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M.R.P.R.S. Shanmuganatha Chettiar and ors. Vs. K. Srinivasa Aiyar and K. Subba Rao - Court Judgment

LegalCrystal Citation
SubjectBanking
CourtChennai
Decided On
Reported in35Ind.Cas.219; (1916)31MLJ138
AppellantM.R.P.R.S. Shanmuganatha Chettiar and ors.
RespondentK. Srinivasa Aiyar and K. Subba Rao
Cases ReferredKarmali Abdulla v. Karimji Jiwanji I.L.R.
Excerpt:
.....was raised to the contrary apparently because no question could be raised with any chance of success as the liability of a partner for a debt properly incurred on behalf of the partnership simply because a promissory note had been executed for the debt. this is clearly brought out in cases in england where an infant executes a note or gives a bill for what are called necessaries. if the bill or note is endorsed, the endorsee cannot recover anything, because the endorsement does not pass title to the consideration, but only to the bill or the note. if no doubt, the bill or note is endorsed to a third party, it may be that the endorsee will not be, able to bring an action on that bill or note against the other partner or even on the debt against the other party. that distinction is..........notes and these notes do not purport to have been executed on behalf of the firm so as to make the firm liable, he cannot be held liable in this action at all. it is argued that the present suit is on the promissory notes and not for recovery of the debt evidenced by those notes. the position taken up is this:--that where money is borrowed on a promissory note, it should be held that the debt became merged in the promissory note and a suit would lie only on the note, at any rate, unless there is evidence of intention that the defendants were to be liable for the debt as well. strong reliance is placed in support of this contention on the cases reported in somasundaram v. krishnamurthi (1907) 17 m.l.j. 126 and muthu sastrigal v. visvanatha pandhara sannadhi : air1914mad657(2) . as regards.....
Judgment:

Abdur Rahim, J.

1. The learned Subordinate Judge of Coimbatore has found that the execution of the promissory notes in question has been proved and also that consideration was paid for them. These notes were executed by the 1st defendant, father of defendants 2, 3 and 4 and by the 5th defendant. Defendants 5, 6 and 7 are brothers and members of a joint Hindu family. They have nothing to do with the 1st defendant except so far as this business is concerned.

2. There can be no doubt that there was a joint business carried on in rice and tobacco by the 1st, 5th and 6th defendants. But so far as the liability of the 7th defendant goes, the evidence does not show with sufficient clearness that he was a partner in the joint business carried on by the 1st, 5th and 6th defendant. Ex.W which was relied on by the Subordinate Judge in order to make out that the 7th defendant was a partner does not prove anything of the kind. Nor does Ex.R. Ex. Rule apparently refers to some busi-ness other than the one which is under consideration in this suit. Then we have the evidence of the plaintiffs' 1st witness with regard to the liability of the 7th defendant. No doubt, he seeks to make out that the 7th defendant was interested in the joint trade in question. On the other hand, the plaintiffs' 2nd witness who was the 1st defendant and who cannot be said to be pre-judiced in any way in favour of the 7th defendant and whose knowledge as to who were the partners cannot be disputed dis-tinctly states that the 7th defendant was not a partner. It must be held that the evidence does not make out that the 7th defendant was interested in the business carried on by the 1st, 5th and 6th defendants.

3. The 5th defendant's liability cannot be disputed because he was one of the two executants of the promissory notes. It is strongly contended on behalf of the 6th defendant that inasmuch as he did not execute the promissory notes and these notes do not purport to have been executed on behalf of the firm so as to make the firm liable, he cannot be held liable in this action at all. It is argued that the present suit is on the promissory notes and not for recovery of the debt evidenced by those notes. The position taken up is this:--that where money is borrowed on a promissory note, it should be held that the debt became merged in the promissory note and a suit would lie only on the note, at any rate, unless there is evidence of intention that the defendants were to be liable for the debt as well. Strong reliance is placed in support of this contention on the cases reported in Somasundaram v. Krishnamurthi (1907) 17 M.L.J. 126 and Muthu Sastrigal v. Visvanatha Pandhara Sannadhi : AIR1914Mad657(2) . As regards the latter case which is a decision of Sadasiva Aiyar and Spencer, JJ., the learned Judges (at least Sadasiva Aiyar, J.) based the decision mainly on the provisions of Section 91 of the Indian Evidence Act. The promissory note on which action was brought in that case was inadmissible in evidence as it was an unstamped note. The view taken by the learned Judges was that as the suit was based on the note and that was inadmissible in evidence, the suit must fail. In that case, there was no question of the liability of the partners on account of the debt evidenced by the promis-sory note. In the case in Somasundaram v. Krishnamurthi (1907) 17 M.L.J. 126 that question did arise. It does not seem quite clear whether the learned Judges, Subramania Aiyar, J. and the present Chief Justice intended to lay down that, if the suit was so framed as to make the defendants liable on their original obligation for the debt, the action could not be maintained because of the existence of the promissory note. The proposition contended for on behalf of the respondents amounts to nothing less than this, that if a member of a firm who is authorized to borrow money borrows it and executes a promissory note, the firm will not be held liable for the debt at all, though it would be liable if he had not executed the note. This is prima facie untenable and I think the matter is concluded by a recent decision of the Privy Council reported in Karmali Abdulla v. Karimji Jiwanji I.L.R. (1914) Bom. 261 : 28 M.L.J. 515. In that case, each of the two partners who were found to have been carrying on a joint venture drew bills of exchange for his share and the plaintiff who accepted those bills afterwards sought to make the partner who did not execute the bill in question also liable. The High Court of Bombay in reversing the decision of the trial Judge pointed out that the suit was not based on the bill, but their Lordships held that it was erroneous to treat the question as purely a question of liability on the bill. Then, having found that, as a matter of fact, there existed the relationship of partners between the two defendants and that the money which was paid on the bill was required and utilised in the partnership business, they held that the partner who did not draw the bill was also liable.

4. It is true that the question whether the bills having been drawn and accepted, the suit could be maintained against a partner who did not take any part in drawing the bill was not discussed before the Board; but the decision could not be explained unless the Judicial Committee were of opinion that although the person sought to be made liable was not the drawer of the bill, still he was liable because the money was raised for and used in the partnership business. Apparently no contention was raised to the contrary apparently because no question could be raised with any chance of success as the liability of a partner for a debt properly incurred on behalf of the partnership simply because a promissory note had been executed for the debt. There is no doubt so far as it appears from the authorities referred to at the bar that where there exists an antecedent debt and a promissory note is executed for such a debt, a suit on the promissory note failing, an action on the debt would lie. The whole contention is that because the advance of money and the execution of the promissory note were simultaneous, a suit would lie only on the promissory note and not on the debt evidenced by it. There seems to be nothing in reason in support of such a distinction. It may be open to the parties to show that it was in-tended that the debt should become merged in the negotiable in-strument executed for it. But no such case was sought to be made here. I think therefore that the 6th defendant's liability is made out. It is pointed out by Mr. T.R. Ramachandra Aiyar, the learned pleader for the respondents, that the Subordinate Judge has allowed interest on Rs. 7,000, the principal amount borrowed on the promissory notes from the date of the institution of the suit, while that sum, as a matter of fact, included Rs. 167-8-0, the amount of interest taken in advance. Interest therefore ought to be allowed only on Rs. 6,832-8-0 from the date of the suit instead of on Rs. 7,000-0-0. The decree of the Lower Court will be modified by declaring that the 7th defendant is not liable and by calculating the interest payable in the manner I have indicated. The 6th defendant will bear the costs of the appellants and the appellants will pay the costs of the 7th defendant.

Srinivasa Aiyangar, J.

5. I agree. There is a distinction between liability on the bill or the note and liability on the consideration for the bill or the note. This is clearly brought out in cases in England where an infant executes a note or gives a bill for what are called necessaries. In these cases, he is not liable on the bill or the note, but is liable for the consideration which he gets in the shape of necessaries. If the bill or note is endorsed, the endorsee cannot recover anything, because the endorsement does not pass title to the consideration, but only to the bill or the note. That is one illustration.

6. So far as I am able to see, there is absolutely nothing in the Negotiable Instruments Act to prevent A from promising to pay B's debt or from promising to be jointly liable along with B either as a partner or otherwise, so that in cases of partnership, where one partner borrows for the benefit of the joint trade, the other partner agrees to make himself liable for the debt, though he may not be liable on the bill or the note which was executed by the other partner, unless, of course, his signature appears on the face of the bill either as signed by him or his agent duly authorized to sign his name. Unless therefore there is any particular restriction, express or implied, in respect of any liability to be incurred by one partner with regard to a bill or promissory note which may be executed by the other partner, I really do not see how he can escape liability for a partnership debt. If no doubt, the bill or note is endorsed to a third party, it may be that the endorsee will not be, able to bring an action on that bill or note against the other partner or even on the debt against the other party. Except for that difference, the debt is certainly payable by the partner who did not sign the bill. That distinction is clearly brought out in a recent decision of the Privy Council reported in Karmali Abdulla v. Karimji Jiwanji I.L.R. (1914) Bom. 261. In that case, the 1st defendant firm and 2nd defendant firm were found upon a construction of the agreement between them and from other evidence, to be partners in a certain sugar trade. The plaintiff was financing that trade and the arrangement was that the bills drawn either by the 1st defendant firm or the 2nd defendant firm with respect to the sugar shipped by them should be honoured by the plaintiff by accepting them. By so accepting those bills, if they were issued by the 2nd defendant firm, the 2nd defendant firm will be liable and if issued by the 1st defendant firm, that will be liable on the bills. It so happened in that case that the bills which were drawn by the 1st defendant firm had all been retired, while those drawn by the 2nd defendant firm had not been and the 2nd defendant firm had become insolvent. The 1st defendant firm made itself liable for the debts borrowed by the 2nd defendant firm for the purpose of the partnership transactions. In these circumstances, an action was brought to recover the balance due on these acceptances by the plaintiff on behalf of the 2nd defendant firm of bills drawn by it after crediting the value of the goods sent along with the bills. The suit as against the 1st defendant firm was put in as an action for the balance of the debt ; it is called an action of accounting against it in the course of the judgment. The 1st defendant firm was held liable for the money due on account of the acceptance by the plaintiff of the bills drawn by the 2nd defendant firm.


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