Lala Shanti Swarup v. Munshi Singh
1967 SCR (2) 312
(Section 124 of Indian Contract Act, Implied Indemnity)
The plaintiff-respondents (PR) mortgage their land to Bansidhar and Khub Chand (BK) for Rs. 12,000. Half of this mortgaged property was then sold by the real owner (PR) to Shanti Saran(S) (defendant-appellant, DA) at Rs. 16,000. As agreed, out of this, a sum of Rs. 13,500 was to be paid by S, as the amount, due to the mortgagee (BK). S defaulted on payment, B-K filed a suit.
Court of 1st instance: ordered P-R to pay the whole mortgage due.
Special Judge, UP Encumbered Estates Act: Apportioned the liability between PR & S.
P-R had to mortgage ¾ of the half of the unsold land to fulfill the liabilities (got damnified). PR filed a suit for recovery of the same.
- A provision in a contract that S will pay off the encumbrance (Rs.13500) does not give rise to a contract of indemnity. Accordingly Ar. 116 and not Ar. 83 is applicable. The suit is time-barred. The claim of PR was a claim for compensation for breach of contract which was entered into by a regd. document for which the period of limitation was 6 years from the date on which the breach of contract had been committed (DA failed to pay Rs. 13500).
- There was no express contract of indemnity in the sale deed
- Even if there was a contract of indemnity the cause of action for the plaintiff arose when the final mortgage decree was passed.
- Whether Ar. 116 (6yrs.) or Ar. 83(3yrs.) of the Limitation Act would be applicable? When did the time actually start running for this purpose?
- Whether or not there is a contract of Indemnity?
Trial Court: P-R Succeeded.
High Court: Suit is governed by Ar. 83 read with Ar. 116 and the time runs from the date when he actually got damnified, i.e. had to martgage ¾ of …
SUPREME COURT (favoured PR)
1. Two separate causes of action may arise:
i. The failure of S to pay off the encumbrance (within reasonable time) enables the PR to sue S and bring himself in a position to meet the liability which the S failed to meet. The deed being registered Ar. 116(6yrs.) will be applicable.
ii. PR can bring a suit on the contract of indemnity (implied in this case) if as a result of the failure of S to discharge the encumbrance the vendor incurs a loss. Here Ar. 83 will be applicable.
2. (w.r.t 2nd issue & 2nd contention of DA) There covenant was not one only to purchase the PR’s property but also one to relieve the PR from the liability of the mortgage, and in that sense there was an implied contract of indemnity in favour of the vendor.
3. (w.r.t 3rd contention of DA) The cause of action arises when the PR was actually damnified i.e. had to martgage ¾ of the half of the unsold land to fulfill the liabilities.