N. Chellaperumal Chetty vs N.M. Jayarathnam Chettiar

(1) The plaintiff appeals from the judgment and decree of the Additional City Civil Judge Madras, in A. S. No. 29 of 1956 on his file. The learned

Judge allowed the appeal preferred by the defendant from the judgment decree of the Sixth Assistant Judge on the file of that court in O. S. No.

1462 of 1953, and, dismissed the plaintiff''s suit with costs.

(2) There was a public limited company known as the Conjeevaram Funds Ltd. The company was conducting chits. The defendant was

subscribing to a chit conducted by the company in the years 1949-53. The chit commenced in April 1949. The defendant subscribed to five tickets

in that chit. The amount payable per ticket per month was Rs. 30. The duration of the chit was forty months. The defendant paid the amount for the

five tickets for five months. In September 1949 he purchased the chit and had to pay Rs. 5250 on account of the remaining 35 instalments of the

chit. He had to pay Rs. 150 per instalment. The total sum payable by him was Rs. 5250. For that sum of Rs. 5250, he executed a promissory

note, Ex. A. 1, in favour of the company.

(3) The plaintiff was another subscriber in the same chit. He had subscribed to the chit fully and had not been paid the money due to him. On 13-

10-1952, he instituted an O. P. on the file of this court for having the company wound up. The petition was being adjourned from time to time for

settlement. On 11-3-1953, the company endorsed in favour of the plaintiff the promissory note for Rs. 5250 which the defendant had executed on

5-9-1949. The plaintiff reported to this court on 12-3-1953, that this petition for having the company would up was not pressed. The petition was

dismissed on that date.

(4) The plaintiff instituted the suit out of which the second appeal arises, for recovery of the sum due on the promissory note. After the execution of

the promissory note the defendant paid some instalments of the chit. The amount payable on the promissory note on the date of the endorsement,

11-3-1953, was Rs. 2395. The plaintiff prayed for recovery of that sum with interest from the date of the endorsement.

(5) The learned Sixth Assistant Judge, City Civil Court, Madras, decreed the suit as prayed for. The decree was reversed in appeal by the learned

Additional Judge, City Civil Court at Madras. The suit was dismissed.

(6) The learned Additional Judge held that the plaintiff was not entitled to sue on the promissory note and recover any money. The learned Judge''s

view was that the promissory note was executed as security for the payment of the money due on the future instalments of the chit and that the

plaintiff by obtaining the promissory note an endorsement, obtained nothing. The learned Additional Judge thought that, while the Fund might have

been entitled to sue on the debt due on the chit and secured by the promissory note, the defendant could be sued by the plaintiff for the recovery of

the money in the event only of his obtaining an assignment of the debt in addition to getting the promissory note endorsed. That is a view which is

plainly wrong.

(7) The defendant executed the promissory note for money payable to the chit fund. It is an error to call the promissory note, security. It is a

grievous error to say that, being mere security, the promissory note could not be enforced at all. The liability to the company to pay Rs. 5250 in 35

instalments was converted into the promissory note which the company took from the defendant. Thereafter there was no liability on the part of the

defendant to the company other than the liability which could be enforced under the promissory note. There was no independent written agreement

on the party of the defendant to pay any sum of money to the company on account of the future instalments of the chit. There was, however, an

oral agreement that the promissory note would be deemed to be discharged in the event of payment of Rs. 150 every month during the next 35

months.

After the execution of the promissory note the relationship between the parties, viz., the Conjeevaram Funds Ltd. and the defendant, as creditor

and debtor, was this. The defendant owed money on the promissory note and that liability enforceable under the promissory note would be

discharged by payment of Rs. 150 every month during the succeeding 35 months. If the defendant paid no money after the execution of the

promissory note, the company could institute a suit only on the promissory note, and not on the basis of the initial agreement relating to the chit. In

suing on the promissory note, the company would have to give credit to all the sums received as for the chit and sue only for the recovery of the

money which would be outstanding after giving credit to those sums. If for example, three instalments were paid subsequent to the execution of the

promissory note, Rs. 450 would have to be credited and Rs. 5250 minus Rs. 450 alone could be claimed as principal outstanding on the

promissory note.

(8) So long as the defendant does not plead that the promissory note was nominal or that no liability was intended to be incurred under it, he

cannot be allowed to plead that the promissory note was mere security for some other liability, or that it was not enforceable. Evidence seeking to

prove any such plea would be barred under S. 92 of the Evidence Act.

(9) I find that the defendant was bound to pay the company the money due under the promissory note and that the promissory note represented

enforceable liability.

(10) In taking the view that, in obtaining the promissory note on endorsement, the plaintiff obtained nothing, the learned Additional Judge appears

to have been misled by the analogy of endorsement of a promissory note executed by the manager of a joint Hindu family for a debt borrowed by

him for family necessity. The promissory note embodies merely his own personal promise to pay the money. It does not contain a promise on his

part to pay the money also out of the joint family properties. Where the payee in such a case endorses the promissory note, the endorsee obtains

the right to enforce the personal promise. He does not, by reason merely of the endorsement, obtain the right to enforce the managing member''s

liability to pay the debt also out of the joint family property belonging to him and the other members of the family. That is because the endorsement

operates only on the liability which is apparent on the face of the instrument. It is part of the general law of negotiable instruments that nothing

passes by an endorsement of a negotiable instrument except such liability as one may recognise on the face of the instrument. In the present case,

the liability which the plaintiff seeks to enforce is the liability which is apparent on the face of the promissory note.

(11) The defendant''s liability to pay the money stated in the document appears on its face. That liability was transferred to the plaintiff by the

endorsement. He does not seek to enforce any further or other liability. S. Maruthamuthu Naicker Vs. P. Kadir Badsha Rowther and Others, , has

no bearing on the questions that arise for determination in this case.

(12) I find that the endorsement being in favour of the plaintiff he has obtained the right to enforce the promissory note and recover whatever

money was payable by the defendant, under it, to the company.

(13) The plaintiff does not state that he is a holder in due course, entitled to recover any money which the company could not itself recover. The

discussion about the plaintiff being a holder in due course does not arise on the pleadings.

(14) The learned Additional Judge held, further, that the suit was barred by limitation. For saving limitation, the plaintiff relied on Exs. A. 4 and A5.

Ex. A. 5 is a chalan signed by the delendant on 26-2-1951 for payment of Rs. 150 to the company. That sum was paid to his credit in the chit

account. The learned Additional City Civil Judge held that that payment could not save limitation under S. 20 of the Limitation Act because the

payment was made towards the debt due on that chit. That mistake followed on the learned Judge''s view that the promissory note was mere

security. The expression ""security"", as I have attempted to show, does not make meaning with reference to the facts of this case.

The promissory note was itself the document under which the defendant was liable to pay whatever money was payable by him to the company on

account of the chit transactions. Sums which subsequent to the execution of the promissory note, the defendant paid into the chit account had to be

credited towards the liability on the promissory note. Whatever sum was credited in the chit account was a sum paid towards the debt due under

the promissory note. The sum of Rs. 150 paid by the defendant on 26-2-1951 was a sum which was paid in reduction of his liability on the

promissory note. Being a payment in reduction of the liability under a document which bears the defendant''s signature, it is a payment which, under

S. 20 of the Limitation Act saves the suit from the bar of limitation.

(15) Ex. A. 4 is a letter by the defendant to the company written on 20-1-1953. In that letter, the defendant asked for further time to make

payment. He said, ""I shall soon bring the money and pay. Therefore please do not blame me. Please excuse me."" The defendant''s evidence shows

that, by that letter, the defendant asked for time for paying the money due on the chit account.

(16) The respondent''s learned counsel argues that oral evidence is not admissible to prove that the money which the defendant promised to pay

was money payable on the chit account, that is to say, in reduction of the liability on the promissory note. Whether oral evidence could be admitted

to explain the contents of a document depends upon the degree of formality of the document. Ex. A. 4 is a letter. It was not intended to be formally

complete. Therefore, reference in that letter to money, payment, etc. could be explained by oral evidence. I find that Ex. A. 4 contains an

acknowledgment of the defendant''s liability on the chit account, that is to say, liability under the promissory note.

(17) The learned Additional City Civil Court Judge''s finding that the suit is barred by limitation is not sustainable. It is hereby set aside. I find the

suit is in time.

(18) The argument that the endorsement in favour of the plaintiff was void by reason of certain winding up proceedings does not appear to be

maintainable. The plaintiff filed an O. P. on 13-10-1952, on the file of this court for having the company wound up. He obtained the promissory

note on endorsement on 11-3-1953 and did not press the petition. It was dismissed on 12-3-1953. Another creditor filed a petition on the 19th

March for winding up the company. The company was wound up, on that petition, by an order passed on 21-9-1953. There is no evidence as to

whether the winding up proceedings have terminated and if so how. Learned counsel for the respondent says that the petition filed on 19-3-1953

should be deemed to be a continuation of the petition which was dismissed on the 12th March and that therefore the endorsement made in favour

of the plaintiff should be held to be void. There is no authority in support of that proposition. Nor am I able to recognise any principle on the basis

of which one might hold that the petition which was dismissed on 12th March should be deemed to have been pending and continued by the

petition presented on 19th March.

(19) The appeal is allowed. The suit is decreed as prayed for. The plaintiff will have his costs in both the courts below and, the court-fee on the

memorandum of second appeal. Otherwise the parties will bear their own costs in the second appeal.

(20) Appeal allowed.