A.P.K.C. Periakaruppan Chetti and Others vs Mottayya Mudali and Others

Madhavan Nair, J.—Plaintiffs 1 to 4 are the appellants. This second appeal arises out of a suit instituted by these plaintiffs for the recovery

of Rs. 2,900, principal and interest due on the promissory note Ex. A, dated 30th June, 1923, executed by the first defendant in favour of the third

defendant. This promissory note was endorsed over to the deceased father of the plaintiffs on the 19th January, 1924, by the third defendant. On

the same date he wrote a letter - see Ex. 1 - to their deceased father in which, after stating that there was a decree debt due to him (the father) and

that he was in need of Rs. 400 that day, he stated:

A security for the aforesaid decree debt, for the sum of Rs. 400 which I borrow this day from you, and for the amounts which I may hereafter

borrow from you I have assigned over to you the promissory note for Rs. 2,000 which was on 30th June, 1923, executed in my favour by

Annamalai Mudaliar, son of Kuppuswami Mudaliar, of the said village. If at any time I fail to discharge on demand by you the arrears due to you,

you shall yourself recover the amount, etc.

About three months after the promissory note, the first defendant sold some properties to the second defendant under Ex. B, dated the 6th

September, 1923, for Rs. 5,000. In the sale deed it was recited that the amount due under the promissory note Ex. A was undertaken to be paid

by the second defendant and to that extent the first defendant had received Rs. 2,000 towards the consideration for the sale. The recital ran in

these terms:

In the matter of your having agreed to pay up on my behalf the amount of principal due under the promissory note that was executed by me on the

30th June, 1923, to T.M. Palanivelu (third defendant) I have received Rs. 2,000.

One of the witnesses to this document was the third defendant.

The first defendant does not contest the suit. Plaintiffs 1 to 4 seek to make the second defendant liable on the promissory note on the strength of

the recital in Ex. B. In paragraph 9 of the plaint they thus state their claim against the second defendant:

The second defendant purchased from the first defendant the properties belonging to him by the registered sale deed, dated 6th September, 1923,

and in that sale deed the second defendant has undertaken to discharge the debt due under the suit promissory note with the sale amount. For that

reason, the second defendant is also liable to discharge the suit debt. He has, therefore, been added as a party hereto.

The third defendant, when he endorsed over the promissory note to the plaintiffs'' father, did not owe him as much as the entire amount under it

but only less. Paragraph 9 of the plaint states the reason for making the third defendant a party thus:

As the third defendant has to get the balance of the amount after deducting the amount due to the plaintiffs as stated in paragraph 3 supra, he has

been added as a party thereto;

and as regards the fourth defendant, he was impleaded as a party as he had attached that balance in O.S. No. 486 of 1924 on the file of the

Munsif''s Court.

As already stated, the first defendant did not contest the suit. The second defendant is the contesting defendant. On the merits he pleaded that

the debt due under the promissory note was discharged. He also pleaded that there was no privity of contract between him and the plaintiffs 1 to 4

or the third defendant. In the course of the suit, on 9th November, 1926, the third defendant was transposed as the fifth plaintiff as per order on

I.A. No. 948 of 1926.

The learned District Munsif held that the suit would lie against the second defendant and that the discharge pleaded by him was not proved. In

the result he gave a decree to the plaintiffs 1 to 4 against defendants 1 and 2 for the sum claimed and costs. The suit against the fourth defendant

was dismissed.

In appeal filed by the second defendant the learned District Judge, assuming ""that the second defendant (under Ex. B) agreed in part

consideration of that sale to pay the debt of Ex. A to its payee, the third defendant"" and also that ""although it is not alleged in the plaint, that the

agreement was entered into by the second defendant, not merely with the first defendant, but with the third defendant also, in other words, that

there was privity of contract between the second defendant and the third defendant,"" (see paragraph 10 of the judgment), held that the plaintiffs

have in law no right to enforce the suit agreement against the second defendant. He therefore dismissed the suit without going into the merits. The

learned Judge''s reasoning is thus stated in paragraph 11 of his judgment:

But, what right have the plaintiffs to rely upon or enforce the said agreement? Their father under whom they claim, was only an indorsee of the note

from the third defendant. Assuming that the third defendant was, in law, entitled to transfer the alleged agreement between him and the second

defendant to a third person, he did not, as a matter of fact, transfer it to the plaintiffs'' father. Neither the indorsement of the note Ex. A(1) nor the

letter of security Ex. I passed by the third defendant along with it in favour of the plaintiffs'' father, refers to, or deals with, the said agreement

between him and the second defendant. It has not been contended, and it is impossible to hold, that the plaintiffs'' father became entitled to the

benefit of that agreement merely because the note was indorsed over to him by the third defendant.

It was also argued before the learned District Judge that the third defendant having been transposed as the fifth plaintiff a decree might be given

on the agreement in favour of the plaintiffs. He held that this plea was not admissible on the ground that the third defendant did not ask for

amendment of the plaint or relief in his own favour even after he was transposed as the fifth plaintiff and further that:

On the date on which he was so transposed as the fifth plaintiff more than 3 years had expired from the date of the alleged agreement between him

and the second defendant, and he was, therefore, barred by time from asking him for any relief on its basis.

At the close of the hearing of the appeal the learned pleader for plaintiffs 1 to 4 filed an amendment application in which they sought to put their

right to get a decree against the second defendant "" first on the indorsement of the note made to their father by the third defendant, and secondly,

on the fact that the third defendant, who was later on transposed as the fifth plaintiff, does not object to it. The learned District Judge disallowed

the amendment as it would seriously prejudice the second defendant and as in his opinion ""neither of the two allegations which are sought to be

introduced in the plaint by means of the amendment prayed for is sufficient to grant a decree to the plaintiffs 1 to 4 against the second defendant.

He also added that since the decree of the lower Court the third defendant had applied to be adjudged as insolvent and that his willingness for a

decree being passed in favour of plaintiffs 1 to 4 was therefore of no value.

The grounds overruled by the learned District Judge and the ground specifically mentioned as not pressed before him were all pressed before

me by Mr. Srinivasa Aiyangar on behalf of the appellants, plaintiffs 1 to 4.

The main question for determination is whether the appellants can enforce the agreement entered into between the first and the second

defendants assuming that there was privity of contract between the second and the third defendants also. It is clear that there was no assignment by

the third defendant of the agreement between him and the second defendant in favour of the plaintiffs'' father. Their father was only the indorsee of

the promissory note from the third defendant and not an assignee of the rights under Ex. B. The endorsement (Ex. A-1) of the promissory note

does not refer to the suit agreement it simply says that ""Chidambaram Chettiar of Devakottah shall have to recover the entire amount of principal

and interest due under this bond,"" and nothing more. Ex. I the letter of security which I have already quoted, says that the promissory note has

been made over and that Chidambaram Chettiar shall himself recover ""on demand"". It is thus clear that neither the endorsement nor the letter of

security contains an assignment of the rights under the agreement Ex. B. In this connection the learned Counsel for the respondent argued that the

rights are not transferable at all in the light of the decision in Sheers v. Thimbleby & Son 76 L.T. 709 but it is not necessary to consider this point.

If there is no specific or separate assignment of the agreement which will entitle the plaintiffs to proceed against the second defendnnt, it is

argued that there is an assignment of the rights by implication. The argument is this: - Third defendant has two rights: the right to proceed under the

promissory note against the first defendant and the right to proceed under the sale deed against the second defendant; and both these rights have

been passed on to the plaintiffs by the endorsement of the promissory note in their father''s favour. In short, the contention is that by mere

endorsement of the promissory note the benefit of the agreement has also been transferred to the plaintiffs. With respect to this contention the

learned District Judge pointed out that it was not put before him and that it was impossible to accept it. In support of this argument Mr. Srinivasa

Aiyangar relied upon two decisions of this Court, A.G. Sambasiva Aiyar Vs. Venkatarama Aiyar and Others, , Nataraja Naicken v. Ayyasawmi

Pillai (1916) 32 M.L.J. 354 and on Section 8 of the Transfer of Property Act. In my opinion these authorities do not support him. In Sambasiva

Aiyar v. Venkatarama Aiyar (1916) 32 M.L.J. 354 the case strongly stressed before me, the facts as stated in the head-note were these:

P owed plaintiff a sum of money on a promissory note. P sold some of his properties to D, the father of the defendants and left a portion of the

purchase money in D''s hands with instructions to remit the same to plaintiff towards his promissory note debt. D remitted the sum to plaintiff but

the latter refused to accept the amount on the ground that more was due to him. Plaintiff thereupon obtained a decree against P on the note, and in

execution of that decree, he attached the debt due to P from D, consisting of the unpaid purchase money with interest, and purchased it himself.

Subsequently the plaintiff instituted the suit of which the appeal arose to recover the amount from the defendants claiming also a lien upon the

properties sold to D, their father. The question was whether the plaintiff was entitled to the lien claimed by him.

It was argued in the High Court that the plaintiff could not claim a lien ""because the charge (with respect to the unpaid purchase money which P

had against D) has not been validly transferred to the plaintiff."" This argument was overruled on the ground that under the sale certificate the right to

the charge passed along with the debt. From the facts of the case and the ground of the decision, it is clear that the High Court held that as the debt

consisting of the unpaid purchase money was purchased by the plaintiff the purchase amounted in law to a transfer of the charge. If the first

defendant''s rights in the present case had been sold and purchased by the plaintiffs, then no assignment would be necessary on the authority of this

decision. The decision in A.G. Sambasiva Aiyar Vs. Venkatarama Aiyar and Others, goes no further, and does not hold that by mere endorsement

anything other than the promissory note is transferred. The decision in Nataraja Naicken v. Ayyasami Pillai (1916) 32 M.L.J. 354 is equally

inapplicable to the facts of the present case. In that case it was held that an indorsee of a promissory note executed by a member of a joint Hindu

family can sue the maker as well as the other members of the family and obtain a decree against the latter to the extent of the joint family property

in their hands on proof that the debt for which the promissory note was executed was binding on the family. This decision was based upon a prior

Full Bench decision of this Court in Krishna Aiyar v. Krishnasami Aiyar ILR (1900)23. Mad. 597 which, giving effect to the rule of the Hindu law,

which imposed liability on co-parceners for debts incurred on behalf of the family, held that if the debt for which the money was borrowed under

the note was binding on the family, the indorsee can make the other members of the family also liable for the debt on the note. That principle

cannot be applied to the present case as the second defendant is an outsider and not a member of the joint family of the first defendant. It has been

held in In re Soltykoff. Ex parte Margrett (1891) 1 Q.B. 413 that an endorsement only transfers the note and not the contract created by the note.

As pointed out by Cornish, J. in Seshayya v. Sanjivarayudu (1933) 67 M.L.J. 393 . An indorsement, while it transfers the property in the note to

the endorsee as the new holder, does not operate as an assignment to the indorsee of the debt due by the maker to the original payee. I cannot find

anything in the judgment of Varadachariar, J. in C.R.P. No. 270 of 1934 which shows counter to this principle. That decision does not touch the

point now under consideration. In this connection I may point out that the decision in P. Govindan Nair Vs. K. Nana Menon, relied on by the

respondent is not very much to the point as the Full Bench treated the suit as one based only on the promissory note and not on the original cause

of action and held there was no scope for the application of the decision in Krishna Aiyar v. Krishnaswami Aiyar ILR (1900) 23 Mad. 597. In the

circumstances it is clear that Section 8 of the Transfer of Property Act also cannot help the appellants. For these reasons I am of opinion that the

mere endorsement on the promissory note does not transfer to the plaintiffs the rights of the third defendant against the second defendant under the

sale deed.

The next point is whether by the subsequent transposition of the third defendant as the fifth plaintiff and by his consent to have a decree passed

in favour of the plaintiffs, a decree can be given in their favour against the second defendant. The learned Judge held, as already pointed out, that

the transposition was ineffective as the third defendant''s rights had become barred by limitation since more than three years had expired from the

date of the alleged agreement between him and the second defendant at the time and that in his opinion the amendment asked for should not be

allowed. Mr. Srinivasa Aiyangar argues that in arriving at his conclusion the learned District Judge has ignored the provisions of Clause 2 of

Section 22 of the Limitation Act, which says that the bar of limitation which may arise under Clause (1) of the section when a new plaintiff or a new

defendant is substituted or added will not apply to a case where a plaintiff is made a defendant or a defendant is made a plaintiff, as here; and that

by force of this provision the third defendant substituted as the fifth plaintiff can be given relief in this suit. On the question of limitation the decisions

in Municipal Council of Rambeas Tewari and Others Vs. Akhauri Raj Mohan Sahay and Others,

I may also say that in the circumstances mentioned by the lower Court it cannot be said that the learned Judge was wrong in refusing the

amendment asked for by plaintiffs 1 to 4 at the close of the hearing of the appeal. In this connection attention may also be drawn to the decisions

cited by the respondent''s learned Counsel that in cases like the present, mere consent of the defendant to have a decree passed in favour of the

plaintiff cannot entitle him to claim the relief when he did not have such a right at the time of the institution of the suit. See Hari Gobind Adhikari v.

Akhoy Kumar Mozumdar ILR (1889)16 Cal. 364, Lachman Singh v. Tansukh ILR (1884) 6 All. 395 and Aumirtolall Bose v. Rajoneekant Mitter

(1874-5) L.R. 2 I.A. 113 .

For the above reasons I hold that the appellants are not entitled to succeed on any of the points urged by their learned Counsel. The second

appeal is dismissed with costs.