Rangaswami Reddi v. K. Doraiswami Reddi — 1957 DIGILAW 87 (MAD)

Rajamannar, C.J.-This appeal originally came up before Krishnaswami Nayudu, J., who referred it to a Division Bench by the following order: "I should consider that this second appeal may be heard by a Bench in view of the point raised by Mr. N. Appu Rao, the learned counsel for the appellant, that in the case of a promissory note which becomes void by reason of a material alteration under section 87 the principle embodied in section 65 of the Indian Contract Act could be applied, and the person who has received a benefit under the negotiable instrument, treating it as a contract, cannot retain the benefit. In support, of it, he relied on the observation of Abdur Rahman, J., in the decision in Krushnacharana Padhi v. Gourochandro Dyano Sumanto1, which runs thus: 'The promissory note having become void, the defendant who had received an advantage under the instrument is bound to restore it or to make compensation for it. There seems to be no reason why the Court should not act in such a case on the principle embodied in section 65 of the Indian Contract Act.' The question, however, is whether section 87 is self-contained and the provisions of the Contract Act would not be applicable to the matter as is ground by Mr. K.G. Srinivasa Iyer, learned counsel for the respondent. In view of the importance of the question, the papers may be placed before My Lord the Chief Justice for orders as to the posting of this second appeal before a Bench." The suit from which this second appeal arises was brought in the Court of the District Munsif of Salem to recover a sum of Rs. 1,331 being the amount alleged to be due as principal and interest under a promissory note dated 20th December 1947. The plaint contained the following material allegations. On 15th December, 1947, the defendant requested the plaintiff to lend him Rs. 1,500 and received a sum of Rs. 1,100 on that date. The plaintiff promised to ‘lend the balance within a week, but was unable to do so. On 20th December, 1047 the defendant therefore executed a promissory note for Rs. 1,100 in acknowledgment of the amount borrowed on 15th December, 1947. 1,500 and received a sum of Rs. 1,100 on that date. The plaintiff promised to ‘lend the balance within a week, but was unable to do so. On 20th December, 1047 the defendant therefore executed a promissory note for Rs. 1,100 in acknowledgment of the amount borrowed on 15th December, 1947. After the execution of the promissory note, at the defendant’s request, the plaintiff paid to the defendant a further sum of Rs 100 and the defendant altered in his own hand the figure of Rs. 1,100, into Rs. 1,200, in the said promissory note. On 30th December, 1948, the defendant made an endorsement in his own handwriting on the promissory note of a payment of Rs. 68-12-0. On nth March, 1950, he acknowledged the debt due to the plaintiff in a mortgage executed by him. Hence the suit is not barred by limitation. (The suit was brought in 1951). The cause of action arose on 15th December, 1947, when the hand loan of Rs. 1,100, was given and on 20th December, 1947, when a further loan of Rs. 100, was given and acknowledged in the promissory note and on 30th December, 1948, when the defendant made the endorsement of payment of Rs. 68-12-0 and on 11th March 1950 when the defendant acknowledged the debt. The defendant stated that he neither received Rs. 1,100 nor any sum from the plaintiff on 15th December, 1947. Only a sum of Rs. 1,000 was received by him on 20th December, 1947. But the promissory note was executed for Rs. 1,100 in view of the provisions of Madras Act IV of 1938. The defendant pleaded that the plaintiff with ulterior motives had materially altered the suit promissory note by changing the figure of Rs. 1,100 to Rs. 1,200 and the said alteration was material and therefore the suit promissory note was not enforceable. He further pleaded that there was no original cause of action independent of the promissory note, and when the promissory note itself was not enforceable, the plaintiff cannot rely on any such original cause of action. He also stated that there was a material alteration in the endorsement of payment from 20th December, 1948 to 30th December, 1948. In addition to the above pleas, the defendant also raised a plea of discharge by payment of the entire principal of Rs. He also stated that there was a material alteration in the endorsement of payment from 20th December, 1948 to 30th December, 1948. In addition to the above pleas, the defendant also raised a plea of discharge by payment of the entire principal of Rs. 1,000 with accrued, interest thereon within a week of the receipt of the notice dated 22nd May, 1950 from the plaintiff demanding payment. The learned District Munsiff who tried the suit found that the defendant borrowed the sum of Rs. 1,100 on 15th December, 1947 but held that the further loan of Rs. 100 on 20th December, 1947, alleged by the plaintiff was not true. He also found that material alterations in the promissory note had been made by the plaintiff without the consent of the defendant and hence the suit promissory note became void and unenforceable under section 87 of the Negotiable Instruments Act. He found against the defendant on his plea of discharge. Though the promissory note as such was not enforceable, the learned District Munsif held that the plaintiff was entitled to recover on the original cause of action, namely, the loan given on 15th December, 1947. In the result he granted a decree for Rs. 1,000 with interest thereon at 5½ per cent. per annum from the date of suit. There was an appeal by the defendant. The learned Subordinate Judge who dealt with the appeal differed from the learned District Munsif and held that the plaintiff never paid any money to the defendant on 15th December, 1947, and that the defendant received the amount only on 20th December, 1947, the date of the promissory note. As the promissory note had been materially altered, the plaintiff could not maintain the suit on the promissory note, and as there was no original cause of action based on a payment on 15th December, 1947, the plaintiff was not entitled to sue on the consideration for the promissory note and section 65 of the Contract Act would have no application in view of the provisions contained in section 87 of the Negotiable Instruments Act. He therefore allowed the defendant’s appeal and dismissed the suit. Hence the plaintiff has filed this second appeal. In our opinion, on the findings of the learned Subordinate Judge that the payment of Rs. He therefore allowed the defendant’s appeal and dismissed the suit. Hence the plaintiff has filed this second appeal. In our opinion, on the findings of the learned Subordinate Judge that the payment of Rs. 1,100 was simultaneous with the execution of the promissory note and that there was no advance by the plaintiff on 15th December, 1947, and that the promissory note had been materially altered by the plaintiff, which are findings of fact binding on us in second appeal, his decision that the suit was not maintainable is right. Section 87 of the Negotiable Instruments Act runs thus: “Any material alteration of a negotiable instrument renders the same void as against any one who is a party thereto at the time of making such alteration and does not consent thereto, unless it was made in order to carry out the common intention of the original parties: and any such alteration, if made by an indorsee, discharges his indorser from all liability to him in respect of the consideration thereof. The provisions of this section are subject to those of sections 20, 49, 86 and 125”. It is clear from this section that a negotiable instrument which has been altered by the payee cannot be enforced by him. The question is whether the plaintiff is entitled to any relief in spite of this provision. If the finding of the appellate Court had been that a sum of Rs. 1,100 was lent by the plaintiff on 15th December, 1947, and the promissory note subsequently executed was only an acknowledgement of the loan and security for it, it may well be that the plaintiff could obtain a decree on that loan in spite of the subsequent promissory note becoming unenforceable. But the appellate Court has found that there was no payment of money on 15th December, 1947, and the money was paid only on 20th December, 1947, in pursuance of the promissory note executed on that date. In such circumstances section 91 of the Evidence Act would be an obvious bar to the admission of any evidence aliunde to prove the passing of consideration under the promissory note. All the terms of the contract between the plaintiff and the defendant in respect of the loan were reduced to writing and embodied in the promissory note. In such circumstances section 91 of the Evidence Act would be an obvious bar to the admission of any evidence aliunde to prove the passing of consideration under the promissory note. All the terms of the contract between the plaintiff and the defendant in respect of the loan were reduced to writing and embodied in the promissory note. On account of the material alteration the promissory note in the original form has ceased to exist and the promissory note as materially altered has been rendered void and inadmissible. The promise to repay the sum of Rs. 1,100 is as much a term of the contract as the provision for the rate of interest. Mr. N. Appu Rao learned counsel for the plaintiff-appellant was apparently aware of this difficulty and therefore put forward a contention that the plaintiff was entitled to relief under the provisions of section 65 of the Contract Act. Section 65 of the Contract Act runs thus: “When an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.” His contention was that the contract as evidenced by the promissory note has become void (under section 87 of the Negotiable Instruments Act) because of the material alteration and therefore the defendant who has received an advantage, that is, money under the contract, is bound to restore it or make compensation for it to the person from whom he received it, namely, the plaintiff. He relied on three decisions of this Court to which we shall refer immediately. The first is Chitturi Suriah v. Boddu Ramayya1. In that case a suit was brought on an account or katha. The facts were: The plaintiffs, on 9th January, 1910, advanced Rs. 800 to the defendant on an agreement that the defendant should supply 300 baps of paddy at the rate of Rs. 3-11-0 per bag; the defendant was unable to perform and did not perform that contract and he refunded Rs. 400 on 26th August, 1910. The defendant set up a plea that the plaintiffs had agreed to receive Rs. 150 in full discharge of the balance of Rs. 400 due to them. 3-11-0 per bag; the defendant was unable to perform and did not perform that contract and he refunded Rs. 400 on 26th August, 1910. The defendant set up a plea that the plaintiffs had agreed to receive Rs. 150 in full discharge of the balance of Rs. 400 due to them. It was found by both the Courts that there was material alteration in the figures in the ledger in which the terms of the contract were entered. The case was decided by a Division Bench consisting of Sadasiva Ayyar and Spencer, JJ. Spencer, J. delivered the leading judgment. He held, agreeing with the Courts below, that the terms of the contract could not be enforced because the plaintiffs had by their own act destroyed evidence as to its terms and therefore they should not be allowed to enforce the contract or recover any sum on the strength of it. The learned Judge was of the view that nevertheless the plaintiffs’ suit should not have been dismissed altogether. He referred to section 64 and section 65 of the Contract Act and to an admission made by the defendant in the written statement that a sum of Rs. 400 was due by him to the plaintiffs, that is, the balance of the advance, though the defendant also pleaded that in accordance with a later agreement, the plaintiffs were bound to receive Rs. 150 in full discharge of that liability, and he held that the plaintiffs were prima facie entitled to recover the sum of Rs. 400 as the defendant had had the benefit of the money without rendering any return for it. He therefore gave the plaintiffs a decree for Rs. 400 but without interest or costs. Sadasiva Ayyar, J. apparently was inclined to take a different view but did not feel strong enough to dissent from his learned brother and agreed in the award of Rs. 150 (sic) made by him (Spencer J.) in favour of the plaintiff. It is difficult to reconcile the two figures in the judgments of the two learned Judges, namely Rs. 400 in the judgment of Spencer, J. and Rs. 150 in the judgment of Sadasiva Ayyar, J. But that is not material. 150 (sic) made by him (Spencer J.) in favour of the plaintiff. It is difficult to reconcile the two figures in the judgments of the two learned Judges, namely Rs. 400 in the judgment of Spencer, J. and Rs. 150 in the judgment of Sadasiva Ayyar, J. But that is not material. What is material is a discussion of the question by the learned Judge Sadasiva Ayyar, J. He was clearly of opinion that the plaintiffs’ suit based on the contract which had been reduced to writing was not enforceable because the material alteration made in it by the plaintiffs vitiated the contract. As regards section 65 of the Contract Act, he was at first inclined to hold that the plaintiffs could not be allowed to recover any portion of the sum obtained from them by the defendant under the contract by taking advantage of section 65 of the Contract Act, because on grounds of public policy no plaintiff should be allowed to take the chance of committing a fraud without running the risk of loss on detection. But having regard to Illustration (c) to section 65 of the Contract Act, the learned Judge thought he could not dissent from his learned brother. He made a reference to the decision in Govindaswami v. Kuppuswami1 to which we shall presently refer. In our opinion the decision in Chitturi Suriah v. Boddu Ramayya2 does not help the plaintiff-appellant in this case. It is important to notice that in that case the learned Judges did not pass a decree which in effect would amount to the enforcement of any term of the suit contract. The contract was for supply of paddy and that contract was broken. The learned Judges did not award any damages for the breach of the contract because they held that on account of a material alteration the contract could not be enforced. The decree related to the advance which the plaintiffs had paid towards the contract and the defendant practically admitted his liability to return the balance of advance. Sadasiva Ayyar, J’s reliance on Illustration (c) to section 65 of the Contract Act shows the basis of his judgment and that basis obviously has no application to the facts of the case before us. The learned Judge was evidently not prepared to dissent from the decision in Govindaswami v. Kuppuswami1 to which he referred. Sadasiva Ayyar, J’s reliance on Illustration (c) to section 65 of the Contract Act shows the basis of his judgment and that basis obviously has no application to the facts of the case before us. The learned Judge was evidently not prepared to dissent from the decision in Govindaswami v. Kuppuswami1 to which he referred. In that case a suit was brought to recover the principal and interest due on a simple bond executed by the defendant. There was a material alteration of the instrument in respect of the date. It was held that the material alteration vitiated the document and the plaintiff could not recover on the foot of that document. It was then contended that the document could be received as evidence of the debt. But it was held that it could not be so received because the contract between the parties having been reduced to writing the plaintiff could only recover upon the writing and that he could not do because it had been altered in a material part. No doubt in that case the suit was not based on any antecedent transaction for which the instrument was given as security. In the present case there was such a case set up ; but the lower appellate Court has found against it. Because of that finding, the principle laid down in Govindaswami v. Kuppuswami1 would apply to the present case as well. The next decision relied on by Mr. Appu Rao is in Anantha Rao v. Surayya2. In that case the learned Judges followed the ruling in Chitturi Suriah v. Boddu Ramayya3 and that decision does not carry us further than the earlier decision. All that was ruled there was that if a written contract is materially altered by one party without the knowledge and consent of the other, the former is not entitled to damages for breach of contract but is entitled to a repayment of the advance made by . him. Here again, there was no question of any of the terms of the contract as such being enforced. Krishnan, J. observed that if the repayment of the money was claimed by way of enforcement of the contract, the plaintiff would be met by the objection based on the material alteration. Spencer, J., the other learned Judge, based his decision on the admission of the first defendant to refund the advance received by him. Mr. Krishnan, J. observed that if the repayment of the money was claimed by way of enforcement of the contract, the plaintiff would be met by the objection based on the material alteration. Spencer, J., the other learned Judge, based his decision on the admission of the first defendant to refund the advance received by him. Mr. Appu Rao for the appellant placed great reliance on observations of Abdur Rahman, J. in Krushnacharana Padhi v. Gourochandro Dyano Sumanto4. The facts in that case were: A suit was instituted on the basis of a promissory note, dated 15th October, 1928, executed by the defendant in favour of one Brojo Padhi who died leaving him surviving a minor son who was the plaintiff. There was an endorsement on the back of the promissory note signed by the defendant of a payment of Rs. 10 on 12th October, 1931. The suit was instituted on 22nd October, 1934, while the plaintiff was still a minor. There were two alterations in the promissory note, the dates 15 and 12 in the body of the note and in the endorsement being changed into 25 and 22 respectively. The District Munsif who tried the suit passed a decree in favour of the plaintiff in spite of the alterations on the ground that the plaintiff, a minor, was unware of the alterations. But on appeal the learned District Judge dismissed the suit taking the view that having regard to the provisions of section 87 of the Negotiable Instruments Act, the promissory note could not be enforced. There was a second appeal to this Court, which was decided by Abdur Rahman, J. The learned Judge set aside the dismissal of the suit by the learned District Judge and passed a decree in favour of the plaintiff. Four contentions were raised before the learned Judge: (1) that the alterations were not material, (2) that even if they were, the plaintiff did not know anything about them, (3) in any event the plaintiff should be allowed to fall back on the original consideration and (4) a decree should have been passed against the defendant on an admission made by him that the debt was outstanding. The learned Judge found against the plaintiff on the first contention, but he accepted the second contention. The learned Judge found against the plaintiff on the first contention, but he accepted the second contention. He held that the alteration referred to in section 87 of the Negotiable Instruments Act refers to a deliberate alteration by a party to an instrument or by one on whom his interest has devolved, and not by a stranger. The finding was that the alterations had not been made either by the minor or by his guardian. Having accepted this contention, it was really not necessary for the learned Judge to deal with the other contentions ; but he did express his view on them also. Dealing with the third contention that the plaintiff could fall back on the original consideration, the learned Judge began by saying: “It is unnecessary to say what the effect would have been if the alteration had been made fraudulently by the plaintiff himself but in the absence of fraud it does not seem to me possible to hold that not only the note but the original debt is also destroyed.” But he thought that when the subsequent alteration was by a stranger, it would not deprive the person who had advanced the money or his representative of his remedy to bring a suit for the money advanced to the defendant by way of loan. Then occur the following observations which form the sheet anchor of Mr. Appu Rao’s argument: “One may not be able to enforce the terms contained in the instrument but there can be no objection to the Court looking at it and granting the relief on the basis as if the document had not come into existence. The promissory note having become void, the defendant who had received an advantage under the instrument is bound to restore it or to make compensation for it. There seems to be no reason why the Court should not act in such a case on the principle embodied in section 65 of the Indian Contract Act.” The learned Judge was evidently inclined to grant relief to the plaintiff even on the last contention, namely, that there was an admission by the defendant that the debt due under the promissory note was outstanding. There was an appeal under the Letters Patent against this decision of Abdur Rahman, J., Gourochandro v. Krushnacharana1which was heard and disposed of by a Division Bench consisting of Leach, C.J., and Krishnaswamy Ayyangar, J. The learned Judges upheld the decision of Abdur Rahman, J., on one ground only, namely, that the holder of a promissory note is not affected by a material alteration in the instrument when the alteration has been made by a stranger without the consent of the holder and without any fraud or laches on his part. They did not even refer to the other grounds on which Abdur Rahman, J., was prepared to grant a decree in favour of the plaintiff. We are, therefore, left with the observations of Abdur Rahman, J., only. With great respect to the learned Judge we are unable to agree with him. His observations are not supported by any authority. There is only a casual reference to section 65 of the Contract Act without discussing the scope of its application. In our opinion, that section cannot have any application to the facts of the present case. When an instrument which embodies a contract becomes unenforceable for some reason or other, it is not correct to say that the contract itself has become void. Of course there is no question of the agreement being discovered to be void. The contract between the parties is that in consideration of the money advanced by the plaintiff to the defendant, the defendant agrees to repay the said sum with interest thereon on demand. That contract as such has not become void. What has become void is the instrument containing the terms of the contract. The difficulty in the way of the plaintiff is the rule of law that when the terms of a contract are reduced to writing and that writing is inadmissible in evidence, no other evidence can be given of the terms of the contract. Here on account of section 87 of the Negotiable Instruments Act the promissory note has become void and the plaintiff cannot be permitted to adduce any other evidence to prove the contract of loan. The promise to repay the amount of the loan is certainly a term, indeed an essential term, of the contract. Here on account of section 87 of the Negotiable Instruments Act the promissory note has become void and the plaintiff cannot be permitted to adduce any other evidence to prove the contract of loan. The promise to repay the amount of the loan is certainly a term, indeed an essential term, of the contract. Of course, if there was a completed contract which existed before the execution of the promissory note, in which case the promissory note may be treated as a security or voucher, an action would lie on such a contract even though the promissory note executed subsequently cannot be admitted in evidence for any reason. In the present case, the plaintiff indeed did put forward such a case, namely, the advance of money on the 15th December, 1947. But that case has been found against. An inference was sought to be drawn from the following part of section 87 of the Negotiable Instruments Act, namely: “any such alteration, if made by an endorsee, discharges his endorser from all liability to him in respect of the consideration thereof.” It was contended that as the section only mentions about the liability of the endorser, the liability of other parties to the note would not be affected by the material alteration. No such inference is warranted. That provision has nothing to do with the liability of the executant under the promissory note. Ordinarily if an endorsement is made by the payee for a consideration and the endorsee is unable to recover on the promissory note, the endorsee is entitled to recover the consideration from his endorser. All that the aforesaid part of section 87 says is that if a material alteration is made by the endorsee of a promissory note and on that ground the promissory note becomes void, the endorsee who is himself responsible for the result cannot make the endorser liable. The endorsee has to suffer the loss occasioned by his own fraud. This rule has nothing to do with the liability of the executant of a promissory note to the payee. We, therefore, hold that the plaintiff who has been guilty of a material alteration of the promissory note cannot enforce the promissory note, nor can he fall back on the original consideration, nor can he invoke the provisions of section 65 of the Contract Act to sustain his claim. We, therefore, hold that the plaintiff who has been guilty of a material alteration of the promissory note cannot enforce the promissory note, nor can he fall back on the original consideration, nor can he invoke the provisions of section 65 of the Contract Act to sustain his claim. The suit was rightly dismissed by the learned Subordinate Judge. The second appeal is dismissed with costs. P.R.N. -------------------- Appeal dismissed.