Appeal and revision-New facts on appeal

Contract=Fraud=Oonsideration in mortgage deed not truely stated
Gua~antee-Alteration .of credit agreement-Whether an alteration of the

terms of payment in the credit agreement makes the guarantee voidable

The defendant mortgaged her house to the plaintiff in exchange, ac-
cording to the mortgage deed, for £E.200 received. In reality the mort-
gage was security for a written promise the defendant made to. guarantee
her son-in-law's debts to the plaintiff. The plaintiff subsequently sued' the
debtor, and after judgement for the plaintiff was given the' plaintiff and the
debtor made a new agreement whereby the son was ·given more time to
pay the debts. The Court of Appeal held that the misstatement of con-
sideration in the mortgage deed did not make the mortgage void, but that
if the new agreement between the debtor and the plaintiff any alteration of
the terms of the original credit agreement, and the defendant's consent Was
not given to such change, then the defendant is released from her guaran-
tee.

Appeal

December 7, 1927. Bell C.J.: The facts of this case are as fol-
. lows: Before the beginning of 1924 Azouz Darwish had had dealings
. with Carapanayeti Brothers. In January, 1924 Azouz owed to
Carapanayeti a sum of money, which.is stated to have been £E.140
in the course of the proceedings of this case and this appeal, but which
Carapanayeti's advocate said was £E.196 in an earlier case, No.

* Court: Bell C.J., Owen and Hamilton-Grierson Jl.

159-1924. By a deed dated January 26, 192~, and registered on .
January 30, 1924, Nafissa Bint Ahmed, mother-in-law of Azouz,
mortgaged to Carapanayeti her house for £E.200, the receipt of which
she acknowledged in the deed. On January 30, 1924 the seal of Nafissa
Bint Ahmed was affixed to a document which reads: "With reference
to the mortgage . . . to Carapanayeti Bros. 1 hereby undertake to
guarantee Azouz Darwish to Carapanayeti for £E.200 representing
the price of any goods. received . . . at any time past orfuture .. And
in the event of failure to pay the price of these goods at the fixed times,
1 will be a guarantor of the balance due .... " The. defendants state
that a condition was that the debt should be paid off in monthly in-
stalments of £E.20.

On July 10, 1924 Carapanayeti sued Azouz for £E.48 on three
promissory notes, Reference was made to the mortgage in the pro-
ceedings and on August 13, 1924 judgement was given for Carapanayeti
for £E.48, apparently by consent. On August 30, 1924 a new agree-
ment was made between Carapanayeti and Azouz. This agreement
reads:

"I the undersigned (Azouz Darwish) declare that 1 am unable to
pay the bills already due ... amounting to PT.18340 plus PT:?72
by way of interest . . . i and. therefore 1 have freely . and willingly
signed the following three new bills thus extending time of payment:

 1 for PT.6371 due on 25.10.1924
1 for PT.6371 due on 25.11.1924
1 for PT.6370 due on 25.12.1924

"I hereby undertake to pay each one of the above bills when due, and'

      1 also undertake to pay the remaining two bills when due:        .

1 for PT.2698 due on 4.9.1924

1 for PT.2J69 due on 10;9.1924

"If any of the five .bills is' not paid when due . . . Carapanayeti Bros.
have the immediate right to claim payment of all of the .five bills at
once, and I shall bring no objection whatever to their demand for im-
mediate payment."

The agreement goes on to make Azouz liable for PT.1282, most of
whi~h:'~ costs incurred in civil suit No. 159-24. This agreement and
the :three promissory notes are filed in civil suit No. 117-25.

On May 17, 1925 CarapaIiayeti started a suit against Azouz for
£t:.175, made up of the amounts of the three promissory notes above

mentioned, and the PT.1283 expe~es, less £E.28 which 'had been
paid on account. No reference was \made in tl,tis case to the former
case. Judgement was given in fav;our of Caiapanayeti on June 4, 1925.
On June 24, 1925 execution of this last judgement was applied for.
Certain valueless movables were seized, but nothing further was, done
until December 1926, when the decree holder was told that if he Wished'
to realise his security, he must start a new action. On February 19,
1927 the action now before the court was started.· Meanwhile Nafissa
Bint Ahmed had died, apparently in 1926, and the debt, which was
£E.183.400 in August 1924, had been increased by interest and.costs
to £E.191, notwithstanding that £E.28 had been paid.

four issues were framed, namely:

* Is the deed of January 30, 1924 mill and of no effect by rea-
son of the allegation that the deceased Nafissa, the mortgagor,

   was of unsound mind when the deed was entered - into?         .

* In view of the fact that the consideration ill the deed of J ann-
ary 30, 19Z4 is wrongly expressed, is the deed void and of no
effect?

1. Was it a term and condition of the mortgage deed that Azouz .

Darwish should repay to plaintiffs a particular sum, and, if' so, .
what; within a - particular period, and, if so, when; and in a
particular manner and if so how?

  If so, did in fact Azouz Darwish repay £E.140 to plaintiff out of the mortgage' monies?   

It must be noted that, at the time the issues were framed, the
document of August 30, 1924 was not before the court.

The wording of the first issue istoo narrow.' No doubt she was
not of unsound mind, but the question is, whether she understood
the nature of the transactions into which she was entering, All I need
to say here is that, unless she was a party to, a misrepresentation, the _ .
fact jfiat she m:ade a false declaration before the Registrar-General ~-.
s¢e indication that she did not understand what' she was doing.

.On the second issue I agree with the learned Judge, that the mis-
statement of consideration is not of itself sufficienfto make the mort-. -
gage void.

TWo wi~esses were called by the defendants in re~ard-' to the-'-
third issue. One of them did not appear; the, other said: "I l'~,

ber Azouz asking me to get the Khawaga to accept instalments; I know
the Khawaga accepted an arrangement subject, to a mortgage being
made in their favour." Further there is the fact that there were
promissory n<?tes in existence at the time, and one of them, at any
rate, was.for £E.20 (vide Civil. Suit No. 159-24). Finally there is
the wording of the document of August 30, 1924 suggesting that pay-
ment as to "be made at fixed periods. The court has recorded no
finding on this issue, but the matter is, in my opinion, of great im-
portance because the, guarantor may be entitled to be released al-
together if the terms of the agreement were altered by the creditor
and the principal without her assent. The agreement of August 30,
1924 discloses that there was a new arrangement between the creditor
and the principal. If there was a new agreement, whereby the original
terms of payment were altered, it may be that the guarantor was pre-
judiced thereby; as the plaintiff's advocate has pointed out, there were
goods belonging to Azouz available in 1924 to payoff part, at any
rate, of the debt. If the security fails, the mortgage must fail also.
It is true' that no such defence was raised by the defendants, but they
were not represented by counsel, and, having regard to all the cir-
cumstances of the case, I think that the court ought itself to have
raised the defence. '

My conclusion therefore is that, inasmuch as new evidence has
COlQe to light, which was not before the court below, namely the case ,
of 1924, which throws doubt on the actual amount for which the
guarantor can be made liable, assuming that she is liable' at all; for
example, there seems to be no good reason for charging the guarantor
with interest and court fees, some at least of which would have been
saved if the guarantor had been sued in her lifetime, and that, inas-
much as a defence available to the defendants has not been considered
there' must be a re-trial of the action.

Finally, I think it necessary to comment on the mortgage trans-
action.. The true nature of the transaction was not known to the Gov-
ernor at the time he gave his consent, nor was it known to the
Registrar-General. I do not say that there is any duty on the Registrar-
General to inquire into a transaction, or to explain the law to persons

'executing a deed before him; but I think that it may safely, be as-
sumed that this is a case in which he probably would have done so,
if the true facts had been before him, seeing that one of the parties
was an educated foreigner, and the other an old and illiterate native
woman

Whether the Governor would have given his consent if he had
known the true facts it -is impossible to say.

It is no doubt true that Azouz Darwish himself was the prime
mover and responsible for any misrepresentation which took place.
Others of Nafissa's heirs may also have been parties. Nafissa herself
was, in the words of the learned Judge, apparently hoodwinked by
Azouz with the assistance of the plaintiffs. The plaintiffs themselves
have not yet given their version of the transaction.

For these reasons 1 am of opinion that the appeal must be allowed
and the case sent back to the High Court for re-hearing.

Owen J.: 1 concur. Whilst it is true that the claim is one which
is based on the convenants in a deed of mortgage or charge, the cir-
cumstances surrounding it are such that it becomes necessary to look
at the transaction as a whole. In effect, that transaction appears to me
to be this: "In consideration of your accepting my guarantee for the
price of the goods you sell to my son-in-law," says the defendant, "1
will mortgage my house to you." And she did so in fact in January of
1924. In other words there was a contract of suretyship secured by
a charge.

For obvious reasons the law is jealously anxious to shield a surety
from imposition, and its protection. will reach to an extent 'than any
alteration of the terms of the original agreement by the creditor and
debtor behind the surety's back will exonerate the surety; the contract
of suretyship will be avoided, and, together with it, any collateral agree-
ment intended to secure its performance.

Now, not only did the sum claimed by the creditors from the
surety in this case include the costs of obtaining what they had very

. good reason to believe would be barren judgements against die debtor,
but also, on August 30, 1924 an agreement was entered into between
the creditors and the debtor, which had for its expressed object the
giving of time to him.

These facts do not appear to have been disclosed at the trial, and

. 1 agree therefore that the case must be referred back for a finding as
to the knowledge and acquiescence of the surety in these material
alterations in the contract for the supply of goods; for, if it was done
behind her back, I am of opinion as I have said, that she should be
exonerated from liability, both on her contract of suretyship and the
mortgage.