Decided on November 08,1963



- (1.) This appeal arises out of a suit brought by the 1st respondent, Andhra Bank Ltd., to recover from the 2nd respondent Adusumilli Kutumbarao and the appellant, Parvataneni Venkata Brahmarao, a sum of Rs. 7,966-72 nP. due on the overdraft account of the and respondent with the 1st respondent. The claim against the appellant was based on tie fact that in consideration of the 1st respondent agreeing to give overdraft facility of Rs. 7,500.00 to the and respondent, the appellant jointly with the 2nd res. pondent executed a promissory note for the said Rs. 7,5oo/. Exhibit A. 2 dated 5-5-1958, and gave Exhibit A.2 by their letter, Exhibit A.1 dated 5-5-1958, as continuing security for the repayment of any balance due on the overdraft. The appellants material defence was that he was only a surety for the 2nd respondent that on 20-8-1958, without his knowledge and consent, the 1st respondent took an equitable mortgage of all the properties of the 2nd respondent for another debt and that as his eventual remedy against the 2nd respondent was thereby impaired, he stood discharged under Section 139 of the Indian Contract Act. The learned Subordinate Judge upon a construction of Exhibits A.1 and A.2, rejected the 1st respondents contention that both the 2nd respondent and the appellant were co-obligants or principal debtors. He agreed with the appellants contention that the appellant was only a surety for the and respondent. But on the ground that the facts were on all fours with the decision in Mahalinga Aiyar v. Union Bank, Kumbakonam, AIR 1943 Mad 216, he held that the appellants liability was not wiped out by the equitable mortgage. He passed a decree against both the appellant and the 2nd respondent for the amount of the debt as scaled down under the Madras Agriculturists Relief Act (Act IV of 1938). Against this decree, the appellant, who was the 2nd defendant in the lower Court has preferred the appeal.
(2.) The only questions that arise for determination in this appeal are: (1) Whether both the appellant and the and respondent were principal debtors or whether the appellant was only a surety within the meaning of Section 126 of the Indian Contract Act; and (2) Whether the equitable mortgage executed by the 2nd respondent in favour of the 1st respondent discharged the appellant under Section 139 of the Indian Contract Act?
(3.) On the first question, it is true that in the promissory note. Exhibit A.2 dated 5-5-1958 executed by the appellant and the 2nd respondent, there was an unconditional undertaking given by them to pay to the 1st respondent a sum of Rs. 7,500.00 with interest at 9 per cent per annum. But they jointly executed at the same time a letter (Exhibit A-1) addressed to the 1st respondent in the following terms : "We beg to enclose an On-Demand Promissory Note for Rs. 7,500.00- (Rupees Seven thousand five hundred only) signed by us which is given, to you as security for the re-payment of any overdraft which is at present outstanding in the name of Adusumilli Kutumba Rao and also for the repayment of any overdraft to the extent of Rs. 7,5oo.00 (Rupees seven thousand five hundred), which he may avail of hereafter and the said pronote is to be a security to you for the repayment of the ultimate balance or sum remaining unpaid on the overdraft..........." The word re-payment" obviously means payment check by or on behalf of the person, who had received the original payment. Admittedly the overdraft account was only in the name of the and respondent. The appellants name was not joined in it and therefore the 2nd respondent alone was the debtor there under liable for its repayment. The expressions "is given to you as security" and "is to be a security" were obviously used in Exhibit A.1 to mean that the obligation under Exhibit A.2 was to arise only in the case of default by the and respondent, Thus the obligation of unconditional payment undertaken the Exhibit A. 2, was reduced by the terms of Exhibit A.1 to an obligation to pay only by way of guaranteeing the stipulation in Exhibit A.1 that both the executants remained jointly and severally liable to pay the amount that might, be due on the overdraft account. On a construction of Exhibit A.1 it appears to me that in spite of the unconditional undertaking to pay in Exhibit A.2, the effect of Exhibit A.1 was to make the appellant only a surety for the 2nd respondent, who alone was the principal debtor.;

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