Summary
A charterer retained US $100,000 of freight and, in letters including a 'Corporate Guarantee', undertook to pay it to a Dubai ship-repairer for repairs owed by the vessel owner; its bank then remitted the money to the owner by mistake. The Court held the charterer liable to the repairer as surety under Sections 126-128 of the Contract Act, with its recovery rights preserved, and upheld the third-party decree making the bank indemnify the charterer for disregarding its customer's instructions. Both appeals were dismissed.
Issues
- Whether the charterer's letters of 22.04.1998 and 25.04.1998 amounted to a contract of guarantee or merely a freight payment arrangement.
- Whether the suit failed for non-joinder of the vessel owner, the principal debtor.
- Whether the plea that Reserve Bank of India approval was needed for the remittance could be considered absent pleadings.
- Whether the bank was rightly made liable to the charterer under the third-party procedure for remitting the amount to the vessel owner contrary to instructions.
Provisions considered
- Sections 126, 127 and 128, Indian Contract Act, 1872A guarantee is an undertaking to discharge a third person's liability on default; consideration may move to the principal debtor and the surety's liability is co-extensive. Read together, the letters were an independent guarantee by the charterer to discharge the vessel owner's repair liability, not a mere freight arrangement. (¶¶ 15, 15.1, 16, 22, 25)
- Section 140, Indian Contract Act, 1872On paying, the surety is subrogated to the creditor's rights, so the charterer's right to recover from the vessel owner was preserved. (¶¶ 16, 33)
- Order I Rule 10(2), Code of Civil Procedure, 1908The plaintiff as dominus litis chooses whom to sue and cannot be compelled to implead a person who is not shown to be a necessary party; non-joinder of the vessel owner did not defeat the claim. (¶¶ 27.1, 31, 32)
- Order VIII-A (third-party procedure), Code of Civil Procedure, 1908 (as incorporated in Order V-A of the Madras High Court Original Side Rules)This summary procedure lets a defendant claim contribution or indemnity from a third party or co-defendant; the charterer used it against the bank but not against the vessel owner, and the third-party decree against the bank was upheld. (¶¶ 29, 30, 31, 36)
Held
- A guarantor need not derive any direct benefit; benefit to the principal debtor suffices and consideration may be past, present or future. The guarantee is a separate, independently enforceable contract, and the creditor may sue the surety without first exhausting remedies against the principal debtor. (¶¶ 16, 17, 18)
- To constitute a guarantee there must be an undertaking to pay the creditor on the principal debtor's default for a benefit received by the principal debtor. The charterer's letter assuring direct payment and its 'Corporate Guarantee' payable on first written demand, followed by its remittance instructions and its witness's admission that it was a conditional guarantee, satisfied Sections 126-128. (¶¶ 22, 23, 24, 25)
- Having acted on the guarantee by seeking RBI approval and instructing its bank, the charterer was estopped from relying on the unamended charter-party freight clause to deny liability. (¶¶ 26, 26.1)
- The plaintiff, as dominus litis, could choose to sue only the charterer and the bank; a counterclaim ordinarily lies only against the plaintiff, and since the defendants did not use the available third-party procedure against the vessel owner, their failure could not defeat the plaintiff's claim. (¶¶ 27, 27.1, 28, 29, 31, 32)
- The plea that remittance required RBI approval was not pleaded, and evidence cannot be considered without foundational pleadings; in any event the charterer's liability as guarantor stood. (¶ 33)
- A bank must follow its customer's clear remittance instructions or seek clarification or withhold the funds; it cannot rely on a charter party to which it is not a party to justify remitting the customer's money elsewhere. The bank, having admitted its error, was rightly made liable to the charterer under the third-party decree. (¶¶ 34, 35, 36)
Result
Both appeals dismissed, affirming the decree against the charterer in favour of the ship-repairer and the third-party decree in favour of the charterer against the bank; no order as to costs.