NATIONAL BANK OF PAKISTAN Versus SIDDIQ MUNAWAR

1. The appellant had granted an overdraft facility to the extent of Rs. 5,000 to the respondent No.2 which was utilised by him. The respondent No. 2 executed a promissory note dated 18th December, 1974 for Rs. 5,000 in favour of the respondent No.1 who endorsed the said promissory note in favour of the appellant. The respondent No.2 also executed on the same date an agreement for cash credit known as hypothecation agreement. The respondent No. l guaranteed the repayment of the loan advanced to the respondent No.2 and executed a letter of guarantee on 18-12-1964 in favour of the appellant. A sum of Rs.6,149.70 became due and payable and, therefore, a suit was filed against the respondents. The learned trial Court decreed the suit against the respondents, but in appeal the decree passed against the respondent No.1 was set aside by the impugned judgment. The learned District Judge held that the loan was advanced to Shaheen Traders against which suit has been filed. He further held that the respondent No.1 did not execute the deed of guarantee. It was further observed by the learned appellate Court that M.A.Waheed was the co-guarantor and has not been joined as party and, therefore, the right of the respondent No.1 has been prejudiced. Finally, it was held that as the appellant did not utilise the security furnished by the hypothecation deed, the respondent No.1 was discharged and reliance was placed on P L D 1968 S C 83.

2. Mr. Mansoor-ul-Arfin the learned counsel for, the appellant has contended that the finding of the learned appellate Court is not based on evidence of the parties. He further contended that the findings are based on presumption.

3. On 18-12-1964 the respondent No.2 had made an application (Exh.6) for advance in which he had applied for loan in his name. The firm name was mentioned as Messrs Shaheen Traders, but the column requiring the name of the partners was left blank. The promissory note (Exh.7) was also executed by him in favour of the respondent No.1, in his individual capacity and not on behalf of a firm. On the back of the promissory note the respondent No.1 had endorsed it in favour of the appellant. On the same date both the respondents executed 'demand promissory note, delivery letter' addressed to the appellant and delivered the promissory note to it. The agreement for cash credit hypothecation of goods was executed by the respondent No.2 as proprietor Shaheen Traders. The letter of guarantee was also signed the same date by respondent No.1. From these documents it is clearly established that the entire transaction of advancing the loan and the security documents were executed at the same time. The finding of the learned lower appellate Court that the respondent No.1 had not executed the deed of guarantee does not find support from either the written statement or the evidence of the respondent No.1 himself. In the written statement the respondent No.1 has admitted his signature and has stated that the signature was obtained by fraud played by the respondent No.2 in collusion with the appellant. It was further stated that the signature of the respondent No.1 was taken on a blank form of letter of guarantee by the appellant and respondent No.2. Therefore, the plea raised by the respondent No.1 was that his signature was obtained by fraud on a blank guarantee form. He has not denied his signature. In his statement he stated that his signature was obtained as guarantor for Shaheen Traders. He admitted his signature on the letter of guarantee (Exh.10) as well as on the promissory note (Exh.7). In view of this statement it is not established that the deed of guarantee was not executed by him. The allegation of fraud should have been established by the respondent No.1 himself but there seems to be no evidence to that effect. The learned appellate Court has based his finding on presumption and there is no material on record to support it. Likewise the contention of the respondent No.1 that he stood surety for Shaheen Traders as partnership firm is not supported by evidence on record. There is no evidence to show that Shaheen Traders is a partnership firm and that the respondent No.1 stood surety for that firm. In his statement the respondent No.1 admitted that his brother is a partner of Shaheen Traders, but neither he has been examined, nor documents have been produced to prove this contention. From the evidence on record it is clearly established that the respondent No.1 stood surety for respondent No.2 in terms of deed of guarantee (Exh.10).

4. Mr.Mansoor-ur-Arfin the learned counsel for the appellant contended that in terms of deed of guarantee the appellant was entitled to release the security and if for argument sake the appellant has failed to realise the debt from the hypothecated goods it will not discharge the respondent No.1, In this regard it would be proper to reproduce the relevant portion of the guarantee:---

5. "As the said cash credit account is intended to be further secured by the hypothecation or/and pledge of goods or and documents of title to goods under separate agreements to be taken from time to time and entered into by the borrower with the bank which agreement contains stipulations as to insurance assignment and delivery of insurance policies to the bank .the margin of value of goods under security to be maintained and the periodical furnishing of different statements to the bank ..and other matters I/We agree that no failure in requiring or obtaining the said securities or in the observance or performance of any of the stipulations or terms of the said agreement and no default of the bank in requiring or endorsing the observance or performance of any of the said stipulations of terms or the granting of any time or the renewing of any agreement, shall have the effect of releasing me/us from my/our liability or of prejudicing the bank's rights or remedies against me/us under the said promissory note.

6. I/We further agree that the bank shall be at liberty to take other securities for the said account or any part thereof and to release or forbear to enforce all or any of its "remedies upon or under such securities and any collateral securing or securities now held by the bank and that no such release or forbearance as aforesaid shall have the effect of releasing from my/our liability or prejudicing the bank's rights and remedies against me/us under the said promissory note and that I/we shall have no right to the benefit of any of the said cash credit and of all (if any) other claims of the bank against the borrower on any other account whatsoever shall have been fully satisfied and then in so far only such security shall not have been exhausted for the purpose of realising the account of the bank's claims and rateably only with other guarantors or other persons (if any) entitled to the benefit of such securities respectively."

7. The respondent No.1 in terms of this guarantee has consented that the appellant will be entitled to release from all or any of the remedies available under the security and that such release shall not 'discharge the respondent No.1 from liability or prejudice the appellant's right and remedies under the promissory note. The respondent No.1 in clear terms has permitted the appellant to obtain further security and also to even release such securities and such acts will not amount to discharge of the respondent No.1. In the face of such clause in the guarantee deed it is not possible for the respondent No.1 to contend that as the appellant has not enforced his remedies against the respondent No.2 he is discharged from his liability. Mr. Bhutto has referred to the statement of P.W.1 who has stated that the bank used to verify the stocks till such time, the respondent closed its business. Therefore, from this statement, the learned counsel concludes that stocks were available, but the appellant due to its own misconduct and negligence allowed such security to dissipate, and, therefore, it has caused prejudice to the respondent No.1 and in terms of section 141 of the Contract, the respondent No.1 as surety stands discharged. Even if for argument sake it is established that hypothecated goods were available with the respondent No.2, in view of the terms of the guarantee deed, the respondent No.1 cannot make a grievance of the fact that the appellant has released the respondent No.2 from that security or taken no steps against those securities. Section 141 of the Contract Act provides that a surety is entitled to the benefit of such security which a creditor holds against a principal debtor at the time when the contract of surety is entered into. It is not necessary that the surety should be aware of the existence of such security. The surety will thus be entitled to any security held whether it is within the knowledge of surety or not. If such security is lost by the creditors' act of omission or commission or without the consent of the surety or such security is released or parted with, the surety shall stand discharged to the extent of such security. The entire question in the present easel is in respect of hypothecated goods. There is no evidence on record to show the nature of the goods or the value of the goods. However, the question is, whether release in action or failure to enforce the remedy available under the hypothecation deed will discharge the respondent No.1.The answer would be in the negative because the respondent No.1 has consented that the release or forbearance to enforce any remedy will not discharge him,

8. Mr. K. B. Bhutto the learned counsel for the respondent contended that in terms of section 141 the consent of the surety should be obtained at the time of release. This cannot be spelt out from section 141. The only condition laid down by section 141 is. that if the creditor without the consent of the surety parts with security, the surety is discharged. This consent can be obtained before parting with the security or at the time of parting with the security. No such restriction as argued by the learned counsel for the respondent No.1, has been placed. The learned counsel for the respondent has referred to the Central Exchange Bank Ltd. v. Zaitoon Begum and others, PLD 1968 S C 83 where the earlier security in form of goods placed was lost by the bank by its own act and additional security in form of deposit of fixed deposit receipt in the name of surety was not enforced it was held that failure of the bank to pursue the remedies against goods discharged the surety. The relevant observation was made by the Supreme Court at page 92 which reads as follows:-

9. "Section 141 enacts that 'a surety is entitled to the benefit of '' every security which the creditor has against the principal debtor, at the time when the contract of suretyship 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 security, the surety is discharged to the extent of the value of the surety' The earlier security was obviously lost by the bank by its own act and as the value 'of the goods pledged was approximately Rs.1,26,000 which greatly exceeded the outstanding loans due to the bank, the failure of the bank to pursue its remedy against the security completely discharged the liability of Mst. Zaitoon Begum. It is clear that she could not have, if she paid off the Bank, pursued any remedy against the pledged goods which were no longer available, Under both the sections, the result, in the circumstances of this case, would be identical."

10. This case is distinguishable on facts as it seems that there was no such document like the deed of guarantee containing a clause as reproduced above (Exh.10) by which the respondent No.1 had already given his consent to the release of the surety.

11. Mr.K.B. Bhutto then contended that the terms of guarantee is inconsistent with section 141, and therefore, it is not valid. The main argument being that the consent of the surety should have been taken at the time of releasing the security. This contention has already been dealt with earlier, and has no force.

12. The learned lower appellate Court held that Abdul Wahid was a co-surety and as he was not joined as a party the respondent's right has been prejudiced. In this regard reliance was placed on a letter (Exh. D-1) of the appellant addressed to respondent No.2 and copy was endorsed to Abdul Wahid. No demand was made from him, nor it was alleged that he is a surety. The letter was endorsed to Abdul Wahid so that he may use his good office to persuade the respondents to clear the indebtedness. The conclusion of the learned lower appellate Court is not borne out by the evidence on record. The impugned judgment and decree passed by the first appellate Court is set aside, and the decree passed by the trial Court is maintained.

13. The appeal is, therefore, allowed with cost.

14. M.Y.H. Appeal allowed.