Mulumedi Jagannadhiah vs Peduri Narasimham Setty and Another

Wallace, J.—The essential facts in this case which are not disputed are that plaintiff and defendants 1 to 6 were carrying on a partnership

trade from 1911 to 1918. In 1915 defendant 1 executed an anthakam for certain moneys which he had borrowed from the firm and later on

executed a mortgage deed Ex. B over property which is not the property of the firm for the sum then due by him. In 1918 the partnership was

dissolved, and some time before 5th July 1920 a settlement of the accounts-was come to, in which it was arranged that the plaintiff should have the

mortgage as his share of the profits due to him. Plaintiff filed the present suit on the mortgage. Defendant 1 contested it until defendant 8 who had

purchased the mortgage in execution of a decree obtained by him against defendant 1 came on the record and took up the defence.

Various lines of defence were put for-ward, but in this appeal I am concerned'' only with two, one of which has not been put forward until in this

Court. The latter is that the mortgage deed is inoperative in law as being a contract by defendant 1 with himself, he being a member of the firm in

whose favour it is executed. The other defence is that without an assignment in writing of the mortgage the plaintiff has no title to sue

Beyond the above facts it is necessary to set out a few more which have been found by the lower Courts which concur in their judgments. The

following are of some importance, namely, first that although the actual partners of the firm., differed from time to time between 1911 to 1918 the

firm remained the same, (that is admitted by defendant 1 himself in his written statement), and secondly, that the settlement of accounts, by which

evidently the lower Courts include also the distribution of assets, was in the presence of all the partners. Since defendant 1 has on this point never

pleaded that he did not consent to the made of distribution and never went into the witness box to deny it but contented himself with a general

denial that there was any final settlement of accounts at all, which has been found to be a false story, I take it that defendant 1 at the final settlement

of accounts agreed to the mortgage deed being handed over to the plaintiff as his share of the profits due to him. On these facts the two points of

law arise noted above which have been argued before me.

I shall take up first the point with which the lower Courts have dealt, namely, the maintainability of the suit although the plaintiff has not obtained

any formal deed of assignment. The mortgage Ex. E, is in the names of defendant 2, plaintiff''s father, defendant 5 and company, and defendant 1

has in fast admitted that it was in favour of the suit firm. So the point merely is, when a firm dissolves and distributes its assets, one of which is a

mortgage in its favour, and that is allotted by general consent to one of the partners, is it necessary before he can sue upon it that he should have a

deed of assignment from all the partners? The answer given by both the lower Courts is that an assignment is not necessary, because all the

partners who are on the record have remained ex parte and do not challenge the plaintiff''s rights to sue, even defendant 1, one of them who

originally contested the suit, having withdrawn his defence. On this point appellant relies strongly on Section 130, T. P. Act, and a ruling on the

original side of this Court reported In Raman Chetty v. Nagarathna Naicker [1912] 11 M.L.T. 246, a case of a promissory-note in favour of a

firm of two partners, wherein it was held that one partner cannot sue in his own name without a written assignment by those who were partners at

the time when the obligation was contracted. It has to be noted that in that case the promisor was not one of the partners of the firm, but a

stranger. In Chandana Venkatadri Vs. M. Lakshminarasimha Rao and Others, , it has been held that when a promissory-note executed in favour

of the manager of a joint ''family, fell on partition to another member, the latter can sue on it without an assignment.

The learned Judges in that case relied upon Section 137, T. P. Act, which removes negotiable instruments from the operation of Section 130,

but they were prepared, if necessary, to hold that a written partition list was sufficient assignment in writing of the promissory-note. Section 130

does not apply to mortgages which are not actionable claims: see Perumal Ammal v. Perumal Naicker AIR 1921 Mad. 137. The analogy of the

joint family partition on which the respondent relies may, I think, be called in aid in the present case where the mortgagor is also one of the

mortgagees, and therefore any formal deed of assignment would have to be executed by himself as well as by the other mortgagees. No case

directly in point has been cited at the Bar. That in Perumal Ammal v. Perumal Naicker AIR 1921 Mad. 137 is a case where the mortgagor was a

stranger and not also one of the mortgagees. When, as in this case, all the parties to the document are on record, and none challenges the plaintiff''s

right to sue on the document for himself, and it is found that all agreed to the mortgaged right being allotted to the plaintiff as his share of the as jets,

I am not prepared in second appeal, as the law stands at present, to interfere with the concurrent decision of the lower Courts that a written

assignment is unnecessary. Substantial, if not formal, justice has at least been done.

The second point is whether the mortgage debt is a valid debt at all inasmuch as one of the mortgagees is the same party as the mortgagor. The

general argument for the appellant is based on the broad proposition that a partner cannot give a mortgage in favour of his firm, since a party

cannot contract with himself to enforce a contract against himself, and that at its highest the mortgage cannot be sued on as such and is nothing

more than an acknowledgment of the indebtedness by the mortgagor to the firm, which cannot be independently sued upon, but must be merged in

a general suit for accounts. The general question as to when an action can be maintained between partners without taking a general account of the

partnership dealings and transactions is answered by Lindley on Partnership (9th edn.) at p. 664 by saying that each case must depend upon its

own circumstances and upon whether justice can really be done without taking such an account. Even before the passing of the Judicature Acts

one partner might sue another at law in respect of a matter which, though relating to the partnership business, was separate and distinct from all

other matters in question between the partners and could and ought to be determined without going into the partnership ac-counts. Now where the

accounts of the partnership had actually been settled between the partners and the partners have agreed that for his share of the profits one of them

should take and hold the mortgage given by another, I cannot see any reason why the mortgage should not be enforced The partners have in effect

agreed that this mortgage obligation should be regarded in future as a separate and distinct transaction from the partnership business and the

mortgagor partner himself has at the settlement agreed that the mortgage should be separately enforced. The case has to be looked at more from

the point of view of equity than of strict law, and I am satisfied that it is not a ease in which the mortgagor partner should be allowed on a purely

technical legal point to escape the consequences of his own voluntary action. There is no difficulty whatever in now enforcing this item as an item

separate from the partnership business and I see no good reason why that should not be allowed. The same principle has been adopted in this

Court in Karri Venkata Reddi v. Kollu Narasayya [1909] 32 Mad. 76, see also the statement of the general law in Ramaswami Pillai v.

Muthukaruppan Chetty AIR 1925 Mad. 737 and Jackson v. Shephard 149 E.R. 800.

It was argued that the mortgage debt cannot represent a real debt at the time of its execution unless accounts had been taken at that time, which

is not the case. But there is nothing in law to prevent a partner borrowing from his firm and being in the position of a debtor to his firm, really of

course to his co-partners. I can see no reason for regarding the mortgage debt as not a real debt at the time of its being incurred. There may have

been money of the firm due to the mortgagor at the time, but on the other hand he had supplied no capital to the firm and had borrowed a definite

sum from the firm and owed that sum to it as a real debt. I therefore see no reason to hold that the mortgage does not represent a real separate

obligation. The English cases relied on this point by the appellant, Boyce v. Edbrooke [1903] 1 Ch. 836 and Napier v. Williams [1911] 1 Ch. 36l,

were cases of covenants of lease held void because the lessor and lessee '' were the same. Such leases do not appear to me to be on the same

footing as a partnership mortgage debt.

It could, of course, quite well be that the actual amount, if any, due on the mortgage could not be ascertained until and unless accounts had been

taken, but when, as in this case, the accounts had been taken and it is agreed by the partners that the mortgage obligation is still outstanding, I fail

to see why an action cannot lie upon it. It was never defendant 1''s case in the lower Courts that no rights passed under the mortgage. His case

was-see para. 11 of the written statement-that he had a share himself in the rights which passed by it. That claim of course was put an end to by

the final settlement to which he was a party. The matter may be tested, I think, by considering whether any other form of action is open to the

plaintiff. He cannot sue for accounts because accounts had already been taken and settled. The case quoted by the appellant, De Tastet v. Shaw

106 E.R. 244, seems to be no authority for holding that if accounts has been settled a partner has no remedy at law to enforce the manner of

settlement agreed upon.

I therefore hold that the suit mortgage is a legal foundation for the suit and that defendant 1 is liable under it. As pointed out by the lower

appellate Court, defendant 8 the present appellant, bought defendant 1''s property subject to the mortgage.

On neither ground then do I see any reason to interfere with the decision of the lower appellate Court and I dismiss this appeal with costs to

respondent 1.

Note.-Leave to appeal is granted.