W. P. Horsburgh v. Chandroji Sambajirao — 1956 DIGILAW 106 (MP)

JUDGEMENT : DIXIT, J. This is a first appeal from a decision of the Additional District Judge Gwalior, whereby he decreed the plaintiff-respondents claim for the recovery of Rs. 10125/- from the appellant on the basis of a promissory note. 2. The plaintiffs case was that on 5th November 1951 he advanced Rs. 10,000/- as loan to Col. Horsburgh Director of the appellant-company; that the payment was made at Gwalior by a cheque drawn on 5-11-51 on the Bombay Branch of the United Commercial Bank Ltd. and that on this date Col. Horsburgh executed a promissory note, as a Director of the company, promising to pay the amount of loan at Gwalior on 31st December 1951; that when on the due date the promissory note was presented to Col. Horsburgh and the appellant-company for payment, they refused to pay any amount. On these allegations the plaintiff instituted a suit for the recovery of Rs. 10,000/- together with interest thereon amounting to Rs. 125/- from 28th January 1952 i.e., the date of the refusal of the payment till the date of the institution of the suit. The plaintiff also claimed further interest from the date of the suit till the date of repayment at the rate of 6 per cent. per annum. He also sought to make Col. Horsburgh personally liable for the payment of the amount. In their defence both Col. Horsburgh and the Eastern Factors Ltd., admitted the execution of the pronote and the receipt of Rs. 10,000/- by a cheque on the Bombay Branch of the United Commercial Bank Ltd. They, however, registered the suit mainly on the ground that the plaintiff was not entitled to sue for the recovery of the amount of Rs. 10,000/- as the amount of Rs. 10,000/- though given as a loan was in fact a part payment towards an outstanding bill of the appellants for Rs. 45,053/- against the plaintiff; the payment was to be adjusted at the time of the final settling of accounts between the parties and that the pronote was executed by Col. Horsburgh as a Director of the Eastern Factors Ltd., on the express stipulation that it was not to be presented for payment. The plea of the defendants was that the Eastern Factors Ltd., of which Col. Horsburgh as a Director of the Eastern Factors Ltd., on the express stipulation that it was not to be presented for payment. The plea of the defendants was that the Eastern Factors Ltd., of which Col. Horsburgn was a Director entered into a contract with the plaintiff for the erection in Gwalior of a potato-seed storage plant together with a power house; that the construction was complete about the end of May 1951 and soon after the defendants presented to the plaintiff a bill for the amount of Rs. 45,053/- for payment on account of the construction; that the plaintiff withheld payment of the bill alleging that the plant was defective in certain particulars, that thereupon the defendants offered to set right the alleged defects on the condition of the plaintiff making a part payment of Rs. 10,000/- towards their bill; that after protracted correspondence and discussion between the parties, the plaintiff ultimately offered to lend and advance to the defendants a sum of Rs. 10,000/- against a promissory note payable on demand. The defendants proceeded to say that this proposal was rejected by them but later on in order to resolve the deadlock of the repairs to the plant and the settlement of the outstanding bills, they "agreed to pass a promissory note upon the express stipulation that such note was not to be presented for payment but that the amount ostensible secured thereunder was to be given to the second defendant as a payment on account against their said outstanding bill and the plaintiff was to receive credit for the said amount in the final adjustment of account between the parties. According to the defendants the plaintiff acquiesced to the proposal and thereupon Col. Horsburgh on behalf of the Eastern Factors Ltd., executed a promissory note for Rs. 10,000/- in favour of the plaintiff and received a cheque for Rs. 10,000/- payable in Bombay. The defendants also took the objection that as the promissory note was executed in Bombay, the payment of Rs. 10,000/- was made in Bombay and the payment of the defendants bill was to be adjusted and made in Bombay where they carried on business, the Court of the Additional District Judge Gwalior had no jurisdiction to entertain, try and determine the plaintiffs suit. Col. 10,000/- was made in Bombay and the payment of the defendants bill was to be adjusted and made in Bombay where they carried on business, the Court of the Additional District Judge Gwalior had no jurisdiction to entertain, try and determine the plaintiffs suit. Col. Horsburgh also pleaded that he signed the pronote as a Director of the Eastern Factors Ltd., and for and on account of the said company and not for himself and that, therefore, he was not personally liable to pay any amount. 3. On the pleadings of the parties the principal issues which the learned Additional District Judge framed and tried were (1) whether the Court had jurisdiction to try the suit; (2) whether the amount of Rs. 10,000/- was given to the defendants on the understanding that it would be deducted from their outstanding bill against the plaintiff and whether the plaintiffs suit on the pronote was maintainable; (3) and whether Col. Horsburgh was personally liable for the payment of any amount. The learned trial Judge held that he had jurisdiction to try the suit as the pronote was delivered to the plaintiff at Gwalior by post, the amount of Rs. 10,000/- was paid to the defendants at Gwalior and the promissory note did not specify the place of repayment. He also observed that the common law rule that the debtor must find out this creditor was not applicable to the case of a negotiable instrument. The learned trial Judge decided against the defendants the questions whether the amount of Rs. 10,000/- was paid to the defendants on the understanding that it would be deducted from the amount of outstanding bill of the defendants against the plaintiff and whether the plaintiffs suit on the basis of the pronote was maintainable. As to the personal liability of Col. Horsburgh the trial Judge found that he had signed the pronote as a Director of the Eastern Factors Ltd., and not in his personal capacity and that the loan amount was taken by him for the company and not for himself and that, therefore, he was not personally liable to pay any amount to the plaintiff. On these findings, the plaintiffs claim for Rs. 10,125/- together with interest thereon at the rate of Rs. 6 per cent. per annum from the date of the suit till repayment was decreed with costs as against the Eastern Factors Ltd., Bombay. On these findings, the plaintiffs claim for Rs. 10,125/- together with interest thereon at the rate of Rs. 6 per cent. per annum from the date of the suit till repayment was decreed with costs as against the Eastern Factors Ltd., Bombay. 4. In this appeal by the Eastern Factors Ltd., Mr. Bhagwandas Gupta learned counsel for the appellant urged before us two contentions. First it was said that the lower Court had no jurisdiction to try the suit. Secondly it was submitted that the evidence on record showed that the promissory note was delivered to the plaintiff on the stipulation that it was not to be presented at all for payment and that the amount of Rs. 10,000/- paid by the plaintiff to the defendants against the promissory note would be set off against the amount outstanding bill of the defendants against the plaintiff and that, therefore, the plaintiffs suit for the recovery of Rs. 10,000/- on the basis of the promissory note was not maintainable. In my opinion, there is no force in these contentions. 5. The learned Additional District Judge himself rejected the contention advanced on behalf of the plaintiff that the common law rule that the debtor must find his creditor was applicable to a pronote payable on demand and that the note in such a case was payable at Gwalior. In taking this view which is in accord with the Full Bench decision of this Court in Sahni v. State of Madhya Bharat, AIR 1954 Madh-B 184 (A), he was no doubt right. He, however, held that as the amount of Rs. 10,000/- was paid by means of a cheque at Gwalior, a part of the cause of action arose at Gwalior and he had, therefore, jurisdiction to try the suit. The argument of the learned counsel for the appellant on the question of jurisdiction, therefore, centred round the point whether when the payment of Rs. 10,000/- was made by a cheque on the Bombay Branch of the United Commercial Bank Ltd., the payment could be said to have been made at Gwalior where the cheque was delivered or at Bombay where it was cashed. The question does not present any difficulty and is now concluded by the decision of the Supreme Court in Commr. of Income-tax, Bombay v. Ogale Glass Works Ltd., Ogale Wadi, AIR 1954 SC 429 (B). The question does not present any difficulty and is now concluded by the decision of the Supreme Court in Commr. of Income-tax, Bombay v. Ogale Glass Works Ltd., Ogale Wadi, AIR 1954 SC 429 (B). In that case one of the questions considered was whether when payment is made by a cheque, it is the mere receipt of the cheque or the actual receipt of the amount from the Bank when the cheque is cashed that constitutes payment. It was held that a cheque, unless dishonoured is payment, that the payment takes effect from the delivery of the cheque but is defeated by the happening of condition i.e., non-payment at maturity; and that if the cheque is not dishonoured but cashed, the payment relates back to the date of the receipt of the cheque and in law the date of payment would be the date of the receipt of the cheque. Das, J., (as he then was) while delivering the judgment of the Court observed : "When it was said that a payment by negotiable instrument is a conditional payment what is meant is that such payment is subject to a condition subsequent that if the negotiable instrument is dishonoured on presentation the creditor may consider it as waste paper and resort to his original demand Stedman v. Gooch, 1793-1 Esp. 3 (C). It is said in Benjamin on Sale, 8th Edition, p. 788 : "The payment takes effect from the delivery of the bill but is defeated by the happening of the condition, i.e., non-payment at maturity. In Byles on Bills, 20th Edition, p. 23 the position is summarised pithily as follows : "A cheque, unless dishonoured, is payment. To the same effect are the passages to be found in Hart on Banking 4th Edition, Volume 1, page 342. In Felix Hadley and Co. v. Hadley, 1898-2 Ch 680 (D), Byrne, J., expressed the same idea in the following passage in his judgment at p. 682 : In this case I think what took place amounted to a conditional payment of the debt; the condition being that the cheque or bill should be duly met or honoured at the proper date. v. Hadley, 1898-2 Ch 680 (D), Byrne, J., expressed the same idea in the following passage in his judgment at p. 682 : In this case I think what took place amounted to a conditional payment of the debt; the condition being that the cheque or bill should be duly met or honoured at the proper date. If that be the true view, then I think the position is exactly as if an agreement had been expressly made that the bill or cheque should operate as payment unless defeated by dishonour or by not being met; and I think that agreement is implied from giving and taking the cheque and bills in question." The following observations of Lord Maugham in Rhokana Corporation Ltd. v. Inland Revenue Commissioners, 1938 AC 380 at p. 399 (E), are also apposite : "Apart from the express terms of S. 33, sub-s. 1, a similar conclusion might be founded on the well-known common law rules as to the effect of the sending of a cheque in payment of a debt, and in the fact that though the payment is subject to the condition subsequent that the cheque must be met on presentation, the date of payment, if the cheque is duly met, is the date when the cheque was posted. In the case before us none of the cheques has been dishonoured on presentation and payment cannot, therefore, be said to have been defeated by the happening of the condition subsequent, namely, dishonour by non-payment and that being so, there can be no question, therefore, that the assessee did not receive payment by the receipt of the cheques" ..... ..... ..... ..... ..... ..... ..... ...... ..... ..... "The cheques not having been dishonoured but having been cashed, the payment related back to the date of the receipt of the cheques and in law the dates of payments were the. dates of the delivery of the cheques. Here Col. Horsburgh, though he stated in his examination-in-Chief that he received the cheque at Bombay admitted in his cross-examination that he came to Gwalior and received the cheque of Gwalior from Sardar Angre. The cheque was cashed and not dishonoured. That being so, it must be held that the defendant-appellant received payment when the cheque was delivered to Col. Horsburgh at Gwalior. The cheque was cashed and not dishonoured. That being so, it must be held that the defendant-appellant received payment when the cheque was delivered to Col. Horsburgh at Gwalior. A part of the cause of action, therefore, arose at Gwalior and the plaintiff had a right to institute the suit in the Court of Additional District Judge, Gwalior within whose territorial jurisdiction the cheque was delivered to the defendants. 6. On the second contention learend counsel for the appellant sought to argue that it was open to the defendants to show that there was a collateral agreement between the parties under which the promissory note was not to be presented for payment and the amount secured by it, was to be adjusted towards the payment of outstanding bills of the appellant against the plaintiff. Learned counsel maintained that the letters on record which were exchanged between the parties amply established this collateral agreement. It is no doubt true that under S. 46, Negotiable Instruments Act the defendant may show that the promissory note was delivered to the plaintiff conditionally or for a special purpose only. He may prove an oral collateral agreement, not in defeasance of the contract and altering the legal effect of the promissory note, but suspending the effectiveness of the pronote until some condition is fulfilled. But in the present case what is contended is not that the promissory note was delivered conditionally on the agreement that it would not be effective until some condition was fulfilled or that it was delivered for a special purpose but that the parties agreed that no demand on the promissory note would be made at all and that it was not payable. In other words the agreement set up is one in defeasance of the contract embodied in the promissory note. I do not think that the defendant-appellant can take this defence in the suit on the promissory note. The question whether the defendants can take such a defence is really of academic interest only as they have failed to prove any contemporaneous agreement such as they allege. The evidence shows that when the plaintiff refused to pay to the defendants the amount of their bills unless certain defects in the plant constructed by them were removed, the defendants suggested to the plaintiff that they would remove the defects if he were to pay Rs. 10,000/- as part payment. The evidence shows that when the plaintiff refused to pay to the defendants the amount of their bills unless certain defects in the plant constructed by them were removed, the defendants suggested to the plaintiff that they would remove the defects if he were to pay Rs. 10,000/- as part payment. On 3rd October 1951 the plaintiff wrote a letter Ex. P-14 to Col. Horsburgh saying I have considered your proposal to let you have Rs. 10,000/- (Rupees ten thousand) in advance out of the payment, that will have to be done in finally settling your account when you will have set right all the defects of the Potato Cold Storage and the Power House according to the conditions originally agreed. This I can do against a pronote of your concern for the amount for the period of two months i.e., to be repaid to me in cash on 15th of December, 1951". In this letter the plaintiff added that "if the work is completed in time i.e., 1st December, the amount can be set aside against the payments that are to be made to your firm for the work." On 9th October 1951 the plaintiff again addressed a letter (Ex. P-3) to Col. Horsburgh expressing his inability to make further payments against the outstanding bills and suggesting to Col. Horsburgh that it was for him to accept or reject his offer. Thereafter the plaintiff again wrote a letter Ex. P-16 to Col. Horsburgh on 15th October 1951 which reads as follows : "I find you stress two points.......... The first one is that you want Rs. 10,000/- being paid to you against your pending bills and not as an advance. Though I quite see that this amount shall ultimately be adjusted against your pending bills, still at the moment, due to the experience that unfortunately I have had, I want you to have the sum as an advance as previously stated and I am sorry I am not prepared to change that." In this letter the plaintiff said in no uncertain terms that he was not willing to give Rs. 10,000/- to the defendants as part payment towards their outstanding bills but that he would give the amount only as a loan advance. In his next letter Ex. P-15 of 17th October 1951 to Col. Horsburgh the plaintiff again emphasized the fact that the amount of Rs. 10,000/- to the defendants as part payment towards their outstanding bills but that he would give the amount only as a loan advance. In his next letter Ex. P-15 of 17th October 1951 to Col. Horsburgh the plaintiff again emphasized the fact that the amount of Rs. 10,000/- which he would give to the defendants would be an advance of loan and expressing his surprise at the defendant Col. Horsburghs attitude. The defendant Col. Horsburgh was, however, not willing to take the amount as loan and on 16th October 1951 he addressed a letter to the plaintiff to reconsider the matter and pay the amount as part payment towards the outstanding bills. In that letter Col. Horsburgh wrote as follows : "Even when the work is completed I have still to get a considerable sum of money from you, but I am not asking you to send any notes to say when you will pay me as I am relying on your word that as soon as the job is completed satisfactorily you will pay us our bills. Could you not therefore in the same spirit accept my word that the work will be completed as expeditiously as possible and in the best possible manner, so that it is to everybodys satisfaction. This letter is in the form of a promise to you that the work will be done in the quickest possible that the work will be done in the quickest possible time, and had I further funds at my disposal, I would not have hesitated to employ them in this work instead of having to ask you to pay any part of your bill at this stage." "I do hope you will reconsider this matter in the spirit in which this letter is written, and that you will let me have a favourable reply as soon as possible, so that I can put into action the plans I have already made." To this letter the plaintiff sent a reply on 19th October 1951 expressing his surprise at the statements made by Col. Horsburgh and adding "I have on my part too given the matter a great deal of thought and I am sorry I cannot see any reason to change my offer given to you. But you do not seem inclined to accept it." Thereafter on 23rd October 1951 Col. Horsburgh addressed a letter Ex. Horsburgh and adding "I have on my part too given the matter a great deal of thought and I am sorry I cannot see any reason to change my offer given to you. But you do not seem inclined to accept it." Thereafter on 23rd October 1951 Col. Horsburgh addressed a letter Ex. D-3 on behalf of the appellant to the plaintiff acknowledging his letter of 19th October 1951 and saying "I am afraid you have got me in such position that I have no option but to accept your offer, even though I am reluctant to do so in view of the reasons I set out in my letter of the 16th." Along with this letter Col. Horsburgh sent to the plaintiff a promissory note and while doing so added that "in sending the note, it is of course distinctly understood that this amount will be deducted from the bill on the completion of the work". 7. I do not find in this correspondence any material to support the plea that the plaintiff agreed that the promissory note was to be nominal, with no liability attaching to it; and that the amount paid by him would be adjusted towards the defendants bills. On the other hand the letters reveal that the plaintiff was at no time willing to treat the payment of Rs. 10,000/- as a part payment towards the outstanding bills and that he gave the amount as a loan on the express stipulation that the promissory note given for the repayment of the amount would be enforced irrespective of the question of the payment of any amount towards the outstanding bills of the defendants against the plaintiff. Learned counsel for the appellant placed considerable reliance on the statement of Col. Horsburgh in his letter dated 23rd October 1951, that he was sending the promissory note on the understanding that the amount would be deducted from the bill on the completion of the work. In my opinion this statement by itself or when taken together with the plaintiffs letter Ex. P-14 dated 3rd October 1951, does not establish the fact that the parties agreed that the promissory note would not be enforced at any time and the amount secured thereunder would not be repaid to the plaintiff. Indeed the statement of the defendant Col. Horsburgh that the amount of Rs. P-14 dated 3rd October 1951, does not establish the fact that the parties agreed that the promissory note would not be enforced at any time and the amount secured thereunder would not be repaid to the plaintiff. Indeed the statement of the defendant Col. Horsburgh that the amount of Rs. 10,000/- which he received from the plaintiff after executing the promissory note, would be adjusted towards the amount of outstanding bills, is itself an acknowledgement that the obligation under the promissory note existed. If it did not, then there would no question of the amount of Rs. 10,000/- being set off in the settlement of the oustanding bills of the defendants against the plaintiff. It must be noted that in his letter Ex. P-14 the plaintiff has nowhere said that he will not enforce the promissory note at any time and that the amount of Rs. 10,000/- paid by him would be taken into account at the time of the settlement of the outstanding bills. In that letter while saying that "if the work is completed in time i.e., before 1st December, the amount can be set aside against the payments that are to be made to your firm for the work", the plaintiff made it very clear that he would advance the amount against a promissory note and that the amount will have to be repaid on 15th December 1951. This is far from saying that the promissory note was only nominal, that it would not be enforced at any time and that it would be taken into account when the outstanding bills are settled. In my view the agreement set up by the appellant is not established by the evidence on record. Even if the letters referred to above are read as proving the agreement, I do not think the appellants case is advanced any further. For, treated as an oral agreement to the effect that the appellant would not be called upon to pay any amount for which he gave the promissory note and that the amount would be adjusted towards the payment of outstanding bills, it would not be admissible, not being an agreement suspending the effectiveness of the promissory note till the fulfilment of some condition precedent, but being an agreement in defeasance of the unconditional undertaking embodied in the promissory note. As a written agreement it would be merely collateral to the instrument and not one qualifying the contract on the promissory note or extinguishing or discharging the liability thereunder. If the plaintiff has enforced the promissory note in breach of a collateral agreement to set off the amount of Rs. 10,000/- at the time of the settlement of the outstanding bills, that may afford a ground for cross-action but it cannot be pleaded as defence in a suit to enforce the unconditional contract contained in the promissory note. The contention, therefore, of the appellant that the plaintiffs suit is not maintainable by reason of the agreement alleged by them must fail. 8. In my judgment the learned Additional District Judge rightly decreed the plaintiffs claim and this appeal must be and is dismissed with costs. KHAN, J. :- 9. My learned brother has elaborately and very ably dealt with the question of jurisdiction, which appeared to me to have been raised by the learned counsel for the appellant in a half-hearted manner. The decision of the Supreme Court ( AIR 1954 SC 429 (B)) coupled with fact that the cause of action partly arose in Gwalior clinches the matter and confers jurisdiction on the Gwalior Court under Section 20 of the Civil Procedure Code. Nothing more need be said about it. 10. Regarding the conditional delivery of the pronote, before considering the evidence on the point, I should first like to refer to a fact in the light of which, the evidence is to be assessed. Col. Horsburgh in his examination-in-chief said that he received the cheque in Bombay. But in his cross-examination he went back upon his former statement, and admitted having received the cheque at Gwalior. This patent travesty of truth does not mark Col. Horsburgh down as a witness who can always be trusted to state facts correctly. His plea that the pro-note of Rs. 10,000/- was given to him on the condition that at the time of the final settlement of the outstanding bills, the plaintiff would adjust the amount is not established by the evidence on record. It is true that he wanted the pronote to be delivered to him on that condition, but the plaintiff was not only averse to it, but was adamant. It is true that he wanted the pronote to be delivered to him on that condition, but the plaintiff was not only averse to it, but was adamant. When the defendant realised that his persuation and reasoning bad totally failed and that he was put on tanter-book by the plaintiff he wrote back to the plaintiff, saying I am afraid you have got me in such a position that I have no option but to accept your offer". And what was the offer of the plaintiff? It was that the money should be advanced as a loan and not as an amount that could be adjusted towards the payment of the outstanding bills. It being so, the question of conditional delivery does not arise, though I must say that Col. Horsburgh while sending the pronote cleverly added in his letter "in sending the note, it is of course distinctly understood that this amount, will be deducted from the bill on the completion of the work". But what is the effect of these words in law? Do they amount to an agreement? Having regard to the back-ground of the case and the correspondence referred to by my learned brother, these words on the face of them indicate the renewal of an effort to reintroduce a proposal that had been rejected outright by the plaintiff, before he agreed to make an advance. These words are no more than a sort of a pious wish and there is no doubt that their addition to the letter does not constitute an agreement enforceable at law. 11. With these observations, I agree with my learned brother that the appeal must be dismissed with costs.