ALFRED ERNEST MITCHELL Vs. CARR LAZARUS PHILLIPS

JUDGEMENT

(1.) In the suit out of which this appeal arises the appellants as legal personal representatives of a deceased creditor are seeking to recover from the respondents as guarantors part of a debt due and owing from the principal debtor. Before the trial Judge the appellants succeeded but on appeal the High Court of Judicature in Bengal reversed the judgment of the trial Judge and dismissed the suit. On 14 February 1927 one Galstaun mortgaged real estate in and near Calcutta and personal estate of various kinds to Arathoon Stephen the appellants' testator to secure a loan of Rs. 40,00,000 and interest. Stephen in fact borrowed the money from the Imperial Bank in order to lend it to Galstaun. On 9 February 1927 the respondents in connexion with the transaction had executed in favour of Stephen a guarantee in writing in the following form : " 1. In consideration of your having at our request agreed to obtain a loan of Rs. 40,00,000 bearing interest at six per cent per annum from the Imperial Bank of India for the sole benefit of John Carapiet Galstaun for the purpose of satisfying certain decrees and paying certain pressing debts such sum of Rs. 40,00,000 to bear interest at the rate aforesaid and the repayment thereof to be secured by a mortgage to be executed by the said John Carapiet Galstaun in your favour of the properties included in the mortgages held by Framroz Edulji Dinshaw and a second mortgage of the properties included in the mortgage executed by the said John Carapiet Galstaun in favour of the Prudential Assurance Co., Ltd. We the undersigned Carr Lazarus Phillips of No. 33, Alipore Park Road, Alipore, Arathoon Mackertoom Arathoon of No. 3, Rowdon Street, in Calcutta, and Arathoon Theodore Creet of Ghusick Colliery in the District of Raneegunge hereby guarantee to you the payment by the said John Carapiet Galstaun of the said sum of Rs. 40,00,000 to the limit of our aggregate and individual liability hereinafter prescribed." "2. This guarantee shall be a continuing guarantee, but our aggregate liability thereunder shall not under any circumstances exceed the sum of Rs. 18,00,000 and the liability of each of us individually in respect of the said sum shall not exceed the sum of Rs. 6,00,000, being the sum placed opposite our respective signatures at the foot hereof and should the common liability be less than the said maximum aggregate sum, the share due from each one of us in respect thereof shall be in strict proportion to his individual liability hereunder and not otherwise." "3. Within the aforesaid limit of liability this guarantee shall extend to and be applicable to the whole debt that shall ultimately be due to you from the said John Carapiet Galstaun in respect of such advance as aforesaid and not merely to so much thereof as shall be co-extensive with our aforesaid maximum liability hereunder." "4. You shall be at liberty without discharging us from liability hereunder to grant time or other indulgences to the said John Carapiet Galstaun and to accept payment from him in cash or by means of negotiable instruments or otherwise."

(2.) On 14 May 1927 Stephen died and on 12 October 1927 the appellants as his executors and trustees demanded from Galstaun immediate payment of the loan and interest and gave him notice that in default of payment within three months they would sell the mortgaged properties. On 15 October 1927 the respondents were notified of the appellant's demand against the principal debtor. The principal debtor failed to pay and on 8 June 1928 the appellants notified the respondents of this fact and demanded under the guarantee payment of six lakhs from each of them. On 12 July 1928 this suit was instituted by the appellants against the respondents who had failed to satisfy any part of the demand made upon them. On 8th April 1929 the appellants instituted a suit against Galstaun to enforce the mortgage. What has happened in that suit does not appear. On 26 April 1929 judgment in the present suit was given in favour of the appellants for six lakhs and interest against each of the respondents.

(3.) The respondents appealed and on 29 August 1929 the judgment of a Division Bench of the High Court was given allowing the appeal and dismissing the suit. The Judges who heard the appeal appear to have taken the view (1) that upon its true construction the guarantee only provided for a guarantee of the balance which should remain owing after the creditor had exhausted his remedies under the mortgage against the principal debtor; and (2) that these remedies not having been exhausted the suit was premature and ought to be dismissed. Ghose, J., who delivered the leading judgment was influenced by the fact that upon the construction for which the present appellants contend Galstaun might have been asked to repay immediately after the execution of the mortgage and that the guarantee would have then become immediately enforceable. He thought it must have been the intention of the parties that the security specified in the mortgage should be realized first and that the guarantee should only operate in respect of any deficiency remaining after such realizations. He further took the view that the word "ultimately" in Cl. 3 of the guarantee indicated that the guarantee only covered the final deficiency.