1. The plaintiffs - appellants are a family of landlords and money-lenders in Palghat. Defendants 1 and 2 are brothers, and the third Defendant is their nephew. They two owned extensive properties in the neighbourhood of Palghat, but have latterly got into difficulties and 1 and 2 defendants were adjudicated insolvents in 1932. The suit was laid for the recovery of a sum of about Rs. 58,000 due as per account Ex. A. The third Defendant was the only contesting defendant and the question in the appeal relates to his liability. The claim in the appeal has been limited to a sum of Rs. 15,000 on the ground, perhaps, that the third defendant has not assets enough to yield anything more, or on the ground that the balance could be realised from the assets of 1 and 2 defendants. But this makes no difference, so far as the question to be decided is concerned.
2. The point in dispute was embodied in one comprehensive issue, viz., whether the 3rd Defendant's signature (to Ex. A), has not been obtained under circumstances mentioned in his written statement and whether if so, he is not liable. The story in the written statement was that the third Defendant had from his infancy been living with and under the protection of defendants 1 and 2 till October, 1930, that though he attained majority in 1928, he was in the habit of affixing his signature to any paper if so directed by the first Defendant and he must have so signed in the plaintiff's book Ex. A, without understanding the matter or making any enquiry whatever, because he feared the first Defendant and believed that there would be no fraud or deception in the matter. It further alleged that he subsequently discovered that he had been defrauded in the matter, and that the plaintiffs who were well aware of the circumstances of the family had conspired with defendants 1 and 2 to get the third Defendant involved in this liability, for their own better security.
3. Exhibit A is an account book beginning from September, 1928. But it is clear from the evidence that the plaintiffs had been lending moneys to defendants 1 and 2 for at least two years before that date. Ex. A is headed as an account of plaintiffs' dealings with 1 and 2 defendants. It begins with an entry, dated 29th of September, 1928, whereby 1 and 2 defendants acknowledge liability for a sum of Rs. 13,702-11-0 said to be due for principal and interest under a pro-note of earlier date. Between October, 1928, and February, 1929, there were further borrowings to a considerable extent, but no amount seems to have been repaid. In September, 1929, 1 and 2 defendants wanted a further advance of Rs. 8,000; but as they were heavily indebted to plaintiffs even by that time, the plaintiffs refused to lend more, unless 1 and 2 defendants gave security. According to the evidence of P.W. 1 (who is one of the plaintiffs), the first defendant then said that it was not possible to give security at that time and that he would get his brother's son also (third defendant) to sign. The witness adds, that, as the vakil whom he consulted, advised him that money might be advanced if third defendant also signed, he intimated the same to the first defendant, that accordingly the three defendants came to the plaintiff's shop on the evcening of 22nd September, 1929 and received Rs. 8,000 after signing an entry in the plaintiff's book (Ex. A) in the following terms. - 'Having admitted that I am liable for the balance of principal amount and interest and for future credit and debit found under this book, I have signed this'. 7 days later, the account for the Malayalam year was struck and the three defendants signed on an one anna stamp below the entry showing the debit balance due on that date. It is on the strength of these signatures of the third defendant in Ex. A that the plaintiffs seek to hold him liable.
4. The evidence shows that the third Defendant's father had died in 1913, and the widow and the third defendant, (then an infant) continued to live with Defendants 1 and 2, who were in management of the family properties. The boy was at school up to March, 1931, and in the partition suit (O.S. No. 63 of 1922) which another uncle had field against these defendants, the present 1 and 2 Defendants were con ducting a common defence on behalf of the third Defendant as well though his mother was the guardian ad litem on record. He attained majority in September, 1928, but continued to live with defendants 1 and 2 till October, 1930. Though, in the plaint, it was alleged that defendants 1 and 2 had borrowed the amounts whown in Ex. A for the 'common necessities' of the family of defendants 1 to 3, no serious attempt was made to prove this allegation. The onus of proving the same would by no means have been light, in view of the fact that the third defendant was only a nephew of the defendants 1 and defendants 1 and 2 were in possession of extensive properties yielding a large income. There have, no doubt, been litigations since 1922, in which considerable sums must have been spent. But as no attempt has been made to bind the third defendant on the ground of family necessity, we need not pursue this question. Mr. T.M. Krishnaswami Aiyar (for the appellants) suggested that though the binding character of the loans could not be said to have been proved, the possibility of the utilization of the loans for family purposes might have been one of the reasons that induced the third defendant to take upon himself an express liability for these loans, and to this extent, the presumption or inference of undue influence would be negatived. But there are no materials on the record to afford sufficient basis even for this argument.
5. There appears to have been considerable discussion, in the lower Court, as to the exact nature of the plea raised by the third defendant whether it is one of fraud or one of undue influence. But, as the matter has really to be dealt with, on the facts appearing in the case, Mr. Krishnaswami Aiyar did not press this objection as to the form of the plea. After all as shown by the judgment of Lord Harwicke in Lord Chesterfield v. Janssen (1750-51) 2 Ven. Sen. 125 : 28 E.R. 82 the equitable jurisdiction based on undue influence is only a development of the principle of relief on the ground of fraud see also Lancashire Loans, Ltd. v. Black (1934) L.R. 1 K.B. 403 .
6. The defence of the third defendant was in substance set forth in Ex. 3, a notice which he sent to the plaintiffs, as early as 22nd October, 1930. This was sent within a few days after the third defendant began to live separate from defendants 1 and 2. It has been suggested that it was sent at the instance of another uncle of the third defendant who had quarreled with defendants 1 and 2 and who is now helping the third defendant. This might be true; but that is just the way the thing would have happened even if the third defendant's plea of undue influence by defendants 1 and 2 is well founded. We have only got to see whether the facts proved in the case support that plea and we are not much concerned with the motives or circumstances that led the third defendant to repudiate his liability.
7. The learned Subordinate Judge has found that:
the plaintiffs were anxious to get the third Defendant also to sign the hand book as the money advanced was fairly large and as 1 and 2 defendants wanted more money. They must have therefore asked Defendants 1 and 2 to get the third Defendant also to sign the hand book.... That the third defendant signed the book when he was under the influence of defendants 1 and 2 cannot be doubted.... I am of opinion that the third defendant did not appreciate the magnitude of the liability he was undertaking when he signed Ex. A...the plaintiffs can be said to have notice of the influence exercised on the third Defendant by defendants 1 and 2. The first Defendant was in a position to dominate the will of the third Defendant he has taken an unfair advantage over the third Defendant.
8. As to the law, he said that, in the circumstances, the burden lay on the plaintiffs to show a free consent, i.e., that third Defendant had such protection as would secure to him a free and unfettered judgment, independent of any sort of control. Following the decision of Venkatasubba Rao, J., in Narayana Doss Balakrishna Doss v. Buchraj Chordia Sowcar : (1927)53MLJ842 the learned Subordinate Judge held that on the facts found, the plaintiffs could not hold the third Defendant liable.
9. Mr. Krishnaswami Aiyar contended that the third Defendant sought to rely on the ground that the plaintiffs in collusion with defendants 1 and 2, fraudulently caused him to sign Ex. A and, no such fraud having been made out, the plaintiff's claim against the third defendant should have been upheld. He further pointed out that on more than one matter, the third defendant had not spoken the truth and that his version of the transaction should not be accepted. Even if it were permissible to deal with the case as one of undue influence he maintained that the onus lay on the third defendant to prove the exercise of undue influence and that it had not been discharged. In particular, he insisted that whatever might have happened between 1 and 2 defendants on the one hand and the third defendant on the other, there was no proof that the plaintiffs exercised and undue influence over the third defendant and thereby obtained an unfair advantage. As to the law, he argued that the decision of Venkatasubba Rao, J., in Narayana Doss Balakrishna Doss v. Buchraj Chordia Sowcar : (1927)53MLJ842 ought not to be followed, because it is based upon the decisions of English Courts of Equity, in disregard of the warning contained in several pronouncements of the Judicial Committee, that, in this Country, questions as to undue influence must be decided on the provisions of the Indian Contract Act alone and that the principles on which English Courts of Equity deal with similar questions are entirely inapplicable.
10. As we have already pointed out, the written statement of the third defendant sets out all material facts and his claim to relief must be decided with reference to them, independently of their being labelled as fraud or undue influence see Smith v. Kay (1859) 7 HJ.L.C. 750 : 11 E.R. 299 . per Lord Cramworth. The mere fact that on one or two matters the lower Court was not prepared to accept the defendant's evidence, will not disentitle him to relief, for, in such cases, the conclusion of the Court rests not so much upon direct evidence showing that any deception was practised, as upon inferences arising from the situation of the parties and the nature and effect of the transaction. That the transaction is seriously detrimental to the interests of the third defendant can admit of no doubt. With very little thought as to add without due appreciation of, its nature and effect, the third defendant undertakes liability not merely for the amount actually advanced at the moment of his signing but also for all the advances taken by defendants 1 and 2 from the plaintiffs in the past and, what is more curious, for all loans which may be taken by them in the future. That defendants 1 and 2 stood in a fiduciary relation to the third defendant can again, admit of no doubt; and that they used their influence to obtain an unfair advantage to themselves can scarcely be disputed.
11. It is noteworthy that 1 and 2 defendants have not been examined in this case. We are unable to agree with Mr. Krishnaswami Aiyar, that it was for the third defendant to examine them. It is true that atone stage the first defendant had been summoned on behalf of the third defendant, but the plaintiffs could not have been misled by this step, because they began to lead evidence only after the third defendant's case had been closed.
12. That the plaintiffs gained a substantial advantage by reason of the third defendant making himself jointly liable for the amounts advanced and to be advanced to defendants 1 and 2, can scarcely admit of any doubt. It is also clear from the evidence on the plaintiffs' side, that they knew of the circumstances of the defendants' family, and that the third defendant had only recently come of age. It is also fairly clear that it was at their instance that the third defendant was brought into the transaction.
13. With these indisputable circumstances, it will be instructive to compare the findings on which Justice Fry based his decision in Bainbridge v. Browne (1881) L.R. 18 Ch. D. 188 in favour of the creditor. The learned Judge there found, that the creditors did not even know the age of the plaintiff who sought relief on the ground of undue influence, that they did not know that the plaintiff was resident under his father's roof or was in any way under his control, that they had reason to believe he was assisted by a Solicitor as well as by certain family friends and were led to believe that the plaintiff was acting independently of the father Cobbett v. Brock (1855) 20 Beav. 524 : 52 E.R. 706.
14. As regards the part taken by the plaintiffs in the exercise of undue influence, there can be no doubt, that under the English authorities, the result will be the same, whether the plaintiffs themselves exercised the undue influence or took the benefit of a transaction with notice that that transaction was the result of undue influence, exercised by their debtors, defendants 1 and 2. As observed by Mr. Justice Venkatasubba Rao in Narayana Doss Balakrishna Doss v. Buckraj Chordia Sowcar : (1927)53MLJ842 once it is shown that the plaintiffs were aware of the existence of a fiduciary relationship between the first and third defendants, they are under the same disability as the party who occupied the position of confidence.
15. Mr. Krishnaswami Aiyar's main contention, therefore, was, that in this Country, the question must be decided solely with reference to the terms of Section 16 of the Contract Act Lala Balla Mal v. Ahad Shah (1918) 35 M.L.J. 614 : 29 C.L.J. 165 , Raghunath Prasad v. Sarju Prasad I.L.R. (1923) 3 Pat. 279 and Gafur Mohammad v. Mohammad Sharif (1932) 63 M.L.J. 54 : 56 C.L.J. 55 that, under that section, the undue influence must be shown to have been exercised by the other party to the contract, whether directly or in consipiracy with or through the agency of others Poosathurai v. Kannappa Chettiar and that mere notice or knowledge of circumstances raising a presumption or probability of undue influence, as between the defendants inter se did not throw on the plaintiffs, the onus of proving that they had derived no unfair advantage or that the third defendant acted as a free agent.
16. It may be conceded that Section 16 of the Contract Act deals in terms with the exercise of undue influence by one party to the contract on the other. Indeed, this is the ordinary type of cases of undue influence. The question of the effect of undue influence exercised by somebody other than the grantee or promisee, does not seem to have arisen in the cases that went up to the Judicial Committee from India, except in Poosathurai v. Kannappa Chettiar (P.C.). We are not sure whether the observation of Lord Shaw in that cases, about the exercise of influence 'inconspiracy with or through the agency of others' is not wide enough to take in the full scope of the doctrine as illustrated by the English Cases; for 'agency' may in such cases well include instances in which the creditor or transferee knowingly or intentionally leaves everything in the hands of his principal debtor. As observed by their Lordships in Turnbull & Co. v. Duval (1902) A.C. 429 the creditor who conveniently leaves everything to be managed by another 'must abide the consequences'. Further examination of the question became unnecessary in Poosathurai v. Kannappa Chettiar , because the Committee came to the conclusion that the transferee had obtained no unfair advantage and that the sale had not been shown have been for an undervalue.
17. Confining ourselves however to the statute law of India, it is clear, that the principle of the English Cases referred to by Mr. Justice Venkatasubba Rao, has been made applicable in this country by Section 89 of the Trusts Act. As early as in Roop Laul v. Lakshmi Doss I.L.R. (1905) 29 Mad. 1 the application of these rules in this country was recognised by Mr. Justice Sankaran Nair (see pages 21 and 22) and when that case went up on appeal before 3 Judges, they too observed that it made no difference that the claim under the deed was made not by the person who exercised the undue influence but by a third part. See Lakshmi Doss v. Roop Laul I.L.R. (1906) 30 Mad. 169 : 17 M.L.J. 19 . In that particular case, the third party was a valunteer and some of the earlier English Cases are also cases relating to volunteers, but numerous later decisions in England have applied the same principles even to creditors or transferees for value, provided they had notice of all the relevant facts.
18. In view of Mr. Krishnaswami Aiyar's insistance on the inapplicability of the English rule, it is interesting to find, that in the foot-note to Section 89 of the Trusts Act, in Stokes Anglo-Indian Codes, reference is made to Maitland v. Irving (1846) 15 Sim. 437 : 60 E.R. 688, though the reference is wrongly printed as Maitland v Irving (1846) 15 Sim. 437 : 60 E.R. 688. Its significance lies in the fact that, as stated by him in the introduction, Dr. Whitley Stokes was the draftsman of the Trusts Act and the foot-notes refer to the English decisions, on which the sections were founded. Maitland v. Irving (1846) 15 Sim. 437 : 60 E.R. 688, thus relied on by him, was a case very much like the present. A and B consented to postpone the payment of 5,000 due to them from C in consideration of C procuring and giving them the plaintiff's guarantee for that sum; and C at the same time informed A and B that the plaintiff was his niece and was possessed of considerable property, that she had resided with him for sometime, that he had been for guardian and that she had been of age for about a year and a half. The guarantee thus given was held unenforceable by the creditors. The vice-chancellor observed:
It seems very extraordinary that with full knowledge of those circumstances, they should have at once acceded to the proposal without making any enquiry or taking any pains to ascertain whether the young lady was a free agent and perfectly willing, with a full knowledge of the consequences, to do what the guardian said he would invite her or propose to her to do.... They must have perceived that by adopting the suggestion of McLean (the debtor) they relied on the influence that he had over the young lady...knowing the defenceless situation of the young lady, they combined with McLean, who disclosed it to them, in order that advantage might be taken of her defenceless situation for the benefit of all the three and my opinion is that they must all three be considered as standing in the same situation.
19. When it is found that the principal of this decision has been adopted by the Indian Legislature, in enacting Section 89 of the Trusts Act, there is no substance in the contention that later English authorities of the same type, furnish no guidance to us in the application of the rule.
20. It is unnecessary to refer again to the cases reviewed by Mr. Justice Venkatasubba Rao. We therefore content ourselves with noting the latest decision of the Court of Appeal in England in Lancashire Loans, Ltd. v. Black (1934) 1 K.B. 380. A married daughter living with her husband and away from her mother had, at the mother's request, entered into transactions with the mother's creditors, with a view to help her. The Court of Appeal refused to hold the transactions binding on the daughter. Lawrence, L.J., observed that, in cases of this kind, ' the question is not merely whether the son or the daughter knew what he or she was doing, had done or proposed to do, but how the intention was produced the...law protects young persons of an impressionable age, when gratitude, affection and respect for a parent are fresh and strong, not by curtailing their capacity to deal with others but by binding the consciences of those who deal with...them the mother seems to have taken it for granted that she could get the daughter to comply with her request...and it never seemed to have occurred to the daughter to do otherwise than accede to whatever her mother asked her to do...the transnction was never properly explained to the daughter and she did not fully understand what she was doing'. As to the position of the creditors, the Lord Justice said:
It is plain that they knew or had notice of all the relevant facts...they were permitting, if not inducing, a young woman...to enter into a transaction the whole burden of which they anticipated would fall on her...they are in no better position than the mother would have been in, had the daughter assigned her reversion directly to her, instead of to the respondents, for her benefit.
21. See also O'Connor v. Foley (1905) 1 I R p. 1 and Kempson v. Ashbee (1874) L.R. 10 Ch. App. P. 15 and the cases collected in the note in 16 M.L.J. 252 of the Journal portion.
22. With reference to the observation of Broughton, J., in Raj Coomar Roy v. Alfuzuddin Ahmed (1881) 8 C.L.R. 419 - from which Venkatasubba Rao, J., dissents - we may state that even there, the learned Judge does not seem to have felt any doubt as to the applicability of the English rule. It does not even seem to us wrong to say, as he did, that were a third party stands in no confidential relation to the promisor or grantor, the onus does not in the first instance lie on the former, to show that no undue influence was used. It is only when he is found or could be assumed, to have had notice of the exercise of undue influence by another or at least of circumstances raising a presumption or probability of undue influence, that the onus will be shifted on to him.
23. We are of opinion that the painciples followed by Courts of Equity in England in dealing with similar transactions are equally applicable in this Country and judging the suit transaction by those principles, the plaintiffs cannot hold the third defendant liable. The appeal therefore fails and is dismissed with costs.