Krishnan Pandalai, J.
1. The petitioner is the defendant against whom a decree has been given on a promissory note for Rs. 60-10-0, dated 14th October, 1925, executed by him to one Ankamma, deceased/from whose widow, Seshamma (3rd Defendant), the Plaintiff took an endorsement on 17th December, 1927, after her husband's death which took place in March, 1926. The defence was that the note had been discharged by execution of a fresh note to the payee. It appears that Ankamma, the payee, and his wife, 3rd Defendant, Seshamma, who had no male issue, were bringing up two nephews, that Seshamma, with the assistance of one of the nephews who was siding with her, got possession of the suit note and other documents from her husband, that though the latter complained to the authorities he could get no assistance from them as the matter was declared to be a family quarrel, that thereupon Ankamma took a fresh note, Ex. I, from the Defendant on 5th March, 1926, in substitution and discharge of the suit note, and endorsed it to a daughter of the other nephew who was siding with him and that the Defendant paid off the amount of the new note to the holder of that note. There were also pleas questioning the bona fides and consideration of the endorsement to the Plaintiff. The District Munsif found the facts as above stated but also that the Plaintiff paid consideration to the widow for the endorsement of the suit note and took it without knowledge of the facts above stated. On these findings he had held that the Plaintiff is a holder in due course from the widow and that the 1st Defendant (petitioner) must pay the debt over again though he has already once paid it.
2. It appears to me that the District Munsif has fallen into the error of ignoring Section 60 of the Negotiable Instruments Act. That section (corresponding to Section 36(1) read with Section 59(1) of the Bills of Exchange Act) lays down that a negotiable instrument may be negotiated until payment or satisfaction by the maker, drawee or acceptor at or after maturity but not after such payment or satisfaction. This section carried out the fundamental principle that a negotiable instrument loses its character as such after the instrument (as distinguished from a party thereto) is discharged. A bill or other negotiable instrument is discharged in the words of Section 60 by payment or satisfaction by the maker, drawee or acceptor after maturity, or, as Section 59(1) of the English Act puts it, by payment in due course by or on behalf of the drawee or acceptor, which latter term includes the maker of a promissory note: see Section 89(1). Thus both enactments convey the same idea because 'payment' according to the English Act need not be payment in cash. But the holder may receive satisfaction in any other form. See Chalmers' Bills of Exchange Act, 9th Edn. pp. 233 and 234. On such payment or satisfaction at or after maturity by the maker of a promissory note it ceases to be negotiable. The consequence of that as settled more than a century ago is that if it subsequently comes into the hands of a holder in due course, he acquires no right of action on the instrument. [See Chalmers, p. 233 and cases cited in Note (d).]
3. But the learned advocate for the Respondent (plaintiff) has relied on two decisions of this Court, Duraisami Reddi v. Velu Asari (1916) 2 M.W.N. 107 and Ramanadan Chettiar v. Gunbu Aiyar (1928) 113 I.C. 456 and the decision of the Court of Appeal in Glasscock v. Balis (1889) 24 Q.B.D. 13 for the contentions that though a note is fully paid and discharged but left with the payee, it continues to be negotiable and that a holder in clue course can recover against the maker either on the ground that the note was not overdue and mere payment is not evidence of a demand and that payment was only an equity attaching to the note which would bind only those who were aware of it or on the ground of estoppel, that where one of two innocent parties has to suffer by the fraud of a third person he who facilitated the fraud by his neglect (in this case the omission to take back the note on- payment) must bear the loss.
4. The decision in Duraisami Reddi v. Velu Asari (1916) 2 M.W.N. 107 is of a late learned Judge whom I remember with respect and attachment. It is in favour of the Respondent's argument. But I am sorry to have to differ from it as it is based on a misunderstanding of the authorities relied on and the principle involved. In that case a promissory note for Rs. 200 was given for future instalments due to a chit fund. Some instalments were paid and the payment endorsed on the note. Subsequent payments were not so endorsed. The payee endorsed the note to the Plaintiff two years after the date of the note after it was fully paid off and apparently after the chit fund had terminated. It was found that the Plaintiff had paid consideration and did not know that the note had been fully paid when he took the endorsement.
5. In reversing a decree dismissing the suit, the learned Judge had to deal with Section 60 and a previous decision in Commundun Mohideen Saib v. Oree Meerah Saib (1873) 7 M.H.C.R. 271 of the year 1873. In doing so he refers to Sections 59, 9 and 82 to support his conclusion that the maker who pays off a note is not discharged from liability if he fails to take back the note as the payment is not made in due course. I very respectfully think that herein lurks a confusion of two distinct ideas--one the discharge of a note by payment on maturity, i.e., in the case of a note payable on demand after a demand has been made expressly or by implication from conduct and the other the effect of leaving a discharged note in the hands of the payee as a ground of estoppel against the maker. The former question is a part of the law of Negotiable Instruments. The latter is entirely independent of that law and is a branch of the law of estoppel. They must be kept distinct for a proper decision.
6. On the first point the reference by the learned Judge to Sections 59, 9 and 82 is not material to the effect of Section 60. Section 59 deals with the rights of holders who became such after dishonour or after maturity and says that except in the case of accommodation bills, the transferee gets only the rights of the transferor. The whole section deals with a situation when, exhypothesi, the instrument has not been paid or discharged by the principal party liable thereon. But Section 60 deals with the effect of payment or discharge by the principal party liable on the instrument, maker in the case of a promissory note and drawee or acceptor in the case of bills.
7. The opinion of the learned Judge that Section 60 does not affect a holder in due course is at variance with the settled law of Negotiable Instruments for more than a century in England both before and after the Bills of Exchange Act. And in India that is what Innes, J., meant in Commundun Mohideen Saib v. Oree Meerah Saib (1873) 7 M.H.C.R. 271 when he said referring to Bartrum v. Caddy (1838) 9 Ad. & Ellis. 275 : 112 E.R. 1216 that if there had been a settlement and digcharge, it Would have been a good defence against an endorsee though for value and without notice. This decision though given before the Negotiable Instruments Act is still good law by reason of Section 60 which means the same thing. The learned Judge (Seshagiri Aiyar, J.) was also not accurate in attributing to Kernan, J., in the Commundum Mohideen Saib v. Oree Meerah Saib (1873) 7 M.H.C.R. 271 case, the view that discharge of a note was an equity applicable to holders of overdue notes. The fact is that both the Judges (Innes and Kernan, JJ.) found that there had been no discharge as pleaded by the Defendant in that case. If there had been a discharge there would have been an end of the Plaintiff's case even though he was an endorsee for value without notice. But, in the absence of a discharge, the Court went on to consider whether at the time of the endorsement to Plaintiff, the note was overdue which depended on whether there had been a demand express or by conduct. If it was, the Plaintiff as endorsee would be bound by all the equities to which the endorser was subject; aliter if it was not. The equity was not discharge of the note which was not proved; but the agreement made at the time of the note between the maker and payee that the amount recoverable on the note was to be only what was due on the account between them of cloth supplied by the maker for which purpose the advance on the note was in fact made. The Judges found (Innes, J., from the fact that there had been part payment from which he inferred a previous demand and Kernan, J., from the direct evidence of demand) that there had been a demand before the endorsement and hence that the note was overdue. Incidentally it is interesting to note that Kernan, J., added, at p. 281, that for the equities to attach to an endorsement of an overdue note, it was not necessary that the endorsee should know at the time of endorsement that there had been a demand, i.e., that the note was overdue.
8. Nor does the reference by Seshagiri Aiyar, J., to the expression 'before it became payable' in the definition of 'holder in due course' advance the matter, as a note payable on demand is payable 'on demand,' and the only evidentiary value in this connection of part payment towards an on demand instrument is to show that there was in all probability a demand for the whole.
9. The learned Judge refers to good faith and want of negligence in the definition of 'payment in due course' and says that failure to secure the note after discharging it is not acting in good faith and without negligence. I can understand the argument based on estoppel by reason of leaving a discharged note with the payee with which I will deal separately. But the good faith ,and want of negligence mentioned in the definition is as regards the person to whom the payment is made as shown by the rest of the definition where it says 'under circumstances which do not afford a reasonable ground for believing that he (the person receiving payment) is not entitled to receive payment.' This error has crept into the learned Judge's remarks on Section 82 where 'payment in due course' occurs in Clause (c). It may also be added that this section deals generally with discharge of parties and not discharge of the instrument which is dealt with in Section 60.
10. The learned judge then refers to a remark of Lord Esher in Glasscock v. Balls (1889) 24 Q.B.D. 13. The case itself was not a case of payment or discharge of a note by the maker and endorsement of it afterwards by, the payee but of a person who held both a promissory note and a mortgage transferring the mortgage to one person and endorsing the note to another--the Plaintiff. The Defendant, the maker, had paid nothing but was sued on the note by the Plaintiff, the mortgage being outstanding with the transferee. The Defendant was obviously not entitled to plead the doctrine of discharge, because he had not discharged the note. But that was the argument on his behalf. The Court of Appeal rejected it. Discharge being thus out of the case, was there anything to show that the note was overdue before endorsement so as to fix the Plaintiff with the real nature of the promissory note, that it could not be negotiated after realising what was dug by transferring the mortgage? As to this Lord Esher said that the Plaintiff cannot be said to have taken the note when overdue because it was not shown that payment was ever applied for. It was to these facts that Lord Esher's remark applies that 'If a negotiable instrument remains current even though it has been paid there is nothing to prevent a person, to whom it has been indorsed for value without knowledge that it has been paid, from suing?' That case and the remark quoted are no authority for the purpose for which Seshagiri Aiyar, J., used them--that even after a note is discharged at or after maturity by the maker it remains negotiable in the payee's hands and that an endorsee for value without notice can sue on it.
11. On the question of discharge terminating the negotiability of a note and therewith the right of a subsequent endorsee with or without knowledge, the decision in Harry Van Ingen v. Dhunna Lall I.L.R. (1881) 5 Mad. 108 is directly in point. Of the three notes sued on by the Plaintiff (endorsee) in that case it was held that one (Ex. B) had been discharged by payment by the purchaser of Defendants' business on his behalf. It was also found that the payee of the note (Alfred Arathoon) was also a partner of the firm which purchased Defendants' business retained the note B in his hands after it was discharged and subsequently endorsed it with Exs. A and C to the Plaintiff. In those circumstances it was held that the Plaintiff was not entitled to recover the amount of Ex. B from the Defendant. 'The obligation arising out of it was thereby extinguished and Alfred Arathoon had no power by re-endorsing it to bring into existence again the liability of the Defendant. Bartrum v. Caddy (1838) 9 Ad. & Ellis. 275 : 112 E.R. 1216. His re-issue of the note was a fraud.' But I observe that the learned Judge in Duraisami Reddi v. Vein Asari (1916) 2 M.W.N. 107 to whom this case was cited failed to note that in this respect the decision was directly against his own.
12. The other case cited for the Respondent, Ramanadan Chettiar v. Gunbu Aiyar (1928) 113 I.C. 456, was not a case of discharge and therefore is no authority on the point before me. All that appears is an incidental reference to the remark of Lord Esher already referred to in Glasscock v. Balls (1889) 24 Q.B.D. 13. The case itself is irrelevant to this.
Payment and other discharges are sometimes spoken of as equities attaching to a bill, but this seems incorrect--they are grounds of nullity. That which purports to be a bill is no longer such; it is mere waste paper.'--Chalmers, pp. 141-2.
13. On the facts on which the District Munsif has decided against the Defendant, the decision was clearly against law. Ankamma, the holder, was against his wishes kept out of possession of the note by his wife and nephew and undoubtedly with the intention of discharging the note got the Defendant to give him another in substitution. The Defendant gave Ankamma another note for the principal and interest till then due on the old note. Ankamma endorsed the new note to another to whom full payment was made by Defendant. Long after all this, Ankamma having died meanwhile, the widow, who undoubtedly knew all that had happened about her husband's having discharged the first note, endorsed that note which as above stated was 'waste paper' to the Plaintiff. There can be no question after all this whether there had been any demand on the first note; in other words, whether it was overdue, for without it, it could not have been discharged by substitution. If anything depended on defects of title as affecting the Plaintiff's endorsement, there can be no doubt that as the note was certainly overdue, the Plaintiff will get no better title than the widow and will not be entitled to a decree. But the, true view is not that this is a case of an overdue note endorsed with all defects of title but of an endorsement of a piece of waste paper which could give no right at all.
14. The only other point left is whether the Plaintiff can succeed on the ground that he is an innocent person against whom a fraud by the widow has been facilitated by the default or neglect of the Defendant in leaving the old note with the payee and that the Defendant must bear the loss so falling on the Plaintiff. This was not the ground on which the Munsif gave the Plaintiff a decree. This new ground raises really new questions of fact on some of which at least the Munsif's opinion would have been valuable. The Defendant was not negligent in not getting back the old note because it was then not with Ankamma but with his wife who was illegally detaining it. Whatever may be said, to which I will presently come, if Ankamma being left with the note had himself fraudulently endorsed it to Plaintiff, no such blame attaches to Defendant in the circumstances. Though the Munsif thinks that there was no offence in Seshamma's detention of the note, I am by no means sure that her keeping it against Ankamma's wishe's with the intention of appropriating it was not technically dishonest and if so her offence however technical was criminal misappropriation. She could not in that view pass a better title to the Plaintiff than her own. Even if she was not an offender she was at least a wrong-doer. I am not aware of the doctrine now invoked being used against a Defendant in such circumstances. The Defendant in no manner facilitated the fraud by the widow, because from the first her possession was against the wishes of Ankamma and of the Defendant after he became entitled to get the note. Ankamma's wife was first guilty of conversion of the note, against her husband, then against the Defendant and finally guilty of deceit by passing it off on the Plaintiff. The proximate or real cause of the fraud played on the Plaintiff was not any negligence on the part of the Defendant or Ankamma but the wrongful act of the wife which neither of them could reasonably prevent. If A pledged his watch with me and then pays his debt to me but, before I can return the pledge to A, if I lose it or some one steals it and the finder or the thief pledges it as his own, has A or have I facilitated a fraud I think not.
15. But certain passages in Duraisami Reddi v. Velu Asari (1916) 2 M.W.N. 107 are relied on where the learned Judge relies on the observations of Collins, L. J., in Nash v. De Freville (1900) 2 Q.B. 72. The facts to which those observations were appropriate are quite different from those in this case and in Duraisami Reddi v. Velu Asarii. The Defendant had borrowed from a Solicitor Peed on three promissory notes and some time later received more advances and executed two consolidated notes for the whole sum. All the five notes including the first set of three notes which were satisfied by substitution were left with Peed on the understanding that they were not to be negotiated. But Peed endorsed them for value to the Plaintiff who was ignorant of the understanding. After some months, i. e., when Peed was no longer in possession of the notes, the Defendant paid off the whole debt to him but failed to get back the notes. After some more months, on Plaintiff's demand of payment, Paid gave him a cheque on a Bank. where he had no credit and Plaintiff returned the notes which Peed immediately sent to the Defendant who took them in good faith and put them into the fire. The cheque was dishonoured; and Peed absconded and was afterwards adjudicated bankrupt. The Plaintiff sued the Defendant for conversion of the notes which were obtained from him by the fraud of Peed. The real question on which the decision, turned as stated by A. L. Smith, L.J., was whether the Defendant when he got back the notes from Peed got a better title than Peed had. If he did, he would succeed, if otherwise, the Plaintiff. From the judgments delivered, especially by Collins, L. J., it is clear that the principle of Lickbarrozv v. Mason (1787) 6 East 21 (that of two innocent persons one of whom must suffer by the fraud of a third, he must sustain the loss who has enabled the third person to occasion it) was called in aid not with reference to Peed's obtaining back the notes from Plaintiff by means of the worthless cheque but with reference to his earlier act in negotiating the notes in violation of the agreement between him and the Defendant. See p. 83. The essence of this was that the Defendant put the Solicitor in possession of instruments in their form negotiable though with a promise not to negotiate them and so put it in his power to negotiate them.
When these notes were negotiated by Peed they were still current and the Defendant was estopped as against the Plaintiff from setting up any fact which would have defeated Peed's right to negotiate them ; for instance, the fact that Peed was under a duty to the Defendant to return them and not to negotiate them--p. 85.
16. The estoppel had nothing to do with Defendant's leaving the notes with Peed after payment. For in fact Peed had not got them then, though Defendant was ignorant of this, and only got them some months later by a trick played on Plaintiff to which the Defendant did not contribute by any act or omission of his. This is further brought out in the latter 'passages where the learned Judge deals, on grounds other than estoppel, separately with the first three notes which were satisfied and the two later notes which were unsatisfied. As to the former on the footing that they were overdue or actually paid he says at p. 87:
These pieces of paper therefore as between the Defendant and Peed, having lost their negotiable quality, are denuded of that element which alone makes it possible for a transferee to get a better title than his transferor.
17. On the whole it seems to me that this case is not an authority for what is relied upon in Duraisami Reddi v. Velu Asari (1916) 2 M.W.N. 107, i.e., that after discharge by satisfaction at or after maturity of a promissory note, by the maker, an estoppel against him arises by the mere fact that 'the piece of paper' or 'waste paper' which once had but has lost its negotiable quality is left with the payee and he passes it off on others as if it were still a negotiable instrument. The case is of course different if the payment or satisfaction takes place before maturity, when the instrument is current; in the case of a promissory note payable on demand, before demand.
18. The principles of this branch of estoppel are summarised in Halsbury's Laws of England, Vol. 13, pp. 398 to 402 and there is a useful summary of the cases in Note (t).
19. The decree of the Lower Court is set aside and the suit dismissed with costs of 1st Defendant in both Courts.