When a Court has to decide whether a person has really guaranteed the due performance of the contract by the principal debtor, all the circumstances concerning the transaction will have to be necessarily considered. Court cannot adopt a hyper technical attitude that the guarantor has not signed the agreement and so he cannot be saddled with the liability-P.J. Rajappan Vs. Associated Industries (Pvt.) Ltd. & another – Kerala High Court

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I. Case Reference

Case Citation : [2017] ibclaw.in 16 SC
Case Name : P.J. Rajappan Vs. Associated Industries (Pvt.) Ltd. & another
Petitioner(s) : P.J. Rajappan
Respondent(s) : Associated Industries (Pvt.) Ltd. & another
Writ No. : S.A. No. 245 of 1983
Date of Judgment : 06-Nov-89
Court : High Court of Kerala
Act : Indian Contract Act 1872

II. Brief about the decision

Hon’ble High Court held that a contract of guarantee is a tripartite agreement involving the principal debtor, surety and creditor. In a case where there is evidence of the involvement of a guarantor, the mere failure on his part in not signing the agreement is not sufficient to demolish otherwise acceptable evidence of his involvement in the transaction leading to the conclusion that he guaranteed the due performance of the contract by the principal debtor. When a Court has to decide whether a person has really guaranteed the due performance of the contract by the principal debtor, all the circumstances concerning the transaction will have to be necessarily considered. Court cannot adopt a hyper technical attitude that the guarantor has not signed the agreement and so he cannot be saddled with the liability. Due regard has to be given to the relative position of the contracting parties and to the entire circumstances which led to the contract. Section 126 of the Indian Contract Act provides that a guarantee may be either oral or written. Under the English law by virtue of Section 4 of the Statute of Frauds, a contract of guarantee must be evidenced by writing. The Indian Law makes a departure from the English law. Under Section 126 a contract of guarantee need not necessarily be in writing; it may be express by words of mouth, or it may be tacit or implied and may be inferred from the course of the conduct of the parties concerned. Contracts of guarantee have to be interpreted taking into account the relative position of the contracting parties and in the backdrop of the contract. The Court has to consider all the surrounding circumstances and evidence to come to a finding when the guarantor refutes his legal liability. In Mathura Das v. Secretary of State (AIR 1930 All. 848) and in Nandlal Chanandas v. Firm Kishinchand (AIR 1937 Sindh 50) it was held that contract of guarantee can be created either by parol or by written instrument and that it may be express or it may by implied and may be inferred from the course of conduct of the parties concerned. There is agreement cannot absolve him from his liability as the guarantor. The Courts below were justified in decreeing the suit against the second defendant as well. There is no merit in the Second Appeal and hence the same is dismissed with costs.

III. Full text of the judgment

1. Second defendant is the appellant. His contention is that he has not signed Ext. A-1 agreement as a guarantor and so he is not liable for any amount due to the plaintiff from the first defendant. It is the case of the plaintiff that the terms of the agreement were reduced to writing and a draft of the agreement to be executed by the defendants was drawn up and approved by both parties and that when the fair agreement was being written up the second defendant left the plaintiff’s office stating that he had to attend some urgent business and offering to sign the agreement later. Plaintiff contends that only on account of the guarantee by the second defendant Rs. 10,000/- was handed over to the first defendant.

2. Whether the second defendant can be held liable as a guarantor as Ext. A-1 agreement is not signed by him is the moot point for consideration. The totality of the evidence in the case definitely indicates that the second defendant stood as a guarantor for the performance of the agreement by the first defendant. He cannot wriggle out of the agreement on the ground that he had not signed it. On a consideration of the entire evidence both Courts below held that the second defendant guaranteed the due performance of the contract by the first defendant. Second defendant’s involvement in the transaction is really established by the fact that the amount due to from the plaintiff (Rs. 832.54) was adjusted towards Ext. A-1 transaction. He made no protest about it.

3. Besides, there is also evidence that the second defendant was instrumental in supplying firewood to plaintiff through Appukuttan Nair. The several bills produced in the case would show the name of the second defendant in those bills. Exts. A-3 and A-34 accounts kept by the plaintiff’s firm prove to the hilt the case of the plaintiff as against the second defendant as well Second defendant examined as D.W 1 admitted that plaintiff is a reputed firm and P.W 5 is a gentleman par excellence. That being the state of evidence, the findings of the Courts below cannot be assailed.

4. A contract of guarantee is a tripartite agreement involving the principal debtor, surety and creditor. In a case where there is evidence of the involvement of a guarantor, the mere failure on his part in not signing the agreement is not sufficient to demolish otherwise acceptable evidence of his involvement in the transaction leading to the conclusion that he guaranteed the due performance of the contract by the principal debtor. When a Court has to decide whether a person has really guaranteed the due performance of the contract by the principal debtor, all the circumstances concerning the transaction will have to be necessarily considered. Court cannot adopt a hyper technical attitude that the guarantor has not signed the agreement and so he cannot be saddled with the liability. Due regard has to be given to the relative position of the contracting parties and to the entire circumstances which led to the contract.

5. Section 126 of the Indian Contract Act provides that a guarantee may be either oral or written. Under the English law by virtue of Section 4 of the Statute of Frauds, a contract of guarantee must be evidenced by writing. The Indian Law makes a departure from the English law. Under Section 126 a contract of guarantee need not necessarily be in writing; it may be express by words of mouth, or it may be tacit or implied and may be inferred from the course of the conduct of the parties concerned. Contracts of guarantee have to be interpreted taking into account the relative position of the contracting parties and in the backdrop of the contract. The Court has to consider all the surrounding circumstances and evidence to come to a finding when the guarantor refutes his legal liability. In Mathura Das v. Secretary of State (AIR 1930 All. 848) and in Nandlal Chanandas v. Firm Kishinchand (AIR 1937 Sindh 50) it was held that contract of guarantee can be created either by parol or by written instrument and that it may be express or it may by implied and may be inferred from the course of conduct of the parties concerned. There is agreement cannot absolve him from his liability as the guarantor.

6. The Courts below were justified in decreeing the suit against the second defendant as well. There is no merit in the Second Appeal and hence the same is dismissed with costs.

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