WIJEWARDENE v. JAYAWARDENE

104-NLR-NLR-V-24-WIJEWARDENE-v.-JAYAWARDENE.pdf


( 836 )
1988*
Present : Bertram C.J. and De Sampayo J.WIJEWARDENE v. JAYAWARDENE.
289—D. C. Colombo, 45,217.
Surety—Beneficiumexcussionis—Creditorholds securities given. bp
debtor in trust for surety—Surety discharged if securities becomevalueless owing to dilatoriness or act of creditor—Creditor can callupon surety to guarantee costs of excussion—Extent to which suretyis discharged by misfeasance of creditor.
Where a surety has not renounced the beneficium excussions. thecreditor holds all securities given by the debtor in trust for thesurety. The surety is discharged if the securities become valueless,not only by the dilatoriness of the creditor, but also by any acton his part; the act must not be a merely negligent act, but mustbe a positive act on the part of the creditor.
If a creditor can show that there is no reasonable -^epe' ofexcussion being successful, he is to ask the surety to guaranteehis costs of excussion.
The extent to which surety is discharged by the misfeasance ofthe creditor considered.
T HE facts are set out in the judgment.
Drieberg, K.C. (with him Hayley, Koch, and Canakeratne), forthe defendant, appellant.
Elliot, K.C. (with him Samarawickreme and B. F. de Silva), forthe plaintiff, respondent.
Cut adv. vult.
March 20, 1923. Bertram C.J.-—
The question for consideration in this case is the responsibilityof a creditor who is called upon by his surety to excuss the propertyof the debtor before requring the surety to pay any sum foundultimately due. More particularly the question is: What are theobligations of such a creditor with regard to the proper conductof the excussion, and what is the position of the surety if thatexcussion is not properly carried out ?
The effect of the surety bond in this case has already beenconsidered by this Court in the case of Wijewardene v. Jayawardene. 1It was there decided that the surety had not effectively renouncedthe beneficium ordinis seu excussionis, and that the creditor mustfirst excuss the effects of the principal debtor before calling uponthe surety to pay.
1 (1917) 19 N. L. R. 449.
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A
The general facts of the case are stated to some extent in’ thereported case above referred to, bnt it may be briefly stated thatthe transaction related to a now extinct newspaper called the“ Ceylonese,” that the creditor held a mortgage bond over theassets of that newspaper to secure the payment of the sum ofRs. 10,200 and interest, as well as such further advances as mightbe made to the Ceylonese Union Company, the proprietors of thepaper. The surety was himself interested in the paper, and, athis request, the creditor stayed action on the mortgage bond fora year. The surety meanwhile was to act as managing directorof the company, and apparently it was hoped that he would duringthat period liquidate the mortgage debt. Whether such hopeswere entertained or not, they were altogether falsified, becauseat the end of that year the creditor’s debt had swollen toRs. 46,375*59. The surety was sued upon his bond on May 26,1916. He pleaded the beneficium excussionis on November 15,1916. Decree directing the excussion was entered on July 6, 1917,and on August 15, 1917, the creditor proceeded to exouss theassets of the debtor by instituting an action on his mortgage bond.
The assets of this paper had been the subject of previous mort-gages. One of these in favour of Mrs. Helena Wijewardene hadalready been paid up. At the date of the institution of this newaction the creditor’s security was as follows : He had a secondarymortgage in the form of hypothecation over the stock-in-trade,plant, and accessories of the company, which included somevaluable machinery. He had a secondary mortgage over thebook debts of the company. This was not a hypothec, but wasby the way of assignment of the debts by way of mortgage.Further, he had a primary mortgage of the same nature on theunpaid calls due to the company, which, normally at any rate,comprised a very considerable amount. In pursuance of thejudgment of the Supreme Cout&j^jt now became his business torealize this security.
The secretary of the company was a certain Mr. Mendis, aproctor of this Court. No sooner had the. creditor instituted theaction, when Mr. Mendis proceeded to get in, as rapidly as possible,the assets already mortgaged to the creditor. In particular,between October 20, 1917, and October 30, 1919, he collected noless than Rs. 12,439*09 of the book debts included in the creditor’ssecurity. But what is more, the company of which he was secretary,on October 19, 1917, went into voluntary liquidation. Mr. Mendiswas appointed liquidator, and proceeded to advertise for sale byauction the creditor’s principal security, namely, the stock-in-trade, machinery, and other accessories, together with the good-will of the business as a going concern^ The sale was fixed forDecember 11 and 12. The creditor* had not yet obtained judgment,and his action had been delayed by a plea which was clearly a
1928.
Berth amC.J.
Wifetoarderte
v.
Jayawarderie
( 338)
1928.
Bbbxram
O.J.
Wijeumrdene
v.
Jay wear dene
dilatory plea only. He thereupon on December 4 applied to theCourt for an order to restrain the sale of his principal security.It. is at this point that the creditor’s troubles begin. Instead ofpressing this claim, he settled it; and on December 11, 1917, it wasagreed that the property, which formed the subject of the agree-ment, should be sold, and that the proceeds of the sale should bebrought into Court, to abide the result of the action, the companyagreeing to pay the costs of the creditor by way of stamps incurredin respect of the application. Three days later the creditor gotformal judgment.
The next step was an extraordinary one. The secretary of thecompany and its liquidator, Mr. Mendis, was in Court, and wasacquainted with the order made. This gentleman, nevertheless,had the effrontery to pretend that the order was not binding onhimself as liquidator, as he had not been made a party to theapplication. He proceeded to sell the property advertised, whichrealized Rs. 26,401, and paid away the amount he realized, partlyin wages, partly in the discharge of certain considerable debtsrecently incurred for the purpose of running the paper. Thiscoming to the ears of the creditor, he moved the Court, on February1, to direct the liquidator to deposit in Court the whole of theproceeds of the sale, together with the cost of the stamps incurredin the application for-the injunction. Singular as it may seem,this application was allowed to stand over for some weeks, andit was not till April 10, 1918, that the liquidator was broughtbefore the Court.
It is unnecessary to say that the contentions of the liquidatorwere preemptorily rejected as obviously not put forward in goodfaith. It is also hardly necessary to say that the liquidator thenproceeded to gain time by lodging an appeal in this Court againstthe Judge’s order, so that it was not until September 21, 1918,that the matter again came before the Court. On October 30, 1918,the creditor’s proctor brought the matter formally before theCourt. Again there was a series of postponements. The defend-ant could not be served. The case stood over for want of time,&c. At last an attachment was ordered to be issued for January7, 1919; and on January 10, Mr. Mendis, still unabashed, filedan affidavit, magnifying the assets of the company, and assertingthat there were outstanding calls to the amount of Rs. 55,000stall to realize, as well, as Rs. 28,000 of book debts. He professedthat it would take him six months more to bring the liquidationto a conclusion, and he promised, after that interval, to bring intoCourt the sum he had misappropriated in the manner abovedescribed (loosely and erroneously throughout the record statedas Rs. 22,057).
Singular as it may seem, instead of insisting on this gentlemanbeing treated as his contempt of the Court deserved, the proctor
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for the creditor consented to this application being allowed, onthe liquidator entering into a personal bond to close the liquidationproceedings within the period, a bond which, in fact, was nevertaken. It was apparent that there was no more good faith inthis affidavit of the liquidator than there had been in his originalcontentions. It is not surprising to learn that during the sixmonths allowed him he did nothing to realize the unpaid calls andbook debts, but sold them on June 19 for Rs. 210. On August 5he deposited Rs. 1,000 in Court on account; and on proceedingsbeing taken to enforce the Court’s order, raised certain dilatoryand sophistical objections, and on December 12, 1919, the proctorfor the creditor moved for his attachment. Realizing that nothingcould come of this attachment, he withdrew this application.Nothing was done to Mr. Mendis. The Rs. 1,000 paid into Courtwas taken out by the primary mortgagee. Some months later,on May 10, 1920, the creditor’s proctor took the only step evertaken to excuss the property of the debtor, and that step wasan empty formality. He moved to execute the mortgage decreeby sale of defendant company’s property. On December 13, 1920,the book debts of the company, already sold by the liquidator,were sold over again in execution. They realized Rs. 70, and theexcussion of the assets of the creditor thus having produced practi-cally nothing, the creditor then proceeded to continue the actionagainst his surety on this basis.
The question which we have to determine is: What is the legaleffect of this singular' story ? What happened would be moreeasily realized if we supposed the proprietor of the “ Ceylonese ”to be a single individual. Suppose, then, on the creditor bringinghis action to enforce his mortgage, the debtor had proceeded toget in and appropriate as much as possible of the book debtsmortgaged to the creditor, and had offered for public sale thecreditor’s principal security. Suppose, thereupon, that the creditorhad applied to Court to restrain this proceeding, and had thenagreed with the debtor that the sale should nevertheless proceedunder an undertaking by the debtor to pay the proceeds intothe Court. Suppose the debtor, in violation of this under-taking, had applied the proceeds to the payment of wages andother pressing creditors. Suppose, when he was finally broughtbefore the Court, he undertoqk to realize assets sufficient to replacethe money, taking no account of the fact that the assets he wasto realize were already pledged to the creditor. Suppose that thecreditor had confidingly accepted this offer, and that the debtorhad thereupon sold his outstanding debts for a song, and supposethat the creditor then came to the surety and said : “ As things haveturned out I have not been able to realize anything from mydebtor. "Pay me the whole amount of my surety bond.” In sucha state of affairs we should not require to ask what would have
1928.
Bbbxbam
C.J.
Wijetoardene
v.
Jayatoardene
1923.
Bkrtbam
C.J.
Wijewardene
v.
J ayazuardene
(34,0 )
been the feelings of the surety, for with these we are not concerned,but we should have to ask ourselves: What was the legal effect ofthese farcical proceedings ?
It is. necessary to add, at this point, that so far as the creditorpersonally was concerned he acted in perfect good faith throughout.Ha placed himself in the hands of one of the leading lawyers of thecity, and acted in accordance with his advice. His difficultiesarise from the fact that both he and his lawyer, instead of strictlyenforcing their rights, preferred to accept the assurances of Mr.Mendis. The question really involved in this action is: On whomare the results of the irresponsible and unscrupulous proceedingsof Mr. Mendis to be visited ? I cannot help expressing my regretthat a proctor of this Court should have been suffered so to behavewith impunity, and that the learned Judge should have felt justifiedin taking the extraordinary charitable view that Mr. Mendis’proceedings are to be accounted for and, apparently, also to beexcused, on the ground of zeal and enthusiasm in the interest ofthe paper.
I will proceed to consider the law. The authorities on thesubject of the excussion of a debtor’s assets, and as to the responsi-bility of a creditor to the surety in respect of such excussion, areunfortunately extremely meagre. One thing, however, is certain,and that is, that by excussion is intended a searching or sifting outof the assets of the debtor by process of law. Wharton’s LawLexicon defines “ excuse ” as *■" to seize and detain by law ”and “ excussion ” as “ seizure by law.” Voet defines ** excussion ”as follows : “ Excuasus avi&m intelligitur, de quo apparitor seuexecutor retulit, se excussisse, nec ulla alia bona invenisse.” 1 Or,as the passage is translated in Swift and Payne’s Translation : “ Aperson is deemed to be excussed when the messenger or sheriffmakes a return that he has excussed him, , and has found no otherproperty.” See also per Buchanan J. in Liquidator of the OwlSyndicate v. Bright.2
t
On the basis of this definition it is clear that there has beenno excussion at all. What happened was that the creditor wassatisfied with an undertaking from the debtor that he. wouldexcuss himself, and practically handed over his securities to thedebtor for that purpose. It being, therefore, a condition precedentof the creditor’s right to sue the surety that the creditor shouldfirst excuss the debtor, what is the legal position when it turns outthat no effective excussion has taken place, with the result that thecreditor’s securities have become valueless ? In discussing thisquestion we must, in the first place, bear in mind the fundamentaldistinction between a surety who has renounced the beneficiumexcussionis and a surety who has retained it. The efiect of this
1 Voet 46, I, 15.
a (1909) Juta, 26 8. C. C. 12.
(341),
distinction will be found explained by Weasels J. in ColonialTreasurer v. Swart.1 Unless this distinction is realized, manyreferences to text books are liable to be misunderstood.
There is a passage in Voet2 which appears to have a direct,though imperfect, bearing on the question above propounded. Inthat paragraph Voet clearly expresses the opinion that a suretywho had not renounced the beneficium exeussionis conferred uponhim by Justinian is in the same position as “ fidejussores indem-nitatisor “sureties for an indemnity,” under the old law. Ofthese sureties he says: “ A fideiussione Uberati censentur, necconveniri a creditors possunt, si, cum is agere, ac tupi debitorem, turnpignora excutere potuisset, atgue ita soUdum consequi inter moraseius ac exeussionis dilationem debitor principalis facidtatibus lapsusfit, aid pignora desierint idonea esse”
In Swift and Payne's Translation this passage is translated asfollows:—
“ Sureties for an indemnity …. are held to be freefrom the suretyship, and cannot be sued by the creditor if,though he could have brought his action and excussedboth the debtor and the pledges and so recovered thewhole amount due, while he delayed and showed wantof energy in excussing, the principal debtor has lost hismoney or the pledges have ceased to be valuable.”
This is unfortunately a loose translation. Voet does not saythat “ want of energy in excussing ” excuses the debtor. Whathe refers to is “ moras eius ac exeussionis dilationem,” that is tosay, delays of the creditor and protraction of the excussion. Whathe lays down is that if while the creditor is delaying and the excussionis protracted, the debtor becomes denuded of his resources andthe securities become inadequate, the surety is excused. Inother words, the creditor when excussing the debtor is responsiblefor the results of dilatoriness in his proceedings and the consequentprotraction of the excussion.
It cannot be said here that the surety has been damnified bythe delays of the creditor in pursuing his remedies. But is thisformula to be considered exhaustive ? If a surety may be released,where owing to the dilatoriness of his creditor the debtor’s assetshave vanished, what is his position when they have vanished byreason of the positive acts of the creditor, which, however, bonafide in intention, have had the effect of discharging the debtor anddissipating assets which might have been realized ?
Further light is thrown upon this question by the considerationof a principle which, though not precisely identical, is certainlyanalogous, namely, the right of the surety under the exceptiocedendanim actionum. • Here the case supposed is that of a surety
1 (1910) Transvaal Prov. and Local Div. 552.* Voet 46,1, 38.
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Wij ewardene
v.
Jayaivardene
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1923.
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Wijewardene
v.
Jayawardene
who has renounced the beneficium excussionis, or has not pleadedit. On being sued by the creditor he is entitled to set up the aboveexception, and under that exception to have assigned to him allthe creditor’s securities against the principal debtor. But whatif the creditor by his own default is not in a position to assignthose securities ? I have not been able to find any decision of thisquestion in the Dutch, commentators and in the Roman law. Thequestion is, however, fully discussed by Potkier on Obligations,1and he there comes to the conclusion that this exception oughtto be opposed to the creditor “ where by a positive act on his parthe Has rendered himself incapable of ceding his actions againstone of the debtors, by discharging his person or property,” or,“ where by allowing a demand that he has instituted to be dis-missed, he had laid himself open to a suspicion of collusion.”He insists, however, that “ mere negligence on his part ….ought not to subject him to any imputation.” This principlehas been adopted by a case in the Privy Council, Macdonald v.Bell,2 and it is a recognized principle of equity both in Englandand America, where it has been held that a mortgage taken by acreditor is held in trust for the surety. See per Mr. ChancellorKent, cited in Story’s Equity Jurisprudence 3 .♦—
“ According to the doctrine of the civil law, the surety may, per' exceptionem cedendarum actionum, bar the. creditor of somuch of his demand as the surety might have receivedby an assignment of his lien and right of action againstthe principal debtor ; provided the creditor had by hisown unnecessary or improper act deprived the suretyof that resource. The surety, by his very character andrelation of surety, has an interest, that the mortgagetaken from the principal debtor should be dealt with in. good faith, and held in trust, not only for the creditor’ssecurity, but for the surety’s indemnity. A mortgage,so taken by the creditor, is taken and held in trust, as• well for the secondary interest of the surety, as for themore direct and immediate benefit of the creditor, and thelatter must do no wilful act, either to poison it, in thefirst instance, or to destroy it afterwards. These aregeneral principles founded in equity, and are containedin the doctrines laid down in Pothier’s Treatise on Obli-gations.”
I note that the same opinion is expressed in a local case, Moham-medo Tkamby v. Aremecutty 4: “ A creditor is in fact the trustee of asurety for the security which he holds for his debts, and it cannot
Evan’s Translation, vol. 1., pp.3 Story's Equity Jurisprudence
360-364,in note on p. 501.
(1840) Privy Council, 3 Moore 315.* 3 Lorensz 254.
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be allowed him to impair the va|ue of his securities and still preservehis right to proceed against the surely/’
We are clearly justified, therefore, in adopting this principleinto our own law and in applying it by analogy to the presentcircumstances. It would obviously be reasonable to hold thata creditor against whom the beneficium excussionis is pleadedholds all securities given by the debtor in trust for the surety,and that the surely is discharged if the securities become valueless,not only by the dilatoriness of the creditor, but also by any acton his part. It may be conceded, on the analogy of the principleabove explained, and on the authority of the Privy Council caseabove cited, that that act milst not be a merely negligent act, butmust be a positive act on the part of the creditor.
That the securities in this case ultimately proved valueless isconceded. Was this result, then, due to mere negligence, or wasit due to a positive act on the part of the creditor ? I can havelittle doubt that the proceedings of the creditor, which resultedin the dissipation of the debtor’s assets, come well within, thisformula. As I have said, instead of excussing the assets, he handedover the excussion to the debtor himself.
Mr. Drieberg, for the surety, contends that, even apart fromthese circumstances, the surety is entitled to be discharged throughthe delays of the creditor. He points out that the beneficiumexcussionis was pleaded on September 15, 1916. He urges thatfrom that moment it became the duty of the creditor to proceedagainst the principal debtor. In fact, no plaint was filed untilAugust 24, 1917. During this interval it seems certain that agreat number of book debts were prescribed. I do not think,however, that this year’s delay can be taken into account. Thecreditor required this year for the determination of the points oflaw which he raised, and I do not think it would be equitable tohold him responsible on the ground of any loss which might beshown to have accrued during this interval.
I will now proceed to consider the argument put forward byMr. Elliot, that the creditor is under no responsibility for theunfortunate development of the excussion, because, so far as thecreditor is concerned, the assets were bound, in any case, to provevalueless. He points out that the mortgage held by Mr. F. R.Senanayake had priority over that held by the creditor. Theamount due on this mortgage has not been definitely ascertained.Mr. Elliot suggests that it probably amounted to, at least, Rs. 20,000,and that even if the whole amount realized by the sale had beenpaid into Court, Mr. Senanayake would have had.the first call onthe proceeds. As to the unpaid calls and. book debts, Mr. Ellioturges that, owing to the general looseness with which he suggeststhat all the business connected with the paper was conducted,these unpaid calls were, in effect, valueless, that" the only way in
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Bertram
C.J.
Wijewardetie
v.
Jayawardene
(344)
1923.
Bertram
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Wijewardene
v.
Jayawardene
which these calls and book debts coqld be realized, for the purpose ofthe mortgage, was by sale, that they could not be sold individually,and that when sold in the mass they were bound to realize verylittle. I cannot accept this argument.
With regard to the sale of the machinery, &c., Mr. Drieberg,on his side, contends that if the sale had been a Fiscal’s sale inexecution of the mortgage decree, a higher sum would have beenrealized. I confess I am not satisfied with this. But evenassuming that the amount due on Mr. Senanayake’s mortgagewould have amounted to Rs. 20,000, the total amount realizedwas Rs. 26,401, and there would have been, at least, a surplus ofover Rs. 6,000 available for the secondary mortgagee. Withregard to the unpaid calls and book debts, it is not correct to saythat the only way of realizing these securities was a public sale.Mr. Drieberg is, I think, right in contending that they might havebeen realized by the appointment of a receiver, appointed underchapter L. of the Civil Procedure Code. It must be borne in mindthat these calls and debts were not hypothecated, but were assignedby way of a mortgage.
There was indeed nothing to prevent- the creditor from themoment when he realized that he had to undertake an excussion,obtaining a list of these debts and himself calling upon the debtors,by legal process, to pay the debts to him by virtue of the cession.H it be considered that under Roman-Dutch law it was necessaryfor him first to get a legal declaration of his rights, he could atleast have obtained an interim order for the appointment of areceiver, immediately on instituting his action. If he had donethis, the twelve thousand odd rupees collected by Mr. Mendis,between October 20, 1917, and October 30, 1919, might have beencollected for the benefit of the surety. In any case, a receivercould undoubtedly have got in a considerable quantity, both ofunpaid calls and book debts. These could have been recovered,if necessary, in Court of Requests’ actions, with a minimum ofexpense. The unpaid debts of a newspaper company, no doubt,consist, for the most part, of a number of small amounts due fromsubscribers and advertisers. I cannot but believe that, if thesepersons had been sued, very considerable amounts might havebeen got in. It is quite true that several of these accounts mighthave been prescribed, but it by no means follows that, when anaccount was duly rendered, every debtor, in such cases, wouldhave set up the plea of prescription.
In any case, it was not for the creditor, without informing thesurety, to treat this set of assets as not worth excussing. Thesurety had definitely given him notice of his obligation to excuse,and, if he had any doubt about any particular set of assets, heshould have consulted the surety. The principle is thus laid outin Liquidator of the Owl Syndicate v. Bright (supra): “ If the person
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who sues can show that there is no reasonable hope of exeussion
being successful, he is entitled to say to the defendant, who setaup want of exeussion, * I will proceed to exouss the persons who areliable if you will guarantee me my costs, but if you will not guaranteemy costs, as it is useless, I will not do so.* ” In the present case,the creditor had precluded himself from taking this prudent courseby leaving the exeussion to the debtor company itself.
Mr. Brieberg is, I think, also right in arguing that if necessarythe assets of the company might have been excussed by a compul-'sory liquidation under the control of- the Court. Mr. Elliot arguesthat, even if this had been done, Mr. Mendis might have beenappointed liquidator, and might have treated the Court with thesame contempt as he treated it in the voluntary liquidation. Iconfess I do not see how these suggested possibilities can be takeninto account. If this method of exeussion had been adopted, theprovisions of section 90 of the Joint Stock Companies Ordinance,No. 4 of 1891, would have proved very useful for the purpose ofgetting in unpaid calls. The point is that through the deliberateacts of the creditor, no doubt done with the best intentions and inthe highest good faith, the security which he held in trust for thesurely was handed over to a person who for whatever motivesneglected to realize its full proceeds, and misappropriated themin so far as they were realized.
I now come to the more difficult question as to the extent towhich the surety is discharged by the misfeasances of the creditor.The passage cited by Voet in 46, 1, 38 seems to consider thatin the case there contemplated the surety is discharged absolutely,and that the remission of his liability is not limited to the amountlost through the creditor’s default. In the case, however, of theexceptio cedendarum actionum, it appears to be clear that the law,as laid down both by Pothier and by the American jurists, limitsthe discharge of the surety to the loss that can be shown to haveaccrued to him from the creditor’s misfeasance. If it were possiblein the present instance to apply such a limitation, it seems to memost just and equitable that it should be applied. Unfortunatelyits application appears to be impossible. It is not practicableto calculate what the surety has lost. No one can tell what thecreditor could have realized if the exeussion had been properly .conducted.
I have noted one point which slightly complicates the matter.The goodwill was not included in the mortgage security, but it was■ included in the sale. It is difficult to say what deduction oughtto be made from the funds realized by the sale in respect of thisgoodwill. As, however, the leasehold interest of the office wasincluded in the mortgage, and was sold with the machinery, I imaginethat the actual amount to be attributed to the goodwill would beinconsiderable. In any case, we are left in this position, that
1923.
Bertram
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Wijeteardene
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Jayawardene
1928.
Bertram
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Wijewardene
v.
Jayawardene
(346)
through the misfeasance of the creditor the surety has lost thebenefit of the security to which he was entitled, though the amountwhioh might have 'been realized in respect of that security, ifproper proceedings had been taken, cannot be calculated. Underthe circumstances it seems to me that we have no alternative butto hold that the surety is discharged altogether. The amountfor which he was sued is a considerable one, over Rs. 45,000, andit is by no means sure that this sum, or anything like it, could havebeen realized by the proper excussion of the debtor’s assets. But,unfortunately, in the circumstances of the case, no other order ispracticable.
There are one or two incidental observations on the judgmentof the learned District Judge on which I think it right to comment.He expresses the opinion that it is very doubtful whether thecreditor’s application for an injunction to restrain the sale in thevoluntary liquidation would have been successful. I cannot helpthinking that if the facts had been fully put forward, any Courtwould have issued an injunction to restrain such proceedings. Sucha sale was obviously intended improperly to defeat the creditor’sright. Incidentally I may note that the conditions of sale saidnothing about the mortgages to which the property sold wassubjected. In the second place, the learned Judge seems to attachsome importance to the fact that when the surety took over themanagement of the paper, he took from the company certaincollateral securities to protect himself against the amount whichhe might have to pay on the surety bond, or in respect of anyfurther advances he might make to the company. I cannot, seemyself how these circumstances affect the creditor’s liability.
For the reaeons I have given, I would allow the appeal, withcosts, and declare the surety altogether discharged.
Die Sampayo J.—
This case was instituted by the plaintiff on May 26, 1916, on thefooting that by the agreement dated August 3, 1914, the defendantundertook a principal obligation and was liable to the plaintiffindependently of the Ceylonese Union Company, Limited. Butthis Court, on an appeal preferred by the defendant, decided onJuly 6, 1917 (see 19 N. L. R. 449), that the defendant was only asurety, and that as his agreement was made expressly subject tothe privilege of excussion, the company’s property must first besold in a properly constituted action before the defendant couldbe called upon to pay the plaintiff’s claim. The plaintiff then,on August 24, 1917, brought the action No. 48,408 against thecompany on the original mortgage bond granted by the companyto the plaintiff. Having failed to recover anything from thecompany, the plaintiff has resuscitated the present action against
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the defendant. It is the effect of the proceedings in the saidaction No. 48,408, and the plaintiff’s acts in connection therewithon the defendant’s position as surety, that have to be consideredin this case. Though the case was instituted on August 24, 1917,summons was not taken out till October 3, 1917. The defendantcompany appeared on October 8, 1917, by a firm of prootors, whoobtained time till October 29, 1917, to file the company's proxyand answer. At this stage, and subsequently, the company pursueda policy of obstruction and delay, but the important fact to benoted is that on October 19,1917, the company went into voluntaryliquidation, and one Wilfred Mendis, secretary of the company,was appointed liquidator. The liquidator at once began to sell theassets of the company, and there is reason to believe that theliquidation was adopted, and the scheme was hurried through,with a view of saving the company’s property as far as possible.The plaintiff, who was a large shareholder, and had been a directorof the company, must have been quite aware of the danger. Hiscomplacency resulted in the dissipation of the mortgaged propertyand the misapplication of the money realized by the liquidator.The course open to him and required of him by law for protectinghimself and the surety was obvious. It was to get a decree assoon as possible and proceed to execution, or to take steps forthe compulsory liquidation of the company, in which case theassets could have been realized by process of the Court, or under hiscontrol. Instead of doing either of these things, he was very slow,and allowed time to the company to file answer and consented to post-ponement of the trial. The answer when filed was found to be mostfrivolous, and judgment was only entered on December 14, 1917.He should have been extra vigilant and active, in view of the factthat the defendant had successfully, set up the plea of the privilegeof excussion. He made an attempt^ which might have beeneffective if pursued, to stop the liquidator, but soon withdrew fromit and consented to just what the liquidator desired. The liqui-dator advertised the sale of the most valuable part of the mort-gaged property, namely, the machinery, plant, stock-in-trade, andgoodwill of the company, and then the plaintiff applied for aninjunction to stay the sale. But on December 11,1917, the plaintiffand the company made a joint motion that the property be soldby the liquidator and the proceeds be brought into-Court to abidethe result of the action, and the Court made order accordingly.It is surprising that the plaintiff should have joined in such anapplication, because the Court, under the circumstances, wouldundoubtedly have issued the injunction asked for. The result,which might surely have been anticipated, was that the liquidator,though he sold the property for Rs. 26,401, did not bring thatmoney into Court. On various pretexts and in various ways heevaded his clear duty, and finally took an appeal which was24/28
-1923.
Db SampayoJ.
Wijewardens
v.
Jayawardene
(348)
1923. promptly dismissed by the Supreme Court. Further notices
account of liquidation,” and even an attachment issued by theCourt was successfully avoided. The liquidator’s excuse wasthat the expenses of liquidation and of carrying on the newspaperbusiness of the company absorbed all the money. The acquies-cence of the plaintiff, while all this was happening, and his failureto issue execution, are strange. It is possible that he could notseize the property sold by the liquidator in execution of his ownmortgage decree, as he had consented to the sale by the liquidator,but there were other valuable assets mortgaged to him, such asthe book debts and unpaid calls, still undisposed of. By this timemuch over a year had elapsed since the date of the plaintiff’s decree.What now took place is most extraordinary. On January 10,1919, the liquidator moved that he be allowed time till the end ofJune, 1919, to bring in the proceeds of sale into Court. On January28, 1919, the plaintiff, jointly with the liquidator, moved that theabove application for time be allowed, on the liquidator enteringinto a personal bond undertaking to close the liquidation proceedingswithin that period and “ to account for the said proceeds'‘in theliquidation proceedings.” The Court had no option but to allowthis joint motion. It is of a piece with the whole proceeding,that, as a matter of fact, the liquidator did not execute any bondas agreed. Two remarks must here be made. To account forthe money “ in the liquidation proceedings ” means that theliquidator was allowed to credit himself with the payments he.alleged he had made in preference to the plaintiff’s claim on themortgage. The plaintiff was no doubt at liberty to sacrificehis rights in this way, if he chose, but there was the surety, thedefendant, whose rights should have been conserved. The otherpoint to be noticed is that the giving of time for six months fromJanuary to June, 1919, like the withdrawal of the application foran injunction and express consent to the liquidator selling theproperty advertised for sale, was not a mere matter of slacknessor negligence, but a positive act by which the mortgage securitywas lost, and the defendant as surety was seriously prejudiced.All this was allowed and done in the case of a liquidator who hadfrom the beginning been guilty of misconduct. It cannot be saidthat the fact of the property being sold by the liquidator insteadof by process of Court made no difference. The public wouldhave had more confidence in a judicial sale, and the would-bepurchasers would probably have been influenced by the pendencyof the mortgage action. Something was also said that there wasno real prejudice to the plaintiff as mortgagee, because the sameproperty was subject to a primary mortgage in favour of

X>u SamvayoJ.
issued on the liquidator to bring the money into Court, in pursuanceof the previous order, only resulted in Rs. 1,000 being paid in,which, however, the liquidator purported to pay “ pending final
( 34» )
Mrs. Helena Wij ewardene. But we do not know what was actuallydne to the primary mortgages at that tune, and, in any ease, thisis no defence against the plea of the surety who was entitled torequire the plaintiff to realize as much as possible, apd, ultimately,to cede to him any further securities held by the plaintiff. As amatter of fact, the liquidator in his evidence says that the price forwhich he sold was cheap, “ about half of what it was worth,” andthat there was a private offer of Rs. 60,000, which -was withdrawnbefore acceptance. With regard to the book debts and unpaidcalls, the situation was still worse. Under the arrangements towhich the plaintiff was a party, the liquidator sold those assetsalso in June, 1919, for the ridiculpus sum of Rs. 210. The plaintifflater woke to a sense of the improper course of action he hadpursued, and on December 13, 1920, had the book debts and unpaidcalls sold over again under writ of execution, and realized Rs. 70.According to the liquidator there were Rs. 28,000 worth of bookdebts and Rs. 65,000 worth of unpaid calls'. It is very difficult tounderstand the plaintiff’s sacrifice of his own rights as mortgagee,except on the supposition that he was deeply interested in thecompany and the newspaper which it published, and did not wishto press for payment of the debt due to him. I quite believewhat the liquidator says on this subject: " As soon as I got theRs. 26,000 {i.e., the proceeds sale of the machinery, &c.), I pro-ceeded to pay it out. I cannot say by what date I had exhaustedit. Mr. Wij ewardene (plaintiff) was not a stranger to me. Mr.Wij ewardene knew that the salaries of the servants, editors, andreporters were being paid out of the proceeds of sale of the machinery,and that I was paying back Messrs. Senanayake and Wijesekere (i.e.,persons from whom the liquidator had borrowed money). At thattime all that Mr. Wijewardene was concerned with was that .1 shouldaccount to Court for the money and close the liquidation proceedings.He was content to take his chance with the other creditors andget something if there was anything left. At one stage of thecase No. 48,408 attachment issued against me. On January 28,1919, there was a joint motion by me and the plaintiff, wherebyit was agreed that I should carry on the liquidation proceedingsand account for the money. This was merely a repetition ofwhat took place when I was spending the money.” I think thatthis is an accurate description of the attitude of the plaintiff.The nett result of all this was that the plaintiff’s mortgage securitywas wholly wasted. He now comes upon the surety, the defendant,for the full amount of Rs. 58,654*26 due to him from the companywith further interest. I do not think that, under the circumstances,the plaintiff is entitled to do so.
The law applicable to the subject is fully discussed in the judg-ment of the Chief Justice, and all I need, say here is that in anyview of the law the various positive and deliberate acts of. the
1928.
Da SampavoJ.
Wijewardene
v.
Jayaxuardene
( 360 )
1928.
Dh SaupatoJ.
Wijewardene
v.
Jayaward ene
plaintiff, whereby his mortgage security was lost, must be takento have discharged the defendant from his obligation as surety.In my opinion this appeal should be allowed, and the plaintiff'saotion dismissed, with costs, in both Courts.
Set aside.