1. This is an appeal by the defendant against a decree on a promissory note (Ex. A) admittedly executed by him in favour of a Marwari firm of Rajahmundry for Rs. 3,250. The defence on the merits is framed in very general terms in issue No. 1, vis., 'was the pro-note executed under the circumstances mentioned in the written statement and is it void?' The question has been argued before us under various aspects. One of the pleas put forward by the defendant was that the pro-note was executed nominally. The learned Judge rightly observes that on the defendant's own showing it is difficult to understand this plea. The substance of the defence, however, is that the execution of this note is so connected with certain transactions between that Marwari firm and one G. Krishnamurthi, a merchant of Rajahmundry, that the defendant should be held to have incurred no liability whatever except to see that Krishnamurthi paid up his dues to the Marwari firm or that the transaction was illegal as being the result of an agreement to stifle a proposed criminal prosecution by the Marwari firm against Krishnamurthi. The plaintiff apparently wanted to avoid an investigation of some of these questions on the ground that he was a bona fide holder in due course having obtained an endorsement of the promissory note from the Marwari firm for consideration and without notice of any vitiating facts. The learned Subordinate Judge has rightly held that the plaintiff has not made out this ground of claim. There is sufficient justification for the learned Judge's opinion that it is the Marwari firm that is conducting the suit through the plaintiff and that the plaintiff must have been aware of the circumstances under which the promissory note came to be executed.
2. In dealing with what we have stated above to be the main defence in the case, it is necessary to examine what exactly happened on or about the date of the suit pro-note, i.e., 26th September, 1930. Krishnamurthi had borrowed moneys from the Marwari firm on the security of the stock of Aluminium circles stored in rooms in Krishnamurthi's house, the key of the rooms being in the possession of the Marwari firm. It was the practice for Krishnamurthy to remove from those rooms, with the consent of the Marwari firm, so much of the stock as he wished to utilise for his own purpose, on payment of a proportionate part of the debt calculated on the footing that 500 pound circles could be released on payment of Rs. 325. The books of the Marwari firm as well as Krishnamurthi's books show that on or about 26th September, 1930, the firm has credited Krishnamurthi with a sum of Rs. 3,276 out of which, deducting a sundry item of Rs. 26 separately entered, the sum of Rs. 3,250 is separately entered in Krishnamurthi's books as having come to him from the defendant, and paid over by him to the Marwari firm. Krishnamurthi's book also shows this transaction under a column provided for adjustment entries as distinct from another column dealing with cash transactions. It is the defendant's case that on the 25th when the stock in the rooms was weighed it was found to be short by about 5,000. circles, that the Marwari firm through P.W. 1 threatened a prosecution against Krishnamurthi and that as part of an arrangement for the abandonment of the contemplated prosecution it was suggested to him by the Marwari himself that he might execute a promissory note for a sum of Rs. 3,250, because the Marwari was not prepared to accept the suggestion made by the defendant that a pro-note for that amount might betaken from Krishnamurthi himself. The defendant would add that he was assured even at that time that this was merely done to bring a kind of pressure on Krishnamurthi to satisfy the debt in the ordinary course and the pro-note was not intended to be enforced against himself. P.W. 1 attempts to dissociate the suit transaction from the transactions between the Marwari firm and Krishnamurthi. We are not satisfied that either party has stated the whole truth. After a careful examination of the evidence, we are of opinion that the learned Subordinate Judge has come to a correct conclusion on the facts in summarising the result of the evidence as follows:
There can be no doubt that the Marwari took the pro-note as representing the loss sustained by him on the 5,000 and odd pounds of aluminium circles that were found missing on the 25th September, 1930.
3. The learned Judge rejected the story that there was any agreement to stifle a prosecution; his view was that the Marwari probably threatened to make a report to the Police because he would naturally have been anxious to trace the aluminium circles which were found short on weighment. There was no doubt some basis for a suspicion that that portion of the stock could not have disappeared without Krishnamurthi's knowledge but on the other hand the evidence itself shows that Krishnamurthi turned round against the Marwari because the keys of the rooms in which the stock had been stored were in the possession of the Marwari.
4. The idea of a prosecution of Krishnamurthi seems to us an invention. What is most likely to have happened is that as the parties were not able to agree as to how the goods could have disappeared they were anxious to investigate the loss. Whether Krishnamurthi in his own mind was conscious of any worse conduct on his part is not a material point for the decision of this case. If the Marwari did not proceed further with the contemplated complaint, it is difficult in the circumstances to draw from it the inference that there was an agreement to stifle a prosecution. It is not as if the evidence clearly establishes conduct on Krishnamurthi's part which would have justified a prosecution or even led the Marwari to think that there was a reasonable chance of success in launching such a prosecution. This being the true position at the time when the promissory note was executed, we see no reason to differ from the view of the lower Court that the execution of the promissory note could not be said to be vitiated on the ground of illegality of consideration.
5. The authorities show that the mere possibility or a talk of criminal proceedings at some stage or another will not make the transaction illegal. The Court must be satisfied that the pronote was given in pursuance of an agreement to stifle a prosecution. It was pointed out as early as in Ward v. Lloyd (1844) 7 S N.R. 499 that the mere fact that the plaintiff did not prosecute the defendant as at one time he threatened will not warrant the Court in coming to the conclusion that there was an agreement on his part to abstain from prosecuting. If the fact of the actual commission of the offence is beyond doubt and the plaintiff knew of it his abstaining from prosecuting would afford some foundation for the argument that the non-prosecution must have been the result of an agreement not to prosecute. But as stated already there is very little basis in this case for finding that the Marwari could have ever seriously thought that Krishnamurthi had committed any offence. Further, this is certainly not the case of a person who wishes to gain some money not already due to him, as a result of some arrangement entered into on the threat of criminal proceedings; P.W. 1 has only taken steps to secure payment to himself of a portion of the money undoubtedly due to him from Krishnamurthi and in respect of which the security had admittedly become insufficient when on weighment on 25th September, 1930, it was found that the stock was less than it should be.
6. Mr. Narasimhachariar, the earned Counsel for the appellant, recognised the distinction between cases in which there is a pre-existing civil liability and those in which there is no such pre-existing liability, but he pointed out, that in many cases where this distinction is recognised the pre-existing liability is that of the very person who gave a subsequent note or security and the security or note is not given by a stranger. In that connection he relied on the observations of Cotton, L.J., in Flozver v. Sadler (1882) 10 Q.B.D. 572 . But this circumstance is only a factor to be borne in mind in drawing the inference of fact as to whether the promissory note was given in pursuance of an agreement to stifle a prosecution. It is not a principle of law that wherever a third person undertakes the liability of another in circumstances similar to those in the present case, the third person's promise is either without consideration or vitiated by illegality. In Dwijendra Nath Mullick v. Gopiram Gobindaram I.L.R. (1925) 53 Cal. 51, Sukhdeo Dass v. Mangal Chand (1917) 41 I.C. 812 and Adhikanda Sahu v. Jogi Sahu (1921) 70 I.C. 295 we find that third persons had undertaken the liability either individually or jointly with the person originally liable, in circumstances similar to those in the present case; and in all of them the learned Judges held that the transaction was not vitiated on the ground of illegality. It may be that if Krishnamurthi's liability still continued or if the present ' defendant was such a stranger to Krishnamurthi in respect of their pecuniary transactions that the defendant could be held to have intervened in this matter only with a view to save Krishnamurthi from prosecution, the inference of an agreement to stifle a prosecution would easily follow; but the evidence establishes that the defendant and Krishnamurthi were interested in each other's business and the defendant had advanced large amounts to Krishnamurthi. There is even a suggestion in the defendant's cross-examination that he was a partner in this very Aluminium business of Krishnamurthi but that is nothing more than a suggestion. Anyhow, the defendant's admissions themselves are sufficient to show that it was not merely as a friend that he was interested in Krishnamurthi's affairs. What is more significant in this case is that on the date of Ex. A not merely had the Marwari firm treated Krishnamurthi's liability to them as reduced by this sum of Rs. 3,250 but there are corresponding entries in Krishnamurthi's books crediting the defendant with that sum and also crediting the Marwari with that sum. The subsequent settlement of accounts between Krishnamurthi and that Marwari firm has also proceeded on the footing that Krishnamurthi's liability to the firm had already been reduced by this sum of Rs. 3,250. It is thus clear that there was a perfectly intelligible reason for the Marwari and Krishnamurthi and the defendant entering into this transaction, vis., that to avoid all questions as to how the stock came to be reduced they arranged that it might be treated as a redemption of so much of the stock by Krishnamurthi on the usual terms, of payment of Rs. 325 for every 500 circles removed and the defendant was willing to find the money or undertake the liability to enable Krishnamurthi to do so. In this view there is no basis either for the suggestion that there could have been no consideration for Ex. A or that the agreement could only have been to stifle a criminal prosecution.
7. It was next argued by Mr. Narasimhachar that as the plaintiff came into Court with a case that consideration for Ex. A passed in the form of a cash payment and that it had nothing to do with the transactions between Krishnamurthi and the Marwari firm, we should dismiss the suit when we hold that that case had not been made out. In support of this argument, he relied on the observations of Sundara Aiyar, J., in Raghavalu Chetti v. Sabapathy Chetti : (1911)21MLJ1013 and the observations of a learned Judge of the Allahabad High Court in Ram Jash v. Markande Pathak : AIR1934All1068 . We do not think that on a question of this kind it is possible or desirable to lay down any hard and fast rule. It is true that the decision of the Court must be based upon the evidence in the case and not upon any speculation as to the possibility of a case not found in the evidence. In the present case, as the defendant admitted the execution of the suit promissory note, the onus prima facie lies upon him to prove absence of consideration or other circumstances exonerating him from liability. We have held that he has not succeeded in proving either absence of consideration or illegality of consideration. If the matter stood there, undoubtedly the plaintiff's suit must have succeeded. Where a plaintiff who also leads evidence fails on the story that the consideration was paid in a particular form, it may sometimes happen that the Court may be unable to come to any conclusion as to what the consideration was. But in the present case, as we have already explained, that is not the position to which the Court is driven. Krishnamurthi's books have been exhibited as evidence on the defendant's side. They undoubtedly show the true nature of the transaction and when the evidence is examined in the light of those books it is sufficient to establish that the defendant's story is false in so far as he brings in an element of illegality into the transaction and also in so far as he pleads that there was an understanding that Krishnamurthi alone should be held liable for the whole amount of his debt to the Marwari firm and that the defendant should not be liable to the Marwari firm even to the extent of the amount taken over under Ex. A. If in these circumstances the Court holds that the suit transaction is supported by consideration, we do not think this can be said to be a case in which the Court will be giving the plaintiff a decree on mere speculation. If portions of the plaintiff's case are false, that will be a matter to be taken into account in dealing with the question of costs. We do not think that any principle of law requires us to hold that the suit should necessarily be dismissed in such circumstances. If the defendant could plead that he had been taken by surprise on any particular point that would be another matter. But that is not the position here. We therefore agree with the learned Judge that the plaintiff was entitled to a decree on the suit promissory note in the terms given by him.
8. It was next contended on the authority of the cases in Nanak Ram v. Mehin Lal I.L.R. (1877) 1 All. 487 and Sesha Aiyar v. Mangal Doss Jee (1909) 20 M.L.J. 144 that the suit note should be held to be one not supported by consideration. But the facts here are different. In Sesha Aiyar v. Mangal Doss Jee (1909) 20 M.L.J. 144 the learned Judges were dealing with the matter merely on the pleadings, before any evidence had been recorded and they only observe that there was no admission in the written statement that the promisee at the request of the promisor put himself to any loss. But here we have already pointed out that as the result of Ex. A the Marwari firm released Krishnamurthi pro tanto from his liability to the firm and except for the plea of illegality it cannot be said that it was not done at the defendant's instance and as a result of the promissory note. The case in Nanak Ram v. Mehin Lal I.L.R.(1877) 1 All. 487 proceeded on a very different set of facts and it is not necessary to refer to them here in detail.
9. It was lastly suggested that just as Krishnamurthi made some payments which have been endorsed on the suit note, Krishnamurthi has settled the whole account including the suit debt with the Marwari firm and that therefore there is no liability any longer outstanding under Ex. A. The endorsements on Ex. H however clearly establish that Krishnamurthi discharged the Marwari's debt only after excluding the amount due under Ex. A.
10. The respondent has filed a memorandum of objections objecting to the order of the lower Court in respect of costs. The learned Subordinate Judge took the view that as the plaintiff as P.W. 1 persisted in putting forward the case that Ex. A represented a cash transaction independent of the dealings between Krishnamurthi and the Marwari firm, the case is one in which the Court should exercise its discretion as to costs against the plaintiff, not only to the extent of depriving the plaintiff of his costs but even of directing the plaintiff to pay the defendant's costs. This seems to us wholly unwarranted. In certain cases the Court might refuse to award costs even to a successful plaintiff, if he had been guilty of improper conduct in connection with the institution or trial of the case; but there is little or no precedent for directing a successful plaintiff to pay the defendant's costs, when the learned Judge has himself held that the conduct of the defendant in putting forward his pleas or in conducting his case has been no better than that of the plaintiff. We were at one stage disposed to think that we might be doing justice between the parties by directing them to bear their respective costs in the lower Court but Mr. Lakshmanna, the earned Counsel for the respondent, rightly insisted that the defendant's reply notice left the plaintiff no alternative but to institute the suit because the defendant wholly declined to pay any portion of the suit claim. In these circumstances, we think the proper order as to costs in the lower Court will be that the defendant should pay to the plaintiff the institution fee, namely, Rs. 322-7-0 but that in other respects the plaintiff and the defendant should bear their respective costs in the lower Court. In the result, the appeal is dismissed with costs and the memorandum of objections is allowed to the extent above indicated. There will be no order as to costs in the memorandum of objections.