1. ' This suit has been brought by the plaintiff, a banking company for the recovery of Rs, 72,091.38 with interest at the rate of 8% per annum with monthly rests from the date of the suit until payment. It has also been prayed that the two buses hypothecated with the plaintiff and described in the plaint be sold and the sale-proceeds thus realized be applied towards discharge of the decrial amount after defraying therefrom the sale expenses.
2. 1.(i) The facts which are not disputed and which emerge from the evidence on record are that one Pervez A. Choudhry, the Proprietor of the concern known as M/s. Pervez Brothers Transport Company (hereinafter referred to as the defendant No, 1), had an account in the plaintiff's branch at P.E.C.H., Karachi. On 9th March, 1967 the plaintiff sanctioned credit facility of Rs, 50,000 to the defendant No, 1 at the request jointly made by him and one Mr. Rifat All Hasni, (the guarantor) who has been joined as the defendant No, 2 in the suit. The entire loan limit sanctioned as above, was utilized by the defendant No, 1.
(ii) It is also established that the defendant No, 1 had executed promissory note, dated 13th March, 1967 (Exh. 7/1) in favour of the defendant No, 2 with interest thereon at 3% above bank rate minimum 8% per annum with monthly rests which promote the defendant No, 2 duly endorsed in favour of the plaintiff and delivered to as collateral security for repayment of the dues, which may be found payable by the defendant No, 1, to the plaintiff. The promissory note has been produced and marked as Exh. 7/1. The defendant No, 1 also hypothecated with the plaintiff his two buses (KAU-9669 and KAU-9670) and executed an agreement of hypothecation (Exh. 7/2).
2. (i) The defendant No, 2 in confirmation of his liability as the guarantor executed the letter of guarantee, dated 30th April,. 1967 which has been produced as Exh. 6, whereby inter alia while confirming that in consideration of the plaintiff bank having agreed at his request to grant to M/s. Pervez Brothers Transport Company, the defendant No, 1, accommodation by way of cash credit to the extent of Rs, 50,000 and interest from time to time payable to the bank by the defendant No, 1/the borrower on account of the said cash credit, the defendant No, 2 further agreed that: " the Bank shall be at liberty to take steps to enforce payment of the said Promissory Note at any time after notice in writing demanding payment thereof posted 'to me/us at my/our usual or last known address and default being made in payment for the days after the posting of such notice.
3. And 1/we agree that the fact of the Bank not taking steps to enforce payment of the said account or of the said Promissory Note until expiry of a period of three days after posting or such notice or otherwise granting time to the Borrower or any other obliging or guarantor shall in no way release me/us from my/our liability under the said Promissory Notes. And I/we further agree that it shall not be necessary for the Bank to present that said promissory Note for payment to the Borrower or any other obliging or guarantor before demanding payment from me/us or suing me/us thereon."
4. ' The letter of guarantee contains other terms and conditions, which for the purposes of decision of the issues involved in this case, not being relevant are not referred herein. It may, however, be mentioned that this letter of guarantee had been duly admitted by the defendant No, 2, and thus marked Exh.
5. 6.
(ii) (a)According to the statement made in para. 6 of the plaint, the defendant No, 1 having committed default the plaintiff sent notice of demand, dated 3rd September, 1969 addressed the defendant No, 2, the guarantor in terms of the letter of guarantee (Exh. 6). In the plaint it was further pleaded that to the said notice of demand the defendant No, 2 sent his relpy on 17th October, 1969 (Exh. 5). The plea thus raised in the plaint has not been denied to the written statement, though it has been alleged that the said letter of guarantee has no legal effect, that it is not legally enforceable against the defendant No, 2 and that the same is without consideration.
(b) It may also be noted here that earlier by his letter, dated 10-12-1968 (Exh. 7/4) the defendant No, 1 had requested the plaintiff bank to allow him a period of 3 months for clearing the bank dues. He assured the plaintiff that he was making arrangements for early repayment of the loan advanced to him against the hypothecation of his buses.
6. ' Subsequently with reference to his earlier letter (Exh. 7/4) the defendant No, 1 again wrote to the plaintiff, letter, dated 25th March, 1979 (Exh. 7/3) whereby after assuring the plaintiff that he had every intention to pay the bank dues, requested the bank (the plaintiff) not to take legal action in the matter as he was confident that the dues of the bank would be cleared within a short period.
(iii) In the circumstances stated above and for the reason that neither the defendant No, 1 in spite of the promises made by him nor the defendant No, 2 in spite of the service of notice of demand, dated 23rd September, 1969 made the payment of the dues, the plaintiff-bank filed this suit on 7th August, 1971.
(iv) The defendant No, 1 expired on 18th October, 1971 before he could be served with the summons of the suit. In the first instance his two minor daughters, who are defendants Nos. 1(i) and (ii) were brought on record but subsequently during evidence when it was brought on record that the said defendant No, 1 had also left MRs, Azra Pervez (widow), she was also brought on record as defendant No, 1(iii). These legal representatives have not filed any written statement. The defendant No, 1(iii), the widow has remained absent in spite of service of summons by substitute service and the case has proceeded ex parte against her. The defendants Nos. 1(i) and (ii), who are minors are represented by the Nazir as their guardian ad litem. Mr. Suleman Habibullah, Advocate has filed Vakalatnama on behalf of the Nazir but no written statement was filed for the minors, as well.
(v) The defendant No, 2, the guarantor filed his written statement, in which inter alia it was pleaded at the suit against him is barred by limitation.
7. ' It was also pleaded that unless there was a default in the payment of loan by the defendant No, 1 or the loan remained unsatisfied out of the security, i.e, the two buses hypothecated by the defendant No, 1 as per letter of hypothecation, dated 15th March, 1967 (Exh. 7/2), the guarantee furnished by the defendant No, 2 could not be invoked. It was accordingly pleaded that the suit is premature and discloses no cause of action against the defendant No, 2 and is thus liable to be dismissed.
3. It is not necessary to refer to some of the other pleas raised in view of the CONSENT issues framed. The consent issues adopted by the Court on 23rd October, 1977 read as follows:-
(1) Whether suit is barred by time?
(2) Whether the suit against defendant No, 2 (is) pre-mature?
(3) To what relief is the plaintiff entitled?
8. 4.At the trial Mr. Muhammad ?ia-ul-Haq was examined as P.W. I (Exh. 7). He was the Managf.r of the plaintiff's P.E.C.H.S. Branch, Karachi in the year 1967 when the loan transaction took place. He proved the grant of the cash credit limit to the defendant No, 1 and produced the promissory note, dated 13th March, 1967 (Exh. 7/1) the letter of hypothecation of the two buses marked Exh. 7/2, the two letters, dated 10th December, 1968 (Exh. 7/4) and 25th March, 1969 (Exh. 7/3), written by the defendant No, 1 acknowledging the liability and assuring the plaintiff bank of the re-payment of the outstanding dues. Certified copy of the statement of account was produced by the witness as Exh.
9. 7/5.
10. ' The letter of the defendant No, 2, dated 17th October, 1969 acknowledging the receipt of the legal notice, dated 23rd September, 1969 whereby the plaintiff bank through its Advocate (as stated in para. 6 of the plaint, had demanded the repayment of the outstanding loan amount from the defendant No, 2/the guarantor as the principal debtor, namely, the defendant No, 1 had failed to repay the outstanding dues) was produced by the plaintiff as Exh.
11. 5.
12. ' The learned advocate for the defendant No, 2 argued that the loan was advanced to the defendant No, 1 on 13th March, 1967 and the letter of guarantee (Exh. 6) was executed by the defendant No, 2 on 30th April, 1967. He contended that the suit having been filed on 7th August, 1971, i.e, beyond 3 years of the advance of the loan as well as the execution of the letter of guarantee, was barred by time. Reliance was placed on the cases reported as Sreenath Roy and others v.
13. Peary Mohan Mokerjee AIR 1917 Cal. 154, Diyalumal v. Nandushah Roay and others AIR 1931 Lah.
14. 690, National Commercial Bank Ltd., Karachi v. Muhammad Tufail and another PLD 1975 Kar. 671 and Messrs Commerce Bank Ltd., Karachi. v. Messrs Crescent Paint Colour & Varnish Works Ltd., Lahore and 6 others PLD Kar.
15. 504.
16. ' I have gone through the above cases cited by the learned counsel for the defendant No, 2 and find that the same are not relevant to the present case. In the case of Sreenath Roy and others v.
17. Peary Mohan Mookerjee the principle of law stated was that a suit by a creditor against the surety, upon a letter of guarantee executed by the latter in respect of a debt payable on demanlikon a promissory note, is governed by Article 115 and not by Arti 65 of the Limitation Act and that the limitation being to run from the date of the execution of the guarantee notwithstanding a stipulation in the guarantee to the effect that the creditor may look for repayment to the surety if the principal debtor makes default in payment.
18. ' In the case of Diyalumal v. Nandushah Devraj and others (supra), the facts were that by a letter of the same date as that of an entry in the Bahi, the surety undertook to pay the principal with interest and bound himself to be responsible for the amount of loan in case the debtor did not pay it. No date for repayment, however, was specified. On these facts briefly stated, the learned Court held that the loan became repayable at once under Article 57 and the liability of the surety also began to run from the same date but would be governed by Article 115 of the Limitation Act. In the said case the learned High Court also held that an acknowledgement by the principal debtor would not save limitation against the surety unless it was shown that the latter allowed himself to be represented by the person who made the acknowledgement. - ' In the case of Commerce Bank Ltd v. M/s. Crescent Paint Color & Varnish Works Limited, Lahore and 6 others, question which came up for consideration was whether by a written acknowledgement made by the principal debtor a fresh period of limitation was to be computed as far as the guarantors were concerned. It was held on review of the case-law by a learned Single Judge of this Court that the liabilities of the debtor and sureties though may arise out of the same transaction yet the same were distinct and the payment of interest by the principal debtor would not extend the period of limitation for institution of a suit for recovery of the debt from his surety. It was observed that even if the debt was deemed to be joint, the payment made by one of them (the debtor) would not extend the time against the other as would appear from the provisions contained in section 21(2) of the Limitation Act.
19. ' In the case of National Commercial Bank Ltd. v. Muhammad Tufail and another the principle was recognized that the term "guarantee" is a technical term and that the essence of guarantee is that guarantor agrees to discharge his liability when the principal debtor fails in his duty and that this presupposes the existence of a principal debtor and if there' never was any other person who can be described as the principal debtor there cannot be said to have been any guarantee either in its technical or ordinary meaning. It was also held that where no debt had been incurred, a guarantor could not be successfully sued in respect of the alleged debt which was not a debt at all.
5. The above are the cases which were relied upon by the learned counsel for the defendant No, 2 in support of the contentions raised by him. It would however be observed that the learned counsel same ignored the important fact that the liability of the defendant No, 2 would be governed by the terms and conditions of the letter of guarantee under which he bound himself to repay the amount to the plaintiff on the happening of the event or the contingency specified therein. The relevant condition governing the obligation of the defendant No, 2 has already been reproduced above, a perusal which would show that the defendant No, 2 agreed that the bank/plaintiff shall be at liberty to take steps to enforce payment of the amount due at any time after notice in writing demand payment had been posted to him i.e, the defendant No, 21 the grantor and that the default was made in payment for three days after the posting of the said notice.
20. ' Thus, it would be seen that the liability of the guarantor/the defendant No, 2 arose only when the default by non-payment continued for three days after the notice of demand in writing had been posted to him by the plaintiff. The case of United Bank Ltd. v. M/s. Interior Decoration & Design Association and another 1983 CLC 244 may be referred here. In that case the guarantor had bound himself for due payment to the plaintiff bank: "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, 50,000 (Rs, fifty thousand only) exclusive of interest and charges."
21. ' Relying on the terms of the letter of guarantee while observing that the suit against the defendant No, 1/the principal debtor on the facts of the case was not barred by time, as to the. liability of the guarantor it was held:- " under the terms of letter of guarantee (Exh. 5/2) the cause of action to enforce the liability against the defendant No, 2 could not be deemed to have arisen until the demand was made by the plaintiffs upon the guarantor/lhe defendant No, 2 and the payment was not made within the stipulated period of two days."
22. ' The suit on these observations was held to be within time against the guarantor as well.
6. The learned counsel for the plaintiff brought to my notice the judgment given in Suit No, 103/1950 (National Bank of Pakistan v. Trust Agencies and another), wherein a learned Judge of the erstwhile High Court of West Pakistan (Karachi Bench) while construing the letter of guarantee in that case after referring to the case Bishumber Dey v. Hungeheshur Mookerjee 4 Cal. L.R. 34 and Bradford Old Bank v. Sut Clife (1918) 2 K.B. 833, held:- "In all these cases the view taken was that the guarantor would be liable only after a demand was made on him."
23. ' The learned Judge also with approval cited the following passage from Rustomji on Limitation 1958 Edn. (p. 439):- "Each case turns on the constructi9n of the particular document then before the Court and if in fitct the parties intended that the demand should be a condition of the contract, effect will be given to their contract. Where a promote was made payable 3 months after notice, Held limitation did not begin to run until the expiration of 3 months after notice."
7. I may also with advantage refer here to the case of United Bank Limited v. Haji Bawa Co. Ltd and 3 others 1981 CLC 89. The letter of guarantee produced in that case specifically stipulated that the liability of the guarantor to repay the loan would arise only after two days of the making of the demand on him. The learned Court having found that the suit had been filed within three years after the service of notice of demand by the plaintiff upon the guarantor, repelled the contention raised that the time be computed for filing the suit against the guarantor from the date of the transaction of loan, and held:- "In my view the giving of notice in writing to defendant No, 2 was a condition precedent to giving a cause of action to the plaintiff. With the result the date of accrual of cause of action, in this case, will be two days after the notice, dated 7-2-1974 having been served by the plaintiff on the defendant."
8. The upshot of the above discussion is that the suit against the defendant No, 2 (the guarantor) filed on 7-8-1971, i.e, before the expiry of three years computed from three days of the posting of the notice of demand addressed to him, and the default in payment Navin continued as per letter of guarantee, is within time.
(a) "As to the defendant No, 1 (since deceased now represented by his legal representatives), it would be seen from the narration of the facts that the cash credit limit sanctioned on or about 9- 3-1967, was fully utilized by him and that on 13-3-1967 he executed utilized by him and that on 13-3- 1967 he executed promissory note (Exh. 7) for Rs, 50,000 in favour of the defendant No, 2 who endorsed it in favour of the plaintiff. It has also come on record that by his letter, dated 10-12-1968 (Exh. 7/4) the defendant No, 1 assured the plaintiff that he was making necessary arrangement for the early re-payment of the loan advanced to him against the hypothecation of buses and requested the plaintiff to allow him a period of three months in order to clear off the plaintiff's dues.
24. Subsequently by letter, dated 25-3-1969 (Exh. 7/3) the defendant No, 1 again promised to make the payment of the outstanding loan amount and wrote to the plaintiff:- ' I assure you that shortly I will place funds in the account to reduce the present liabilities against me.
25. ' I will request you not to proceed for legal action in the matter and I am confident that the Banks dues will be cleared. I hope that your higher authorities will also take a lenient view in the matter.
26. Yours faithfully, for Pervez Brothers Transport Company Sd/ P.A. Chowdhry Proprietor."
27. Thus, it would be seen that the defendant No, 1 not only acknowledged his liability but also promised in writing vide letters, dated 10-12-1968 (Exh: 7/4) and 25-3-1969 (Exh. 7/3) to pay to the plaintiff its dues towards the loan amount. The suit filed within threeB years of these letters is, therefore, within time against the defendant No, 1.
28. ' The issue No, 1 is accordingly answered in the negative.
29. ' REGARDING ISSUE NO, 2:-The learned counsel for defendant No, 2 under this issue argued that the suit against the defendant No, 2 is premature. It was contended that:-
(i) That the letter of demand, dated 23rd September, 1969, whereby the plaintiff ,called upon the defendant No, 2 to make the payment of the diies outstanding against the principal debtor, i.e, the defendant No, 1, has not been produced.
(ii) That plaintiff has prayed for a direction that the two buses hypothecated with it be sold and the sale-proceeds be applied towards the discharge of the decrial amount. The learned counsel accordingly submitted that the liability of the guarantor and the principal debtor being co- extensive, the defendant No, 2 cannot be held liable to pay any amount to the plaintiff until the buses are sold and any deficit is ascertained.
(iii) That the suit against the defendant No, 2 is not maintainable in law, as the plaintiff/the creditor was required to keep the security intact and hand it over to the guarantor, the defendant No, 2.
30. According to the counsel, the plaintiff is not in a position to do so and as such the defendant No, 2/the guarantor stands discharged.
(iv) That the suit is not maintainable against the defendant No, 2 as the guarantee given by him was without any condition.
31. ' I will take up the points raised as above and with the same in the order, in which the same have been
(i) As regards the ground No, (i), it would be relevant to reproduce here in below para. 6 of the plaint and the corresponding para. 6 of the written statement, filed by the defendant No: 2, in order to appreciate the argument advanced by the learned counsel for the said defendant In para. 6 of the plaint it was pleaded:- "That in confirmation of his liability as guarantor the defendant No, 2 executed the Letter of Guarantee according to which the defendant No, 2 becomes liable to pay the plaintiff's dues at any time after notice in writing demanding payment thereof is posted to him and default is made by him for three days after posting of such notice. Notice of demand was sent to the defendant No, 2 on or about the 23rd September, 1969 which was replied by the said defendant No, 2 by his letter, dated the 17th October, 1969."
32. ' In reply the defendant No, 2 in para. 6 of his written statement pleaded as follows:- "6. With reference to the contents of paragraph 6 of the plaint the execution by this defendant of the letter of guarantee, dated 30-4-1967 is not denied. It is, however, denied that this letter of guarantee has any legal effect or is legally enfordible against the defendant No,
2. The said guarantee is without consideration and of no effect whatsoever."
33. A perusal of the pleadings of the parties reproduced above would show that the execution of letter of guarantee (Exh. 6) is not denied. It is not denied that according to the said letter of guarantee, the defendant No, 2 becomes liable to pay the plaintiff's dues at any time after notice in writing demanding payment thereof is posted to the guarantor and default is made by him for 3 days, after posting of such notice.
34. ' The further admitted fact which emerges from the pleadings reproduced above is that a notice of demand was sent to the defendant No, 2 on or about 23rd September, 1969 by the plaintiff, to which the defendant No, 2 sent reply vide his letter, dated 17th October, 1969. It is correct as contended by the learned counsel for the defendant No, 2 that this letter, dated 23rd September, 1969 has not been produced in evidence but in law an admitted fact is not required to be proved. The defendant No, 2 not only in the written statement has not denied the receipt of plaintiff's letter, dated 23rd September, 1969 demanding the payment of the amount due to the plaintiff by the defendant No, 1 but in his reply, dated 17th October, 1969 (Exh. 5) wrote to the Manager of the plaintiff's P.E.C. H . S .
35. Branch, Karachi as follows:- "Sub: Your Lawyer Notice No, dated 23-9-1969. Dear Sir, ' Kindly refer to the above notice which I received a few days ago. I wish to see the original Guarantee given by me and request you to give me an opportunity given. As far as I can recollect the amount claimed by you is incorrect.
36. ' Till such time as I am shown the Guarantee I take no responsibility for any liability. As it is, your previous reference on the subject was also ambiguous. I shall eagerly await your reply. Yours faithfully Sd/ (RIFAT. A. HASNIE)"
37. In view of the above facts and admissions of the defendant No, 2, not only in his pleadings but also in correspondence, that notice of demand, dated 23-9-4969 was in fact served upon him and furtherD finding that no issue was pressed at the trial challenging the posting of notice of demand to the defendant No, 2 in terms of the letter of guarantee (Exh. 6), I have no hesitation in holding that there is no substance in the arguments advanced by the learned counsel for the defendant No, 2 that the suit is premature for the reason that the notice of demand has not been produced.
38. ' Before concluding I may also refer here to Order VIII, rule 5, C.P.C. which expressly lays down that every allegation of fact made in the plaint if not denied specifically or by necessary implication or stated to be not admitted in the pleadings of the defendants shall be taken to be admitted.
39. ' Reference may now be made to section 58 of the Evidence Act which also lays down that rule that no fact needs be proved in any proceeding which the parties thereto either admitted or are deemed to have admitted by any rule of pleadings. In the commentary on the Evidence Act by Munir under section 58, the learned author has summarised the principle as follows:- " Issues bf fact arise only when a material proposition of fact is affirmed by one party and denied by the other. Therefore, where an allegation of fact is made by one party, and this allegation is either admitted or is not denied by the the other, no issue as to that fact would arise; and, on the principle that what is admitted need not be proved, no question of the proof of that fact would arise."
40. (The underlines liave been made by me).
41. ' For the reasons stated above the contention raised by the learned counsel for the defendant No, 2 cannot be accepted.
(ii) As regards the points Nos. (ii) and reliance was placed by the learned counsel on section 141 of the Contract Act and the case of Lallan Prasad v. Rehmat Ali and another AIR 1967 SC 1322. It is not necessary to discuss the question raised by the learned counsel at length as the very foundation on which the argument has been based does not exist. Section 141 of the Contract Act deals with surety's right to benefit of creditor's securities and provides that a surety is entitled to the benefit of every security which the creditors had against the principal debtor at the time when the contract of surety ship is entered into, whether the surety knows of the existence of such security or not and if the creditor loses or without the consent of the surety parts with such surety the surety is discharged to the extent of the value of the surety. Neither any such case has been made out by the defendant No, 2 nor any facts have been brought on record to established that the liability of the guarantor/the defendant No, 2 which is co- extensive with that of the defendant No, 1, in any manner stands discharged. Neither any plea has been raised in the pleadings nor the question now raised is covered by any of the issues framed in the. suit.
42. ' In the case of Lallan Prasad v. Rehmat Ali and another (ibid), the Supreme Court of India was dealing with the case of pledge of goods in the light of the law contained in sections 172 to 176 of the Contract Act. Admittedly in the present case no goods were ever pledged by the defendants with the plaintiff. The case cited is irrelevant.
(iii) As regards the fourth point raised that the suit is not maintainable as the guarantee is without consideration, it may be observed that 'this argument is not available to the learned counsel firstly, for the reason that no such issue has been raised and secondly, the letter of guarantee, dated 30th April, 1967 (Exh. 6), which was executed by the defendant No, 2 expressly provides that the said guarantee was given by the defendant No, 2" in consideration of the National Bank of Pakistan having agreed at his request to grant to M/s. Pervez Brothers Transport Company (defendant No, 1) accommodation by way of cash credit to the extent of Rs, 50,000 " In view of the express terms of the above letter of guarantee and further in view of the admission of the defendant No, 2 in para. 2 of the written statement that he offered guarantee in respect of one loan transaction only the contention raised by the learned counsel has no substance.
43. ' An argument was also raised that the letter of guarantee is no guarantee in the eyes of the law as the contract of guarantee was executed only by the defendant No, 2 and not by the other two parties, namely, the creditor and the principal debtor. The learned counsel in this connection made reference to section 176 of the Contract Act. This argument of the learned counsel however has no bearing on the liability of the defendant No, 2 under letter of guarantee executed by him. The said letter of guarantee even otherwise can be treated as a contract of indemnity under which on the default having been committed after the service of notice of demand is the liability of the defendant No, 2 to pay the amount due matured and the plaintiff in the circumstances, became entitled to sue him along with the principal debtor for recovery of the amount due.
12. Regarding Issue No,
3. In view of the discussion as above, the suit is decreed for Rs, 72,091.38 together with interest thereon at the rate of 8$ per annum with monthly rests from the date of the suit till payment. The defendants shall also pay costs of the suit to the plaintiff.
44. ' It is clarified that the defendant No, 1 having died during the pendency of the suit the liability' of his legal representatives Baby Afshan and Baby Sadie (minors represented by the Nazir of this Court as Guardian Ad litem) and MRs, Azra Parvez (widow) shall be only to the extent as provided under the Code of Civil Procedure, 1908.