Guarantor liable for full debt despite subsequent agreement; res judicata defense allowed late amendment.

[*239] 1976 May 18

(ARTEMIDES, D.J.)

IN THE DISTRICT COURT OP NICOSIA

Kyriaki Georghiou,

Plaintiff,

and

Loizos Voniati,

Defendant.

(Action No. 1981/75).

Contract - Contract of guarantee - Variance in terms of contract between principal and creditor without the guarantor's consent - Sections 91 and 93 of the Contract Law, Cap. 149 - Subsequent agreement inopetative as being void for lack of consideration - Guarantor not released.

Res judicata - Estoppel of record - Claim under a guarantee - Variance of terms of contract between principal and creditor - Issue whether subsequent agreement a valid one - The only issue before the Court - Decided in an earlier judgment - Maxim of res judicata applies.

Civil Procedure - Pleadings - Amendment - Defence of res judicata not pleaded out of inadvertence - Leave to amend granted at stage of delivery of judgment.

Guarantee

- Contract of.

A.H. Georghiades, for the Plaintiff.

M. Zambakkidou, (Miss) on behalf of D. Liveras, for the Defendant.

JUDGMENT

The following judgment was delivered by:-

ARTEMIDES, p.J. : The plaintiff’s claim against [*240] the defendant is for the sum of £700.- arising from a guarantee entered into by the defendant in the judgment and order of the Court in Action No, 1998/67, made on 19.3.1968, by which the defendant guaranteed the due compliance with the instalment facilities for a lesser sum, pursuant to the terms of the aforecited judgment and order given in favour of the plaintiff, in that and the present action, against Cleanthis Loizou Cleanthous, the son of the defendant in the present action.

The facts of the case, which are not in dispute, are as follows: On 19.3.1968 an action was settled between the plaintiff and the son of the defendant Cleanthis Loizou Cleanthous, in which Cleanthous submitted to judgment for £900.- plus £70- costs. Cleanthous would be entitled to full release from his judgment debt by taking two alternative courses, i.e. by paying the sum of £70.- costs within two months and either:

(a) pay £600.- within one year; or

(b) £350.- within the first year and £350.- within the second year.

The defendant guaranteed the due compliance of the settlement but his guarantee was limited in any event upto the sum of £700,-

plus £70.- costs. Cleanthous paid the sum of £70.- and on the day, prior to the expiration of the first year, an agreement

was signed between the plaintiff and Cleanthous, Exh. 3, whereby it was agreed that in consideration of a sum of £100.-, which was actually paid by

Cleanthous, the plaintiff would accept the "balance" of £500.- to be paid to her by instalments within reasonable [*241] time in full satisfaction of the settlement. Nothing

was paid to her except for the sum of £100.- and the plaintiff has instituted the present proceedings against the father of Cleanthous, the guarantor of the judgment, claiming as above mentioned.

The defendant in his defence admits all the allegations contained in the statement of claim but alleges that the settlement embodied in the judgment of the Court of the 19.3.1968, Exh. 2, and the liabilities of the parties therein have been cancelled varied or substituted and the defendant, (in the present action) has been released from his liability, by the contract entered into between the plaintiff and Cleanthous, Exh. 3, on which the defendant does not appear as guarantor.

The plaintiff in his reply to the defence alleges that the agreement contained in Exh. 3, is void and of no legal effect and therefore not binding on the plaintiff in that it is not supported by consideration.

From the above it is evident that the issue falling for determination is a legal one and may be put in the following question: Is the subsequent agreement between th plaintiff and Cleanthous contained in Exh. 3, a valid one?

Counsel for the plaintiff in his address put forward a submission which is not covered by his pleadings i.e. that the question which I have posed for determination, has already been decided by the learned president G.S. Stavrinakis in his Ruling delivered in Action No. 1998/67 between the same parties and the defendant is therefore precluded from [*242] raising the same matter again in that it is a "res judicata". The matter was decided against the defendant.

Counsel for the defendant raised objection as to the admissibility of the record of the relevant ruling delivered by the learned President and I reserved my decision on the objection until the end of the case, when I would have had all the relevant material before me to decide it. In the end of the day, and after having read the ruling for the purposes of determining the issue before me only, I am of the opinion that the objection of learned counsel for the defendant is completely untenable. The ruling is most relevant in deciding whether the only issue before me, i.e. the validity of the agreement contained In Exh. 3, has been decided in it by the learned President.

Before proceeding to determine the issue I will advert briefly on the law applicable in the matter. The doctrine of "res judicata" falls under the general defence of estoppel.

"Estoppel, or ’conclusion' as it is frequently called by the authorities may therefore be defined as a disability whereby a party is precluded from alleging or proving in legal proceedings that a fact is otherwise than it has been made to appear by the matter giving rise to that disability". (Halsbury’s Laws of England, 3rd ed. Vol. 15 para. 334).

Estoppel is of three kinds that is, estoppel by matter of record, estoppel by deed, and estoppel in pais. [*243] It is the first kind of estoppel that it is relevant in the present proceedings. Prom Halsbury’s Laws of England, 3rd ed. Vol. 15 para. 336, we read:

"Estoppel of record or quasi of record’ arises where an issue of fact has been judicially determined in a final manner between the parties by a tribunal having jurisdiction concurrent or exclusive, in the matter, and the same issue comes directly in question in subsequent proceedings between the same parties".

Thus, if the defence of res judicata is to succeed the following elements must exist that is the subject matter in dispute must be the same in both suits, that it was in issue before a Court of competent jurisdiction and that the result was conclusive so as to bind every other court. If these prerequisites exist, a party will be estopped to allege the contrary of any precise point, which, having already been in issue and determined distinctly and finally, was decided against him.

where "res judicata" is alleged, as in the present case, by way of disposing the whole claim, it amounts to a contention that the whole legal rights and obligations of the parties have been concluded by the earlier judgment, (in the case in hand by the Ruling, Exh. 1 ) by which all questions of law and fact have already been determined.

The doctrine of "res judicata" applies equally to both questions of fact and law and the same principles apply in regard to the conclusiveness of their determination by the Court. [*244]

The aim of the doctrine of estoppel is evident and finds expression in the much used legal maxim "interest reipublicae ut sit finis litium” (the public interest requires that litigation should end). Lord Maugham L.C. said the following in New Brunswick Ry. Co. v. British & French Trust Corpn. Ltd (1938)4 All E.R. p. 747 at p. 754.

“The doctrino of estoppel is founded on considerations of Justice and good sense. If an issue has been distinctly raised and decided in an action in which both parties are represented, it is unjust and unreasonable to permit the same issue to be litigated afresh between the same parties or persons claiming under them".

This principle was cited to with approval later on in many authorities and recently in People v. Evans

(1968) 2 All E.R. 743 at p. 752 and Carl-Zeiss-Stiftung v. Rayner and Keeler, Ltd, and Others (No.3) (1969)3 All E.R. p. 897, to which I will refer again when dealing with another point touching the present case, and in Re Manly's Will Trust (No.2) Tickle and Others v. Manly and Others, (1976) 1 All E.R. 673.

I now turn to examine whether the ruling delivered by the Hon. President of the Court Judge Stavrinakis on 11.1.1975 (Exh. 1), fulfils the prerequsites of the principles of law pertaining to the doctrine of "res judicata", in regard to whether the issue raised in these proceedings, i.e. whether the subsequent to the judgment of the Court agreement, exh. 2, is void for lack of consideration, has been examined and finally determined. [*245]

Learned counsel for the defendant submitted that the ruling was given in an application in which the parties were not the same as the parties in the present case. The submission is wrong. True, as it appears from the titles in Exh. 1 , Kyriaki Georghiou and Kleanthis Loizou Kleanthous are the plaintiff and defendant respectively;_but the parties in the application in which the ruling was delivered as it becomes evident on a mere reading of it are: Kleanthis Loizou Kleanthous and Loizos Voniatis, the present defendant, applicants and Kyriaki Georghiou, the present plaintiff, respondent.

The learned President puts at p. 2 of the record of the ruling in a very lucid, if I may say so with respect, the issues between the parties and I cite the relevant passage:-

"The applicants base their application on the following grounds:- “

"(a) That the respondent-plaintiff is precluded from proceeding on the judgment because it has been cancelled by a subsequently made agreement, exh, Νο.1.

"(b) That in any event, the writ could not be issued against the father who was not a party to the action."On behalf of the respondent it was argued:-

"(a) That the subsequent agreement, Exh. No. 1, is of no legal effect as there was no consideration for it.[*246]

"(b) That the judgment stands good.

"(c) That the father is liable under the judgment because he was made a party thereto.

"The issues falling for determination are two:-

"(a) Whether the writ can be executed against the father.”

"(b) Whether the subsequent agreement has any legal effect and if so, to what extent it affects the judgment".

From the above there can exist no question whatsoever that the parties put as an issue before the Court the very same issue which is before me for determination. The learned President decided that the writ could not be executed against the father, in that he was not made a party to the proceedings but a guarantor of the settlement and the plaintiff could only proceed if she obtained first a judgment against him, hence the present action. Thus (a) above was decided in favour of applicant 2, the defendant in the present action but (b) above was decided against both applicants in that the Court concluded that the subsequent agreement, exh. 2 before me, was void for lack of consideration. In these circumstances to my judgment the plaintiff has invoked the maxim of "res judicata" successfully.

A basic principle of the doctrine of estoppel is that the issue must have been decided in a final judgment or order and on many occasions the question arises whether the doctrine will apply when the issue is decided in an [*247] interlocutory application, which does not dispose of the whole action and the parties do not put at that stage all the issues before the Court. The relevant ruling in the case in hand was not delivered in an interlocutory application but in an application which disposed finally of the rights of the parties, An extract, however, from the judgment in the Carl-Zeiss-Stiftung case, cited to above, is very useful on the matter. Buckley, J., said the following at p, 913.

"No finding or decision would occasion an estoppel unless it were final, but it may be said that no finding or decision on an interlocutory application, apart from the actual relief granted (which may or may not be of final nature), is final in the relevant sense unless in consequence of the doctrine of res judicata it is a bar to further litigation of that issue. Possibly the solution of this apparent dilemma may depend on whether the issue was explicitly raised in the earlier proceedings and the parties ought to be treated as having then put forward all the facts and arguments which they then considered to be relevant to its resolution, so that the issue was fully considered on its merits in a. judicial manner".

Another matter which falls for consideration, and not raised by the parties, is whether in view of the provisions of ss. 91 and

93 of our Contract Law,Cap. 149, the

defendant is released from his guarantee, in view of [*248] the fact that the plaintiff entered into a new agreement

with the judgment debtor, despite of the fact that this agreement was declared void.

Section

91 reads:

"Any variance, made without the surety's consent, in the terms of the contract between the principal and the creditor, discharges the surety as to transactions subject to the variance."

Section 93 reads:

"A contract between the creditor and the principal debtor, by which the creditor makes a composition with, or promises to give time to, or not to sue the principal debtor discharges the surety, unless the surety assents to such contract”.

These sections of our contract Law are identical to sections 133 and 135 of the Indian Contract Act and I have referred myself to Pollock & Mulla 9th ed. where the matter is not devoid of authority. At the top of page 627 we read:-

"An attempted variance which is inoperative, as being against the local law applicable as between the creditor and principal debtor, will not discharge the surety".

It is clear therefore from the above that since the subsequent agreement between the plaintiff and the judgment debtor is inoperative, in view of the fact that it is void for lack of consideration, the guarantor-defendant [*249] is not released from his obligation on the guarantee of the judgment debt.

I now turn to examine the submission of counsel, for the defendant that the defence of "res judicata" has not been pleaded, to which counsel for the plaintiff replied that as it is a point of law he need not have pleaded it.

To my judgment counsel for the defendant is right. When a litigant relies on the principle of estoppel, the principle is invoked by way of defence and it should therefore be pleaded. Paragraph 355 of Halsbury’s Laws of England (3rd ed. Vol. -15) reads:-

"The most usual manner in which questions of estoppel have arisen on judgments inter parties has been where the defendant in an action raised a defence of res judicata, which he could do where former proceedings for the same cause of action by the same plaintiff had resulted in the defendant’s favour, by pleading the former judgment by way of estoppel".

The plaintiff, therefore, in his reply to the defence, in which the subsequent agreement was relied upon should have pleaded the defence of res judicata.

I am sure that counsel for the plaintiff did not include this defence in his reply to the defendant's Statement of Defence out of inadvertence. That this is so becomes evident from the application of the plaintiff, dated 12.12.1975, for an early trial in whose affidavit in para.4 the "res judicata" is relied upon. In the circumstances I [*250] intend to remedy this situation after I will have dealt with a final point in this cause.

Counsel for the defendant has submitted that since the guarantee of the defendant is limited to the sum of £700.- plus £70.- costs and in view of the fact that the judgment debtor has already paid the sum of £100.- plus £70.- costs the defendant cannot be held liable for more than £600.- and without legal interest thereon. I do not agree with this contention. Pursuant to the judgment of the court (Exh. 2), the judgment-debtor was adjudged to pay to the plaintiff the sum of £900.- plus £70.- costs. The judgment-debtor was granted facilities to pay a lesser sum within a certain period of time but the conditions of the judgment were not complied with and it is not disputed that the plaintiff is therefore entitled to proceed against the judgment-debtor for the whole sum, plus £70.- costs. The judgment-debtor having paid £100.- plus £70.- costs there still remains to be paid the sum of £800.- and the defendant is a guarantor for the £700.- the £70.- costs having been paid.

The plaintiff having successfully invoked the defence of "res judicata” is entitled to judgment as per claim. In view of the fact that any judgment carries interest at 4% from the date of its issue, the plaintiff is also entitled to legal interest on the amount of the judgment as from to-day.

In the result there will be judgment in favour of plaintiff against the defendant for the sum of £700.000 mils [*251] with costs. For the reasons I have stated herein above in this judgment, on the issue that the plaintiff in his reply to the defendant’s Defence does not plead the "res judicata", I grant leave to the plaintiff to amend his Reply accordingly within 7 days from to-day. This judgment not to be entered unless the amended Reply to the Defence is filed as above pursuant to my order.

Judgment and Order as above.

Judgment for plaintiff

for £700.- with costs.