the condition has been at leastin part fulfilled, the defendants have the power of revoking it. In thecase of a simple guarantee for a proposed loan, the right of revocation beforethe proposal has been acted upon did not appear to be disputed. Then,are the rights of the parties affected either by the promise being expressedto be for twelve months or by the fact that some discounts had been'made before that now in question, and repaid? We think not. Thepromise to repay for twelve months creates no additional liability on theguarantor but, on the contrary, fixes a limit in time beyond which hisliability cannot extend. And with respect to other discounts, whichhad been repaid, we consider each discount as a separate transaction,creating a liability on the defendant till it is repaid ….:”
In Coulthart v. Clementson it was held that the death of a guarantor, ofwhich the creditor had incidental, notice, terminated the guarantee withregard to future advances. Bowen J. said—“ In the case of suchcontinuing guarantees as the present, it has long been understood thatthey are liable, in the absence of anything in the guarantee to thecontrary, to be withdrawn on notice.” He gave the explanation given inOfford v. Davies (supra) and said the proposition was established by authorityand that “ a limitation to that effect must be read into the contract ”. Itmust similarly be taken, he said, that parties contemplated the possibledeath of the guarantor and intended that it should terminate his obligation.Notice of the death was constructive notice, and it would be idle to insiston special forms of withdrawal of a guarantee which nobody has a rightto continue.~■
In Beckett & Co. v. Addyman % a co-surety claimed that the death of theother surety terminated the whole obligation : in other words, that thesureties, bound jointly and severally, were inseparable. Lord Coleridge C J.said that the co-surety was clearly still liable. It could not havebeen contemplated that the death of one surety would discharge theother; and he added—“ It is probable that the defendant could haveterminated his liability by notice ; for it seems to be clear that in thecase, of a continuing guarantee for goods to be supplied or money to bejadvanced, it is in the power of the guarantor to determine his liability.”Brett L.J. said—" The defendant might have given notice to determine
his liabilityAt law the defendant is clearly liable until he
has given notice.”
In the case of Lloyds v. Harper1 Lush L.J. said—•“ They are (i.e.,instances of the more familiar class of guarantees) where a guaranteeis given to secure the balance of a gunning account at a bankers, or abalance of a running account for goods supplied. There the consider-ation is supplied from time to time, and it is reasonable to hold, unlessthe guarantee stipulates to the contrary, that the guarantor may at anytime terminate the guarantee. He remains answerable for all theadvances made or all the goods supplied upon his guarantee before thenotice to determine it is given ; but at any time he may say ‘ I put astop to this : I do not intend to be answerable any further, thereforedo not make any more advances or supply any more goods upon my
1 5 Q.S.D. 42.
‘ 9 Q.B.D. 733.
3 16 Chancery Div. 290, at p. 319.
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DE KRETSER J.—Saibo v. Mohideen.
guaranteeAs at present advised, I think it is quite competent fora person to do that where, as I have said, the guarantee is for advancesto be made or goods to be supplied, and when nothing is said in theguarantee about how long it is to endure. In that case, as at presentadvised, 1 cannot entertain a doubt that the judgment of Mr. JusticeBowen in Coulthart v. Clementson (supra) is perfectly right, that notice ofthe death of the guarantor is a notice to terminate the guarantee, and hasthe same effect as a notice given in the lifetime of the guarantor thathe would put an end to it.”
Offord v. Davies (supra) is the only authority most directly in pointand still retains its authority and has often been referred to in other con-nections. As its reasoning commends itself even in the case of twoco-debtors, I think we should follow it.
The Dutch writers do not deal with a similar case but only with thecase of a single contract. In Potliier, however (Vol. I., P. 2, c. 6, s. 4 (2)para. 299), we have the following passage : —
■■ .Lastly, a person may become surety not only for an obligationalready contracted but for one to be contracted in future, so that theobligation resulting from this engagement shall only begin to arisefrom the time when the principal obligation is contracted ; for it isthe essence of such obligation that it cannot subsist without a principalone. According to these principles, I may agree now to becomesurety to you for £ 1,000, which you propose to lend hereafter to Peter ;but the obligation resulting from this engagement will only begin tohave effect from the time when you actually lend the money ; as longas you have not yet lent it, and the thing is entire, I may change myintention, giving you notice not to lend the money to Peter, and thatI no longer intend to be surety for him.”
Vander Linden says that an indulgence granted by the. creditor indelay of payment without the concurrence of the surety would notnecessarily release the surety since, if he was unwilling to remain bound,he should have given notice to the creditor. The termination of anobligation by notice is therefore approved of.
In my opinion, the decree entered in this case should be modified anddecree should be entered only for Rs. 1,369.72 with legal interest thereonfrom date of action till date of decree and thereafter on the aggregateamount of the decree at 9 per cent, per annum. Both parties havingsucceeded to some extent, each party will bear his own costs both onappeal and in the court below.
-Soertsz J.—I agree.
Judgment varied