' The defendant No, 1 is a private company of which defendants No, 2 to 4 are and at all material times have been its Directors. The Defendant No, 1 maintained an account No, 10369 with the plaintiffs at their I. I. Chundrigar Road Branch, Karachi. On or about 13-11-1969 the plaintiffs at the request of the defendants granted to defendant No, 1 overdraft facilities to the limit of Rs, 5 lacs in the said account which limit was renewed and extended from lime to time at the request of the defendants. As a security for repayment of the loan of Rs, 5 lacs the defendant No, 1 executed a Promissory Note dated 13-11-1969, Letter of Continuity and Letter of Arrangement of the same date.
Defendants Nos. 2 to 4 executed a Letter of Guarantee dated 13-11-1969 guaranteeing jointly and severally, inter alia, due repayment within 2 days after the demand of loan which shall at any time be due to the plaintiffs from defendant No,
1. As a further security for repayment of the loan defendant No, 1 pledged with plaintiffs certain shares also. On 30th December, 1971, the defendant No, 1 was indebted for Rs, 5,56,739.56 which was confirmed and acknowledged by defendant No, 1.
On 29-12-1973 defendant No, 1 was indebted in the said account for Rs, 4,39,179.76. The defendant No, 1 by way of acknowledgement and as security for repayment of Rs, 4,39,179.76 or any balance the might at any time be due and payable by defendant No, 1, on 29-12-1973 executed promissory Note for Rs, 4,39,179.76, Letter of Continuity, Letter of Arrangement and Letter of Lien. On 7th February, 1976, the indebtedness of the defendant No, 1 was Rs, 3,03,673.64, which was duly acknowledged by defendant No, 1 and on that date it executed Promissory Note, Letter of Continuity, Letter of Arrangement and Letter of Lien. In order to secure the said loan of Rs, 3,03,673.64, on 7-2-1976 defendants Nos. 3 and 4 executed a Letter of Guarantee. The defendant No, 1 failed to clear the dues. The plaintiffs consequently through their Advocate sent notices dated 20th June, 1978, and 27th August, 1978, to the defendants Nos. 1, 2, 3 and 4 calling upon them to pay the plaintiffs dues.
The plaintiffs have claimed, Rs, 3,05,758.39, with interest at the rate of 14% per annum with quarterly rests from 1-1-1979 till realization.
2. The Defendants Nos. 1 and 4' are ex parte. They have neither appeared nor filed their written statement. The Defendant No, 3 expired and his legal heirs have not been brought on record. The Defendant No, 2 has filed his written statement. It has been pleaded that the suit filed against Defendant No, 2 in his capacity as guarantor is misconceived, not maintainable and is barred by time. It has been pleaded that defendant No, 2 has not signed any guarantee in his personal capacity but as director of the defendant No, 1 only. It has further been pleaded that the guarantee automatically stands released and discharged on account of variation in the contract between the plaintiffs and defendant No,
1. He has further pleaded that the guarantee dated 13-11-1969 stood released and discharged on the execution of the fresh guarantee dated 7-2-1976 by defendants Nos. 3 and 4 which was in substitution of the earlier guarantee dated 13-11-1969 signed by the directors. On these pleadings the following issues were framed:- "(1) Did the "defendant No, 2 execute Guarantee dated, 13-11-1969 in his personal capacity? If not to what effect ?
(2) Whether the plaintiff's claim against the defendant No, 2 is barred by limitation?
(3) Was the defendant No, 2 discharged on the execution of Guarantee dated 7-2-1976 by defendants Nos. 3 and 4 as alleged in para. 2 of written statement?
(4) Whether the plaintiff is entitled to relief claimed in the suit? If so, against which of the defendants?
(5) What should be the decree?"
3. Issue No, 1. -In this regard the facts relied upon are that the letter of guarantee dated 13-11-1969 has been executed by defendants No, 2, 3 and 4 and below their signatures the word "Director" has been typed. The contention is that the defendant No, 2 executed the guarantee as a director and so long he continued to be a director he was liable as such but not after he ceased to be a director.
In order to come to a correct conclusion it is necessary to examine all the documents which were executed from time to time. The plaintiffs had granted overdraft facility to defendant No, 1 to the extent of Rs, 5 lacs. This necessitated sureties and guarantees for the repayment of the loan. The first document is the promissory note of Rs, 5 lacs which has been executed by defendant No,
1. The manner of execution should also be noted. The rubber stamp of Business Investment Ltd. It has been affixed under which the directors have signed it. Underneath the signature the word Director has been mentioned. It therefore clearly shows that promissory note has been signed on behalf of the Company by its directors. The letter of continuity and letter of arrangement have been signed in the same manner. On the same day and in the same context this particular guarantee was also executed by defendant No,
2. It however does not bear the stamp of Business Investment Ltd. It has been signed by all the three defendants Nos. 2, 3 and 4 and below their signatures is typed "director". The fact that the word "director" is mentioned below the signature does not mean that it was intended to be executed on behalf of the company or as a director only. In that event the rubber stamp of the company would have been affixed on it. However, it was not possible for defendant No, 1 to have given security on behalf for the simple reason that the company was the principle debtor and could not in any circumstance become a guarantor as well. Therefore, the some other persons were required to give their personal guarantee for the repayment of the loan.
Those persons were the directors of the company who for the purposes of identification have mentioned the word "director" but they have intended to furnish their personal surety. They have taken upon themselves the personal liability to repay the loan in terms of the guarantee. My finding on issue No, 1 is in affirmative.
4. Issue No, 2 .--Mr. Liaquat Merchant, the learned counsel for defendant No, 2 has contended that the guarantee was executed on 13th lskvember, 1969. The suit was filed on 5th February, 1979, and, therefore, the suit is barred by time. The learned counsel has contended that the period of limitation will run from the date of the execution of the guarantee and if any amount has been paid by defendant No, 1 or any interest has been paid by them it will not extend the period of limitation.
Mr. Mamnoonul Hassan, the learned connsel for the plaintiffs has contended that in terms of letter of guarantee the defendant No, 1 was liable to pay 2 days after the demand has been made and since the demand has been made on 27-8-1973 the suit is within time. To appreciate the contentions of the learned counsel for the parties it is necessary to reproduce the opening para. Of the letter of guarantee which is subject matter, of the suit and governs the rights of the parties:- "In consideration of your making or continuing advances or otherwise giving or continuing credit or accommodation to Messrs Business Investment Ltd., hereinafter called the Principal, I/we jointly and severally guarantee to you due repayment, within two days after demand, of all moneys which shall at any time be due to you from the Principal, in any shape or form, together with interest, charges, cost etc. Provided that the total amount recoverable from me/us jointly and severally under this guarantee shall not at any time exceed the Principal sum of Rs, 5,00,000 (Rupees Five Lacs only) exclusive of interest and charges."
The liability of surety is determined on the basis of the contract of guarantee In this regard reference can be made to Al R 1940 All. 116; 1981 CLC 89. Mr. Mamnoonul Hassan the learned counsel for the plaintiffs has referred to AIR 1919 Mad. 464; I L R 1922 Mad. 20; (1978) 4 C L R 34; (1893) 2 Ch. D 300 and 1981 CLC 89 and has contended that in cases where payment by surety is to be made on demand his liability will start after the demand has been made and limitation will run from the date of the demand or when the liability to pay accrues. Relevant clause of the surety bond has been reproduced above. It clearly provides that on demand being made the surety shall pay within a period of 2 days. It, therefore, follows that the liability of the surety accrues after 2 days of the demand, in case he fails to pay. Similar clauses were considered in the judgment passed in 1981 CLC 161(?). In a recent judgment of my learned brother K. A. Ghani, J. In Suit No, 627/76 while interpreting similar clause in a guarantee deed it was held as follows:- ' The cause of action to enforce the liability against the defendant No, 2 (guarantor) could not be deemed to have arisen until the demand was made by the plaintiff upon the guarantor/defendant No, 2 and payment was not made within the stipulated period of two days."
5. I am in respectful agreement with the above observation and following the same, I hold that the time begin to run against the defendant No, 2 two days after notice of demand has been served. In the present case the plaintiffs have stated that notice of demand to the defendant No, 2 was sent on 27-8-1978 but it has returned back because he was out of Pakistan. In these circumstances, the learned counsel for the defendant No, 2 contends that the suit is premature. It has been further contended ' that the deed of guarantee provides a mode of service of notice and one of the mode is that it may be published in the newspaper. This refers to clause 11 of the deed of guarantee which inter alia, provides that if for want of address or otherwise a notice cannot be given by post an advertisement of notice shall be deemed sufficient notice on the date given in the advertisement.
This clause does not specifically cast a burden upon the plaintiff to publish a notice in a newspaper. It merely provides that if the notice is published in a newspaper then it shall be deemed a sufficient notice given on the date of advertisement. This cannot be interpreted to mean that the plaintiff is bound to publish the notice in case the defendant is not available. The plaintiff has proved by producing copy of the notice, the envelope and the postal receipts that the notice of demand had been made on defendant No, 2 but he was reported to be out of Pakistan. In these circumstances in my opinion there was sufficient compliance of the terms of guarantee. If the person is not available on his known address or is avoiding the service of notice, then if it is sent to him on his correct address and is reported not to be available then in the terms of the letter of guarantee as reproduced hereinabove it shall be deemed to be a sufficient compliance of making the demand for the purpose of filing the suit. The notice was sent on 27-8-1978 and the suit has been filed on 5-2-1979 and, therefore, it is within time. In any event filing of plaint and service of summons will substitute sufficient notice of demand and the suit even if premature has ripened and matured during its pendency.
6. Mr. Liaquat Merchant, the learned counsel for the defendant No, 2 has contended that the liability of the surety arises from the date when the guarantee was executed. Ile has relied upon PLD 1975 Kar. 671 and AIR 1917 Cal. 164(?). On the facts of the present case these authorities are not applicable as the surety bond in this suit is of a completely different nature. In the circumstances the liability of the surety will not arise immediately on execution of letter of guarantee. My finding on this issue is in the negative.
7. Issue No, 3. -Defendant No, 2 had jointly executed a letter of guarantee dated 13-11-1969.
Thereafter defendant No, 1 and other sureties viz. Defendants Nos. 3 and 4 continued to execute promissory note and letter of guarantee on 29-12-1973 and 7-2-1976. The learned counsel for defendant No, 1 has contended that because the plaintiffs have obtained new documents and fresh guarantee, the liability of defendant No, 2 has been discharged. It is correct that defendant No, 1 has executed fresh promissory notes on 29-12-1973 and 7-2-1976. These documents were obviously executed to save the period of limitation against defendant No, 1 and also to obtain acknowledgment of liability in respect of debit balance accruing on that particular date. Execution of these documents did not in any manner alter the original contract nor they were substituted for the earlier one. In the circumstances the question of waiver or discharge of liability does not arise.
Mr. Mamnoonul Hassan has referred to the case of Kshetra Nath Sikdar and others v. Harassukdas Balkissen Das and others (1), wherein similar circumstances it was observed that "where a creditor has not been actually paid but he takes a renewed bill or promissory note for his debt in order to give time to the debtor and receives some consideration by way of increased interest or otherwise for his for bearance it can hardly be said that the old debt had been paid off by the acceptance, of the renewed bill. In the circumstances of this case I am not prepared to hold that a new contract was substituted for the debt. In the present case also merely by execution of the fresh promissory note or letter of continuity or frest guarantee by the guarantors will not in any manner substitute the original contract by these documents nor will it in any manner discharge the defendant No, 2 from liability. My finding on Issue No, 3 is in the negative.
(1) AIR 1927 Cal. 538
8. The plaintiff has examined a witness who has produced and proved the documents and the statement of account duly certified under the Bankers Books of Evidence Act which shows that defendant No, 1 was liable to pay as on December, 31, 1979, a sum of Rs, 3,05,758.93. This is seriously disputed by defendant No,
2. Defendants Nos. 1, 3 and 5 have not appeared to contest the case. In the circumstances the plaintiffs have proved that sum of Rs, 3,05,758.93 is due and payable.
9. Issue No, 4. -The plaintiff is entitled to a decree against the defendants jointly and severally with interest from the date of suit till recovery at the rate of 14% per annum with quarterly rests and costs.