Bankruptcy-Claim-Creditor'! failure to prove his claim in principal debtor's
bankruptcy does not discharge guarantor of his obligatio'! towards the credi-
tor

Guarantee-Bankruptcy-Guarantor's liability to creditor who did 1I0t prove
his claim in principal debtor's bankruptcy-Liability for interest on the note

Negotiable instrument-Promissory note-Liability oj guarantor

Plaintiffs were guarantors of a promissory note made by S in favour of
K for £ 1 00 with interest. Defendants gave the plaintiffs a written guaran-
tee of the same debt without reference to the interest. S failed to pay K
on the specified date and was later adjudicated bankrupt. Plaintiffs, hav-
ing paid K on the notes, sued the defendants on their guarantee without
proving in S's bankruptcy. Defendants denied liability for the interest as it
was Dot mentioned in the guarantee. They also denied liability for the guar-
antee as a whole because plaintiffs had failed to prove in S's bankruptcy.

Held: (i) Where a negotiable instrument carries interest without tile
rate being specified, the Bills of Exchange Ordinance, 1917, s. 8 (4) is
applied to determine the interest.

(ii) A guarantee of a promissory note includes any interest due on the
note at the specified rate, or at the statutory rate if no rate is specified.
(iii) Failure of the creditor to prove his claim in principal debtor's
bankruptcy does not discharge the guarantor of his liability to the creditor,
unless the guarantee contains a provision to that effect.

Bills of Exchange Ordinance 1917. s. 8 (4).

* Court: Halford J.

Action

June 27, 1933. Halford J.: The plaintiffs sue the defendants
upon an undertaking in writing dated August 22, 193 I whereby
defendants guaranteed the payment at its due date by A. & C. Sake-
laropolo of a promissory note dated August 15, 1931, for the sum
of £E.100 with interest, to John Kritharis, of which the plaintiffs were

        guarantors.                                                                    

It is not in dispute that the Sakelaropolo Brothers failed in
November 1932 some three months after the due date of the note, as
the result of which the plaintiffs paid Kritharis the amount of the
note and were debited with the balance of its value in interest.

There are two issues for determination on the pleadings, Firstly,
the defendants deny liability for interest on two grounds. namely that
interest at a specific rate is not provided for and, secondly, on a strict
construction of the terms of the guarantee, no promise to pay interest
can be implied.

The first objection is of a purely frivolous nature and disposed
of by section 8 (4) of the Bills of Exchange Ordinance 1917. I The'
second is untenable on a glance at the wording of the document sued
on, which is simply descriptive for the purpose of identification of
the instrument guaranteed.

By raising the second issue, the defendants have shouldered the
responsibility of proving that by the giving of time by the plaintiffs to
the debtors, the defendants' security was imperilled and subsequently
lost on the adjudication of the debtors as bankrupts and they are
therefore discharged from all liability under the guarantee..

In support of their contention the defendants rely mainly on:
(1) A letter dated July 28, 1932, whereby they invited the plain-
tiffs to take proceedings against the debtors if at maturity of the bill
they failed to meet it. This objection can at once be disposed of
on the ground that no such provision was contained in the undertaking
to guarantee, the letter referred to having been written approximately
a year later.

1 The subsection reads: "Where a bill is expressed to be payable with
interest, unless the instrument otherwise provides interest runs from the date of
the bill, and if the bill is undated, from the issue thereof. and if the rate of
interest is not specified, six per cent shall be understood."