1. This is a first appeal by one of the defendants (defendant No. 2) against whom a decree for Rs. 11,500/- and interest has been passed, presumably, in accordance with Section 35 second part and 29 of the Negotiable Instruments Act, as the endorser of a dishonoured cheque in the ostensible capacity of the executor of the original holder, without any express limitation of the liability. No decree has been passed against defendant No. 1 (res. No. 2) the drawer of the cheque, as the Court accepted his contention that the suit as framed by the plaintiff-respondent No. 1 was bad for nonjoinder of all the heirs of the holder of the cheque. There is no appeal by the plaintiff praying for a decree against the drawer (defendant No. 1).
2. The facts are practically common ground but are an unusual combination of circumstances raising interesting questions:
(i) Whether the endorser would be liable under Section 35 of the Negotiable Instruments Act when he endorsed it in favour and at the request of the holder's beneficiary for the purpose of collection from the drawer by demand and if necessary by suit.
(ii) Whether the circumstances in which the endorsement was sought and given form tacit contract saving the endorser from the liability imposed by Section 35, Negotiable Instruments Act.
3. The facts for our purposes are the following. In 1945, there lived one Rai Sahib Nathulal Mahajan at Mhow, Appellant Radhakishan is Nathulal's son. Defendant No. 1 Seth Madanlal is his cousin or brother, (which relationship is immaterial to the controversy) and the plaintiff Narainibai is the widow of another brother Ramkishan Mahajan. Seth Madanlal owed a sum of Rs. 11,500/- to the Rai Sahab Nathulal, for the payment of which he drew a cheque on 5th October, 1945 in favour of the latter. Already on the 7th September 1945, the Rai Sahib Nathulal had executed a will nominating his son Radhakishan as the sole executor. One of the directions in the will was that the sum of Rs. 11,500/- payable by Madanlal should, when recovered, be given to his sister-in-law Narainibai as provision to her. The testator lived on till 17th of December, but for reasons which are not clear, he did not, either endorse the cheque in favour of the sister-in-law or collect the money himself by presenting the cheque to the drawee, the Indore Bank Limited. Apparently he intended that the amount should be collected by his executor after his death and then given to the beneficiary. When his son Radhakishan applied for probate, the other heirs contested; after a few years, the probate was refused, the will being declared invalid, Radhakishan did not go in appeal and that order stood. Meanwhile, giving himself out as the sole executor, he tried without success to cash the cheque. Madanlal was creating difficulties, and by the time the cheque was presented sometime in May 1947, it was already beyond the six months period, and the Bank returned it dishonoured. It is obvious even if the cheque had been presented in time, the bank would still have refused to pay; Radhakishan till had not obtained the probate. All the time, the plaintiff was constantly worrying Radhakishan for the money, and charging him with negligence and bad faith and threatening him with a suit. Radhakishan for his part was pointing out his difficulties; thereupon the plaintiff wanted that the cheque should be made over to her so that she could collect it. For reasons which are not clear, neither Narainibai nor Radhakishan sued Madanlal for the loan as the heirs of the late Rai Sahib Nathulal after impleading all the heirs, Narainibai in her turn, demanded payment from Madanlal, which he refused; ultimately, upon her insistence, Radhakishan endorsed the cheque in her favour, signing as 'the sole executor.' This was some time towards the end of 1947 an3 on the strength of this endorsed cheque, she filed the present suit on 15-7-1948, within three years of the drawing of the cheque by Seth Madanlal. Apparently, the probate proceedings were still pending and the plaintiff was hopeful that Radhakishan would obtain probate; that is probably why she sued only the drawer and 'the executor', the former as defendant No. 1 and the latter as defendant No. 2; the latter was sued not as the endorser of the cheque but as 'sole executor of the last will and testament of late Rai Sahib Nathulal', which capacity he never legally acquired.
4. Before the Civil Judge, the drawer took the position that though he had drawn the cheque, and owed the money to the Rai Sahib, no decree could be passed against him in this suit as the will had been declared inoperative; and it was not a suit by all the representatives of the estate of the creditor. The defendant No. 2 took the position that he had nothing to do in the matter. He had tried to obtain probate and to realise the money, but he had failed and therefore he was not liable to Narainibai. The civil Court accepted the defence of the drawer, but held Radhakishan liable not as the executor of Rai Sahib's estate which he was not, but as an endorser of the cheque. He seems to have felt that he was liable under Section, 35 and the liability was personal and unlimited under Section 29 of the Negotiable Instruments Act.
5. The defendant No. 1 is obviously satisfied, but defendant No. 2 has come up in appeal and has urged that on the face of it, the judgment and decree are altogether inequitable and that the endorsement he made on the cheque was really not with the purpose, covered by Sections 35 and 29 of the Negotiable Instruments Act. On the purely equitable side, it is obvious that the decree against the endorser in these circumstances is grossly unjust. The learned Civil Judge himself seems to have been aware of this; but he thought that he was helpless in view of the provisions of the said Act. The plaintiff does not in appeal ask for a decree against defendant as well.
6. It is convenient to set out Sections 35 and 29 of the Act;
'Section 35:-- In the absence of a contract to the contrary, whoever indorses and delivers a negotiable instrument before maturity, without in such indorsement expressly excluding or making conditional his own liability, is bound thereby to every subsequent holder in case of dishonour by the drawee, acceptor or maker to compensate such holder for any loss or damage caused to him by such dishonour, provided the notice of dishonour has been given to, or received by such indorser as hereinafter provided
Every indorser after dishonour is liable as upon an instrument payable on demand.'
'Section 29:-- A legal representative of a deceased person who signs his name to a promissory note, bill of exchange or cheque is liable personally thereon unless he expressly limits his liability to the extent of the assets received by him as such.'
There is a certain amount of overlapping, but the liability properly so called is derived from Section 35; its extent is determined by Section 29. A person signing his name on an instrument might be doing so, either as a drawer or endorser. He would be personally liable in that capacity provided the endorsement or signature is in itself one in the circumstances calculated to create liability. In other Words, the circumstances have to be examined to see whether there is an express or tacit contract to the effect that the writing or the endorsement as the case may be, is made not the undertaking of the liability, or the guarantee of liability of the original drawer or the earlier endorser. In this case for example, it was not intended either by the plaintiff or defendant No. 2 that the latter should guarantee the payment by the drawee. All that was intended was that the latter having failed in enforcing payment by the drawer of the cheque, the plaintiff should try to collect the amount at the first instance by making a demand on the drawer, and on his failure, by bringing a suit. We have before us the correspondence between the plaintiff and defendant No. 1 as also her clear averments in the plaint. The plaintiff charges Radhakishan with retaining the money and calls upon him to pay it up with interest (Notice of 22-11-1947). In reply, Radhakishan points out that his father's direction in the will was that the executor should collect and pay the money to the plaintiff but actually, be had not succeeded in doing so. As things turned out, he could never succeed because the Court declared the will to be invalid and inoperative. He made a straight offer to the plaintiff that if she wanted to take the matter to the Court and to collect the money, she could please herself. It was in these circumstances that he returned the cheque. The plaintiff also understood the position clearly because soon after the cheque, she noticed Madanlal drawer calling upon him to re-pay the debt with interest, failing which she threatened him with a suit notice dated 9th April 1948). The drawer, while admitting his liability to the estate of late Rai Sahib, wanted to see the will and know who had been put in charge of the estate. Things did not progress because the plaintiff insisted on payment and the drawer was equally insistent on being satisfied about the validity of the will. The position therefore was clear both to the endorser and the plaintiff that the endorsement was not a guarantee of payment, or an undertaking that the endorser himself would pay, but only a step which, whether it was really necessary or not, both of them thought was necessary before she could sue the drawer. These circumstances amount to a clear contractthat the endorsement in the special circumstances was not really one calculated to render the endorser liable under Section 35 of the Act.
7. This is also clear on the plaintiffs own averment in the plaint. Having described defendant No. 2 as the sole executor, the plaintiff goes on to say:
'In spite of his (defendant No. 2) repeated efforts, the cheque could not be cashed and eventually it was returned to the plaintiff. Later on, the defendant No. 2 endorsed the cheque in favour of the plaintiff to enable her to recover the amount due thereon.'
In other words, the endorsement is a mere direction to the plaintiff to collect the amount on behalf of the estate of the late Rai Sahib, and then retain in accordance with his direction in the will. In our opinion in these circumstances, the endorser is not liable.
8. Certainly in the event of the endorser being liable, he should be liable personally, because the mere description as executor has not the effect of restricting the liability for the purposes of Section 29. This is clear in case law also, which need not be set out at length. But in our view there is no liability on account of this endorsement which was one only for the collection of the dues.
9. There is not much case law in this regard obviously because such circumstances are quite unusual; but there is authority which is clear, as far as it goes. As stated in the English ruling reported in Macdonald v. Whitfield, (1883) 8 App Cas 733 (PC).
'But the whole circumstances attendant upon the making, issue and transference of a bill or note may be legitimately referred to for the purpose of ascertaining the true relation to each other of the parties who put their signatures upon it either as makers or endorsers.'
A similar case came up before the Madras High Court and the judgment is reported in Sattamuthu Chettiar v. Abdul Kareem, AIR 1933 Mad 61. There the instrument was a promissory note executed by the defendant No. 1 of that suit in favour of the father of the plaintiff and defendants 2 to 4 who were brothers inter se. The father endorsed the pro-note in favour of the plaintiff as the equivalent of his share in the family property. On default by the executor of the pro-note, the plaintiff sued him as well as his brothers as the persons bound by the endorsement of the father. It was just as if the father had been sued on the strength of the endorsement. The Court passed the decree against the executor of the pro-note, but refused to pass it against the endorsers. In that suit, as in the present case, the endorsee claimed that the father's endorsement was absolute and therefore he was bound to pay the amount to the endorsee. But the Court held, after referring to Section 35:
'The words make it clear that the rule whereby the endorser of a negotiable instrument who indorses without restricting his liability in the endorsement by express words makes himself liable to the indorsee as surety for the amount of the instrument in case of dishonour is subject to their having been no contract to the contrary, i.e., that although the endorsement is ex facie unrestricted, the indorser as between him and the indorsee, by agreement either express or to be inferred from the nature of the transaction, excluded personal liability to the latter.'
The only difference here is that while the Civil Judge in the Madras case decreed the suit against the executor of the promissory note, and the plain-tiff wanted a decree against the endorser also, in the present case the Civil Judge has granted a decree against the endorser and the latter is before us in an appeal urging that in the circumstances of the case he was not liable.
10. It is doubtful if the plaintiff was the holder, in due course, of the cheque as defined in Section 9. This is an instrument payable to order and the endorsee had in this case, sufficient cause to believe that the person from whom she derived her title for the purposes of the suit, that is the endorser, had no real title because he never became the soleexecutor. No doubt, the appellant had endorsed the cheque without express limitation, but the circumstances clearly show that the endorsement was not for any purpose except for the collection by the plaintiff of the amount It is not a case where the maker of the instrument or the endorser just passes it on to the endorser in circumstances id which she is entitled to assume that fie is giving a guarantee.
11. Whether or not the suit against the maker of the cheque --defendant No. 1 should have been dismissed, is quite another matter. It has been dismissed as against him and there is no appeal by the plaintiff from that decision.
12. The result is that in the circumstances of the case, Radhakishan defendant No. 2 is not liable though he has endorsed the instrument. The appeal is accordingly allowed and the decree and judgment of the lower Court are set aside. Costs throughout payable by the plaintiff to appellant-defendant No. 2 Radhakishan according to rules. Defendant No. 1 should bear his own costs.
13. I agree.