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Essay: K.V. Periyamianna Marakkayar and Sons v. Banians and Co.

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  • Published: 28 January 2017*
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CASE SUMMARY
(a) Facts
In this case, K.V. Periyamianna Marakkayar and Sons filed an appeal for a sum of Rs. 30,000 and interest and costs, against Banians and Co. before the Madras High Court against a decree passed against the appellant by Mr. Justice Coutts Trotter.
The suit was filed by Banians and Co. as the plaintiffs against Messrs. Shaw Wallace and Co. as the defendant no.1 and in the alternative against K.V. Periyamianna Marakkayar and Sons as defendant no.2 for the recovery of Rs. 73,117-5-7.
Between the plaintiffs and the 1st defendant, there was an agreement called the dubash agreement by which the plaintiffs promised to guarantee the 1st defendant due completion of all the contracts entered into by dealers with the 1st defendant and to indemnify the 1st defendant against all loss in certain specified branches of their business in consideration of the payment of a commission. The plaintiffs deposited a sum of Rs. 3,00,000 for the due performance by them of the terms of their agreement with the 1st defendant. The plaintiffs were, however, to have an option to accept or decline to accept responsibility as regards any particular contract. It was the usual practice of the plaintiffs to counter-sign the contract, if they had accepted responsibility with regard to it. During the operation of the said agreement, the defendant no. 2 entered into a contract in writing with the defendant no. 1 by which the 2nd defendant agreed to buy from the 1st defendant 25 tons of yellow metal sheets at the rate specified in the contract. The plaintiffs as the dubashes of the 1st defendant had given guarantee of the due performance of the said contract by the 2nd defendant according to its terms. The price was fixed in English currency as the exchange was then fluctuating very much. To minimise the loss on exchange the parties entered into a covenant that the exchange rate for payment at Madras was to be fixed in advance on the 2nd defendant’s account on or before the date when payment by the 1st defendant Company to the shippers fell due subject to the Banks in Madras operating for the period. But if no instructions were received from the 2nd defendant prior to that date the 1st defendant company was to have the option of fixing exchange rate at the current rate at the time of payment. The 2nd defendant asked the 1st defendant 2 times in writing to fix up the exchange rate and the 1st defendant agreed to do so both the times. But the 1st defendant failed to fix the exchange both the times. The 2nd defendant by his letter cancelled the contract as a result of 1st defendant’s breach. The 2nd defendant suffered loss as a result of 1st defendant’s failure to fix up the rate of exchange in time. The contract being broken the 1st defendant company had the goods sold, in auction and that caused a loss of Rs. 30,000. They deducted this amount under the dubash agreement from the security which the plaintiffs had given to them.
The plaintiffs filed a suit stating in the first instance that the 1st defendant had itself committed the breach by wrongfully failing to fix the exchange rate in time and that they were, therefore, not entitled to any damages or to deduct any money from plaintiffs’ money in their hands and they claimed, therefore, that the 1st defendant company should refund to them the money so deducted. In the alternative, they asked that if the Court found that the 2nd defendant had committed the breach and was liable in damages the amount payable by that company as damages should be decreed to be paid over to them.
The Trial Judge had absolved the 1st defendant company from all liability and holding that the 2nd defendant company committed the breach of contract had decreed the suit directing defendant no. 2 to pay damages to the plaintiffs.
The 2nd defendant appealed to the Madras High Court making the plaintiff company the sole respondent to the appeal. The Madras High Court held that the 2nd defendant company is entitled to be reimbursed the loss caused by the failure to fix up the exchange rate in time and neither the 1st defendant nor the plaintiffs will be entitled to any amount as damages from the 2nd defendant. The decree of the Trial Judge against the 2nd defendant was set aside and the suit dismissed against them with costs in the Trial Court and of the appeal.
(b) Issues
1. In the appeal before the Madras High Court by the appellants, is it necessary to make the 1st defendant a party to the appeal?
2. Did the plaintiffs given guarantee of the due performance of the contract at the instance of the 2nd defendant and was there any privity of contract between the plaintiffs and the 2nd defendant?
3. If there was no privity of contract between the plaintiffs and the 2nd defendant, are the plaintiffs entitled to maintain the suit against the 2nd defendant?
4. Whether the 1st defendant wrongfully failed to fix up the exchange rate in proper time?
5. Can the plaintiffs be treated as del credere agents?
(c) Holding
Regarding 1st issue, the Madras High Court held that it is not required to make the 1st defendant a party to the appeal filed by the appellants before the Madras High Court.
Regarding 2nd issue, the Madras High Court held that the plaintiffs had not given guarantee of the due performance of the contract at the instance of the 2nd defendant and there was no privity of contract between the plaintiffs and the 2nd defendant.
Regarding 3rd issue, the Madras High Court held that the plaintiffs were not entitled to maintain the suit against the 2nd defendant.
Regarding 4th issue, the Madras High Court held that there was a failure by the 1st defendant to fix up the rate of exchange in time. It is immaterial whether the fault be the 1st defendant company’s or not. In either case, the 2nd defendant is entitled to be compensated for the loss caused by the failure to fix up the exchange rate in time.
Regarding 5th issue, the Madras High Court held that the plaintiffs cannot be treated as del credere agents.
The Madras High Court held that the 2nd defendant is entitled to be compensated for the loss caused by the failure to fix up the exchange rate in time and neither the 1st defendant nor the plaintiffs will be entitled to any amount as damages from the 2nd defendant. The appeal by the appellant was allowed and the decree of the Trial Judge against the 2nd defendant was set aside and the suit dismissed against them with costs in the Trial Court and of the appeal.
(d) Rationale
Regarding the 1st issue the rationale behind the holding is that the 2nd defendant only desires that the decree against him in favour of the plaintiffs should be set aside. His appeal against the plaintiffs alone is, therefore, properly constituted.
Regarding the 2nd issue the rationale behind the holding is that there was a contract of indemnity between the plaintiffs and the 1st defendant according to the section 124 of the Indian Contract Act, 1872. The plaintiffs were the indemnifiers and the 1st defendant was the indemnity holder. There was not any contract of guarantee between the plaintiffs, the 1st defendant and the 2nd defendant according to the section 126 of the Indian Contract Act, 1872. In contracts of guarantee, unlike contracts of indemnity, there are three persons, namely, the principal debtor, the creditor, and the surety involved in the contract. The surety undertakes his obligation at the request express or implied of the principal debtor. Privity is essential in all cases of guarantee between the three parties. The law is clear that no person who is not a party to a contract can sue upon it. A person cannot make himself the creditor of another person by discharging the obligations of the other person without his consent and that the rights of the surety against the principal debtor can only arise where the suretyship has been undertaken at the request of the principal debtor. The contract which was entered into by the 2nd defendant with the 1st defendant was a separate contract and only two parties, i.e., the 1st defendant and the 2nd defendant were involved in that contract. The plaintiffs were stranger to that contract. The plaintiffs indemnify the 1st defendant against loss but they do not do that at the instance of or at the request of the dealers with whom the 1st defendant company was entering into contracts. Therefore, the plaintiffs did not given the guarantee at the instance of the 2nd defendant and there was no privity of contract between them.
Regarding the 3rd issue the rationale behind the holding is that there was no privity of contract between the plaintiffs and the 2nd defendant. The general principle of law is that a person who is not a party to the contract cannot enforce it.
Regarding the 4th issue the rationale behind the holding is that the evidence of Mr. Todd of the exchange broker’s firm shows that it was only in May, 1920 that application was made to him to fix the exchange regarding the suit contract and in that particular it is not in accordance with evidence of Mr. Menzies who was in charge of the 1st defendant company. He also said that it was easier to fix the rate in March than in May. The truth is that the first defendant company took no steps to get the exchange fixed till May, when they put themselves in communication with Messrs. Huson Todd & Co. as Mr. Todd says. But even if it is assumed that the fault was wholly Mr. Todd’s in not fixing up the exchange as the Trial Judge finds that cannot absolve the 1st defendant company from liability to 2nd defendant company for not getting the exchange fixed. If Mr. Todd who was their agent failed in his duty they might have a claim against him but they cannot plead the laches of their own agent as a defence against the 2nd defendant company. Although Mr. Todd says that he could not fix up the exchange for March, 1921, his books seem to show that he fixed up rates for a number of forward contracts and with some diligence he could have fixed up the exchange for this contract also. It has not been proved that it was impossible to have got the exchange fixed up in spite of the best endeavours of the 1st defendant company.
Regarding the 5th issue the rationale behind the holding is that the plaintiffs cannot be treated as del credere agents as the plaintiffs had nothing to do with the making of the suit contract. They did not arrange it as agents at all. There was no evidence which would justify in holding that any such agency exists. A del credere agent is defined as one, who, in consideration of extra remuneration, called a del credere commission undertakes that the persons with whom he enters into contracts on the principals’ behalf will be in a position to perform their duties. It is necessary that before a person can claim to be a del credere agent he must have brought about the contract in question.
FACTS OF THE CASE
In this case, the appellants are K.V. Periyamianna Marakkayar and Sons and the respondent is Banians and Co. The appeal was filed before the Madras High Court by the appellants against a decree passed against them by Mr. Justice Coutts Trotter for a sum of Rs. 30,000 and interest and costs.
The suit was filed by the Banians and Co. as plaintiffs against the Messrs. Shaw Wallace and Co. as defendant no.1 and in the alternative against K.V. Periyamianna Marakkayar and Sons as defendant no.2. Between the plaintiffs and the 1st defendant, there was an arrangement called the Dubash agreement dated 21st November, 1912 by which the plaintiffs undertook to guarantee the 1st defendant due completion of all the contracts entered into by dealers with the 1st defendant and to indemnify the 1st defendant against all loss in certain specified branches of their business in consideration of the payment of a commission. The plaintiffs deposited a sum of Rs. 3,00,000 for the due performance by them of the terms of their agreement with the 1st defendant. The plaintiffs were, however, to have an option to accept or decline to accept responsibility as regards any particular contract. It was the usual practice of the plaintiffs to counter-sign the contract if they had accepted responsibility with regard to it.
During the operation of the said agreement, the 2nd defendant entered into a contract in writing with the 1st defendant on 13th February, 1920 by which the 2nd defendant agreed to purchase from the 1st defendant 25 tons of yellow metal sheets at the rate specified in the contract. The plaintiffs as the dubashes of the 1st defendant had given guarantee of the due performance of the said contract by the 2nd defendant according to its terms. Under the contract between the 1st and 2nd defendants, it was provided that cash must be paid against documents within 60 days of the arrival of the steamer and the 2nd defendant was to be entitled to a rebate of interest at 6 per cent. for moneys paid before maturity. The price was fixed in English currency as the exchange was then fluctuating very much. To minimise the loss on exchange the parties entered into a covenant that the exchange rate for payment at Madras was to be fixed in advance on the 2nd defendant’s account on or before the date when payment by the 1st defendant Company to the shippers fell due subject to the Banks in Madras operating for the period. But if no instructions were received from the 2nd defendant prior to that date the 1st defendant company was to have the option of fixing exchange at the current rate at the time of payment. The contract fell within the class of contracts guaranteeable by the plaintiffs and they accepted liability for it and in token thereof they counter-signed the contract. On 14th February, 1920, the 2nd defendant asked the 1st defendant in writing to fix the exchange at once and the 1st defendant agreed to do so. The 1st defendant failed to fix the exchange and on 3rd May, 1920, the 2nd defendant again asked the 1st defendant to fix the exchange immediately without any reference to him which also the 1st defendant agreed to do. The 1st defendant Company, however, failed to fix the exchange. The 2nd defendant by his letter of 20th October, 1920, cancelled the contract as a result of the 1st defendant’s breach, but agreed to accept the goods by paying at the rate of exchange prevailing during the 1st week of May, 1920, if delivery was offered on those terms. When the goods arrived in January 1921, the 2nd defendant refused to pay the price calculated at the then current exchange and to take delivery as they stated that the 1st defendant had wrongfully failed to fix the exchange when asked to do so in February, 1920, when the exchange was very much more favourable. In 1921, the exchange had fallen. The 2nd defendant suffered loss as a result of 1st defendant’s failure to fix up the exchange rate in time. The contract being broken the 1st defendant had the goods sold, in auction and that caused a loss of Rs. 30,000. They deducted this amount under the dubash agreement from the security which the plaintiffs had given to them.
The plaintiffs filed a suit stating in the first instance that the 1st defendant company had itself committed the breach by wrongfully failing to fix the exchange rate in time and that they were, therefore, not entitled to any damages or to deduct any money from plaintiffs’ money in their hands and they claimed, therefore, that the 1st defendant should refund to them the money so deducted. In the alternative, they asked that if the Court found that the 2nd defendant had committed the breach and was liable in damages the amount payable by the defendant no. 2 as damages should be decreed to be paid over to them.
Defendant no. 1 admitted the dubash Agreement and its terms and also the contract by the 2nd defendant with them but stated that defendant no. 1 has no obligation to fix the rate of exchange. Defendant no. 1 asked the defendant no. 2 to pay Rs 73,117-5-7. Defendant no. 1 has no liability to pay the plaintiffs this amount.
Defendant no. 2 admitted the contract but stated that it is wrong to say that plaintiffs guaranteed the due performance of contract by him. There was no privity of contract between them. In alternate, it was stated that if plaintiffs have acquired the rights of the defendant no. 1 under the contract plaintiffs can claim set off of Rs 30,500, difference in the rate of exchange between May 1920 and 29 March, 1921.
The Trial Judge had absolved the 1st defendant from all liability and holding that the 2nd defendant company committed the breach of contract and directed defendant no. 2 to pay damages. It was held that as the plaintiffs affixed their signature to the offer made by the defendant no. 2 therefore they have guaranteed the contract which was subsequently made. The Trial court held plaintiffs entitled for Rs 30,000/- for loss of difference in exchange rate, after giving credit to the price realized by the goods on re-sale under order of court.
The 2nd defendant appealed to the Madras High Court making the plaintiffs, the respondent to the appeal saying that there was no privity of contract. There was no contract of guarantee between the plaintiffs, the 1st defendant and the 2nd defendant. But there was a contract of Indemnity between the plaintiffs and the 1st defendant.
The Madras High Court held that the 2nd defendant company is entitled to be reimbursed the loss caused by the failure to fix up the exchange rate in time and neither the 1st defendant nor the plaintiffs will be entitled to any amount as damages from the 2nd defendant. The decree of the Trial Judge against the 2nd defendant was set aside and the suit dismissed against them with costs in the Trial Court and of the appeal.
CONCLUSION
It can be concluded from studying the K.V. Periyamianna Marakkayar and Sons v. Banians and Co. case that there is a difference between the contract of indemnity and the contract of guarantee. In a contract of indemnity, there are two persons involved generally, the indemnifier and the indemnityholder. But in a contract of guarantee, there are three persons involved, the creditor, the principal debtor and the surety. Also a person cannot make himself surety of another person by discharging the liability of another person without his consent express or implied. Also in a contract of indemnity, indemnifier cannot sue third parties in his own name unless he gets assignment from the indemnityholder. Indemnifier can sue third parties in the name of the indemnityholder. But a surety can sue in his own name.

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