1. The plaintiff is the appellant. The suit was instituted for the recovery of Rs.9, 150/-. The trial Court decreed the suit and in appeal the decree was reversed and the suit was dismissed. Thus, the Second Appeal.
2. The case of the appellant is that the respondent borrowed a sum of Rs.9, 150/- on Jan. 1, 1973 in the morning, and as a collateral security, he executed a promissory note in the evening and also passed on the receipt - Ex A1 - On the same date. In spite of the demand, the respondent did not pay the amount. Thus, he was constrained to lay the suit. In the written statement filed by the respondent, it is pleaded that the appellant is a professional money-lender and he is not possessed of the licence required under the Hyderabad Money-Lenders Act. He also pleaded that the promissory note is an integral part of the original cause of action and the suit is not based on the original cause of action. Since the promissory note is inadmissible in evidence, the suit is not maintainable. The trial Court upheld the plea of the appellant that the original cause of action arose in the morning independent of the promissory note and relying upon that fact it negatived the contention of the respondent that the appellant is a professional money lender, and decreed the suit. In the appeal filed by the Respondent, it was found by the appellate Court that the appellant did not expressly plead in the plaint that all the terms of the contract of loan were not incorporated in the pronote. He admitted that the suit transaction is an integral part of the contract. Therefore, since the promissory note is inadmissible in evidence, the suit is not maintainable. In that view, it dismissed suit.
3. In this Appeal, Shirr P. Pratap Reddy, the learned Counsel for the appellant, strenuously contended that the view of the appellate Court is clearly in error in view of the decision of Kuppuswami, J. (as he then was) in L. Sambasiva Rao v. T. Balakotiah, 0044/1973 : AIR1973AP342 (FB), and ink support thereof, he relied upon paras 76 to 79. The respondent's counsel, on the other hand, contended that whether the cause of action is based on the original contract or whether it is based on the pronote, is a finding of fact and the appellate Court considered the entire evidence and recorded the finding that the original cause of action and the promissory note are integral parts of one and the same contract and, therefore, since the promissory note is inadmissible in evidence, the suit is not maintainable and this finding is based on evidence on record and it does not call for interference in this appeal.
4. The question, therefore, that arises for adjudication in this appeal is whether the suit is based on original cause of action or on the promissory note. In para 4 of the Plaint, the appellant has stated that the respondent being in need of money, received a sum of Rs.9, 150/- on 7-1-1973, and as a collateral security, he executed a note on the same date and at the same place in favour of the appellant promising to pay the principal amount and interest thereon at 6%. The respondent also passed the receipt for the said amount in favour of the appellant on the same day and place. A reading of the para 4 of the plaint would clearly indicate that the borrowing and the execution of the promissory note are integral parts of the same transaction. Admittedly the promissory note is insufficiently stamped. Therefore, by operation of S. 35 of the Stamp Act it is inadmissible. The question, therefore, is whether the appellant can rely upon the original cause of action of the borrowing. In this regard, a Full Bench of this Court has considered the position of law in L. Sambasiva Rao v. T. Balakotiah, 0044/1973 : AIR1973AP342 . Therein Obul Reddi. J., (as he then was) speaking on behalf of the majority, held thus (as culled out in head note.)
'A plaintiff can lay an action for recovery of the amount advanced by him basing on the original cause of action where the suit negotiable instrument becomes inadmissible in evidence under S. 35 of the Stamp Act, provided there is an allegation in the plaint and proof in evidence about the fact that the promissory note did not incorporate all the terms of the contract of loan and that it was executed as a conditional payment or a collateral security. If the instrument embodies all the terms of the contract and the instrument is improperly stamped no suit on the debt will lie. It will be barred by S. 91 Evidence Act. S. 70 of the Contract Act cannot e invoked on the theories of implied promise, money had and received, quasi - contract and just and reasonable or unjust enrichment or any other equitable doctrine.'
5. While agreeing with the majority has also considered from a slightly different perspective in paras 76 to 79, which read thus:
76. In this connection it is necessary to bear in mind that a promissory note may be executed in different circumstances.
(a) A person may incur a debt in the first instance and subsequently execute a promissory note promissing to pay the amount due by him for example, a promissor may purchase certain goods from the promisee and become indebt3d to him for the sale price and later on at the insistence of the promisee execute a promissory note for the value of the goods purchased by him; or the promisor might have borrowed certain sum of money even without a document and later on at the instance of the latter may execute a promissory note for the amount borrowed.
(b) A promissory note may be executed simultaneoulsly with the loan advanced or the debt incurred. In this connection the expression 'simultaneuously' is used in the sense that the execution of the promissory note and the incurring of the debt form part of one and the same transaction. It is possible that they may be separated in point of time, for instance, the amount may be borrowed in the morning and the promissory note executed in the evening, but if the true position is that they form part of the same transaction, the mere fact that they are separated by some interval of time would not really make a difference.
77. In cases coming under (a) it may be the intention of the parties that the previous debt is discharged by the execution of the promissory note and the promissory note alone should henceforward be treated as constituting the contract between the parties. In other words, there is accord and satisfaction of the debt and henceforward the liability based upon the promissory note. In such a case it is clear that the terms of the contract are reduced to a document within the meaning of S. 91 Evidence Act and it is not permissible to prove the terms of the contract by any other evidence except the promissory note, and as the promissory note itself is inadmissible under S. 35 of the Stamp Act for any purpose, the suit must fail.
78. On the other hand, the intention of the parties may be that it is regarded only as a conditional payment of the antecedent debt, or is taken by way of collateral security for the debt. In either case, the original contract is not in any way affected and if for any reason the promissory note cannot be enforced, the plaintiff is entitled to fall back on the original contract. In the first case the payment being conditional ceases to be a payment when the promissory note cannot be enforced. In the second case, the only result is the security fails but the debt remains. In both these cases it cannot be said that the terms of the contract have been reduced to the form of a promissory note, for the promissory note is only treated as a conditional payment or executed by way of collateral security and hence S. 91 of the Evidence Act does not come in the way and it is always open to the promisee to sue upon the original cause of action, namely the advancing of the loan by the promisee or incurring of the debt by the promisser. The observation of Leach. C.J. in AIR 1938 Mad. 785 a P.756 (FB) that where a negotiable instrument is executed in respect of antecedent debt the creditor may sue on the debt and ignore the note would be applicable only to this class of cases and not to the first where the debt is completely discharged and the promissory note is intended to substitute the debt.
79. Even in a case coming under (b) where the promissory note is simultaneous with the loan, it is still open to the parties to prove that the promissory note was not regarded as the embodiment of the contract but only taken by way of collateral security or by way of conditional payment. Where a promissory note has been executed subsequent to the incurring of the debt or simultaneously, the question still remains whether it was intended by the parties to reduce the terms of the contract into the form of a promissory note or whether it was intended merely to be a conditional payment or by way of collateral security and that has to be decided with reference to the evidence in each case,'
6. The result of the above view of law of the Full Bench leads to the following conclusions.
1) A suit could be laid to recover the amount due either on the basis of original cause of action or contract embodied in the negotiable instrument;
2) If the borrowing and execution of the promissory note form part of an integral transaction, there would be no separate and independent existence to original cause of action and it gets merged in the contract embodied in the negotiable instrument as there was accord and satisfaction of the debt. The right to recover rests only on the instrument itself.
3) The negotiable instrument must contain all the terms of the contract. In such an even if it is insufficiently stamped it becomes inadmissible under S. 35 of the Stamp Act and the terms thereof cannot be proved as being hit by S. 91 of the Evidence Act. The suit as a result must fail;
4) On the other hand if there is a borrowing in the first instance and later on a negotiable instrument is executed as discharge of the borrowing or as a collateral security though the document becomes inadmissible for variety of reasons, the original case of action subsists and suit could be maintained on that basis.
5) But in each case there must exist independent original cause of action and the execution of the negotiable instrument. It must be expressly and specifically pleaded and proved by adduction of evidence. Each case must be considered on its own facts.
In the light of the above law, the question is whether there is any time lag between the contract and the receipt of the money and execution of the promissory note. I have already pointed out that on the own admission of the plaintiff himself in para 4 of the plaint and in the evidence that the borrowing and execution formed integral part of the same transaction. The plaintiff and his witnesses admitted in the cross-examination that the contract was executed at the same time and place and all the terms of the contract were reduced into writing in the promissory note. Even if it is assumed that the amount was taken in the first instance and all the terms of the contract thereof were reduced into writing later in the evening, there was an accord and satisfaction of the debt and the liability to repay springs only from the promissory note. Since it was insufficiently stamped the promissory note now becomes inadmissible and the terms thereof cannot be proved by adduction of oral evidence as being barred under S. 91 of the Evidence Act. Hence the right to lay the suit on the basis of the original cause of action falls to the ground and the suit was rightly dismissed by the lower appellate Court. Accordingly, it does not call for interference in the second appeal. The second appeal is therefore dismissed, but in the circumstances, without costs.
7. Appeal dismissed.