Case: State Of Madhya Pradesh Vs. Kaluram

goods. The State was also entitled to prevent the goods from being removed without payment of the instalments due. The expression "security" in S. 141 is not used in any technical sense; it includes all rights which the creditor had against the property at the date of the contract. The surety is entitled on payment of the debt or performance of all that he is liable for, to the benefits of the rights of the creditors against the principal debtor which arise out of the transaction which gives rise to the right or liability: he is therefore on payment of the amount due by the principal debtor entitled to be put in the same position in which the creditor stood in relation to the principal debtor. If the creditor has lost or has parted with the security without the consent of the surety, the latter is, by the express provision contained in S. 141, discharged to the extent of the value of the security lost or parted with.12. The State had a charge over the goods sold as well as the right to remain in possession till payment of the instalments. When the goods were removed by Jagatram that security was lost and to the extent of the value of the security lost the surety stood discharged. In the present case the State has not produced the accounts furnished under R. 16 by the contractor relating to the quantity of goods removed by Jagatram. We must in the circumstances hold that the entire quality contracted to be sold to Jagatram had been removed, and the surety is, because the State has parted with the security which it held, discharged from liability to pay the amount payable under the terms of the contract12-A. In Wulff and Billing v. Jay, (1872) 7 QB 756 Hannen, J., stated the law thus :" * * * I take it to be established that the defendant became surety upon the faith of there being some real and substantial security pledged. as well as his own credit, to the plaintiff; and he was entitled, therefore, to the benefit of that real and substantial security "in the event of his being called on to fulfil his duty as a surety, and to pay the debt for which he had so become surety. He will, however, be discharged from his liability as surety if the creditors have put it out of their power to hand over to the surety the means of recouping himself by the security given by the principal. That doctrine is very clearly expressed in the notes in Rees v. Barrington -2 White and Tudors L. C., 4th Edn. at p. 1002-As a surety, on payment of the debt is entitled to all the securities of the creditor, whether he is aware of their existence or not, even though they were given after the contract of suretyship, if the creditor who has had, or ought to have had, them in his full possession or power, loses them or permits them to get into the possession of the debtor, or does not make them effectual by giving proper notice, the surety to the extent of such security will be discharged. A surety, moreover, will be released if the creditor by reason of what he has done, cannot, on payment by the surety, give him the securities in exactly the same condition as they formerly stood in his hands."Subject to certain variations, which are not material for the matter under discussion, S. 141 of the Contract Act incorporates the rule of English law relating to the discharge from liability of a surety when the creditor parts with or loses the security held by him.13. The Forest Officers of the State of Madhya Pradesh parted with the goods before receiving payment of the amount due by the contractor Jagatram. Thereby the charge in favour of the State was seriously impaired and the statutory power to sell the goods for non-payment of the amount remaining due became, for all practical purposes, ineffective. Again under the terms of the contract the Forest authorities had the right to prevent removal of goods sold until the prices was paid: that right was also lost. The right conferred by S. 83 of the Forest Act and under the terms of the contract to prevent removal and right to sell goods for non-payment of the price, coupled with the charge on the goods constituted the security of the State, and that security was lost because the Forest Officers permitted removal of the goods by the contractor.14. It was urged however on behalf of the State that mere inaction on the part of the forest authorities does not amount to parting with the security. But the terms of the statute do not apply only to cases in which by positive action on the part of the creditor the security is parted with. Even if the security is lost by the creditor, the surety is discharged. In any event the facts in the present case make it abundantly clear that it was on account of the conduct of the forest authorities that the security was lost. The goods sold were under the control of the Forest Officers, when they were in the coupe and even when they were in the depot of the contractor. The goods could be removed on the production of a pass from the coupe, and even after the goods were removed, unless they were examined and checked they were not at the disposal of the contractor. It is not pleaded by the State that the trees sold were not checked and examined at the depot of the contractor. Knowing that the goods were removed without payment of the instalments, if the Forest authorities checked and examined the goods and took no action for recovery of the amount payable, and did not enforce the charge, it would be difficult to say that there was mere inaction on the part of the forest authorities.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]Beside the contractual right which is conferred upon the State by Rule 8 to stop removal of goods in value exceeding the amount already paid by the contractor, where the consideration is payable in instalments the statute has imposed a charge upon the goods sold, inter alia, for the price thereof, and has authorised the Forest Officer to take possession of the goods until such amount is paid. If the amount is not paid when due, the Forest Officer may sell the produce by public auction. The State Government has therefore under the terms of the contract and by virtue of the statute, even though the property in the goods has passed to the contractor, the right to stop removal of the goods and take possession thereof till the amount due is paid and to sell the goods if the amount is not paid when due; the State has also the power to prohibit removal of the goods when the value of the forest produce removed by the contractor exceeds the amount of instalments already paid, to check and examine the goods and to terminate the contract in case of default in payment of the amount due and to take possession of the goods either in the contract area or in the depots of the contractor.10. The contract between Jagatram and the State was in respect of "felled trees" and the area and denomination of the coupe were set out. The trees agreed to be sold being in a deliverable state, by virtue of S. 20 of the Sale of Goods Act, the property in the goods sold passed on the production of the "coupe boundary certificate". It is true that because of the diverse covenants contained in the contract and the provisions of the Rules which formed part of the contract, certain restrictions were imposed upon the contractor. Rule 8 authorised the forest authorities to stop removal of the goods sold if it was found that the contractor had removed goods of value exceeding the amount of instalments already paid. Again the contractor was required to take the goods to the depots and to get the same checked and examined. But on that ground it cannot be said that the contractor did not become the owner of the goods when the "coupe boundary certificate" was produced. The "coupe boundary certificate" is not on the record, and we are unable to hold that any goods were removed or permitted to be removed without the production of the coupe boundary certificate. That is not the case of the State and we will not be justified in so assuming. The terms of Rr. 29 and 33 also abundantly support the view that on the production of the "coupe boundary certificate" the contractor becomes the owner of the goods. Under Cl. (2) of R. 29 when a contract is terminated for reasons mentioned in Cl. (1) all forest produce remaining within the contract area or at the depots specified under U. 1.3 becomes the absolute property of the Government. It is implicit in the rule that till the eventuality contemplated by R. 29(1), property in the forest produce is in the contractor. The terms of R. 33 (2) which authorise the forest contractor to assign any forest produce also support that inference. The right to assign the forest produce not removed from the contract area predicates title to the forest produce. The argument of the State that the property in the goods had not passed to the forest contractor till they were removed, and on that account the statutory charge under S. 83 of the Forest Act did not attach to the goods sold, has therefore no force. As soon as the contract was entered into and the coupe boundary certificate was produced, and we assume in this case that it was so produced, the property in the goods passed to Jagatram. But for the contract price there was a first charge on such produce in favour of the State of Madhya Pradesh under S. 83(1).The Divisional Forest Officer had authority to stop removal of those goods until the amount of instalments payable by the contractor was paid and even to sell the goods for recovery of the amount which had fallen due. The forest authorities however allowed Jagatram to remove the goods sold before the instalments due on December 1, 1954 and thereafter wereState had as already observed, a first charge over the goods. The State was also entitled to prevent the goods from being removed without payment of the instalments due. The expression "security" in S. 141 is not used in any technical sense; it includes all rights which the creditor had against the property at the date of the contract. The surety is entitled on payment of the debt or performance of all that he is liable for, to the benefits of the rights of the creditors against the principal debtor which arise out of the transaction which gives rise to the right or liability: he is therefore on payment of the amount due by the principal debtor entitled to be put in the same position in which the creditor stood in relation to the principal debtor. If the creditor has lost or has parted with the security without the consent of the surety, the latter is, by the express provision contained in S. 141, discharged to the extent of the value of the security lost or parted with.12. The State had a charge over the goods sold as well as the right to remain in possession till payment of the instalments. When the goods were removed by Jagatram that security was lost and to the extent of the value of the security lost the surety stood discharged. In the present case the State has not produced the accounts furnished under R. 16 by the contractor relating to the quantity of goods removed by Jagatram. We must in the circumstances hold that the entire quality contracted to be sold to Jagatram had been removed, and the surety is, because the State has parted with the security which it held, discharged from liability to pay the amount payable under the terms of thethe terms of the statute do not apply only to cases in which by positive action on the part of the creditor the security is parted with. Even if the security is lost by the creditor, the surety is discharged. In any event the facts in the present case make it abundantly clear that it was on account of the conduct of the forest authorities that the security was lost. The goods sold were under the control of the Forest Officers, when they were in the coupe and even when they were in the depot of the contractor. The goods could be removed on the production of a pass from the coupe, and even after the goods were removed, unless they were examined and checked they were not at the disposal of the contractor. It is not pleaded by the State that the trees sold were not checked and examined at the depot of the contractor. Knowing that the goods were removed without payment of the instalments, if the Forest authorities checked and examined the goods and took no action for recovery of the amount payable, and did not enforce the charge, it would be difficult to say that there was mere inaction on the part of the forest authorities.