Judgment :- 1. The case of the plaintiff in the suit, which was filed in forma pauperis , is briefly as follows:— The plaintiff had been dealing in iron and steel under the name and style of “Sri Vijay Steels” at Tiruchirappali. The first defendant, as proprietor of Ganga Industries, placed orders for supply of iron materials with the plaintiff and the plaintiff also supplied materials in pursuance of these orders. The supply of goods made to the first defendant was on credit basis. The second defendant, who is a relation of the first defendant, stood guarantee for the supply of materials and for the payment of its value. All the supplies made to the first defendant and the payments made by him have been entered in the accounts duly maintained by the plaintiff in the usual course of his business. A sum of Rs. 11,077-23 P. was the balance due from the first defendant for his dealings with the plaintiff during the period from 10th December, 1975 to 5th May, 1976. The second defendant as guarantor issued cheques to the plaintiff drawn on the Bank of Madura Limited in favour of the plaintiff for Rs. 4,000 and Rs. 3,000 on 10th February, 1976 and 13th February, 1976 respectively, but those cheques were returned when presented for collection. The plaintiff issued a telegram to the defendants on 6th March, 1976 demanding the amount due to him and he again issued a notice on 1st April, 1976 to the defendants. The first defendant has acknowledged his liability and assured to pay the balance amount shortly by his letter dated 17th June, 1976. But the second defendant has caused a reply notice containing false allegations and denying his liability to pay the suit amount to the plaintiff. The defendants are liable to pay the balance of the amount due to the plaintiff with interest at 15 per cent per annum as per trade usage and custom. The defendants are assessed to income-tax, sales-tax, etc. and as such, they are not entitled to the benefits of Tamil Nadu Act IV of 1938 or any other debt relief Act. 2. The defendants are assessed to income-tax, sales-tax, etc. and as such, they are not entitled to the benefits of Tamil Nadu Act IV of 1938 or any other debt relief Act. 2. The first defendant remained ex parte in the lower Court, but the second defendant contested the suit by filing his written statement, inter alia contending that he was not aware of the dealings said to have taken place between the plaintiff and the first defendant and also the issue of cheques by the first defendant towards the value of the goods supplied by the plaintiff. He was not interested in the dealings of the first defendant and he never stood guarantor for the first defendant. He is an unnecessary party to the suit and the plaintiff has impleaded him only to coerce and blackmail him with a view to get some money if possible. He placed orders with the plaintiff for supply of 4 tons of M.S. Rods by about the last week of January 1976 and issued two post-dated cheques towards the value of the goods. It was agreed between him and the plaintiff that M.S. Iron Rods should be supplied by the plaintiff to the second defendant-appellant before 7th February, 1976, but the plaintiff failed to supply those goods as undertaken and hence the appellant cancelled the orders placed with the plaintiff, by telephone and requested him to return the two cheques issued by him. The plaintiff also agreed; but contrary to his undertaking, he presented the two cheques for payment while no amount was actually due to him. Those two cheques were never issued by the appellant as guarantor for the first defendant. The appellant had never received any telegram from the plaintiff, and had given a suitable reply on 6th April, 1976 for the notice issued by the plaintiff on 1st April, 1976. He prayed for the suit being dismissed with exemplary costs of Rs. 1,000 to him. 3. The trial Court framed the following issues for trial:— 1. Whether the suit dealings between the plaintiff and the 1st defendant as alleged by the plaintiff is true? 2. Whether the second defendant stood as a guarantor for the 1st defendant for the amounts due to the plaintiff from the first defendant? 3. 1,000 to him. 3. The trial Court framed the following issues for trial:— 1. Whether the suit dealings between the plaintiff and the 1st defendant as alleged by the plaintiff is true? 2. Whether the second defendant stood as a guarantor for the 1st defendant for the amounts due to the plaintiff from the first defendant? 3. Whether the cheques dated 10th February, 1976 and 13th February, 1976 issued by the second defendant to the plaintiff relate to the dealings between the plaintiff and the first defendant? 4. Is the second defendant liable to pay the suit amount to the plaintiff? 5. Is the second defendant an unnecessary party to the suit? 6. Is the plaintiff liable to pay Rs. 1,000 as exemplary costs under S. 35-A, C.P.C., to the second defendant? and 7. To what relief is the plaintiff entitled? During the trial of the suit, the plaintiff examined himself as P.W. 1 and filed the counterfoils of credit bills (Exhibits A1 to A4), the ledgers maintained by him for the years 1975-1976 and 1976-1977 (Exhibits A5 and A6), two cheques for Rs. 4,000 and Rs. 3,000 issued by the second defendant (appellant) dated 10th February, 1976 and 13th February, 1976 (Exhibits A7 and A8), copy of the telegram sent by him to the second defendant (Exhibit A9) copy of lawyers notice sent by his counsel for the defendants (Exhibit A10), an Inland letter sent by the appellant to him (Exhibit A11), the reply notice dated 6th April, 1976 issued to his counsel by the appellants counsel (Exhibit A12), and the original credit bills for Rs. 4,370, Rs. 3,403, Rs. 6773-24 P. and Rs. 2,9???0 issued to Ganga Industries and the first defendant, in support of his case. The second defendant-appellant, who contested the suit, examined himself as D.W. 1 in support of his case, but did not file any documentary evidence. 4. On a consideration of the evidence, oral and documentary, the lower Court came to the conclusion under Issue No. 1 that the evidence of P.W. 1, coupled with the documents, Exhibits A1 to A6 and A13 to A16, established beyond doubt the liability of the first defendant for the suit dealings he had with the plaintiff. 4. On a consideration of the evidence, oral and documentary, the lower Court came to the conclusion under Issue No. 1 that the evidence of P.W. 1, coupled with the documents, Exhibits A1 to A6 and A13 to A16, established beyond doubt the liability of the first defendant for the suit dealings he had with the plaintiff. Under Issues 2 to 5, the Court below discussed the same in paragraphs 6 to 8 of its judgment and came to the conclusion that the circumstances of the case clearly probabilised the case of the plaintiff that the second defendant stood as guarantor for the dealings of the first defendant with the plaintiff. The Court below accepted the evidence of the plaintiff as P.W. 1 with regard to the supply of goods by the plaintiff to the first defendant on credit basis. Thus, believing the evidence of P.W. 1, the Court below also held that the second defendant as guarantor was liable to the suit claim of the plaintiff. In view of the findings on all the issues, the Court below decreed the plaintiffs suit as prayed for with costs and directed the second defendant-appellant to pay the court-fee due to the Government. 5. Aggrieved by the above decision of the lower Court, the second defendant has come up in appeal. Learned counsel for the appellant (second defendant) in the memorandum of appeal contends that the lower Court has not properly appreciated the evidence on record and as such, the decreeing of the suit by the Court below is not in accordance with law. It is also pointed out that the ratio decidendi in A.I.R. 1969 Andhra Pradesh, 294, has no application to the facts of the case. It is contended on behalf of the appellant that the lower Court ought to have accepted the evidence put forward and by believing the evidence adduced by the second defendant, it ought to have held that no contract of guarantee had been made out and dismissed the suit as against the second defendant, finding all the issues in his favour. 6. The term, ‘guarantee’ according to Strouds Judicial Dictionary (Vol. 2) (Third Edition, 1952), means as follows:— “(1) A guarantee is a collateral engagement to answer for the debt, default or miscarriage of another person (De Colyar on Guarantees; See Another). 6. The term, ‘guarantee’ according to Strouds Judicial Dictionary (Vol. 2) (Third Edition, 1952), means as follows:— “(1) A guarantee is a collateral engagement to answer for the debt, default or miscarriage of another person (De Colyar on Guarantees; See Another). It has been said that ‘a guarantee is a promise to another as creditor to secure the payment of a debt payable to him; whereas an Indemnity is a promise to another as debtor to secure the repayment of a debt payable by him’. (38 S.J. 577). See on this Dane v. Mortgage Insurance 1; Harburg Co. v. Martin 2. (2) ‘A person cannot guarantee the payment of money by himself (per Latham, C.J., in Bank of New South Wales v. Permanent Trustee Co. of New South Wales Ltd. 3 ) (3) A guarantee of a money lending debt which was unenforceable for non-compliance with the Moneylenders Act was held to create an enforceable obligation on the part of the principal debtor to repay the guarantor paying off the debt. In such a case, the law imports an absolute request by the debtor to the guarantor to pay if the debtor does not do so (Re Chetwinds Estate, (1938 Ch. 13). (4) See further In Re, a Debtor, (1937) Ch. 156, cited under ‘Obligation incurred’. See ‘continuing Guarantee, Advance, Forbear, Given, Received, Cp. Insurance.’ See also ‘Hesitate, Colliery Guarantee’. (5) ‘I guarantee my estates at C for the payment of the above legacies’: See Eillex v. Rhedes 4 , Stat. Def., Hire-Purchase Act, 1938 (1 & 2 Geo. 6, C. 53), S. 21; Export Guarantees Act, 1949 (12, 13 & 14 Geo. 6, c. 14), S. 9(2)”. 7. The term ‘Guaranteed’ has been defined in the same book, at pages 1271 and 1272 as follows: “(1) This word in a charter party ‘has no technical meaning. It is no more than ‘I have promised’ and means probably that the ship shall be ready’—(or whatever be the thing guaranteed)—provided she be not prevented by the expected perils’ (per Willes, J., Barker v. M. Andrew 1, cited with approval by Esher, M.R., Nottebohm v. Ricbter 2. (2) Where a prospectus issued by a company stated that the company gave a ‘guaranteed accumulated reversionary bonus’, the word ‘guaranteed’ was considered by Mayo, J., as capable of meaning an obligation amounting to a warranty (Re. commonwealth Homes & Investment Co. (2) Where a prospectus issued by a company stated that the company gave a ‘guaranteed accumulated reversionary bonus’, the word ‘guaranteed’ was considered by Mayo, J., as capable of meaning an obligation amounting to a warranty (Re. commonwealth Homes & Investment Co. Ltd., (1943) S.A.S.R. 211, 219). (3) ‘Guaranteed company’ under the Indian Guaranteed Railways Act, 1879 (42 & 43 Vict., C. 41), (S. 1) means either of the following: Great Indian Peninsular Railway; Scinde, Punjab & Delli Railway, Eastern Bengal Railway; South Indian Railway; Oudh & Rohilcund Railway; and any railway company which, for the time being constructs, maintains, or works a railway under any guarantee from, or arrangement with, the Secretary of State for India in Council. (4) ‘Guaranteed rate of interest’ to preference shareholders in a building society: See Re Reliance Building Society, 61 L.J. Ch. 453. (5) Request of ‘guaranteed shares’ in a company; held to mean preference shares, there being no guaranteed shares in the company and that ‘guaranteed’ was used in contradistinction to ‘ordinary’ Barr v. Ardrossan Castle Curling Club 3. “Registration guaranteed”: See Registration. (5) ‘Guaranteed’ as a trade name: see Symingten v. Feetman 4. 8. The Indian Contract Act defines a contract of guarantee in S. 126, as a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the ‘surety’ the person in respect of whose default the guarantee is given is called the ‘principal debtor’, and the person to whom the guarantee is given is called the ‘creditor’. A guarantee may be either oral or written. A contract of guarantee is a collateral engagement to perform the promise or discharge the liability of a third party, in case of his committing default. It therefore follows that such a contract requires the concurrence of three persons, and the section describes the three persons as surety, principal debtor and creditor. Vide; Mohan v. P.S. Co-operative S.&M. 5 The case of Muthu raman v. Chinna Vallayan 6, is an authority for the proposition, that S. 126 of the Contract Act contemplates a case where the relationship of debtor and surety is created by an agreement to which the creditor is a party. But it is possible that the relationship may be established without the creditor being a party. (Vide: Duncan Fox & Co. But it is possible that the relationship may be established without the creditor being a party. (Vide: Duncan Fox & Co. v. N. & S. Wales Bank 7. It is also possible that a person may become a surety without the knowledge or consent of the principal debtor, but in such a ease, the right of the surety will be limited to those mentioned in S. 140 and S. 141 of Indian Contract Act. In Mir Niyamath All Khan v. Commercial and Industrial Bank Ltd. 8, it was held that the contract of guarantee may be either oral or in writing and it may be express or implied and it may even be inferred from the course of conduct of the parties concerned. In Chinnamma v. Dhanalakshmi 9, it was held that an assurance by a third party to collect a particular amount from the vendor and pay it to the vendee is neither a guarantee nor an indemnity. In National Chamber of Commerce, Kanpur v. Nityanandan Deokinandan 10, it was held that where money was deposited with the National Chamber of Commerce, Kanpur, as margin money under the rules of the Chamber by one constituent for registering contracts entered into with another constituent of the Chamber, the contracts being prohibited by Government Control Order, it was held that the position of the Chamber was that of a stake-holder and not quite that of surety. 9. A guarantee presupposes the existence of a separate obligation owed or to be owed by the principal debtor to the creditor, and the liability of the guarantor or surety is thus secondary, brought into existence only on default by the person primarily liable. The importance of the last qualification can best be illustrated by cases in which the guarantor or surety becomes insolvent before default is made by the debtor. In such cases, the creditor cannot prove against the suretys estate in anticipation of possible default by the original debtor. What constitutes the default such as to attract the liability of the surety will depend upon the facts of each case. In such cases, the creditor cannot prove against the suretys estate in anticipation of possible default by the original debtor. What constitutes the default such as to attract the liability of the surety will depend upon the facts of each case. So, in the case of a guarantee for due accounting by a treasurer of a society, where the treasurer was, after collecting the moneys, attacked and robbed, it was held in Walker v. British Guarantee Association 1 that the surety would not be liable, because the principal debtor himself was excused from liability in the circumstances. 10. Where the contract provides for the performance of conditions precedent by the creditor, such conditions must be strictly fulfilled. For example, notice of demand on debtor or surety, or notice to surety of the debtors default, or prosecution of the debtor where the suretyship is a fidelity guarantee. Even in the performance of the consideration, the surety has a right to expect literal fulfilment of his terms. Thus, where the guarantee was in respect of a loan for a time specified, and the creditor, instead of giving the loan, simply allowed the debtor to overdraw, the surety was held not liable. Vide: Burtonv. Gray 2. 11. In the Privy Council case Raghunandan v. Kirtyanand 3, where a security bond was given under an order of Court in consideration of stay of execution of a mortgage decree, the question arose whether it was an absolute security which the decree-holders could realise on default being committed by the judgment-debtor or whether it was only a security for any deficiency discovered after the sale of the property. Their Lordships held that having regard to the circumstances in which the document was executed, the bond was one for securing the balance unprovided for by the proceeds of the sale of the mortgaged property and therefore, the liability of the maker of the bond could not arise till the sale was held and the amount of deficiency ascertained. 12. This High Court has also pointed out in Karuppan Chettiar v. Nagappa Chettiar 4, that when a security bond is executed by a surety in pursuance of an order of Court, the bond should be considered in the light of the Courts order and that the circumstances in which it was executed may be looked at for construing the document. This High Court has also pointed out in Karuppan Chettiar v. Nagappa Chettiar 4, that when a security bond is executed by a surety in pursuance of an order of Court, the bond should be considered in the light of the Courts order and that the circumstances in which it was executed may be looked at for construing the document. In Vyravan Chettiar v. Official Assignee 5 this Court has pointed out the scope of a contract Of guarantee as defined in the Section, and has held that where debt is borrowed by two persons jointly and severally bound as principals and shared by them, so that this debt was one equally of both, one of them will not, by the mere fact of payment of the entire debt, become entitled to the benefit of any securities held by the creditor. 13. In Ansons Law of Contract, edited by A.G. Guest (24th Edition—Reprinted in 1979), at pages 75 to 79, the following passages occur with reference to the principle relating to guarantee:— “CONTRACTS OF GUARANTEE”:— The actual words of the Statute read: ‘No action shall be brought whereby to charge the defendant upon any special promise to answer for the debt, default, or miscarriage of another person unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing, and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised.’ A promise ‘to answer for the debt, default or miscarriage of another person’ is a contract of guarantee, or suretyship. It is always reducible to this form: ‘Deal with X, and if he does not pay you, 1 will.’ This promise must be distinguished from a contract of indemnity that is to say, from a promise to save another harmless from the result of a transaction into which he enters at the instance of the promiser. The distinction is of great practical importance, because a contract of indemnity, unlike that of guarantee, does not require to be evidenced by writing of any sort. The distinction is of great practical importance, because a contract of indemnity, unlike that of guarantee, does not require to be evidenced by writing of any sort. In a contract of guarantee there must always be three parties in contemplation; a principal debtor (whose liability may be actual or prospective), a creditor, and a third party who, in consideration of some act or promise on the part of the creditor, promises to discharge the debtors liability if the debtor should fail to do so. In a contract of indemnity, however, the promisor makes himself primarily liable and undertakes to discharge the liability in any event. The case of Guild & Co. v. Conrad 1 , affords an illustration both of a guarantee and of an indemnity: ‘The plaintiff, at the request of the defendant, accepted bills of exchange drawn on a firm of Damerara merchants, receiving a promise from the defendant that he would, if necessary, meet the bills at maturity. Later, the firm got into difficulties and the defendant promised the plaintiff that if he would accept a further batch of bills the funds should in any event be provided.’ It was held that the first promisoe was a guarantee, the second an indemnity. Davey L.J., said: (at page 896 in that case): In my opinion, there is a plain distinction between a promise to pay the creditor if the principal debtor makes default in payment, and a promise to keep a person who has entered or is about to enter, into a contract of liability indemnified against that liability independently of the question whether a third person makes default or not. In a contract of guarantee there must, in fact, be an expectation that another person will pay the debt for which the promiser makes himself liable. In a contract of guarantee there must, in fact, be an expectation that another person will pay the debt for which the promiser makes himself liable. If the promisor makes himself primarily liable, the promise is not within the Statute, and need not be in writing: ‘If two come to a shop, and one buys, and the other, to gain him credit, promises the seller, ‘If he does not pay you, I will’, this is a collateral undertaking, and void without writing, by the Statute of Frauds: but if he says, ‘Let him have the goods, I will be your paymaster’, or ‘I will see you paid’, this is an undertaking as for himself, and he shall be intended to be the very buyer, and the other to act but as his servant.’ Nevertheless, the question whether the undertaking is original or collateral is determined, not merely from the particular words of the promise, but from the general circumstances of the transaction. In the result, the borderline is often very artificial and the subject has raised many hair-splitting distinctions of exactly that kind which brings the law into hatred, ridicule and contempt by the public’. (Vide: Yeoman Credit, Ltd. v. Latter 2, per Harman L.J., at page 892). The liability guaranteed may arise out of tort as well as out of contract. It may also be prospective at the time the promise is made, as, for example, in consideration of a future advance of money; or it may be past, provided some new consideration is given. Yet there must be a principal debtor at some time; else there is no suretyship, and the promise though not in writing will nevertheless be actionable. This is illustrated by Lakeman v. Mountstephen 3. ‘The appellant was the chairman of a Local Board of Health, and the respondent was a builder. It was proposed that the respondent should construct certain drains. When asked if he had any objection to doing the work, the respondent replied that he had none provided that the appellant or the Board would become responsible for payment. Whereupon the appellant said, ‘Go on Mountstephen, and do the work, and I will see you paid’. The Board repudiated liability on the ground that they had never entered into any agreement with the respondent. Whereupon the appellant said, ‘Go on Mountstephen, and do the work, and I will see you paid’. The Board repudiated liability on the ground that they had never entered into any agreement with the respondent. When sued, the appellant pleaded that his statement was a promise to be answerable for the debt of another within the Statute of Frauds and, not being in writing, was unenforceable. The House of Lords held that the respondent was entitled succeed. The Board had incurred no liability which could be guaranteed and there could be no suretyship unless there was a principal debtor. The words of the appellant, when properly construed, indicated that he would therefore be liable, not as surety, but as sole debtor, by reason of his oral promise to the respondent. The promise must also not effect a release of the original debtor; his liability must be a continuing liability. If there is an existing debt for which a third party is liable to the promisee, and if the promisor undertakes to be answerable for it, still there is no guarantee if the terms of the agreement are such as to extinguish the original liability. If A says to B, ‘Give C a receipt in full for his debt to you, and I will pay the amount’, this promise would not fall within the Statute; for there is no suretyship, but a substitution of one debtor for another (Vide: Goodman v. Chase 1 There are, however, two exceptional situations where a contract of guarantee has been held to fall outside the Statute, even though it is a promise to answer for the debt, default, or miscarriage of another The first is where the guarantee is merely incidental to a larger contract and not the sole object of the parties to the transaction. So in Sutton & Co. v. Grey 2 where the defendants entered into an oral agreement with a stock-broker to introduce business to him on the terms that they were to receive half the commissions earned and to pay half the losses in the event of a client introduced by them failing to pay, it was held that their promise to answer for the debt of such a client did not fall within the Statute. It was incidental to a wider transaction and did not have to be evidenced by writing. It was incidental to a wider transaction and did not have to be evidenced by writing. The same is true of a Del Credere agency, where the agent, in return for extra remuneration, also becomes responsible to his principal for due performance of the contract. (Vide: Couturier v. Hastie 3) The second relates to the protection of property. Where the main purpose of the guarantor is to acquire or retain property, and the guarantee is given to relieve the property from soma charge or incumbrance in favour of a third party, it is not within the Statute. Thus, if A buys goods from B which are subject to a lien in favour of C, and in order to discharge the lien A promises C to pay Bs debt if B does not do so, this promise need not be witnessed by writing. (Vide: Fitzgerald v. Dressler 4. But the interest to be acquired or retained must be substantial and proprietary. An oral promise by a share holder in a company to guarantee the companys debts in order to prevent an execution being levied on its assets does not come within this exception. The interest which a share holder has is a purely personal one; he has no proprietary interest in the companys assets. (Vide: Harburg India Rubber Comb Co. v. Martin 5. The legal niceties have, however, little to commend them. The administration of justice is not a game, and it is a matter for regret that, if special protection was to be afforded by the law to guarantors, it should not have been embodied in a statute requiring the terms of all contracts of guarantee or indemnity to be set out in a written document, instead of perpetuating subtle distinctions. (Vide: The Minority Recommendation in the Sixth Interim Report of the Law Revision Committee (1937), Comnd. 5449, P. 34).” 14. In Cheshire and Fifoots Law of Contract (Ninth edition) edited by M.P. Furmston, the topic of guarantee is dealt with at page 56, where the effect of the death of the guarantor is referred to. The guarantee is distinguished from Indemnity at page 181 of the same book. The infants contract of guarantee and its void nature is dealt with at page 415 of the said edition. The guarantee is distinguished from Indemnity at page 181 of the same book. The infants contract of guarantee and its void nature is dealt with at page 415 of the said edition. The guarantee must be in writing according to Cheshire and Fifoot, and the said view is expressed at pages 178 to 184 of the treatise. At page 181, the distinction between a guarantee and an indemnity is dealt with by M.P. Furmston in the same book, wherein the learned author also deals with the Report of the Law Revision Committee in 1937. The relevant passages in this book regarding these aspects read as follows:— “When the Law Revision Committee first reported in 1937, a minority thought that contracts of guarantee should be void unless the terms were embodied in a written document. The latter Committee, while sharing the view that such contracts offered peculiar perils to the unsophisticated, preferred to retain the old, if scarcely hallowed, language familiar to generations of the lawyers, and with it the special quality of ‘unenforceability’. The words quoted above were therefore saved from the general wreck of S. 4 of the Statute of Frauds, and they have still to be applied, encrusted as they are with nearly three centuries of judicial interpretation. It seems tolerably clear that the Parliament of 1677 designed by these words to cover promises by one person to guarantee the liability of another. But the determination of their exact scope has proved an arduous and complicated task. An obvious difficulty is the significance of the three terms, ‘debt, default or miscarriage, ‘unless, indeed, they are synonymous. The question was raised in 1819 in Kirkham v. Marter 1. The defendants son had, without the plaintiffs permission, ridden the plaintiffs horse and killed him, and he was therefore guilty of a tort against the plaintiff. The plaintiff threatened to sue him, and, in consequence of this threat, the defendant orally promised the plaintiff to pay to him the agreed value of the horse if the plaintiff would forbear his suit.’ ‘The defendant, when sued on this promise, pleaded the Statute of Frauds, and the plaintiff argued that the statute applied only where the liability guaranteed arose out of a pre-existent debt. The argument was rejected. ‘The word ‘miscarriage’, said Chief Justice Abbott, has not the same meaning as the words ‘debt’ or ‘default. The argument was rejected. ‘The word ‘miscarriage’, said Chief Justice Abbott, has not the same meaning as the words ‘debt’ or ‘default. It seems to me to comprehend that species of wrongful act for the consequences of which the law would make the party civilly responsible.’ The words of the statute were not confined to cases of contract; and, as the son had been guilty of a tort for which he might be sued, the fathers undertaking was a ‘promise to answer for the miscarriage of another person’. It would seem, therefore, that the guarantee in the case of a contractual liability is covered by the word ‘debt’ and, perhaps, by that of ‘default’, and the guarantee of a tortious liability by the word ‘miscarriage’. This conclusion may be accepted as a reasonable interpolation of terms which had no precise legal meaning. It is more difficult to justify the construction placed by the judges on the requirement that the liability guaranteed must be that ‘of another person’. They decided that the legislature intended by these words to confine the statute to cases where the defendant had made a direct promise to the plaintiff to guarantee him against the default of some third party. It was thus held in Eastwood v. Kenyan 2, that, if the promise was made, not to the creditor, but to the debtor himself, the statute did not apply. By a more comprehensive process of interpretation it has also been ruled that the use of the words ‘of another person’ assumes the continued existence of some primary liability awed by a third party to the plaintiff, to which the defendants guarantee is subsidiary and collateral. A distinction has thus been taken between an arrangement whereby the original debtor continues liable and one in which he is discharged. In other words, a contract is not a guarantee within the statute unless there are three parties—the creditor, the principal debtor and the secondary debtor or guarantor. The essence of the contract is that the guaranto agrees, not to discharge the liability in any event, but to do so only if the principal debtor fails in his duty. There are thus two cases in which a contract is excluded from the statute on the ground that the promisor is not in fact answering ‘for another person’. The essence of the contract is that the guaranto agrees, not to discharge the liability in any event, but to do so only if the principal debtor fails in his duty. There are thus two cases in which a contract is excluded from the statute on the ground that the promisor is not in fact answering ‘for another person’. The first case is where the result of a contract is to eliminate a former debtor and to substitute a new debtor in his place. Here it is idle to speak of guaranteeing the debt of another since that other has been released from all liability. As was said in an early case, if two come to a shop and one buys, and the other says to the seller: ‘Let him have the goods, I will be your paymaster,’ or ‘I will see you paid, ‘this is an undertaking as for himself, and he shall be intended to be the very buyer and the other to act but as his servant.’ These words, though striking and often quoted, must be taken, not as an infallible test for the operation of the statute, but as an indication of the parties’ intention. Whatever the language used, the question must be whether they intended that the promisor should assume sole or subsidiary liability. Even the stark phrase, ‘let him have the goods, I will see you paid, ‘when thus read in the light of the context, may mean no more than, ‘if he does not pay, I will’. Again, suppose that a seller is unwilling to accept further orders from a buyer unless payment is made or security given for goods already supplied. If there is an oral agreement by which the creditor agrees to supply further goods to the debtor in consideration that X will assume sole responsibility for the existing debt, the statute does not apply. Xs undertaking releases the original debtor from the liabilities so far incurred, and it is thus absolute and not in any way conditional upon non-payment by a third party. (Vide: Goodman v. Chase 1). Secondly, a contract is not within the statute if there has never at any time been another person who can properly be described as the principal debtor. This is well illustrated by Mountstephen v. Lakeman 2. The defendant was chairman of the Brixham Local Board of Health. (Vide: Goodman v. Chase 1). Secondly, a contract is not within the statute if there has never at any time been another person who can properly be described as the principal debtor. This is well illustrated by Mountstephen v. Lakeman 2. The defendant was chairman of the Brixham Local Board of Health. The surveyor to the board proposed to the plaintiff, a builder, that he should construct the connections between the drains of certain houses and the main sewer. The plaintiff desired to know how he was to be paid, and the following conversation took place: Defendant: “What objection have you to making the connections?” Plaintiff: “I have none, if you or the board will order the work or become responsible for the payment.” Defendant: “Go on, Mountstephen, and do the work, and I will see you paid.” The plaintiff did the work and debited the board, which disclaimed liability on the ground that they had never directly or indirectly made any agreement with him. The plaintiff then sued the defendant, who pleaded the statute. The Court had to consider the purpose and effect of the conversation between the parties. Did it mean that the defendant guaranteed a liability that primarily rested upon the board, or that he himself assumed an original and sole liability? Only in the former case could there be a contract to answer for the debt ‘of another person’. Since the board had not ordered the work to be done and therefore was not a debtor in any sense of the word, it was held that the defendant was himself the only debtor and t hat his promise was outside the statute. The court in this case sought to emphasize the distinction by suggesting appropriate nomenclature. If the undertaking was collateral and within the statute, it was to be described as a ‘guarantee’, if original and outside it, as an ‘indemnity’. (See Blair, 29 M.L.R. 522). Such terminology is doubtless of service in clarifying the issues to be faced. But contracting parties cannot be expected to use words as legal terms of art, and it remains for the court to interpret the sense of their agreement rather than to accept their language at its face value. If its purpose is to support the primary liability of a third party, it is caught by the statute, whatever the words by which this intention is expressed. If its purpose is to support the primary liability of a third party, it is caught by the statute, whatever the words by which this intention is expressed. If there is no third party primarily liable, the statute does not apply. See Guild & Co. v. Conrad 1. “These variations upon the theme ‘of another person,’ if somewhat artificial, may be allowed to rest upon the inherent ambiguity of the language. A further distinction can be regarded only as a deliberate evasion of the statute. (Vide: the remarks of Lord Wright in Legal Essays and Addresses, at pp. 226 ). Even though the defendants promise is undoubtedly a ‘guarantee’ and not an ‘indemnity’, it will be outside the statute, if it is merely an incident in a larger transaction. To come within the statute, the guarantee must be the main object of the transaction of which it forms a part. The courts have adopted this argument in two types of cases.” 15. Pollocks Principles of Contract (Thirteenth Edn.) edited by Sir Percy H. Winfield, at page 435, deals with ‘Suretyship and Guaranty’ and the contract of suretyship is stated as follows:— “The contract of suretyship is one in which there is no universal obligation to make disclosure; but it has peculiar incidents after it is formed, which bring it within our present scope. A surety is released from his obligation by any misrepresentation, or concealment amounting to misrepresentation, of a material fact on the part of the creditor. Davies v. London and Provincial Marine Insurance Co. 2 The language used in different cases is hardly consistent: the later decisions establish however that the rule is not parallel to that of marine insurance. The creditor is not bound to volunteer information as to the general credit of the debtor or anything else which is not part of the transaction itself to which the suretyship relates: and on this point there is no difference between law and equity. But the surety is entitled to know the real nature of the transaction he guarantees and of the liability he is undertaking: and he generally and naturally looks to the creditor for information on this point, although he usually is acting at the debtors request and as his friend, and so relies on him for collateral information as to general credit and the like. In that case the creditors description of the transaction amounts to, or is at least evidence of, a representation that there is nothing further that might not naturally be expected to take place between the parties to a transaction such as is described. Whether a circumstance not disclosed is such that by implication it is represented not to exist, depends on the nature of the transaction and is generally a question of fact. (Lee v. Jones 3.) Thus where the suretyship was for a cash credit opened with the principal debtor by a bank, and the cash credit was in fact applied to pay off an old debt to the bank, the House of Lords held that the bank was not bound to disclose this, no actual agreement being alleged or shown that the money should be so supplied, and the thing being one which the surety might naturally expect to happen. Hamiltonv. Watson 4. So the creditor is not bound to tell the surety that the proposed guarantee is to be substituted for a previous one given by another person. North British Insurance Co. v. loyd 5. But the surety is not liable if there is a secret agreement or arrangement which substantially varies the nature of the transaction or of the liability to be undertaken: as where the surety guarantees payment for goods to be sold to the principal debtor, but the real bargain, concealed from the surety, is that the debtor shall pay for the goods a nominal price, exceeding the market price, and the excess shall be applied in liquidation of an old debt Pidcock v. Bishop 1. Or where the loan to be guaranteed is obtained not in the ordinary way, but by an advance of trust funds of which the principal debtor himself is a trustee. In Lee v. Jones 2, there was a continuing guarantee of an agents liabilities in account with his employers. He was in fact already indebted to them beyond the whole amount guaranteed by the suretys agreement, which was so worded as to cover existing as well as future liabilities. The surety was not informed of this, and the recitals in the agreement, though not positively false, were of a misleading and dissembling character. The majority of the Court of Exchequer Chamber held that there was evidence of ‘studied effort to conceal the truth’ amounting to fraud. The surety was not informed of this, and the recitals in the agreement, though not positively false, were of a misleading and dissembling character. The majority of the Court of Exchequer Chamber held that there was evidence of ‘studied effort to conceal the truth’ amounting to fraud. On the whole it appears from this case and Railton v. Mathews 3, that the concealment from the surety of previous defaults of the principal debtor, when there is a continuing guaranty of conduct or solvency, is in itself evidence of fraud, and the Court of appeal has applied this principle to the case of a surety for the fidelity of a servant, although the non-disclosure was in fact not fraudulent L.G.O. Co. v. Holloway 4. Where a person has become a surety on the faith of the creditors representation that another will become co surety, he is not bound if that other person does not join; and in equity it makes no difference that the guaranty was under seal. Where a guaranty was given to certain judgment creditors in consideration of their postponing a sale under an execution already issued against the principal debtor, but in fact they did not stop the sale, being unable to do so without the consent of the other persons interested, it was held that the guaranty was inoperative Cooper v. Joel 5. But perhaps this case is best accounted for, as one of simple failure of consideration; for, the consideration for the guaranty was not merely the credit given to the principal debtor, but the immediate stopping of the sale. “The authorities, taken as a whole, establish that as between creditor and surety, there is in point of law no positive duty to give information as to the relations between the creditor and the principal debtor, but the surety is discharged if there is actual misrepresentation, and that silence may in a particular case be equivalent to an actual representation, whether it is so being a question of fact. So far as these rules attach special duties to the creditor they do not apply to a mere contract of indemnity.” 16. S. 129 of the Indian Contract Act reads “A guarantee which extends to a series of transactions is called a “continuing guarantee.” 17. So far as these rules attach special duties to the creditor they do not apply to a mere contract of indemnity.” 16. S. 129 of the Indian Contract Act reads “A guarantee which extends to a series of transactions is called a “continuing guarantee.” 17. Whether a guarantee is a continuing one in any given sense is a question of construction and no hard and fast rule can be laid down. Each case must depend on the language used and the document must be examined with reference to the total circumstances of the case. It was held in Nedungadi Bank Ltd. v. Doraikannu Ammal 1. 18. In Ellis v. Emmanuel 2, it was decided that where there is a floating balance and the guarantee is only of a portion thereof, such a contract must be construed prima facie as applicable to a part of the debt only. But, if the liability is not for a floating balance, but in respect of a debt already ascertained, then, prima facie the contract should be construed as security for the whole debt. In such cases, it is a question of construction as to whether the intention was to guarantee the whole debt with a limitation on the liability of the surety or to guarantee part of the debt only. It is however, open to parties to contract, even in the case of a floating balance, that a limited guarantee shall be applicable to the whole debt. In such a case, the creditor is entitled in the event of the principals bankruptcy, to prove the whole debt without any deduction and the surety is not at liberty to stand in the creditors shoes until every six pence of the whole debt has been received by the creditor. 19. P.W. 1, who is the plaintiff, has been doing business in iron and steel under the name and style of Vijay Steels at Tiruchirapalli. He deposed that the first defendant A.S.M. Kandaswamy as owner of Ganga Industries was having dealings in his shop on credit during the period 10th December, 1975 to 13th February, 1976, that he had received materials from his shop as per the bills Exs. A1 to A4, that Exs. A5 and A6 are the ledger accounts maintained in the usual course for the transactions which the first defendant had with him and that a sum of Rs. A1 to A4, that Exs. A5 and A6 are the ledger accounts maintained in the usual course for the transactions which the first defendant had with him and that a sum of Rs. 11,077-23 is still due from the first defendant towards those dealings. Exs. A13 to A16 are the original credit balls for Exs. A1 to A4 and in those original bills the first defendant himself has signed. It is relevant in this connection to note that the first defendant has not filed any written statement denying the correctness of the accounts maintained by the plaintiff. In fact, in the letter Ex. A11, which was written by the first defendant after the rec eipt of the notice original of Ex. A10 dated 1st April, 1976, the first defendant has admitted his liability unequivocally and he has only requested time for payment. In Ex. A11, the first defendant has stated as follows:— Tamil A perusal of the above portion of Ex. A11 clearly shows that the first defendant has admitted his liability. It is relevant to note that Ex. A11 is the reply to the notice Ex. A10 wherein it was specifically stated that there was a sum of Rs. 11,07-23 remaining as due and payable by the first defendant herein. The first defendant herein has not chosen to repudiate the same in his letter Ex. A11. The evidence of P.W. 1 coupled with the contents of the documents Exx. A1 to A6 and A13 to A16 establish beyond all reasonable doubt that the first defendant is liable for the dealings which he had with the plaintiff and hence the suit dealings between the plaintiff and the first defendant as alleged by the plaintiff are true. The finding given by the lower Court in this regard is correct and the appreciation of evidence available on record, both oral and documentary, is in accordance with law. 20. The plaintiff has come forward with the case that defendants 1 and 2 are close relatives and that the second defendant stood as guarantor for the dealings of the first defendant with the plaintiff. We have dealt with succinctly the principle of Law of Guarantee and had incorporated the well established principles of law relating to the portion of the Indian Contract Act which deals with indemnity and guarantee. We have dealt with succinctly the principle of Law of Guarantee and had incorporated the well established principles of law relating to the portion of the Indian Contract Act which deals with indemnity and guarantee. The second defendant, who is the appellant herein, denies the contract of guarantee and contends that he has nothing to do with the suit dealings even though he admits that he sent two cheques Ex. A7 dated 10th December, 1976 for Rs. 4,000 and Ex. A8 dated 13th February, 1976 for Rs. 3,000 to the plaintiff. The contentions raised on his behalf are that he sent those two cheques to the plaintiff in connection with some other dealings and not for the suit dealings. Let us now examine the case that second defendant stood as guarantor for the first defendant. We have already dealt with the ingredients that are necessary for spelling out a contract of indemnity or guarantee and as such by applying those principles let us examine the facts put forward before the lower Court by way of evidence and see whether the conclusion arrived at by the lower Court is correct and in accordance with law. 21. The plaintiff as P.W. 1 swears that the first defendant as owner of Ganga Industries purchased goods from his shop on credit and that the second defendant, who is his partner, also stood as guarantor for the dealings of the first defendant. Even though P.W. 1 would say that the second defendant also was a partner of Ganga Industries along with the first defendant, it appears that the second defendant/appellant herein has absolutely no connection with that industry and there is also no evidence on the side of the plaintiff to prove that the second defendant is also a partner in Ganga Industry. Only because the second defendant is not a partner in Ganga Industry the suit is laid against him on the contract of guarantee. Even though there is no written contract of guarantee executed by the second defendant in favour of the plaintiff, the evidence adduced through P.W. 1 and other circumstances available in this case by way of evidence relied upon by him amply establish the fact that the second defendant stood as guarantor for the dealings which the first defendant had with the plaintiff. We have already seen that a contract of guarantee need not be necessarily reduced into writing. We have already seen that a contract of guarantee need not be necessarily reduced into writing. A contract of guarantee may be express or even implied and it might be even inferred from the course of the conduct of the parties concerned. Bearing these principles, when we examine the evidence available on record, both oral and documentary, we find that the plaintiff has proved his case regarding this aspect of the case. There is no suggestion even as to why the plaintiff-first respondent herein should institute this suit falsely against the second defendant/appellant herein. It is admitted by D.W. 1 the second defendant that he has purchased goods in the shop of the plaintiffs elder brother on one or two occasions and that the plaintiff requested him to purchase articles in his shop. There is nothing in the testimony of D.W. 1 to suggest as to why P.W. 1 should make a false claim against him on the basis of a contract of guarantee. D.W. 1 admits that the first defendant is his senior paternal uncle and that he was living in Thillai Nagar along with the first defendant till the beginning of the year 1975. It is relevant in this connection to note that the suit dealings commenced from 10th December, 1975. D.W. 1 would say that he was living along with the first defendant only till the beginning of the year 1975. His evidence is that he was not on talking terms with the first defendant from 1975 and this aspect is spoken to by him in order to show that the alleged guarantee is not true. But his evidence that he was not on talking terms with the first defendant in the year 1975 has been subsequently falsified in view of his unequivocal admission that for his marriage which took place in the month of August, 1976, the invitation was issued only in the name of the first defendant. If really there was ill-feeling or enmity between defendants 1 and 2 from the year 1975 onwards, certainly the second defendant would not have issued his marriage invitation in the name of the first defendant. It is also relevant in this connection to note that the second defendant has not mentioned anything about the strained relationship between himself and his senior paternal uncle, namely, the first defendant, in Ex. A12 reply notice dated 6th April, 1976. It is also relevant in this connection to note that the second defendant has not mentioned anything about the strained relationship between himself and his senior paternal uncle, namely, the first defendant, in Ex. A12 reply notice dated 6th April, 1976. The first defendant also does not repudiate in his letter Ex. A11 the allegation made in the notice Ex. A10 that the second defendant/appellant herein stood as guarantor for his dealings. Since there is absolutely no whisper about the ill-feeling between defendants 1 and 2 either in the written statement filed by the second defendant or in the reply notice Ex. A12 issued by him, the irresistible conclusion that can be arrived at is that the evidence of D.W. 1 with regard to the ill-feeling between him and the first defendant is clearly an afterthought invented for the purpose of defending the suit. Even while P.W. 1 was in the box, it is relevant to note that no suggestion has been put to him that the second defendant never stood as guarantor for the first defendant because of the strained relationship between them. The defendants 1 and 2 are closely related and they were living together at Thillai Nagar even in the year 1975. These circumstances clearly probabilise the evidence of P.W. 1 that he supplied goods to the first defendant on credit and that the second defendant stood as guarantor for the first defendant. The ingredients that are necessary to create a valid contract of guarantee are available in the instant case and as such the lower Court is correct in having held that the circumstances clearly probabilise the evidence of P.W. 1 that he supplied goods to the first defendant on credit and that the second defendant/appellant herein stood as guarantor for the first defendant. 22. It is also relevant to examine the circumstances under which Ex. A7 and A8 cheques were issued by the appellant, in favour of the plaintiff/first respondent. P.W. 1 states in his evidence that the appellant issued the cheques, namely, Ex. A7 dated 10th February, 1976 for Rs. 4,000 and Ex. A8 dated 13th February, 1976 for Rs. 3,000 only for the suit transaction, that he presented those cheques for payment and that they were dishonoured. P.W. 1 states in his evidence that the appellant issued the cheques, namely, Ex. A7 dated 10th February, 1976 for Rs. 4,000 and Ex. A8 dated 13th February, 1976 for Rs. 3,000 only for the suit transaction, that he presented those cheques for payment and that they were dishonoured. The appellant as D.W. 1 contends that he issued those two cheques to the plaintiff/first respondent herein in connection with some other transaction and that he never sent those cheques towards the suit dealings. If the two cheques Ex. A7 and A8 had been sent by the second defendant to the plaintiff only towards the suit dealings it would prove beyond doubt the case of the plaintiff that the second defendantsent those two cheques only in his capacity as guarantor for the first defendant. In the instant case before us, we find that D.W. 1 has placed an order in the last week of January, 1976, with the plaintiff for the supply of 4 tons of iron rods before the first week of February, 1976, that the plaintiff failed to supply the materials in time, that he cancelled the order through phone and asked the plaintiff/first respondent herein to return the two cheques and that the plaintiff, instead of returning the two cheques, presented them for collection. It is his case that immediately after placing the order with the plaintiff/first respondent for the supply of 4 tones of iron rods he handed over the post-dated cheques Exs. A7 and A8 and that since he had cancelled the order, he did not put any money in the Bank with a view to facilitate payment for those two cheques. Even at the outset, it is to be noted that it is highly artificial that the appellant who is a building contractor, would have placed an oral order with the plaintiff for the supply of 4 tones of iron rods. Even assuming that he did place an order, it is highly improbable that he would have issued two post-dated cheques in favour of the plaintiff towards the future supply of iron rods! 23. No reason has been offered by the appellant as to why he issued the two post-dated cheques of different dates while he could have very well made the payment after the receipt of the materials. 23. No reason has been offered by the appellant as to why he issued the two post-dated cheques of different dates while he could have very well made the payment after the receipt of the materials. The plaintiff/first respondent is not having a telephone in his shop, but still D.W. 1 would contend that he contacted the plaintiff through phone and asked him to cancel the orders placed by him. Apart from the oral interested testimony of D.W. 1/appellant herein, there is no acceptable, satisfactory and independent evidence to uphold the case of the appellant that he placed an order with the plaintiff for the supply of 4 tons of iron rods in the month of January, 1976 and that he sent two post-dated cheques Exs. A7 and A8 only towards that transaction. It is also relevant in this connection to note that the appellant had not taken any steps against the plaintiff/first respondent for the return of the two cheques on the ground that the order placed by him for the supply of 4 tons of iron rods had been cancelle d through telephone. It is also relevant in this connection to note that the cheque Ex. A7 was presented twice for collection and the appellant was informed by the Bank about the same. Inspire of it, the appellant has not taken any action so for the return of those two cheques by the plaintiff/first respondent. In this regard, the contents of Ex. A9 can usefully be looked into which reads as follows:— “Your cheques dishonoured. Taking legal action if not payment received immediately.” The original of Ex. A9 had been sent by the plaintiff to the appellant on 6th March, 1976 and the appellant has not chosen to send any reply for this telegram even though he admits that the address given in Ex. A9 is correct. He would say that he has not received the telegram, namely, the original of Ex. A9. While the address given in Ex. A9 is correct, the explanation offered by the appellant that he did not receive the telegram cannot be accepted. The plaintiff issued the notice original of Ex. A10, a month later, and only for this notice the appellant has sent a reply Ex. A12 on 6th April, 1976 denying his liability for the suit amount. A9 is correct, the explanation offered by the appellant that he did not receive the telegram cannot be accepted. The plaintiff issued the notice original of Ex. A10, a month later, and only for this notice the appellant has sent a reply Ex. A12 on 6th April, 1976 denying his liability for the suit amount. All these circumstances only probabilise the case of the plaintiff/first respondent that the appellant stood as guarantor for the dealings of the first defendant. The lower Court, which had the benefit of seeing both P.W. 1 as well as D.W. 1 believed the evidence unfurled through P.W. 1 and held that the appellant is liable for the suit claim as guarantor also. There is no merit in the appeal. Hence the appeal is dismissed with costs.