NEDUNGADI BANK, LIMITED Vs. DORAIKANNU AMMAL

JUDGEMENT

(1.) Admittedly the only question which arises in this appeal is whether the respondent gave a continuing guarantee to the appellant bank. The respondent is the wife of one A. Murugesa Mudaliar, an army contractor and merchant carrying on business in Madras. On the 5 May, 1926, for the purpose of this business, Murugesa Mudaliar opened a current account with the appellant and it was arranged that he should be allowed to overdraw it at any one time to the extent of Rs. 18,000 provided that the respondent deposited with the appellant the title deeds of a house belonging to her in Varadamuthiappan Street, Madras, as security for the overdraft. The respondent was to be surety for her husband for this amount and to furnish security. The respondent admittedly deposited the title deeds with the bank on this footing. Her husband paid in and withdrew considerable sums of money, but he did not exceed the limit of Rs. 18,000. On the 17 February, 1927, the overdraft stood at Rs. 17,693-14-10, or allowing for further interest which had accrued due a little less than Rs. 18,000. At this stage Murugesa Mudaliar wanted further finance : and the appellant agreed to allow him to overdraw to the extent of Rs, 25,000, provided that his wife executed a legal mortgage in respect of the house. In other words, instead of art equitable mortgage for Rs. 18,000 there was to be a legal mortgage for Rs. 25,000. The respondent was agreeable to this course and on the 17 February, 1927, she executed a legal mortgage in favour of the appellant for Rs. 25,000. In the deed it was recited that the respondent had already created an equitable mortgage over the property in favour of the appellant, that the appellant had already advanced the sum of Rs. 18,000 on the security of the equitable mortgage for the purpose of Murugesa Mudaliar's trade, that Rs. 7,000 more was required by him for this purpose and that the respondent had agreed to execute a mortgage deed for the consolidated sum of Rs. 25,000 carrying interest at 9 3/4 per cent. per annum. The mortgage deed then proceeded: This Indenture witnesseth that in consideration of the consolidated sum of Rs. 25,000 (Rupees Twenty-five thousand) which the mortgagor doth hereby acknowledge her liability to pay to the mortgagee, the mortgagor doth hereby covenant with the mortgagee to pay back to the mortgagee on demand being made the whole of the said sum of Rs. 25,000 with interest at 93/4 per cent. per annum, or any amount for the time being owing and due to the mortgagee from the mortgagor on the footing of these presents with interest thereon at 93/4 per cent. per annum without claiming any deduction or abatement whatsoever for any reason as aforesaid.

(2.) Between 18 February, 1927 and 24 February, 1927, Murugesa Mudaliar paid into his account various sums which had the effect of reducing his overdraft to Rs. 14,220-8-2. After that there were drawings and payments in. The state of the account fluctuated, but it was always at debit and on the 27 December, 1931, the account was overdrawn by, Rs. 19,482-8-9. The suit out of which this appeal arises was filed on the 26 February, 1936, to recover from the husband and the wife the sum of Rs. 15,259-6-11, the debit balance of that date. The suit was defended and the pleas raised were that the defendants had not been given credit for certain sums of money to which they were entitled, that the suit was bad for misjoinder of parties and causes of action and that it was barred by the law of limitation. The respondent did not plead that her guarantee was not a continuing one and that the rule in Clayton's case (1816) 1 Mer. 572 : 35 E.R. 781 applied. This contention was, however-raised during the hearing of the case and was accepted by the learned Judge (Venkataramana Rao, J.) as freeing the respondent from all liability. Consequently he passed a decree against her husband for Rs. 17,350-6-11 with costs, but dismissed the suit with costs as against her. In holding that the respondent was not liable the learned Judge had regard merely to the wording of the deed of mortgage of the 17 February, 1927. He considered that there was no evidence of any intention that the respondent's guarantee should be, a continuing one and that in these circumstances he was bound to give effect to the rule in Clayton's case (1816) 1 Mer. 572 : 35 E.R. 781. It is common ground that if the rule in Clayton's case (1816) 1 Mer. 572 : 35 E.R. 781, does apply, the mortgage debt was discharged by the 31 March, 1927.

(3.) With great respect for the opinion of the learned Judge we are unable to agree that there is no evidence on the record from which it can be concluded that there was here a continuing guarantee. The authorities indicate that in deciding such a question the whole of the surrounding circumstances must be taken into consideration unless the wording of the guarantee is such that the Court is precluded from taking anything else into consideration. The account was opened and, Murugesa Mudaliar allowed to overdraw it on the condition that the respondent provided security for any sums which might be drawn from time to time by him not exceeding Rs. 18,000 and when he wanted further accommodation from the appellant, the appellant agreed to give it on the security of the respondent's house provided that a legal mortgage was substituted for the equitable mortgage. The banking account was placed on no different basis when the limit of the overdraft was increased to Rs. 25,000. The security provided was for the total sum of Rs. 25,000 with interest or any amount for the time being owing and due to the appellant from the respondent "on the footing of these presents", the deed referring specifically, to the husband's overdraft. On behalf of the respondent it is conceded that when the overdraft account was secured by the equitable mortgage the respondent's guarantee was a continuing one. The appellant would certainly not have agreed to free the respondent from her continuing guarantee. The very nature of the account would preclude this. Nor is it feasible to suppose that the respondent thought her position was in any way being altered, apart from the increase in the amount of her guarantee. The respondent has not ventured in the witness-box to support the case advanced on her behalf and the fact that there is no averment in her written statement based on the rule in Clayton's case (1816) 1 Mer. 572 : 35 E.R. 781 is not without significance.