IN THE MADRAS HIGH COURT 

H. Karthih Seshadri for C. Harikrishnan for the appellants in S.A. No. 762 of 1986 and for the petitioners in C.M.P. No. 6479 of 1986. 

P. Sreenivasalu for respondents Nos. 1, 3 and 4. 

JUDGMENT 

SMT. A. SUBBULAKSHMY J. - The fourth defendant is the appellant. 

The case of the plaintiff is as follows : 

The first defendant applied for an overdraft facility for Rs. 30,000 as working capital. The plaintiff granted it on June 5, 1973, against the pledge of the first defendant's electronic equipment, refrigerators and electrical goods and on the personal guarantee for the repayment given by defendants Nos. 2 to 4. The first defendant was irregular in repayment of the amount. So, the plaintiff brought the properties to sale. The first defendant filed O.S. No. 8517 of 1977 and obtained an order of interim injunction, but, it was vacated later. As on October 31, 1977, a sum of Rs.31,341.10 is due by the first defendant to the plaintiff. So, the plaintiff exercised its right and sold the damaged goods for Rs. 20,710.30 and the defective goods for Rs. 2,568. After giving credit to this amount, the first defendant is due and liable as on March 5, 1979, in a sum of Rs.10,333.80. The first defendant did not pay in spite of demands. Defendants Nos. 2 to 4 are guarantors for the repayment of the amount and they are jointly and severally liable with the first defendant to pay the suit amount. 

The third defendant filed written statement contending that he ceased to be a director of the first defendant-company and so, the guarantee given by him was terminated and so, he is discharged from the guarantee. Defendants Nos. 1 and 2 remained ex parte. 

The fourth defendant filed written statement contending as follows : 

This defendant did not give any personal guarantee for repayment of the amount by the first defendant and he has resigned his post as director of the first defendant-company long back to the knowledge of the plaintiff and he gave guarantee only in the capacity of a director of that company and since he ceased to be a director, the guarantee given by him stands automatically cancelled and an acknowledgment of liability on behalf of the first defendant will not be binding upon him. 

The trial court decreed the suit as prayed for and it was confirmed by the first appellate court. 

Aggrieved against that concurrent finding, the fourth defendant has challenged that finding in this second appeal. 

The substantial questions of law framed at the time of admission of the second appeal are : 

(i) should a guarantor be given notice of the sale of the pledged articles before the actual sale ? 

(ii) is the appellant discharged from guarantee in view of the sale of the pledged articles carried only by the respondent without notice ? and 

(iii) was there a proper and valid sale of the pledged articles ? 

The appellant in this second appeal died during the pendency of the second appeal and his legal representatives appellants Nos. 2 to 4 are brought on record. 

According to the plaintiff, after giving credit to the amount paid by the first defendant including the sale amount of the pledged articles, there was a due of Rs. 10,333.80 and the appellant and the other guarantors are jointly and severally liable for the same. 

Counsel for the appellant submitted that the plaintiff can proceed for its claim only on the principal debtor, the first defendant, and not the guarantors and the guarantors have got discharged of their liability since there is variation in the contract and the guarantors were liable only for a sum Rs. 22,710 as per exhibit A-4 to which amount alone, the principal debtor is liable and the appellant had executed a personal guarantee and since he is dead, his legal representatives cannot be held liable for the personal guarantee of the appellant. He further submitted that the acknowledgment of liability by the principal debtor is only for a sum of Rs. 22,710 under exhibit A-4 and only for that amount, the guarantors are also liable. 

Counsel for the respondent submitted that exhibit A-3 is a personal guarantee executed on March 5, 1973, and it is a continuing guarantee and exhibit A-4 has nothing to do and as it is a continuing guarantee, the guarantors are liable for the suit claim, along with the principal debtor. 

The first defendant had executed a promissory note for Rs. 30,000 under exhibit A-1 and defendants Nos. 2 to 4 stood as guarantors for the repayment of that amount by executing a guarantee letter exhibit A-3, pledging their goods under the agreement of pledge of goods exhibit A-2 dated June 5, 1973, as per the statement of account exhibit A-12. The first, defendant is liable for the suit claim. The first defendant has acknowledged its liability to the extent to Rs. 23,004 with interest thereon, Exhibit A-4 shows that the guarantee given is a continuing guarantee. The contention of the defendant, is that the guarantors signed the guarantee only as directors of the first defendant-company and since they were not directors of the first defendant on the date of suit, their guarantee gets automatically cancelled and so, the personal guarantee cannot be enforced against them. 

On a perusal of exhibit A-3, it is seen that the guarantors have not signed the guarantee letters as directors, exhibit A-3 does not disclose that the appellant signed the guarantee as director of the first defendant-company. The evidence of P.W. 1 shows that the signature of the appellant was taken in exhibit A-3 because of his credit worthiness. The trial court found that the evidence of P.W.-1 that he did not read exhibit A-3 before signing is not acceptable and he appears to be a person connected with very many, private companies, doing business and he knows English and so he must have gone through exhibit A-3 before signing it. Defendants Nos. 2 to 4, signed exhibit A-3 only in their individual names without describing their, status as directors of the first defendant-company and considering the nature of the transaction it is satisfied that it is futile for defendants Nos to 4 to contend that they had executed exhibit A-3 guarantee letter only in their capacity as directors and that their liability under, the guarantee letter was terminated when they ceased to be the directors. A perusal of the documents clearly establishes that the appellant had executed the guarantee only in his individual capacity and it is a continuing guarantee. The liability of the guarantors is coextensive. The accounts maintained by the plaintiff prove that there were continuous transactions spread over for number of years and the guarantee given by defendants Nos. 2 to 4 constitutes a continuing guarantee, as defined under section 129 of the Contract Act, 1872. 

With regard to the point of limitation, the first defendant has acknowledged its liability to pay the amount due as on March 15, 1976, as seen from exhibit A-4. The suit was filed on March 6, 1979, and so, it is not barred by limitation. 

With regard to the point of limitation, the first defendant has acknowledged its liability to pay the amount due as on March 15, 1976, as seen from exhibit A-4. The suit was filed on March 6, 1979, and so, it is not barred by limitation. But, counsel for the defendant contended that there is acknowledgment of liability only to the tune of Rs. 23,044 and only to that amount, it saves limitation and so, the entire suit claim cannot be decreed. The first appellate court found that a perusal of the entries in the account books, exhibit A-12, discloses that the first defendant had repaid a sum of Rs. 1,275 on August 17, 1976, and so the suit having been filed on March 6, 1979, is well within three years from August 17, 1976, and it is clearly within the time not only against the first defendant but also against the guarantors, defendants Nos. 2 to 4 as the entire amount constitutes a continuing transaction and on such facts, the letter of acknowledgment, exhibit A-4, dated March 15, 1976, executed by the first defendant assumes nil significance as the plaintiff has no necessity to rely thereon to sustain its claim against all the defendants. The first appellate court observed that the ratio laid down in the case of Margaret Lalita Samuel v. Indo Commercial Bank Ltd. [1979] 49 Comp Cas 86, 92; AIR 1979 SC 102, 106, applies to the present case. It has been held in the above decision that : 

"The guarantee is seen to be a continuing guarantee and the undertaking by the defendant is to pay any amount that may be due by the company at the foot of the general balance of its account or any other account whatever. In the case of such a continuing guarantee, so long as the account is a live account in the sense that it is not settled and there is no refusal on the part of the guarantor to carry out the obligation, we do not see how the period of limitation could be said to have commenced running. Limitation would only run from the date of breach under article 115 of the Schedule to the Limitation Act, 1908." 

The guarantee given being a continuing guarantee as evidenced by exhibit A-3, the defendants are liable to pay the amount as per the accounts. Since the first defendant has repaid Rs. 1,275 on August 17, 1976, exhibit A-4 assumes no importance and from the date of that payment, the suit having been filed within three years, it is well within time and it is not barred by limitation. 1 find no force in the argument of counsel for the appellant in this aspect. 

According to the appellant, notice contemplated under section 176 of the Contract Act was not given and so, the sale of the pledged goods is void and illegal. Section 176 contemplates that if the pawnor makes default in payment of the debt, or performance, at the stipulated time of the promise, in respect of which the goods were pledged, the pawnee may bring a suit against the pawnor upon the debt or promise, and retain the goods pledged as a collateral security; or he may sell the thing pledged on giving the pawnor reasonable notice of the sale. That section contemplates issue of reasonable notice to the pawnor before bringing the pledged goods for sale. 

The electrical goods were pledged with the plaintiff as security for the amount repayable. Notice was given on October 6, 1977, with regard to auction of the goods. But, the first defendant filed a suit and obtained injunction, so, the auction could not be conducted and after it was vacated, the goods were sold for Rs. 23,278.30. So, the first defendant was given notice under section 176 of the Act. So, the courts below have held that notice was given to the first defendant, the principal debtor and the sale cannot be branded as illegal. But, notice was not given to the sureties. 

Counsel for the appellant contended that guarantors must be given notice before sale and as the appellant was not given notice about the sale, it amounts to variation of contract under section 133 of the Contract Act and so, the appellant, the guarantor gets discharged from his liability because of the variation of the contract. 

Section 133 of the Contract Act provides that any variance made without the surety's consent in the terms of the contract between the principal debtor and the creditor, discharges the surety as to transactions subsequent to the variance. So, the point to be considered is whether the non-issuance of notice of sale of the pledged articles to the guarantors amounts to variation of contract. 

In Muthiah Mudaliar v. Somasundaram Mudaliar [1974] TLNJ 282 it has been held that : 

"It is also well established that the slightest variation in the terms of a guarantee, unless agreed to would discharge eo instanti the responsibility of the guarantor from being liable under the engagement." 

In A. R. Krishnaswami Ayyar v. Travancore National Bank Ltd. [1940] 10 Comp Cas 162; AIR 1940 Mad 437, it has been held that (headnote of AIR) : 

"Although a composition bond between the principal debtor and the creditor extinguishes the debt to the principal debtor it does not absolve the sureties from their liability under surety bond, where the surety had expressly contracted to remain liable notwithstanding the discharge of the principal and, therefore, the discharge of the principal cannot be said to be implied discharge of the surety." 

Under section 133 of the Act, variation of the contract is very material. When the variation of the contract is the result of laying a false burden on the surety, there can be no doubt that the surety will be discharged. An unauthorised material alteration in the contract essentially entitles discharge of the surety. So, the alteration of contract is substantial. If there is alteration of contract which does not burden the surety, the surety is not entitled to ask for discharge of his liability. So, to attract section 133, there must be substantial variation in the original contract and much prejudice must have been caused to the surety. So, the argument of counsel for the appellant that the non-issuance of notice to the guarantors attracts section 13.3 does not hold good because as contemplated under section 176, the plaintiff has given notice to the pawnor, the first defendant. Section 176 contemplates notice before sale to the pawnor and it does not contemplates issue of notice to the guarantor before sale. Further the issue of notice regarding sale of pledged goods will not amount to variation of contract and it does not fall within section 133 of the Act. By variation of contract, the surety cannot be held upon to do something for which he is not contracted. 

Bringing of pledged goods to sale will not amount to variation of contract' The guarantors cannot be stated as affected by that act of the plaintiff. It does not burden the guarantor to do something more than what he has contracted. In fact, by bringing the pledged goods to sale and adjusting the sale proceeds towards the debt, the plaintiff has only lessened the burden of the principal debtor which is also beneficial to the guarantor. So, the non-issuance of notice, before the sale of goods, to the guarantor does not amount to variation of contract. Section 113 of the Contract Act is not attracted. The liability of the guarantor is coextensive with the liability of the principal debtor as per section 128 of the Contract Act. Since the principal debtor has been given notice, that is sufficient to comply with the condition laid down under section 176 of the Contract Act. So, I find no force in the arguments of counsel for the appellant in this aspect. 

The appellant has executed a personal guarantee and the legal representatives of the appellant cannot be held liable for the personal guarantee executed by the appellant. The plaintiff can proceed only as against the assets of the deceased in the hands of the legal representatives of the deceased appellant. The judgments and decrees passed by the courts below are upheld. 

In the result, the second appeal fails, and is dismissed. No costs. C.M.P. No. 6479 of 1986 is closed.