Conditions precedent to liability

Union Bank Of India vs Manku Narayana

AIR 1987 SC 1078

This case is based on the principle that the creditor can sue the surety holder for the default of the principal debtor only when the creditor has exhausted all the remedies available towards the principal debtor. Before exhausting the remedies towards the principal debtor the creditor cannot make the surety holder liable. This case is an appeal case made to the supreme court by the bank against the guarantor .the creditor has the whole authority to either sue the principal debtor or the guarantor or both of them equally .it is left to the creditor whom they want to sue. If the surety holder has not mentioned any conditions precedent to the liability then the creditor can make the guarantor liable for the default, the surety has no right to retrain execution against him in absence of any conditions precedent.

Union Bank of India: appellant

Manku Narayana: respondent (surety holder)

 The appeal case is filed by the bank against the respondent (guarantor) to recover the loan amount taken by the principal debtor. This case was already decided in the high court of Andhra Pradesh and the judgement was given favour in of manky Narayana saying that the bank can only sue the guarantor only after exhausting the remedies available towards the principal debtor .so while taking the bank debt the principal debtor has given property papers as a mortgage .the high courts direction was to exhaust the mortgaged property first and then come to the guarantor .this judgement was unsatisfactory to the bank so the bank is seeking the supreme court’s remedy to allow to sue the guarantor for the default of the principal debtor .because the bank is giving the reason that they have made the efforts to sale the mortgaged property but no offer of purchase was made so there is only one remedy left with the bank that is to sue the guarantor.

The reasoning given by the judges :

This appeal case was dismissed by the supreme court and sent back again to the high court for review. The judges observed that it would work injustice in some cases if action against the guarantee was postponed till remedies against the principal debtor were exhausted .in certain cases it might take a long time before the remedies are exhausted. till some extent supreme court relied upon the high court's judgement that the appellant must first exhaust the mortgaged property then move onto the guarantor. But it was stated by the appellant that they already made an effort to sale the mortgaged property if that’s the case then the appellant has the full authority to move towards the guarantor for the recovery of the defaulted amount .the high court was directed to look onto this issue again. and the suit was dismissed. it was held that the creditor has the whole authority to either sue the principal debtor or the guarantor or both of them equally .it is left to the creditor whom they want to sue.

Principles laid down by the judgment

1st principle:

the creditor has the whole authority to either sue the principal debtor or the guarantor or both of them equally .it is left to the creditor whom they want to sue. If the surety holder has not mentioned any conditions precedent to the liability then the creditor can make the guarantor liable for the default, the surety has no right to retrain execution against him in absence of any conditions precedent.

2nd principle :

The Court observed that it would work injustice in some cases if action against the guarantee was postponed till remedies against the principal debtor were exhausted, in certain cases, it might take a long time before the remedies are exhausted. This Court observed that the very object of the guarantee would be defeated if the creditor was asked to postpone his remedies.

 Comment on the judgement

It was a quite 50/50 judgement wherein I feel half of the judgement was half satisfactory to me and the other half was not satisfactory. Unsatisfactory fact: I feel the judges should have not dismissed the case and would have given the judgment in favour of the bank directing to exhaust the remedy against the guarantor.Satisfactory part: the judges stated that if the bank has already made an effort to sale the mortgaged property and exhausted all rights against the principal debtor then the bank can move towards the guarantor. And also directed the high court to review the case again