1. The defendants, Durga Prasad and Salig Ram, who kept a shop in Benares, styled 'Durga Prasad-Salig Ram', borrowed a sum of Rs. 1,200, from the plaintiff on a hundi dated the 22nd June 1910, payable in 91 days. The hundi was dishonoured when presented for payment on the 7th August 1910.
2. The plaintiff, therefore, sued for the money with interest on the 18th August 1910. Various pleas were raised in defence, one of which was that the hundi being insufficiently stamped was inadmissible in evidence. The Court of first instance found that the terms of the loan were embodied in the hundi and that the cause of action was not complete independently of the hundi, but, following Sri Nath Das v. Angud Singh 7 A.L.J. 459 : 6 Ind. Cas. 126 came to the conclusion that evidence aliunde was admissible to prove the debt and decreed the plaintiff's suit. On appeal, the lower Appellate Court came to the conclusion that evidence was not admissible apart from the hundi and that the case fell within the second class of cases contemplated by Garth, C.J. in Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533. On that solitary ground, the lower Appellate Court, without going into other questions raised in the appeal, dismissed the suit. In second appeal, it is urged that the plaintiff is entitled to sue for the money had and received notwithstanding the fact that the insufficiently stamped promissory note was inadmissible in evidence. Long and able arguments have been addressed to us and a large number of cases, English and Indian, have been cited. Before going into the case law on the subject, it is desirable to have two points cleared up:.
1. Where A. pays X a sum of money for a consideration which wholly fails, he is entitled to recover his money from X by means of an action for money had and received by the defendants 'for the plaintiff's use. Lord Mansfield in Moses v. Macpherlan (1760) 2 Burr. 1005 at p. 1012 : 1 W.B1. 219 speaking of this action, observes: 'This kind of equitable action to receive money back which ought not in justice be kept is very beneficial and, therefore, much encouraged. It lies only for money which ex (sic) et bono the defendant ought to refund.... It lies for money paid by mistake or upon a consideration which happens to fail.' Sir William Anson, in his Law of Contract, page 391, 11th Edition, is of opinion that Lord Mansfield stated the rule of equity too broadly and in a note says:
The liability to re-pay money for a consideration which has wholly failed is some-times classed among the foregoing obligations, but is based upon a genuine contract though shortly stated in the form of an indebitatus count.' The liability, with due respect to the learned jurist, in our opinion, is not based upon a contract, for the contract is to give consideration agreed upon and not to return the money paid therefor, if the consideration fails, bat it rests upon equity. Apart, however, from the basis on which it rests, it is a well established rule of English Law: Where money has been paid for a consideration which has wholly failed, the person, who made the payment, may recover the money back as money had and received to his use.' (The Laws of England by the Earl of Halsbury, Vol. VII, page 481). 'Money paid for a consideration which fails may be recovered back, as the price of goods sold which the seller fails to deliver wholly or partly' Giles v. Edwards 7 Term. Rep. 181 : 4 R.R. 414 and Devaux v. Conolly 8 C.B. 640 : 19 L.J.C.P. 71 : 79 R.R. 659. (Leake on Contract, page 65, 4th Edition).' Upon the same principle, money paid and purchased on discharge of bills on securities which are delivered as valid, but which are, in fact, forged or void, may be recovered back though the defect may be unknown to both parties.' (Lsake on Contract, page 67, 4th Edition). The law in British India is the same. Their Lordships of the Privy Council in Hanuman Ramat v. Hanuman Mandur 8 C.B. 640 : 19 L.J.C.P. 71 : 79 R.R. 659 have, in effect, held that money received by the vendor of property as its price is money had and received to the account of the vendee within the meaning of Article 62 of the Limitation Act, if there never was any consideration for the purchase, that is, if the sale was ab initio void see also Mahomed Wahib v. Mohamel Ameer 32 C. 527 : 1 C.L.J. 167. The result of the rule laid down by their Lordships of the Privy Council is that if A. pays X a sum money for a consideration which wholly fails, A. may sue for money had and received. Now, if X, in consideration of a debt due by him, gives his creditor A. a promissory note, which is inadmissible in evidence, the consideration of the debt wholly fails and A. in equity is entitled to recover the money paid by him as money had and received by X. to the use of A. On principle, it is perfectly immaterial when and how the debt came into existence and when the insufficiently stamped promissory note was given. The debt may have been a pre-existing 'debt for goods sold or services rendered or money advanced or it may come into existence immediately before or after the taking of the promissory note in consideration of the money. In such cases, the time at which the note is given is no element in the creation of the liability to re-pay. That liability comes into existence by receiving the money and not paying the consideration. The debtor, when in consideration of the debt, gives a promissory note which turns out to be waste paper, the debt is not satisfied unless the rule be that a debtor may discharge his debt by giving a bit of waste paper to his creditor. This power is too inequitable to be a rule of law. To say that a debtor can discharge his debt by giving waste paper is to punish a creditor for the misfeasance of the debtor and this is too absurd for words. The action for money had and received and the action to enforce a contract reduced to the form of a promissory-note are two very distinct actions. The former is to enforce a claim based on the principles of equity and the other is to enforce a contract.
2. It is a well settled rule of the law of evidence that when the terms of a contract have been reduced to the form of a document, no evidence shall be given to prove the terms of such contract (Section 91, Indian Evidence Act). An application of the rule is that if the terms of the contract of loan are reduced to the form of a promissory-note and that note is inadmissible in evidence, no other evidence of the term shall be received and the suit, if based on that promissory-note, shall fail. This rule of evidence has, however, nothing to do with the action for money had and received by defendant for the plaintiff's use, the basis of which action is not the contract reduced to the form of a promissory-note, but the doctrine of equity that a person, who has received a sum of money from another for a consideration which wholly fails, must return the money to the payer. A promissory-note which is inadmissible in evidence may have been taken by the creditor in substitution for an antecedent debt or in consideration of a debt, but in both cases, when a suit is based on such a promissory note, it is bound to fail and on principle there is no justification for the distinction, that if the note is taken in substitution of an antecedent debt, the creditor is entitled to fall back upon the original liability of the debtor, and to sue him for money had and received, but that if the note is taken in consideration of the debt which was not pre-existing, the creditor has no right to sue for money had and received. The proposition that in the former case, there is a cause of action independently of the promissory-note while in the latter, the note itself is the cause of action, is due to some confusion of ideas. The cause of action for money had and received is the failure of consideration for that money and exists in both cases independently of the note. If it be accepted that in the latter case, the note itself constitutes the cause of action, it will constitute a cause of action for the enforcement of the contract contained therein, and not for money had and received by the defendant for the plaintiff's use.
3. Coming to the cases in which the debtor gives the creditor an insufficiently stamped promissory-note, we find that Grarth, C.J., divided them, in Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533 into two classes: (a) 'When a cause of action for money is once complete in itself, whether for goods sold, or for money lent, or for any other claim and the debtor then gives a bill or note to the creditor for payment of the money at a future time, the creditor, if the bill or note is not paid at maturity, may always, as a rule, sue for the original consideration, provided that he has not endorsed or lost or parted with the bill or note under ' such circumstances as to make the debtor liable upon it to some third person. In such cases, the bill or note is said to be taken by the creditor on.account of the debt and if it is not paid at maturity, the creditor may disregard the bill or note and sue for the original consideration see James v. Williams (1845) 13 M. & W. 828 and other cases mentioned in Addison on Contract, 3rd Edition, page 1204. The cases of Clay v. Crowe (1853) 8 Exch. 295 : 17 Jur. 262 : 91 R.R. 496 and Wain v. Bailey 10 Ad. & E. 616 : 2 P.& D. 507 : 50 R.R. 514 cited in argument before us by Mr. Dass were of this nature.' (b) When the original cause of action is the bill or note itself, and does not exist independently of it, as, for instance, when in consideration of depositing money with B., B. contracts by a promissory-note to re-pay it with interest at 6 months' date, here there is no cause of action for money lent or otherwise than upon the note itself, because the deposit is made upon the terms contained in the note and no other. In such a case, the note is the only contract between the parties and if, for want of a proper stamp or some other reason, the note is not admissible in evidence, the creditor must lose his money. Of this nature, were the cases referred to by the Judge of the lower Court: Ankur Chunder Roy Chowdhry v. Madhub Chunder Ghose 21 W.R. 1 and Prosunno Nath Lahiree v. Tripoora Soonduree Dabee 24 W.R. 88. The case to which he refers, decided by Kennedy, J., Golap Chand, Marwaree v. Thakurani Mohohoom Kooaree 3 C. 314 : 2 C.L.R. 412 note, apparently belongs to the former class; and in Farr v. Price (1800) 1 East 55 : 5 R.R. 515 : 102 Eng. Rept. (Reprint.) 22 all that Lord Kenyon ruled was, that if, on the new trial, the plaintiff could prove his claim under the common counts, that is to say, independently of the note, he might recover. There is no doubt as to the principle of these authorities. The difficulty often is to ascertain as, a matter of fact, to which class any particular case belongs.'
4. The distinction between the two classes is more of form than of substance. The fact that in one case there is an antecedent debt while there is none in the other case, does not alter the liability to pay the money back when the consideration for it wholly fails. The proposition that in one case there is a complete cause of action for money independently of the promissory-note and that in the other the note itself is the cause of action, is not free from confusion. In both cases, there is failure of consideration due to the delivery of an insufficiently stamped note. In both cases, therefore, there is a cause of action for money had and received, and in both cases, there is a promissory-note on which no suit can succeed. The promissory-note in neither case constitutes a cause of action which, in its narrow sense, means some infringement by the defendant upon some of' the rights of the plaintiff and a promissory-note cannot by any stretch of the meaning of the expression 'cause of action', be denoted by that expression. What is meant by saying that the original cause of action is the bill itself' is that the contract of loan is contained in the note and that in order to enforce that contract, the note is to be the basis of the claim. In this sense, it cannot be a cause of action' for money had and received. The distinction drawn by Garth, C.J. in Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533 to the effect that in the case of an antecedent debt, the onus of proving the note lies on the defendant while in these cases in which there is no antecedent debt, the plaintiff has to prove the note, with great respect, is difficult to follow. In either case, if the plaintiff sues for money had and received, he will not have to prove the promissory-note but if he sues on the note, he will have to prove it and the law will not allow the note to be received in evidence. This 'very material and practical distinction between the two classes of cases,' cannot take place except when in the case of an antecedent debt, the action for money had and received is based on the failure of consideration but not on the note and in the case in which a note is taken in consideration of the money, the note is made the basis of the claim. If in the latter case, the suit be based on the failure of consideration, the plaintiff will not have to prove the note.
5. Where a promissory-note not admissible in evidence has been taken for an antecedent debt, in such cases, it has uniformly been held, both in England and British India, that the creditor may ignore the note and fall back on the original liability of the debtor. The first reported case is Steadman v. Gooch (1793) 1 Esp. 4. That was an action of assumpsit for goods sold and delivered. One of the pleas in defence was that the plaintiff in discharge of her bill had taken three promissory-notes and had given the defendant a receipt to that effect. The notes were returned before they were payable. Objection was taken by the Counsel for the defendant that the plaintiff, having taken them in discharge of her debt for goods sold, could not maintain an action on her original debt for the goods until an actual default in the payment of the 39 notes given in discharge of it, as the notes might be paid when they become due; nor should the plaintiff be allowed to judge the probable or improbable ability of the party to pay at a future date. Lord Kenyon overruled the objection. He said that 'to this effect, the law was clear that, if in payment of a debt the creditor is content to take objector note payable at a future day, he cannot legally commence an action on his original debt until such bill or note becomes payable or default is made in the payment; but that if such bill or note is of no value as if, for example, drawn on a person who has no effects of the drawer's in his hands and who, therefore, refuses it, in such case he may consider it as waste paper and resort to his original demand and sue the debtor on it.' His Lordship does not mention the form which the action would take.
6. Now, in substance, it would be an action for money had and received: see Jones v. Ryde (1814) 5 Taunt 488 : 15 R.R. 561 : 1 Marshal 157.
7. To the same effect, besides the cases cited in Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533 are Mussen v. Pries (1803) 4 East. 147; Brown, v. Watts (1808) 1 Taunt. 353 : 9 R.R. 793 and Hickling v. Hardey (1817) 7 Taunt 312 : 1 Moore. 61.
8. No English case is cited in support of the proposition that when a promissory-note which is inadmissible in evidence has been taken in consideration of money advanced, the creditor is not allowed to fall back on the liability of the debtor and to sue for money had and received.
9. The following are the Indian cases in favour of allowing the creditor, who has taken a note inadmissible in evidence for an antecedent debt, to ignore the note and to sue on the original liability.
10. Kanhaya Lal v Stowell 3 A. 581. In this case, the suit was treated as a suit for a debt due and the writing, which was insufficiently stamped as a promissory-note, was held by the majority to be admissible as proof of an acknowledgment of the debt.
11. Hira Lal v. Data Din 4 A. 135. In this case, it was held that the existence of the promissory-note did not debar H. from resorting to his original consideration nor exclude evidence of the oral acknowledgment of the debt. Kiamuddin v. Rajio 11 A. 13; Banarsi Prasad v. Fazal Ahmad 28 A. 298 : A.W.N. (1906) 9 : 3 A.L.J. 25; Ram Sarup v. Jasoda Kunwar 34 A. 158 : 9 A.L.J. 72 : 13 Ind. Cas. 138; Golap Chand Warwire v. Thakurmi Mohokoom Kooaree 3 C. 314 : 2 C.L.R. 412 note. Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533.
12. Pramatha Nath Sandal v. Dwarka Nath Dey 23 C. 851. This was a suit on what was held to be a promissory-note which was insufficiently stamped and it was held that the plaintiff had a cause of action independently of the promissory-note. The case of Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533 was so explained as to be not in conflict with the case before the Court. Aikman, J. in Parsotam Narain v. Taley Singh 26 A. 178 : A.W.N. (1903) 217 rightly said that the learned Judges, who decided Pramatha Nath Sandal v. Dwarka Nath Rey 23 C. 851 entirely misapprehended Sir Richard Garth's judgment in Sheikh Akbar v. Shaikh Khan 7 C. 256 : 8 C.L.R. 533.
13. Krishna Sami Pillai v. Rangasami Chetty 7 M. 112 which laid down that the existence of a promissory-note which was inadmissible in evidence, was no bar to recovering the money lent. The case was explained in Pothi Reddi v. Velayudasivan 10 M. 94 to have been decided on the ground that the cause of action was complete in itself before the giving of the note; Yarlagadda Veeraraghavayya v. Gorantla Ramayya 29 M. 111 : 15 M.L.J. 484 follows Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533 in both classes of cases. Krishnaji Narayan Parkhi v. Rajmal Manik Chand Marwadi 24 B. 360 : 2 Bom. L.R. 25 ruled that where there is au independent admission of a loan, the holder of a hundi, bill or note, which is defective and inadmissible in evidence for want of a stamp, may still sue, on the consideration, the person to whom he gave it though he cannot use the bill in support of his suit.
14. The following cases support the proposition that when an insufficiently stamped promissory-note is taken in consideration of a sum of money, the plaintiff is not entitled to set up a case independent of the note.
15. Parsotam Narain v. Taley Singh 26 A. 178 : A.W.N. (1903) 217. This case is expressly dissented from in Ram Sarup v. Jasoda Kunwar 34 A. 158 : 9 A.L.J. 72 : 13 Ind. Cas. 138.; Damodar Jagannath v. Atma Ram Babaji 12 B. 369.; Chenbasapa v. Lakshman Ram Chandra 18 B. 369. In this case, it was held that a Court ought not to give effect to insufficiently stamped hund is by passing a decree upon them.
16. Ankur Chander Roy Chaudhry v. Madhub Chander Ghose 21 W.R. 1; Prosunnoo Nath Lahiree v. Tripoora Soonduree Dabee 24 W.R. 88. This case lays down that where a contract is reduced to writing and the only cause of action between the parties arises oat of the document, no oral evidence is admissible to prove the terms of the document. Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533; Radhakant Shaha v. Abhoy Churn Mitter 8 C. 721; Pothi Reddi v. Vellayuda Sivan 10 M. 94; Somasundaram v. Krishnamurti 17 M.L.J. 126 in which it is saidWhere money is advanced in consideration of a promissory-note, it cannot be treated as giving rise to a suit for money lent independently of the note,' and Siraj Husain v. Bulaki Ram 5 A.L.J. 162 : A.W.N. (1908) 91.
17. The result of the cases, we have noticed at some length, is as follows:
(a) Where a promissory-note which is inadmissible in evidence is taken for a preexisting debt, the creditor may recover the debt. The action will be for money had and received and the suit brought on the promissory-note will be treated as a suit for money had and received provided the pleadings are properly framed for that purpose.
(b) Where a promissory-note is taken in consideration of a sum of money advanced and that note is made the basis of the claim, the suit, which is for the enforcement of the contract, contained in the note must fail inasmuch as no other evidence is admissible to prove the terms of the contract reduced to the form of the promissory-note.
18. None of the cases cited to us expressly lays down that where a promissory-note, which is inadmissible in evidence, is taken in consideration of the money advanced, the plaintiff cannot sue for, money had and received by the defendant for the plaintiff's use, and we are of opinion that a suit brought by a plaintiff, upon a promissory note which was taken in consideration of money lent but which turned out to be inadmissible in evidence, may be treated as a suit for money had and received if the pleadings are proparly framed for treating it as a suit for money had and received. It is, however, contended that the case of Sheikh Akbar v. Sheikh Ehan 7 C. 256 : 8 C.L.R. 533 and the cases which follow it lay down such a proposition, In our opinion, those cases simply lay down that if a suit is brought on a promissory note which is inadmissible, the suit must fail. They do not lay down the further rule that the plaintiff is debarred from bringing an action for money had and received. Supposing that such is the interpretation to be put upon the case of Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533 and the cases which follow it, we, with due respect to the learned Judges, who take that view, are unable to agree with them. We fully agree with the learned Judges, who desided Ram Sarup v. Jasodha Kunwir 34 A. 158 : 9 A.L.J. 72 : 13 Ind. Cas. 138. For the above reasons, we treat the case before us as a suit for money had and received/by the defendant for the plaintiff's use inasmuch as the pleadings of the plaintiff admit of that interpretation, set aside the decree of the lower Appellate Court and send back the case to that Court for the decision of the other questions raised before it. The costs will abide the result including costs of this appeal on the higher scale.