P L D 1989 Karachi 168 (PLP)

Dear Sirs, Bank Guarantee No.GLM 25/232 for Rs.14,50,000 (Rupees fourteen lacs fifty thousand only)‑ A/c. M/s.Automotive Equipment Mfg. Co. Limited. WHEREAS National Motors Limited have entered into an agreement dated 4th October, 1973 with Automotive Equipment Mfg. Co. Ltd. , 34/35, New Forbes Building, Dunolly Road, Karachi. In reference with the said agreement the National Motors Limited have placed an order vide their purchase order No.36942 ‑ with part Nos. WHEREAS Messrs Automotive Equipment Mfg. Co,Ltd. have signed the agreement and agreed vide their letter No.759/ AEMCO/73, dated 26th July, 1973 to deliver the same in accordance with the delivery schedule stated in the agreement. WHEREAS Messrs National Motors have paid a sum of Rs.14,50,000 (Rupees fourteen lacs fifty thousands only) as advance against the said Order No.36942, dated 5th October, 1973. The advance is recoverable in instalments from the deliveries to be made to the National Motors Limited. We, do hereby guarantee to pay a sum of Rs.14,50,000 (Rupees fourteen lacs fifty thousands only) or unrecovered part thereof to National Motors Limited on demand and without recourse to Messrs Automotive Equipment Mfg. Co.Ltd. with interest at the rate of 11$ per annum. 3rd October, 1973. (Sd.) Karachi. Yours faithfully The letter of guarantee refers to an agreement dated 4‑10‑1973 which is said to have been entered into between Aemco and the plaintiff. According to this agreement (which is not on record) Aemco was required to furnish Bank Guarantee which was to remain in force for a period of fifteen months. Learned counsels for the defendant Bank states that since the Bank Guarantee furnished by the defendant was in pursuance of this agreement, the contents of letter of guarantee cannot be read in isolation and therefore the liability of the defendant is restricted to a period of 15 months only and not extended to any unspecified period of time when the plaintiff makes demand. I do not find anywhere in the letter of guarantee any reference to the period of 15 months. On the contrary, the operative part of the bank guarantee speaks of the guaranteed money payable on demand. Mr.Sadruddin Hudda, advocate frankly concedes that although the bank guarantee was executed by the defendant on 3‑10‑1973 the agreement dated 4‑10‑1973 obviously was not in existence. He however, submits that the understanding between Aemco who approached the defendant for Bank guarantee in favour of the plaintiff was on the basis of the proposed agreement to be executed between the plaintiff and Aemco the next day. According to him, agreement dated 4‑10‑1973, executed between the plaintiff and Aemco on the basis of which bank guarantee dated 3‑10‑1973 was given supersedes the latter and therefore alters it as payable within a period of 15 months instead of on demand as alleged. He has referred to A I R 1930 Ca1.17; A I R 1927 P. Council 272; A I R 1943 Bombay 243; AIR 1928 Bombay 42 and A I R 1965 S C 1856 to show how, an original contract was varied subsequently. In Carr Lazarus Phillips and others v . Alfred Ernest Mitchell and others A I R 1930 Cal. 17 the parties had intended that the guarantee should only attach to the balance of the debt, if any, outstanding after the mortgaged properties had been sold and these terms were clearly spelled out from the letter of guarantee. It was therefore held:‑ "that construing the terms of the guarantee as a whole the liability under the guarantee did not attach until the creditor had pursued their remedies under the mortgage and the proceeds of the sale were proved to be insufficient to satisfy G's outstanding indebtedness to S in respect of the loan." This decision has evidently no application to the present case. Similarly in C . Chattanatha Karayalar v . The Central Bank of India Ltd. and others A I R 1965 S C 1856 the creditor was also a guarantor and therefore the facts and law of the case are distinguishable from the present case. Mr.Sadruddin Hudda, advocate then submits that since the letter of guarantee refers to the agreement entered into between the plaintiff and Aemco wherein guarantee was to remain in force for fifteen months only, the benefit of ambiguity should be given to the surety. According to Mr.Sadruddin Hudda, advocate, P.W.1 in his cross‑examination has clearly stated that the original period of contract between the defendant Aemco was extended for about 4 or 5 years and as such varied thereby relieving the defendant as guarantor under sections 134 and 135 of Contract Act. Mr.Sadruddin Hudda, learned counsel for the defendant has referred to me 1981 CLC 847, a Division Bench decision of this Court in which the surety had not agreed to extension of time to repay loan by creditor to debtor, therefore it was held that under the circumstances the surety stands discharged. This is not the present case and therefore the ruling is not applicable. Mr.Sadruddin Hudda, advocate then refers to me Pannap Derichand and others v. Basappa Virappa Bellary and others, A I R (30) 1940 Bombay 243, in which it was held that "a surety bond should be strictly construed in favour of the Surety (and) if there is any ambiguity in the language of the bond it should be construed in favour of the surety". This decision too will not help the defendant as the defendant but rather support the case of the plaintiff as it was held:‑ "It is a question of intention in each case in what sense the words were understood by the parties to the bond." In the present case there is however no ambiguity. The letter of guarantee merely refers to an agreement between the plaintiff and B Aemco but in most unequivocal terms states that the guarantee is payable on demand. The other cases cited by Mr.Sadruddin Hudda, advocate, are also not applicable in the present case. It may be stated here that the letter of guarantee is and independent document and clearly stipulates payment of the guaranteed amount on demand which expression the defendant as banker fully understand. It gives rise to independent cause of action to the plaintiff without recourse to M/s.Aemco and, therefore, any suggestion that the letter of guarantee executed by the defendant must be read and interpreted together with the agreement dated 4‑10‑1987 (which is not on record) was a fallacy in law. I am in full agreement with Mr. Z.U.Ahmed, Advocate, that the letter of guarantee is free from ambiguity moreso because of agreement dated 4‑10‑1973, between the plaintiff and Aemco which has been referred to in the letter of guarantee dated 3‑10‑1973 (Ex.6/1) was not in existence on the date of execution of the letter of guarantee. Learned counsel for the defendant has relied upon an agreement between the plaintiff and Aemco which the defendant themselves have not cared to bring on' record. Even otherwise the defendant have not adduced any other satisfactory evidence to rebut that the guarantee furnished by them was not payable on demand. Similarly the defendant's advocate is not able to show as to how on facts on record sections 134 and 135 may be invoked when the letter of guarantee also provides payment of guarantee amount by the defendant on demand by the plaintiff without any recourse to Aemco. Since the burden of proof that the original Bank Guarantee furnished by the defendant stands varied in terms of agreement dated 4‑10‑1973 was upon the defendant, which the defendant have failed to discharge, I hold that the Bank Guarantee was payable on demand. ISSUE N0.1. The next objection raised by Mr.Sadruddin Hudda advocate, is that even if the bank guarantee was payable on demand, the suit is hopelessly time‑barred as the same was executed on 3‑10‑1973, whereas the suit was instituted by the plaintiff on 1‑4‑1980. Mr.Z.U.Ahmed, learned counsel for the plaintiff, contended that the bank guarantee (Ex.6/1) gives no time limit for encashment thereof and on face of it, is payable on demand. He referred to me the operative part which is as follows:‑ "We, do hereby guarantee to pay a sum of Rs.14,50,000 (Rupees fourteen lacs fifty thousands only) or unrecovered part thereof to National Motors Limited on demand and without recourse to Messrs Automotive‑ Equipment Mfg.Co.Ltd. with interest at the rate of 118 per annum." Mr.Z.U.Ahmed, learned counsel for the plaintiff has referred to me that immediately upon termination of contract, the plaintiff sent a notice dated 11‑10‑1978 (Ex.6/3) addressed to the defendant calling upon them to pay a sum of Rs.14,50,

000. In reply to the notice, the defendant although claimed certain adjustments vide Ex. 614, never raised any objection as to variation of contract or the bank guarantee being for fifteen months only. Besides, the defendant Bank themselves have instituted a suit against Aemco for Rs.14,50,000 on account of liability incurred by them under the bank guarantee it the Court of Senior Civil Judge, Sialkot, which suit has been decreed and execution application filed against M/s. Aemco. They are, therefore, estopped from taking any inconsistent plea now. Reference is als( made by Mr.Z.U.Ahmed, advocate to certified copies of decree judgment and plaint etc. (Exh. 6/15 to 6/18) which have been placed on record by the plaintiff and which stand irrebutted by the defendant. According to Mr.Z. U.Ahmed, advocate, the suit clearly falls under Article 65 of Limitation Act which prescribes three years time for compensation for breach of a promise to do anything at a specified time or upon the happening of a specified contingency beginning from the happening of the contingency. Time according started running when the plaintiff made demand in terms of letter of guarantee vide their legal notice, dated 11‑10‑1978. Mr.Z.U.Ahmed, advocate referred to me DISHUMBER DEY PODDAR V. HUNGSHESHUR MODKERJEE 1879, 4 C L R 34 in which it was held as under: "A, verbally became surety upon a bond executed by B for repayment, in May 1872 to the plaintiff, of certain advances, promising "if B does not pay eventually ('shesh projunto ) I will." Default was made, and in April, 1878 the plaintiff filed a suit against both A and B, the suit being clearly barred as against the latter. Held, that the words "shesh projunto" could not be taken as limited to the time specified in the bond, and that the lower Court, in order to determine whether the suit was barred against A, must find upon the evidence when a demand was made upon him for payment and they apply Art.65 of Act XV of 1877, Sch II." Similar view was held in BRADFORD OLD BANK LIMITED V SUTCLIFFE (1918) 2 KB 833 as under:‑ "... that the plaintiffs claim was not barred by the Statute of Limitations, as no cause of action arose against the surety until demand has been made by the plaintiffs and no demand was made till 1912." The Patna High Court also held in "THE BENARES BANK LTD V. Babu MASUDAN LAL 162 IC 178 (Pat) as under:‑ "that the amount payable under the guarantee on demand shall become due on the date of demand and time will start running from the date of demand." In the present case also the guaranteed amount or such unrecovered part was payable by the defendant to the plaintiff on demand without recourse to M/s. Aemco with interest at the rate of 11% per annum. I therefore, agree with Mr.Z.U.Ahmed, learned counsel for the plaintiff that Article 65 of Limitation Act is applicable and time will start running for the plaintiff from the date of the first demand viz. 11‑10‑1978 and hence the suit is within time. As a result, I decree the suit against defendant for Rs.14,50,000 together with cost and interest as prayed. A. A. IN‑1 44/K Suit decreed