1. The facts of this case are as follows: One Chokalinga Mudali (called the first defendant) received a sum of Rs. 3,000 from one Kumaraswami Pillai. The latter died on the 29th June, 1917. The first defendant executed a promissory note for the Rs. 3,000 to Kumaraswami Pillai's son Sadasiva Pillai. There were many creditors of Sadasiva Pillai and suits were brought against him and several orders were passed in respect of this promissory note. Subramania Ayyar (called the plaintiff) is the receiver in one of those suits in which a decree was obtained against Sadasivam. In that suit an order was passed on the 31st July, 1917 attaching this promissory note. On the 20th August, 1917, a similar attachment was taken out by Kuppuswami Ayyangar (called the second defendant). There were various other attachments also, and, on the 18th March, 1918, the promissory note was endorsed by Sadasivam to Kuppuswami Ayyangar. The plaintiff now brings the suit to recover Rs. 3,000 from the maker of the note, and Kuppuswami Ayyangar, the second defendant in that suit has also filed a suit to recover the amount due under the promissory note. The lower Courts have found that there was no valid attachment of the promissory note and that the second defendant is a holder in due course and have consequently decreed the second defendant's suit and dismissed the plaintiff's suit. The plaintiff therefore appeals in both cases.
2. Under Order 21, Rule 51, the method of attaching a promissory note is by actual seizure and by bringing it into Court. Admittedly this has not been done with reference to the promissory note executed by the first defendant. The orders that were passed and said to, be orders of attachment but are really prohibitory orders that were addressed to Sadasivam Pillai and the first defendant forbidding them to receive or pay respectively, the amount due under the note. It does not appear from one execution petition of the 7th October, 1917 that an attempt was made to seize the note but it could not be found and an attachment was not effected.
3. It is now contended in appeal firstly, that the attachment was a valid attachment and that, therefore, the endorsement in favour of the second defendant was invalid and under Section 64 of the Civil Procedure Code is void as against the plaintiff's claim; and secondly that, even if the attachment is not a valid attachment, the second defendant has abused the process of the Court by getting an endorsement of the note after he had obtained the orders of the Court prohibiting the parties to the note from taking action thereon. As regards the first ground it is said that, although there was no attachment in the form prescribed for attachment of negotiable instruments, the prohibitory orders must be deemed to be attachment of the original book debt which has not been discharged by the promissory note The execution of a promissory note in satisfaction of a debt does not necessarily mean that the original debt is extinguished hut the note may operate as a substitute for that debt and the original debt is kept in abeyance pending the discharge or otherwise of the promissory note. It is, however, certainly open to parties to treat the original debt as discharged and substitute therefor the obligation under the promissory note, and, in this case, we have the finding of both the lower Courts that the book debt of Rs. 3,000 was discharged by the execution of the promissory note. This finding is based on the intention of the parties and consequently I do not think it is open to this Court in Second Appeal to interfere with that finding. We must take it therefore that the book debt had been discharged on the date of the prohibitory order, and consequently the procedure prescribed for the attachment of debts not secured by negotiable instruments is inapplicable to the present case. It is therefore quite clear that the attachment of the promissory note was not a valid attachment.
4. One of the most important questions to be considered in deciding whether an attachment is valid or not is whether the order has been communicated to all parties concerned so as to make it effective. If a promissory note is left in the hands of a party and there is merely a prohibitory order telling him not to receive the money due thereunder, it is always possible that he may negotiate the instrument or, in the case of a note payable to bearer, he may hand it on to a third party, who would be quite unaware that there was any order of Court restricting dealings with the note. Unless, therefore, the actual note is seized there is always a danger that third parties may bona fide become possessed of it, and, if the prohibitory order were held to be a valid attachment, they would be prejudiced by such an order of which they were unaware. I therefore agree with the lower Courts that the attachment was invalid, and consequently Section 64 of the Civil Procedure Code is not applicable.
5. I next have to consider the question whether the second defendant has abused the process of the Court. The order obtained by him, Ex. II, was an order prohibiting Sadasivam from receiving any amount on account of the promissory note from the first defendant and an order prohibiting the first defendant from paying any amount under the note. Most of the prohibitory orders were in similar terms but it does appear that one of them Ex. II (c) prohibited Sadasivam Pillai from receiving any amount on account of the promissory note or from adjusting that promissory note in any other way. The second defendant died during the pendency of the proceedings, but Sadasivam was examined and he admits that the second defendant was a friend of his and that he was probably aware of these prohibitory orders. I think we may take it that the second defendant was undoubtedly aware of the many orders which had been passed against Sadasivam and realised the risk he. was taking in dealing with this promissory note. He himself obtained an order of Court prohibiting the first defendant ' R--27 from paying the amount and Sadasivam from receiving the amount, and having obtained this order and knowing that many similar orders had also been obtained, he went to Sadasivam and obtained an endorsement from him in contravention of the letter Ex. II and of the spirit of the other prohibitory orders. It seems to me that this action on his part was fraudulent, being designed to secure himself and to defeat the claims of the other creditors, who had obtained prohibitory orders.
6. It is suggested that he did not actually disobey the order of Court or induce Sadasivam to disobey it, but assuming that he was aware of Ex. II (c) that argument is certainly incorrect; and, even as regards the other orders it is clear that he intended to obtain the money from the first defendant notwithstanding the order prohibiting the payment. I am therefore inclined to hold that the whole of this transaction of endorsement is vitiated by fraud and that 2nd defendant's claim being based on his fraud, should not be allowed, but in the view I take of the next ground of appeal it is unnecessary to finally decide the case on this point.
7. There is yet another point which has been taken in appeal and that is that the second defendant was not a holder in due course as found by the lower Courts, and this I think is a valid objection. Under Section 9 of the Negotiable Instruments Act a holder in due course means the payee or indorsee thereof (namely the promissory note) if payable to order before the amount mentioned in it became payable, and without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title. In this case the title to the note still remained in Sadasivam after the prohibitory order, but he was unable to deal with the note or to receive money under it and to that extent his title was defective, for I do not think it can be said that, when a person is under a disability with respect to his property his title thereto is without defect, as is argued for the respondents. The second defendant was aware of this disability and therefore he had sufficient cause to believe that a defect existed. He is not therefore a holder in due course.
8. It is then argued that, although he is not a holder in due course, he is yet the holder of the note and that, under Section 78 of the Negotiable Instruments Act, payment of the amount due on a promissory note must, in order to discharge the maker or the acceptor, be made to the holder of the instrument. A holder of the promissory note means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto. At the time the second defendant became the actual possessor of the note, Sadasivam was restrained from receiving the amount from the maker and also from adjusting the note in in any way. He cannot transfer any better title to the second defendant. The endorsement is invalid for the purpose of making the second defendant a holder in due course and I do not think that it can then be treated as being sufficient to make the second defendant a holder, for it is an invalid endorsement.
9. Apart from that endorsement the second defendant is not entitled in his own name to the possession of the note nor to receive or to recover the amount due thereon. If he is neither the holder nor the holder in due course within the meaning of the act, it follows that he has no right to recover the amount of the note from the first defendant
10. On the other hand the plaintiff is entitled to recover the amount from the first defendant as garnishee and therefore these appeals must be allowed and the plaintiff's suit decreed with costs throughout and the second defendant's suit similarly dismissed. The first deefndant is in no way liable for these proceedings and his costs in each case must be paid by the unsuccessful party.
11. I agree.