V. Krishnaswami Rao vs R. Sriniavasa Desikan

Varadachariar, J.—In this petition, we are asked to revise an order holding that the petitioner cannot be permitted to prove an oral

agreement which he, pleaded in defence to a mortgagee''s suit for sale. The petitioner admitted the mortgage sued on, but pleaded that under an

agreement brought about by persons interested in the plaintiff and accepted by the plaintiff, it had been agreed that the mortgage amount should be

settled at Rs. 9,000 and in full discharge of the claim under the mortgage-deed a certain portion of the hypotheca should be sold to the plaintiff.

The truth and validity of this agreement formed the subject-matter of the first issue in the case; and the second issue raised the question, whether

even if the first issue should be found in the defendant''s favour, the agreement precluded the plaintiff from maintaining this suit, when admittedly the

agreement remained executory. It was further contended on behalf of the plaintiff that, in view of Section 92 of the Evidence Act, it was not open

to the defendant to adduce evidence, relating to the alleged oral agreement; this contention was embodied in the third issue. The learned Judge

heard arguments on the third issue (as a preliminary issue) and held that no oral evidence was admissible to prove the agreement set up in the

written statement.

Before referring to the decisions relied on by the one side or the other, it is desirable to note the terms in which the exclusion of oral evidence is

laid down in Section 92. The main clause excludes evidence of ''any oral agreement for the purpose of contradicting, varying, adding to or

subtracting'' from the terms of a contract, etc., proved in the manner provided for by Section 91. The provisos introduce certain exceptions (or

apparent exceptions) and to the fourth proviso there is an exception. The language of the exception in the proviso does not of itself prohibit or

exclude any kind of evidence; it merely excludes the benefit of the proviso in the excepted cases, with the result that in these cases the prohibition

contained in the main part of the section will apply. We have accordingly to consider whether the oral agreement alleged in the written statement

''contradicts, varies, adds to or subtracts'' from the mortgage document.

It is settled by a long line of authority - and Mr. Bhashyam does not deny - that a debtor may plead and prove an actual discharge in a manner

or on terms different from those contemplated by or provided for in the document evidencing the debt. But relying on the distinction drawn in the

cases between a ""discharge"" and an agreement to give a discharge in future he maintains that in the present case the alleged contract to take a sale

of a portion of the hypotheca in satisfaction of the debt amounts to nothing more than an agreement to give a discharge if and when the sale is

completed and is therefore within the prohibition contained in Section 92. This argument seems to us to rest on a misapprehension of the legal

effect of the contract of sale in such cases.

We must observe at the outset that we have found it somewhat embarrassing to deal with the question of admissibility of evidence at this stage,

because some of the steps in the argument relevant to the point will also bear on the question raised by the second issue in this case, viz., whether

and how far the alleged agreement, if true, affords a defence to the present action. We have endeavoured, as far as possible, to avoid expressing

any definite opinion on this aspect of the matter; and we wish to make it clear that when deciding the second issue, the lower Court need not feel

hampered by any observations made in the course of this judgment. It only remains to add that we are assuming for the present purpose that if

permitted the defendant will be able to prove a valid and enforceable contract as alleged in the written statement. The decision in Mara

Ramanarasu Vs. Matta Venkata Reddi (died) and Others represented by their mother and guardian Matta Ademma, shows that the mere fact of

an arrangement being ''executory'' does not preclude the possibility of its operating as a satisfaction of a pre-existing obligation. We are not in this

case concerned with the question whether in view of the scheme of the Civil Procedure Code, an arrangement of that kind can be pleaded in an

''executing'' Court as amounting to satisfaction of a ''decree'' a point on which divergent views have been expressed. A contract between a debtor

and his creditor that the former should sell and the latter should accept any property in satisfaction of the debt may, it seems to us, operate in one

of three ways; and on none of these hypotheses will proof of such contract be precluded by Section 92 of the Evidence Act.

In one view, the contract itself may operate as a final or absolute discharge of the debt, substituting the relationship of a ''vendor and vendee'' for

that of ''debtor and creditor'' and giving the creditor thereafter only the remedy by way of specific performance of the contract to sell. If this is the

correct view, the debtor is entitled to contend that the case is within the line of authority relating to proof of ''discharge''. It will be a mere play upon

the words to say that because there is only an agreement to sell it must be treated as on the same footing as an agreement to give a discharge. This

view of the legal effect of a contract to sell'' would seem to derive support from the decision of the Judicial Committee in (1888) L.R. 15 I.A. 211

(Privy Council) .In more than one place, their Lordships speak of the debt as having been wiped out by the contract; and even on failure of the

contract of sale they held that the remedy of the creditor was no longer a suit for the recovery of the pre-existing debt but one founded on failure of

consideration or on Section 65 of the Contract Act. Mr. Bhashyam suggests that their Lordships'' observations should be understood as made in

the light of the fact that at one stage the Court had decreed specific performance of the contract but this argument ignores their remark (on p. 55)

that:

Up to the stage of the Subordinate Judge''s decree in 1881, Dhum Singh retained the amount of his debt as of right and in accordance with the

contract alleged by him.

The judgment seems to proceed on the basis that from the date of the contract, the sum theretofore representing the debt must be regarded as

purchase money"" in the hands of the debtor-vendor which he is entitled to retain. The contract dealt with in (1888) L.R. 15 I.A. 211 (Privy

Council) was anterior to the Transfer of Property Act; and it may be a matter for argument whether and how far the provisions of Sections 54 and

55 of the Transfer of Property Act affect the availability of the above reasoning at the present day. It may however be pointed out that as observed

by Abdur Rahim, J., in Adikesavan Naidu v. Gurunatha Chettiar (1916) 32 M.L.J. 180 : ILR 40 Mad. 338 and by Devadoss, J., in Kathamuthu

Pillai v. Subramaniam Chettiar (1925) 50 M.L.J. 228 , Section 55 of the Transfer of Property Act may well be read as using the terms ''buyer''

even when referring to the position of the parties prior to the execution of the deed of sale.

A second possible view is that the contract to sell operates only as a ''conditional'' discharge of the debt - whether as a matter of law or on the

basis of the presumed intention of the parties. Such a legal implication may be compared to the principle well known in cases where a person

executes a promissory note in payment of the price of goods purchased. Asa presumption of fact, it may be rested on the ground suggested in Har

Chandi Lal v. Sheoraj Singh (1916) 32 M.L.J. 241 : L.R. 44 IndAp 60 : ILR 39 All. 178 and by Miller, J., in Ariyaputhira Padayachi and Others

Vs. Muthukumarasami and Others, . The difference between this hypothesis and the previous one will be that on the failure of the debtor to carry

out the contract by the execution of the sale deed, the creditor will not be restricted to the remedy by syecific performance but may sue for the

debt itself. It might also follow that the debtor is not bound to sue for specific performance and will be completely discharged if he is ready and

willing to carry out his contract by the execution of a sale deed or at any rate if he tenders a duly executed sale deed. Whatever may be the bearing

of these considerations on the question raised by the second issue, no prohibition u/s 92 of the Evidence Act can arise even on this hypothesis,

because the plea is in substance one of discharge and not of an agreement to give a discharge in future.

A third possible view is that the contract to sell is an independent matter Cf. Harkisondas v. Bai Dhanu ILR (1926) 50 Bom. 566 and till the

sale is completed the contract does not affect the rights of the creditor or the obligations of the debtor as creditor and debtor. Angan Lal v. Saran

Bihari ILR (1929) 51 All. 799 and Guranditta Mal v. Labhu Ram AIR 1938 Lah. 476, may be referred to in this connection; but as they do not

discuss the question of the admissibility of evidence, they do not call for further notice here. On this footing, there is no scope at all for the

application of Section 92 of the Evidence Act, for ex hypothesi the later contract does not as a contract affect the rights and liabilities of the parties

under the original contract. Such a case cannot be assimilated to one in which the creditor agrees to receive a smaller sum than is actually due

because in the latter case the creditor''s rights under the first document are undoubtedly affected.

In this connection Mr. Bhashyam sought to make some point of the fact that according to the written statement, the amount due to the

mortgagee is said to have been settled at Rs. 9,000, whereas on a proper calculation the amount actually due as per terms of the document will be

found to be something more. This seems to us immaterial, because the defendant''s allegation is that in full satisfaction of the claim under the

mortgage document, the plaintiff agreed to take certain properties. The reference to Rs. 9,000 is only a step in determining the extent of properties

to be conveyed Cf. Suppan Chetty v. Yegnanarayana Aiyar (1931) 34 L.W. 921.

Amongst the authorities cited, the strongest in favour of the respondent is the decision of a single Judge of the Rangoon High Court in

Nachiappa v. Theivanai AIR 1934 Rang. 228. With due respect, we have felt some difficulty in following the reasoning in that judgment. The

learned Judge is reported to have observed that ''an agreement to transfer land in satisfaction of the claims due on these two documents is nudum

pactum and consequently it cannot be proved''. It is well settled that in the case of a contract to sell, the obligation to sell and the obligation to buy-

are respectively the ''consideration'' for the reciprocal promises and it does not seem to us correct to speak of such an agreement as nudum

pactum. Nor can it make any difference for this purpose that the price is not to be paid in the future but consists of money already due by the

vendor to the vendee. It will be too much for instance to suggest that in such a case a suit for specific performance will not lie. Again, we are

unable to see how the fact of its being a nudum pactum stands in the way of its being proved. The learned Judge then observes ''the agreement in

itself is not satisfaction and it can only be considered as an agreement modifying the terms of the contract''. This is practically begging the question;

none of the considerations we have above set out has been adverted to. The assumption that an arrangement for payment by way of transfer of

land must always be a variation of the original contract in all cases of loans is perhaps too wide. Cf. Kamala Sahai v. Babu Kundan Mian (1908)

11 C.L.J. 39, Ramavatar v. Tulsi Prosad Singh (1911) 14 C.L.J. 507 , Balam Nookamma and Another Vs. Sadireddi Dharmayya and Others,

and Lakshminarasimha Rao v. Raghavamma (1936) M.W.N. 205. The learned Judge purports to follow the decision in Jagannath v. Shankar ILR

(1919) 44 Bom. 55 but that decision though purporting to be based on G.P. Mallappa Vs. Matan Naga Chetty, is opposed to the trend of the

Madras decisions Cf. Balasundara Naiker v. Ranganatha Aiyar I.L.R.(1929) 53 Mad. 127 and C. Vaidyanatha Rao Vs. Kandappa Chetty and

Others, because the learned Judges of the Bombay High Court declined to permit proof even of a plea of completed discharge by payment of a

smaller sum than was actually due.

The next case relied on by Mr. Bhashyam is Mohammad Niaz, Ahmad Khan and Others Vs. Nanhe Mal, . The agreement pleaded by the

defendant was there found against on the evidence; the observation of the point of law is therefore only obiter. Even that observation consists only

of a single sentence (without any discussion) that ''the oral agreement amounted to a modification of the original contract''. By way of distinction on

the facts, we may point out that the alleged second agreement in that case comprised not merely a sale of some lands for part of the original debt

but also a payment of a further sum of Rs. 7,000 in cash. We are not in a position to say how far this circumstance influenced the opinion of the

learned Judges. They purport to follow the decision in G.P. Mallappa Vs. Matan Naga Chetty, but that related to the ordinary case of a creditor

agreeing to receive less than what was due under the document.

In Maharaj Singh v. Balwant Singh I.L.R.(1906) 28 All. 508 reference has been made to the objection u/s 92 to a plea which in some respects

resembled the present; but as will be seen from the summary on p. 512 the plea involved certain other matters which are clearly within the

prohibition of Section 92 and the observations on p. 514 put together so many objections to the plea that it is not possible to gather the extent to

which in the opinion of the learned Judges the objection u/s 92 was available.

Allowing the revision petition, we hold that the defendant is entitled to adduce evidence in respect of the oral agreement alleged in the written

statement. The costs of this Revision Petition will be costs in the cause and be provided for in the decree of the lower Court.