1. The defendant was plaintiff's agent at Jaffna carrying on business on plaintiff's behalf from March 1900 to August 1903. The plaintiff sues to recover three sums of money from the defendant. The first sum is claimed on account of a debt due to the plaintiff from a Jaffna debtor, from whom the defendant had taken a negotiable promissory-note for the amount due, in the name of a third party, one Subramanian Chetty, in August 1903, before he left Ceylon on the termination of his agency. Subsequently, when there was a mediation between the plaintiff and the defendant in connection with the settlement of the latter's accounts, it was agreed that the defendant should obtain possession of the promissory-note, get it duly endorsed in plaintiff's favour by the payee and deliver it over to the plaintiff. The defendant failed to carry out this covenant and the plaintiff, therefore, claimed to recover from him the amount of the note. At the time of the settlement of issues in the suit, the defendant offered to hand over the note to the plaintiff. He, subsequently, got the necessary endorsement in plaintiff's favour made and produced the note in Court. The plaintiff refused to receive it and the Subordinate Judge held his refusal justified and passed a decree in his favour. On appeal, the District Judge held that the plaintiff's claim for damages was premature and dismissed it. The ground of his judgment is that the plaintiff did not prove that he sustained any damage in consequence of the defendant's breach of his obligation under the covenant as he did not prove that the executant of the note had become insolvent or that he would be usable to realize his debt if he sued him. Now the defendant's contract, which is evidenced by Exhibit A, was made on 2nd May 1905, and the suit was not instituted till 4th December 1906. There can, therefore, be no doubt that the defendant had more than reasonable time within which to perform his obligation. We are unable to uphold the view that the plaintiff has not sustained any damage which he is entitled to recover. The defendant's offer of performance of his obligation, after the institution of the suit, cannot affect the plaintiff's right of action if he had such right at the date of the suit. We are of opinion that he was entitled to claim from the defendant the amount for which the Jaffna debtor had executed the note Exhibit III. He could not have maintained a suit against the debtor in the Ceylon Courts for the original debt, for which Exhibit III had been executed, so long as it was outstanding in the hands of a third party. The principle, on which such a suit cannot be allowed to be maintained, has been clearly explained in 'A debtor, In re' (1908) L.R. 1 K.B. 344 98 L.T. 652; 15 Manson 1; 77 L.J.K.B. 409 by F. Moulton, L.J. The learned Judge says: 'A parallel case where a bill is taken in payment of a debt, say for instance in payment for goods sold, exactly illustrates what is the effect of taking a bill. It is perfectly true that it is only a conditional payment. It is a payment if the bill is paid, and if it is in your hands when it becomes due and is dishonoured, the debt revives. But if you have availed yourself of the character of the bill as a negotiable instrument, and have passed it out of your possession, so that the right to proceed on that bill is vested in some one else and not in you, at the date of the dishonour, the suspension of the debt continues just as much as if the bill was not overdue. A moment's consideration will show that the Courts would not be administering justice if they did not hold this to be the case, because otherwise you could sue for the price of the goods, while another man, through possession by your act of the negotiable instrument which had been given for the price, could make the debtor pay the amount over again.... When you have got it back, you can wipe it out, and the debtor can no longer say: There is an outstanding bill which suspends your right.' 'These observations are exactly applicable to this case. The defendant, by taking the note in Subramanian's name and allowing it to remain in his possession and neglecting to hand it over to the plaintiff, put it out of the plaintiffs power to sue the debtor on the original consideration. See also Ex parte Matthew (1884) 12 Q.B.D. 506 : 51 L.T. 179 : 32 W.R. 813 : 1 Morrel 47; Davis v. Reilly (1898) 1 Q.B : 66 L.J.Q.B. 844: 77 L.T. 399 : 16 W.R. 96 Leake on 'Contracts,' page 633 (5th Edition). We reverse the District Judge's decision with respect to this item.
2. The two other items of the plaintiff's claim are based on Exhibits Be and C, executed by the defendant in the plaintiff's favour on settlements of the accounts between the parties on their respective dates. These documents have been hold by the lower Courts to be promissory-notes and to be inadmissible in evidence as they are not stamped. The appellant does not dispute this finding but contends that he is entitled to recover the amount in the circumstances of the case on the settlements themselves, but we agree with the lower Courts that the obligation created by the settlements was intended to be evidenced only by Exhibits B and C and that there was no completed obligation created by way of settlements except by those documents. The result is, that the decree of the lower Appellate Court, in so far as it modified the decree of the Subordinate Judge, must be set aside and the latter decree restored. The parties will pay and receive proportionate costs in this and in the lower Appellate Court.