Somasundaram Chettiar vs Narasimhachariar and Others

The second defendant, a Hindu widow, who is now dead, sold to the first defendant on the 31st March 1900 some property inherited by her

from her husband for the sum of Rs. 15,000. Of this amount, Rs. 5,000 were left in the hands of the first defendant who gave for it the promissory

note sued on which was made payable on demand to the payee or order with interest at 9 annas par cent per annum. At the same time the second

defendant handed to the first defendant the letter, Exhibit IX, which runs as follows:

You will ever from the 1st of May be paying interest to me on account of the (promissory) note for Rs. 5,000 executed this day by you in my

favour, the interest for every month being sent on the first of the next month. I shall take the above rupees five thousand from you after giving

jivanamsam (maintenance money) to my mother-in-law, and obtaining a release bond; or, I will take the said rupees five thousand after the life-time

of my mother-in-law.

The interest due on the promissory note was paid up to the end of October 1900. On the 25th December of that year the note was endorsed to

the plaintiff a Nattukottai Chetti, by the second defendant, the endorsement being as follows : ""As I have received the principal sum of this note

(Rs. 5,000) five thousand, and the interest (due) from the month of November of this year from Devakottai A.R.P. Somasundaram Chettiar

Avergal on the 25th December 1900, the said principal sum of Rs. 5,000 and the subsequent interest from the month of November aforesaid

should be paid to the said Somasundaram Chettiar Avergal or the order of the said person.

The Subordinate Judge dismissed the suit being of opinion that the plaintiff paid no consideration for the endorsement to him and that the plaintiff

was aware of the arrangement between the defendants evidenced by the letter Exhibit IX. In this appeal these findings were impeached, and it was

further contended that there being no question about the consideration. for the promissory note itself, the plaintiff, even if not as the holder in due

course of the note, was entitled to recover in spite of the findings of the Subordinate Judge, inasmuch as the promise on the part of the second

defendant was a covenant not to sue for a limited time only and, therefore, no defence to such an action as the present. Apart from the

presumption in favour of the"" plaintiff u/s 118 of the Negotiable Instruments Act, the evidence as to the payment of consideration for the

endorsement is all one way.

Here Their Lordships discussed the evidence.

It is difficult to avoid the conclusion that there was consideration for the endorsement and that the plaintiff entered into the transaction in the hope

of being able to make a profit, having regard to the fact that the first defendant''s indebtedness for the amount of the promissory note was

undeniable and that he was a solvent man.

As regards the question whether the plaintiff had notice of the agreement entered into by the second defendant with the 1st defendant under

Exhibit IX, no doubt, the plaintiff denies it. On the other hand, the first defendant''s witness Subbaraya Aiyar states that he himself told the plaintiff

of the letter before the note was endorsed to the latter. The Subordinate Judge has not placed any reliance upon this witness'' evidence.

Nevertheless it is altogether difficult to believe that the plaintiff was ignorant of the agreement. The second defendant had previously endeavored to

negotiate the note with a firm of jewelers in Madras, but had failed owing to the objection of the first defendant. Shortly afterwards the first

defendant got a notice published in the local official gazette referring to the letter and warning people against the risk they would run in taking the

note from the second defendant. Considering the previous feeling between Chidambaram Chetti and the second defendant, it is altogether unlikely

that the Chetties had not heard of the existence of the agreement at the time the endorsement was made. We are, therefore, unable to say, that the

Subordinate Judge''s conclusion in regard to the point is erroneous.

The further question is, whether, assuming that the plaintiff was aware of the agreement before the note was endorsed to him, such knowledge

on his part disentitles him to sue for the money due under the promissory note. The first defendant admitted in his evidence that when he and the

second defendant were entering into the arrangement, the second defendant would not consent to what is stated in the letter finding a place in the

same document that was to contain the promise on the part of the first defendant to pay the five thousand rupees. He having thus consented to the

agreement being effected by two such distinct instruments, it cannot possibly be taken that the intention of the parties was otherwise than to keep

the two documents as evidence of two separate contracts. In this view the letter operates only as a collateral covenant not to sue for the money

due under the promissory note for a limited time. Thimbleby v. Barron 3 M. & W. 210, Ray v. Jones 19 C.B.N.S.P. 416 and other authorities to

which Mr. Krishnaswami Aiyar drew our attention show that such a covenant does not suspend the right of action on the note and that the

covenant cannot be pleaded in bar to the action.

The second defendant herself could have, therefore, maintained the suit, and the plaintiff is not the less entitled to do so. In this view, it is

unnecessary to enter into the question raised by Mr. Desika Chariar that the endorsement on the note was, with reference to Section 56 of the

Negotiable Instruments Act, such as not to confer on the plaintiff a good title to the note under the Law Merchant.

The decree of the Subordinate Judge is reversed and the plaintiff''s claim allowed with interest on the principal Rs. 3,000 at six per cent per

annum till payment. The plaintiff did not in the lower Court rely on the contention with reference to Exhibit IX on which he succeeds here. We

direct that in the lower court each party will bear his costs. The first defendant will pay the plaintiff''s costs of this appeal.