- (1.) This appeal by certificate is brought on behalf of the 3rd defendant against the judgment and decree of the High Court of Kerala dated July 18, 1962 in A. S. No. 561 of 1961 which affirmed the judgment and decree of the Court of the Subordinate Judge of Alleppey in O. S. No. 114 of 1957.
(2.) By a resolution Ex. BD dated November 25, 1946 the Board of Directors of the 1st defendant Company authorised the 2nd defendant to obtain financial accommodation from the plaintiff-bank to the extent of Rs. 15 lakhs under different kinds of loans. Pursuant to this resolution the Company by its letter Ex. DE dated November 26, 1946 asked for accommodation for Rs. 1 lakh under clean overdraft, for Rs. 4 lakhs under open loan and for S. 10 lakhs under out agency and key loans. On November 26, 1946 all the three defendants executed a promissory note Ex. B in favour of the plaintiff-bank for a sum of Rs. 4 lakhs. The promissory note was sent to the plaintiff-bank along with a letter Ex. A styled letter of continuity dated November 26, 1946. Ex. A reads as follows : "Alleppey, 26th November, 1946. The Agent, The Central Bank of India Limited, Alleppey. Dear Sir, We beg to enclose an on demand pro note p. Rs. 4,00,000/ - (Rupees Four lacs only) singed by us which is given to you as security for the repayment of any overdraft which is at present outstanding in our name and also for the repayment of any overdraft to the extent of Rs. 4,00,000 / - (Rupees four lacs only) which we may avail of hereafter and the said Pro-Note is to be a security to you for the repayment of the ultimate balance of sum remaining unpaid on the overdraft and we are to remain liable to the Pro-Note notwithstanding the fact that by payments made into the account of the over-draft from time to time the overdraft may from time to time be reduced or extinguished or even that the balance of the said accounts may be at credit. Yours faithfully, for CASHEW Products Corporation Ltd. For General Agencies Ltd., (Respondent 2) Sd/- P. S. George Managing Director, Managing Agents Sd/- P. S. George, (Respondent 3) Sd / - S. Chattanatha Karayalar (Appellant), Exhibit B, states : "Br. Rs. 4,00,000 Alleppey, 26th November 1946 On Demand we, the Cashew Products Corporation Ltd., S. Chattanatha Karayalar and P. S. George jointly and severally promise to pay The Central Bank of India Limited or order the sum of British Rs. Four Lacs only together with interest on such sum from this date at the rate of two per cent over the Reserve Bank of India rate with a minimum of Five per cent per annum with quarterly rests for value received. For Cashew Products Corporation Ltd., For General Agencies Ltd. Sd/- P. S. George (Respondent 2) Managing Director, Managing Agents. Sd/- P. S. George (Respondent No. 3) Sd / - S. Chattanatha Karayalar (Appellant)." On the same day, defendant No. 1 as "Borrower" executed in favour of the plaintiff - Bank Ex.G, a deed of hypothecation of its stocks of goods for securing the Demand Cash credit. Ex. G is to the following effect : "Hypothecation of goods to secure Demand Cash Credit. No.- Amount No. 4,00,000/ Name. The Cashew Products Corporation, Limited, Quilon. The Central Bank of India, Limited (hereinafter called 'the Bank') having at the request of the Cashew Products Corporation Ltd., Quilon, (hereinafter called 'the Borrowers') opened or agreed to open in the Books of the Bank at Alleppey a Cash Credit account to the extent of Rs. Four lacs only with the Borrowers to remain in force until closed by the Bank and to be secured by goods to be hypothecated with the Bank it is hereby agreed between the Bank and the Borrowers (the Borrowers agreeing jointly and severally) as follows. 14. The Borrowers agree to accept as conclusive proof of the correctness of any sum claimed to be due from them to the Bank under this agreement a statement of account made out from the books of the Bank and signed by the Accountant or other duly authorised officer of the Bank without the production of any other voucher, document or paper. 15. That this Agreement is to operate as a security for the balance from time to time due to the Bank and also for the ultimate balance to become due to on the said Cash Credit Account and the said account is not to be considered to be closed for the purpose of this security and the security of hypothecated goods is not to be considered exhausted by reason of the said Cash Credit Account being brought to credit at any time or from time to time or of its being drawn upon to the full extent of said sum of Rs. 4,00,000/- if afterwards re-opened by a payment to credit. In witness whereof the Borrowers have hereunto set their hands this Twenty sixth day of November the Christian Year one thousand nine hundred and fortysix. For Cashew Products Corporation Ltd., For General Agencies Ltd.Sd/- Managing Director, Managing Agents, Sd/ Schedule of goods referred to in the foregoing Instrument, Stocks of cashewnuts, cashew kernals, tin plates, Hoop Iron and other packing materials stored and or to be stored in the factories at Kochuplamood, Chathanoor, Ithikara, Kythakuzhi, Paripalli, Palayamkunnu and any other factories in which we may be storing from time to time and at Cochin awaiting shipment. For Cashew Products Corporation Ltd; For General Agencies Ltd; Sd/ Managing Director, Managing Agents." On the basis of these documents the plaintiff-bank opened an overdraft account in the name of the defendant No. 1. On December 21, 1949, the three documents-Exs. A, B and G were renewed in identical terms by Exs. C, D and F. On January 1, 1950 a sum of Rs. 3,24,645 /12/2 became due to the plaintiff-bank and on that date a demand notice-Ex. 'O' was sent by the plaintiff-bank for repayment of the amount. A second notice-Ex. L was sent by the plaintiff-bank on April 26, 1950. On September 8, 1950 the plaintiff-Bank brought a suit for the recovery of Rs. 2,86,292/11/11 from all the three defendants. The suit was contested by all the defendants. The case of defendant No. 1 was that it had sustained loss on account of sudden termination of credit facilities by the plaintiff-bank and the amount of loss sustained should be set off against the claim of the plaintiff-bank. Defendants Nos. 2 and 3 pleaded that they had executed the promissory notes only as a surety for the 1st defendant and that they are not co-obligants. It was further alleged that the plaintiff-bank had granted loan to the 1st defendant in other form such as Out Agency loans against goods which were security for the open loan. It was said that the plaintiff-bank had made adjustments in the open loan account and in the clean over-draft account by debiting and correspondingly crediting in other accounts without the consent of defendants 2 and 3. The plaintiff-bank had also allowed defendant No. 1 to over-draw freely in the clean overdraft and open loan accounts far beyond the limited agreed upon. It was alleged that the plaintiff-bank had converted secured loans into simple loans by releasing goods covered by Bills of Lading against trust receipts and had thereby deliberately frittered away such securities. They contended that they were discharged from obligation as sureties to the contract for these reasons. Upon these rival contentions the learned Subordinate Judge of Alleppey took the view that defendants 2 and 3 were not merely sureties but they were co-obligants, because they had executed the promissory notes,-Exs. B and D. In view of this finding the learned Subordinate Judge considered it unnecessary to go into the question whether defendant No. 3 was absolved from his liability "for all or any reasons set forth in para 5 of the Consolidated Written Statement filed by him". Against the judgment and decree of learned Subordinate Judge, Alleppey defendant No. 3 presented an appeal in the High Court of Kerala under A. S. 561 of 1961. Defendants 1 and 2 did not appeal. The appeal was dismissed by the High Court of Kerala on July 12, 1962. It was held by the High Court that defendant No. 3 was a co-obligant and not a surety. On July 16, 1962 defendant No. 3 filed C.M. P. No. 5032 of 1962 praying that the argument of the appellant with regard to his liability as co-obligant may be expressly dealt with in the judgment of the High Court and complaining that the appellant would be seriously prejudiced if the omission was allowed to remain. Thereupon the learned Judges of the High Court wrote a supplementary judgment on July 18, 1962 rejecting the further arguments addressed on behalf of the appellant.
(3.) The first question presented for determination in this case is whether the status of the 3rd defendant in regard to the transaction of overdraft account is that of a surety or of a co-obligant. It was argued by Mr. Desai on behalf of the appellant that the High Court has misconstrued the contents of Exs. A and B in holding that the 3rd defendant has undertaken the liability as a co-obligant. It was submitted that there was an integrated transaction constituted by the various documents-Ext. A, B and G executed between the parties on the same day and the legal effect of the documents was to confer on the 3rd defendant the status of a surety and not of a co-obligant. In our opinion, the argument put forward on behalf of the appellant is well founded and must be accepted as correct. It is true that in the promissory note-Ex. B all the three defendants have "jointly and severally promised to pay the Central Bank of India Ltd. or order a sum of Rs. 4 lakhs only together with interest on such sum from this date", but the transaction between the parties is contained not merely in the promissory note-Ex. B. - but also in the the letter of continuity dated November 26, 1946-Ex. A which was sent by the defendants to the plaintiff-bank along with promissory note- Ex. B on the same date. There is another document executed by defendant No. 1 on November 26, 1946-Ex. G-Hypothecation agreement. The principle is well established that if the transaction is contained in more than one document between the same parties they must be read and interpreted together and they have the same legal effect for all purposes as if they are one document. In Manks v. Whiteley, 1912-1 Ch 735 at p. 754, Moulton, L. J. stated : Where several deeds form part of one transaction and are contemporaneously executed they have the same effect for all purposes such as are relevant to this case as if they were one deed. Each is executed on the faith of all the other being executed also and is intended to speak only as part of the one transaction, and if one is seeking to make equities apply to the parties they must be equities arising out of the transaction as a whole." It should be noted in the present case that the promissory note-Ex. B- was enclosed by the defendants along with the letter of continuity -Ex. A before sending it to the plaintiff-bank. In the letter-Ex. A it is clearly stated that the promissory note Ex. B was given to the plaintiff-bank "as security for the repayment of any overdraft to the extent of Rs. 4,00,000/ -". It is further stated in Ex. A, that "the said promissory note is to be a security to you for the repayment of the ultimate balance or sum remaining unpaid on the overdraft." In the hypothecation agreement-Ex.G it is stated that the plaintiff-bank has agreed to open a Cash Credit account to the extent of Rs. 4 lakhs at the request of the Cashew Products Corporation ltd., Quilon. According to para 18 of the hypothecation agreement it operates as a security for the balance due to the plaintiff-bank on the Cash Credit account. Para 12 of the hypothecation agreement states that if the net sum realised be insufficient to cover the balance due to the plaintiff-bank, defendant No. 1 should pay the balance of the account on production of a statement of account made out from the books of the bank as provided in the 14th Clause. Under this Clause defendant No. 1 agreed to accept as conclusive proof of the correctness of any sum claimed to be due from it to the bank a statement of account made out from the books of the Bank and signed by the Accountant or other duly authorised officer of the Bank without the production of any other document. If the language of the promissory note-Ex. B it is manifest that the status of the 3rd defendant with regard to the transaction was that of a surety and not of a co-obligant. This conclusion is supported by letters - Exs. AF dated November 27, 1947. AM dated December 17, 1947 in which the Chief Agent of the plaintiff-bank has addressed defendant No. 3 as the "guarantor". There are similar letters of the plaintiff-bank, namely, Exs. CE dated December 28, 1947, GG dated January 13, 1948, AS dated February 23, 1949, V dated October 21, 1949, III dated December 16, 1949, IV dated January 12, 1950 and 'O' dated March 29, 1950 in which defendant No. 3 is referred to either as a "guarantor" or as having furnished a guarantee for the loan. Our concluded opinion, therefore, is that the status of the 3rd defendant with regard to the overdraft account was that of a surety and not of co-obligant and the finding of the High Court on this issue is not correct.;