1. The defendants in O. S. No. 3224 of 1964 on the file of the City Civil Court, Madras are the appellants herein. They executed a promissory note, Ex. A-1, dated 6-4-1960, for a sum of Rs. 5,000 payable with interest at 12 per cent per annum in favor of one Peter Manickam (P.W. 1). The said Peter Manickam endorsed the promissory note in favor of the respondent herein on 10-9-1964 as evidenced by Ex. A-2. It is on the basis of this endorsement, the respondent herein instituted the suit against the appellants for recovery of Rs. 6,800 made up of the principal of Rs. 5,000 and interest of Rs. 1,800 due under the promissory note, but prayed for a decree only against the first appellant-first defendant. In his written statement the first appellant contended that the respondent herein was not a holder in due course under law, since there was no notice of transfer and that the respondent had knowledge of the partial discharge of the suit promissory note to the extent of Rs. 3,000 on 7-8-1961, even before the transfer, and that consequently the claim of the respondent for the whole of the suit promissory note instead of only claiming the balance of Rs. 2,000 was prima facie fraudulent and collusive. He further contended that the respondent who was abetting the original payee in all the transactions knew about all the facts stated above and that the assignment of the suit promissory note in his favor was not a bona fide transfer and was a fraudulent and collusive one. The second appellant herein filed a separate written statement in which she also contended that the appellants had paid Rs. 3,000 to the original promisee on 7-8-1961, that the original promisee as his usual custom did not allow the first appellant to endorse the payment of this sum of Rs. 3,000 paid towards the principal amount under the suit promissory note and the same was ignored, that the original promise has not given the due credit for this payment of Rs. 3,000 and had fraudulently transferred the suit promissory note in favor of the respondent and that to a notice sent to the original promisee demanding him to give credit for the same there was no reply. The further case of the second appellant was that the respondent was not a holder in due course and that the assignment of the suit promissory note in his favor was not bona fide, as it was vitiated by fraud and that there was also no notice of assignment or demand from the respondent to the appellants herein.
2. The learned VII Assistant Judge, who tried the suit framed the following issues-
1. Whether the plaintiff is not a bona fide holder in due course ?
2. Whether the principal amount of the suit promissory note was partially discharged by the defendant by payment of Rs. 3,000 on 7-8-1961 apart from payment of interest upto 27-9-1961 to the original payee ?
3. Is the suit liable to be dismissed against the second defendant ?
4. To what amount if any the plaintiff is entitled ?
On issue No. 2, the learned VII Assistant Judge accepted the case of the appellants herein that a sum of Rs. 3,000 was paid by the first appellant to the original payee, namely, P.W. 1 under the promissory note on 7-8-1961 as evidenced by Ex. B-5. On issue No. 1, he held that the appellants had not established that the respondent herein was not a bona fide holder in due course. On issue No. 3 he held that the appellants had jointly executed the suit promissory note and were jointly and severally liable and therefore the respondent was entitled to pray for a decree only against the first appellant and that on that ground it could not be held that the suit was liable to be dismissed as against the second appellant. In view of these findings, he decreed the suit as prayed for. Hence, the present appeal by the defendants in the suit.
3. The only point urged by the learned counsel for the appellants is that the suit promissory note had matured on the date of the endorsement by the original payee in favor of the respondent herein namely, on 10-9-1964, that consequently Section 59 of the Negotiable Instruments Act, 1881, hereinafter referred to as the Act, applied to the facts of this case and that therefore the respondent herein was entitled to claim only the balance of the amount due under the promissory note, after giving credit for the sum of Rs. 3,000 paid by the first appellant to the original payee, and not the full amount for which the promissory note was executed. The factual basis for this contention is Ex. B-1 dated 6-12-1961, a notice sent by the counsel for the original payee, namely, P.W. 1 to the first appellant herein demanding payment of the amount due under the promissory note. It is the correctness of this contention that we propose to consider in this appeal.
4. We may immediately mention that the appellants had not established that the respondent herein was aware of the payment of Rs. 3,000 made by the first appellant herein on 7-8-1961 or of the issue of the notice by the counsel for P.W. 1 to the first appellant on 6-12-1961, under Ex. B-1, at the time when he became an endorsee of the suit promissory note, namely, on 10-9-1964. It is against this admitted fact that the question raised will have to be considered.
5. Section 59 of the Act omitting the proviso reads:
"The holder of a negotiable instrument who has acquired it after dishonor, whether by non-acceptance or non-payment with notice thereof, or after maturity has only as against the other parties, the rights thereon of his transferor."
A promissory note may be payable either 'on demand' or "at a fixed or determinable future time". In the present case, Ex. A-1 is payable on demand. According to Section 22 of the Act, the maturity of a promissory note is the date at which it falls due. In view of this a Bench of this Court in Nunna Gopalan v. Vuppuluri Lakshminarasamma, AIR 1940 Mad 631 has held following Glasscock v. Balls, (1890) 23 QBD 13: Harryvan Ingen v. Dhunnalal Lalla, (1882) ILR 5 Mad 108 and Shah and Co. v. Bengal National Bank Ltd., ILR 47 Cal 861 = (AIR 1921 Cal 302) that in the case of a promissory note which is payable on demand the note does not become payable until demand is made and on the demand being made, it falls due immediately. Basing himself on this legal position and on Ex. B-1, the learned counsel for the appellants contended that Section 59 of the Act is attracted to the facts of this case and that consequently the respondent herein will have only such rights against the appellants herein as P.W. 1, the endorser, who had received a sum of Rs. 3,000 had against the appellants. We have extracted the relevant portion of Section 59 already. That section applies only to a holder and does not apply to a holder in due course. Section 118 of the Act deals with certain presumptions and one such presumption is that a holder of a negotiable instrument is a holder in the due course (S. 118(g)). According to Section 9 of the Act, 'Holder in due course' means any person who for consideration became the possessor of a promissory note, bill of exchange or cheque, if payable to bearer, or the payee or endorsee thereof, 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. Admittedly in this case at the time when the respondent herein became an endorse of the promissory note in question on paying the full amount due thereunder, he had no knowledge of either the notice. Exhibit B-1 or the payment made under Exhibit B-5. In view of this the question for consideration is, whether the appellants had established, having regard to Sections 9 and 118 of the Act, that the respondent herein was not a holder in due course. There is absolutely nothing in the evidence adduced on behalf of the appellants to establish this case namely, that the respondent herein is not a holder in due course. From the mere fact that there is a notice. Ex. B-1, issued on behalf of the original payee to the first appellant herein demanding payment of the money due under the promissory note or that the first appellant herein paid a sum of Rs. 3,000 to P.W. 1 as evidenced by Ex. B-5 it cannot be concluded that the respondent herein is not a holder in due course unless it is further established that the respondent had knowledge of either or both of the facts referred to above. With reference to a promissory note payable on demand, whether a demand for the payment of the same has been actually made or not will not be apparent on the face of the document and consequently the promissory note cannot be said to be overdue under Section 59 of the Act so as to affect the endorsee.
6. In M. L. M. Ramanadan Chettiar v. Gundu Ayyar, AIR 1928 Mad 1238 the facts were these : Defendant 1 therein had executed three promissory notes for Rs. 3,000 Rs. 2,000 and Rs. 500 respectively in favor of the second defendant. The first two notes were executed on succeeding days, 7-7-1920 and 8-7-1920 and the third one on 15-3-1921. The second defendant endorsed those notes in favor of the appellant-plaintiff in that case. When the appellant-plaintiff demanded payment, the first defendant repudiated his liability. Thereupon the appellant-plaintiff gave notice of dishonor to the second defendant and demanded payment of the amount of the note from him. He also repudiated his liability. The suit instituted by the appellant-plaintiff was resisted by the defendants. The first defendant's contentions were that the promissory notes were vitiated by fraud, that they were not fully supported by consideration, that even the partial consideration was unlawful and that the plaintiff was not a holder in due course. On the other hand, the second defendant contended that the suit notes were fully supported by consideration; but the transfer of the notes to the plaintiff-appellant was subject to an express condition that the second defendant as endorser must be completely exonerated from any liability to the plaintiff-appellant in respect of the notes transferred to him and hence the claim against him was not sustainable. The trial Court had upheld the first defendant's plea that the promissory notes were obtained by the second defendant by fraud and the considerations for the said notes were unlawful since the moneys were knowingly given for immoral purposes. However it found that the plaintiff-appellant was only a holder, but was not a holder in due course because at the time he became the endorsee of the suit notes, namely on 5-1-1922, they were either overdue or he was put on enquiry as to the infirmity of the title of his transferor, the second defendant, and if he had made any enquiry, he would have found that those notes were vitiated by fraud. While considering the claim of the appellant that he was a holder in due course. Phillips J. observed that when the plaintiff appellant's agent was told that the money could not be collected, the notice could certainly be imputed to him, that the notes had been dishonored by non-payment and that the plaintiff knew that a demand for payment had been made and if a demand for payment had been made, the notes became overdue. On this finding the learned Judge held-
"Under Section 59, therefore, whether we take it that the notes had been dishonored or that they had matured, the plaintiff can only obtain the rights therein of his transferor, defendant 2. As found above, defendant 2 having obtained the notes by fraud and for an unlawful consideration, has no rights at all against defendant 1 and consequently the plaintiff has also no right."
Thiruvenkatachariar, J. has observed-
"The view that the bona fide holder for value of a promissory note payable on demand cannot be affected by any previous demand for payment of which he had no notice seems to me to be warranted by Section 59 of the Act."
Referring to the decision in 1890-24 QBD 13 in which Lord Esher MR had held :
"If a negotiable instrument remains current even though it has been paid, there is nothing to prevent a person to whom it has been endorsed for value without knowledge that it has been paid, from suing."
the learned Judge concluded-
"If the actual payment in discharge of the note cannot be set up against such a holder much less can a demand for payment which was not honored, be set up."
It was also the conclusion of the learned Judge that if the promissory note was not tainted with illegality, the transferee would also have the benefit of the presumption raised in Section 118(d) that every transfer of a negotiable instrument was made before its maturity.
7. A single Judge of this Court (Pandrang Row, J.) in Aluri Venkataratnam v. Aluri Kanakasundara Rao, AIR 1936 Mad 879, held-
"The law is very clear that where an endorsee of a promissory note payable on demand is not aware that the promissory note has been discharged or that any demand was made he must be deemed to be a holder in due course even if as a matter of fact that endorsement in his favor was made after the discharge".
We are in entire agreement with this conclusion.
8. In view of the above legal position, it must be held that the right of the respondent herein to sue on the promissory note and recover the full amount due thereunder cannot be said to have been affected by Section 59 of the Act.
9. However, the learned counsel for the appellants repeatedly contended before us that on 10-4-1964 when the respondent obtained the promissory note by endorsement, it was long overdue, since the promissory note was dated 6-4-1960. We are unable to accept this argument. It is no doubt true that the second of the endorsements of payment of interest has been made on 27-9-1961, as evidenced by Ex. A-1(b) and the respondent himself obtained the promissory note by endorsement on 10-9-1964 namely, just 17 days before the suit thereon would have been barred by limitation. But we are unable to hold that this alone will make the respondent herein as a person, not a holder in due course. As pointed out by Thiruvenkatachariar J. in the judgment referred to already-
"If nothing more appears than that the instrument has been left outstanding for a pretty long period it cannot be concluded from that alone that the instrument had become payable when it was endorsed over to the holder as a promissory note payable on demand is according to custom and practice treated as a continuing security. For the same reason it cannot be held from that circumstance alone that the endorsee had sufficient cause to suspect any defeat in the title of the endorser."
We entirely agree with this observation of the learned Judge.
10. The case of the appellants can now be looked at with reference to the payment of Rupees 300 as evidenced by Ex. B-5 dated 7-8-1961. It is admitted that this payment is not endorsed on the promissory note itself. We have already referred to the contention of the appellants in the written statement that as was usual. P.W. 1 did not allow the first appellant to endorse the payment of Rupees 3000 made towards the principal amount due under the promissory note. However, that case has not been made out. On the other hand, the evidence will show that such a plea is not true. We have already referred to the case of the appellants that the interest due under the promissory note upto 27-9-1961 had been paid by the appellants to P.W. 1. As a matter of fact, the promissory note Ex. A-1, contains two endorsements of payment of interest-one dated 28-7-1961, marked as Exhibit A-1(a) and the other dated 27-9-1961 marked as Ex. A-1(b). It is significant to note that the payment of Rs. 3,000 towards the principal has been made on 7-8-1961, namely, Ex. A-1(a) endorsement and before Ex.A-1(b) endorsement. Therefore when the first appellant made Ex. A-1(b) endorsement on 27-9-1961 there was nothing to prevent him from making the endorsement of payment of the principal amount of Rs. 3,000 on 7-8-1961. Therefore on the face of it the case of the appellants that P.W. 1 did not allow them to endorse the payment of the principal of Rs. 3,000 on 7-8-1961 is not true. Hence, when the respondent obtained the promissory note. Ex. A-1, by the endorsement dated 10-9-1964 as evidenced by Ex. A-2 the promissory note apart from containing two endorsements of payment of interest did not contain any endorsement of payment of principal sum of Rs. 3,000. In such a situation, the question is whether the respondent is prevented from suing on the promissory note for the entire amount due thereunder. Even at the risk of repetition, we may point out that it is not established that the respondent had knowledge of this payment of Rs. 3,000. In such a situation, it was held in Annamalai Chetti v. Maung Saing, AIR 1927 Rang 161.-
"Where the promissory note has no endorsement of any payment and there is nothing to show that the endorsee was aware of any payments to the endorser and he is a holder in due course, he is entitled to recover according to the apparent tenor of the instrument. If the instrument has been discharged, the remedy of the person paying is to sue the original payee to refund the amount which he had to pay over again.'
This decision directly applies to the facts of this case. Consequently, if the appellants herein, by not making an endorsement of payment of Rs. 3,000 on the promissory note enabled P.W. 1 to perpetrate a fraud by endorsing the note in favor of the respondent herein the appellants alone would have to bear the loss. In AIR 1940 Mad 631, to which we have already made reference the facts were the respondents therein executed a promissory note in favor of the second defendant in the suit on 10-12-1933, but paid the amount due on the promissory note two days later; however, the instrument was left in the hands of the payee who on the next day endorsed it to the petitioner. The petitioner instituted a suit on the promissory note. The question was whether the respondent could be made liable or not. This Court held that when the respondent paid the amount due under the promissory note she should have insisted on its return to her and when she did not do so and left the instrument in the hands of the payee and thus gave him an opportunity to commit a fraud, she must suffer in preference to the petitioner. Similarly, in the present case, when the appellants paid a sum of Rs. 3,000 to P.W. 1 on 7-8-1961, and did not make an endorsement thereof on the note itself and thereby enabled P.W. 1 to endorse the note to the respondent herein for full value, they alone must suffer the loss in preference to the respondent herein. After all it should not be forgotten that even when S. 59 of the Act applies to a particular case, it merely provides for the rights of an endorsee being subject to all equities.
11. Under these circumstances, the appeal fails and is dismissed. However, having regard to the fact that the appellants had suffered by payment of Rs. 3,000 to P.W. 1 and not endorsing the same on Ex. A-1, we do not make any order as to costs.
12. Appeal dismissed.