1. The appellant was the plaintiff in a suit on a mortgage bond, Ex. A, executed on 22nd November, 1924, for a sum of Rs. 6,000. At the time of the execution of the mortgage the respondents were indebted to the appellant under a previous promissory note (Ex. B) on which a sum of Rs. 6,566 was due. On the date of Ex. A an endorsement of discharge was written on this earlier promissory note which recites that the promissory note amount of Rs. 6,566 has been paid by the execution of two documents, one the mortgage Ex. A for Rs. 6,000 and the other, a promissory note (Ex. I) for Rs. 631 of which Rs. 566 was part of the amount due under Ex. B. The lower Court applying Madras Act IV of 1938 to the debt has treated the mortgage Ex. A as a renewal of the promissory note Ex. B and has scaled down the debt with reference to the antecedent history of the promissory note.
2. It is objected in appeal that this cannot be done for the reason that the liability under the promissory note (Ex. B) was split into two separate debts, one the debt under the mortgage (Ex. A) and the other the debt under the later promissory note (Ex. I). It is argued that the integrity of the debt was thus broken and that on the authority of Our decisions in Ramasubbier v. Rama Iyer : AIR1941Mad356 and Venkateswaraluv. Venkataraju : AIR1941Mad628 there can be no renewal when the whole debt is divided up into two separate debts. This contention is met by Mr. Govindarajachari for the respondent by relying upon the decision in Sankara Iyer v. Yegappa Servai : (1940)2MLJ874 . That was a case in which there was a mortgage on which a considerable sum was due by way of interest and the mortgagee got the mortgagor to execute a promissory note for the amount of interest, an endorsement being made on the mortgage bond that this amount was received for interest. A suit was subsequently filed on the promissory note and a decree obtained and an application was made to scale down that decree under Section 19 of Act IV of 1938. We held that the promissory note having admittedly been taken for the interest due on the mortgage bond, it must be taken to be a renewal of the previous liability to pay that interest and must be scaled down under Section 8 as a debt for interest. The reason for that decision was that it was open to the creditor before he took this promissory note to file a suit separately for the interest on the mortgage bond and if instead of doing so, he follows the course of taking a promissory note by way of a voucher or additional security for the debt for interest, there is no real payment of interest and fresh advance such as was contended for. All that happens is that the creditor takes a fresh document for a separable portion of the debt due under the mortgage. We pointed out that if this promissory note in the circumstances of the case were to be treated as an entirely fresh contract, creditors would be enabled to defeat the provisions of the Act by getting their debtors to execute promissory notes for the interest due on mortgages.
3. Mr. Govindarajachari has argued that it follows from the decision in Sankara Iyer's case : (1940)2MLJ874 that in any case where a fresh document is executed for a part of a preexisting debt, that fresh document can be treated as a renewal of the part of the debt in which it originates; at any rate, unless there is any change in the parties to the transaction. We do not regard the decision as laying down any such sweeping proposition. Ordinarily a renewal is a fresh contract between the same parties with reference to the same debt with the addition of interest accrued on that debt. If the total liability due on a pre-existing contract is split into two fresh liabilities differing from each other and from the original in their terms and a fresh contract is executed with reference to each of those parts, it seems to us improper in the absence of special circumstances such as existed in the case of Sankara Iyer v. Yegappa Servai : (1940)2MLJ874 , to treat either of the fresh contracts as a renewal of a part of the pre-existing liability. The explanation to Section 8 contemplates the renewal or inclusion in a fresh document of a debt. We have gone so far as to read this provision as covering a case where a separable portion of the original debt--is included in a fresh document, the main debt subsisting. But we do not consider that this extension of the rule, if extension it be, can be treated as an authority for regarding as a renewal a partial inclusion of any portion of a pre-existing debt in one of several new contracts with different terms.
4. On the facts of the present case it is impossible to say how much principal and how much interest was included in each of the two documents. They carried different rates of interest and the two contracts differ from one another in their terms and from the original promissory note. It is not, in our opinion, practicable, nor is it desirable, to treat these two separate contracts as if they formed together a single debt renewing the previous liability. It has been contended that if an opportunity were given, the respondents might be able to show that the promissory note (Ex. I) represented only interest on the earlier promissory note (Ex. B) so as to bring the facts near to those of Sankara Iyer's case (1940) 3 M.L.J. 874. It seems to us apparent both from the endorsement on Ex. B and from the terms of the mortgage (Ex. A) and the later promissory note (Ex. I) that there was no such separation of interest and apportionment to one of the two documents such as has been suggested. We therefore conclude that in scaling down this mortgage debt it is necessary to start with the principal of the mortgage Ex. A.
5. Towards this mortgage there were five payments. Of these five, the first and the last purport to have been made towards principal and interest, the first being covered by an endorsement and the last by a letter (Ex. E) which according to its terms is to be treated as equivalent to an endorsement until the actual mortgage bond was available for making an endorsement thereon. About the other three payments, there is no dispute since they were all clearly made towards interest. The appellant contends that having regard to the terms of the mortgage bond, these two disputed payments of Rs. 1,000 and Rs. 2,300 must necessarily have been appropriated in the first instance towards interest. The relevant clause in the bond runs as follows:
If we pay at any time a sum of not less than Rs. 1,000 towards the said principal, you shall receive the same and after appropriating the interest due on the entire debt outstanding then the balance should be credited towards principal.
It has been contended for the respondents that having regard to the original Telugu words of this passage, it must be deemed to do no more than to give to the mortgagee an option to appropriate payments of Rs. 1,000 and more first towards interest. We cannot accept this contention. It seems to us that there was embodied in the mortgage bond a clear agreement between the parties that payments of Rs. 1,000 and more should be appropriated firstly towards interest in the manner indicated. It has been pointed out by Mr. Rajamannar for the appellant that this clause was as much in the interests of the debtors as of the creditor, for arrears of interest were under the terms of the mortgage to carry interest at an enhanced rate. We are of opinion that there was a clear stipulation in the mortgage as to the way in which such payments should be appropriated and the effect of such a payment in the light of this stipulation must be without any further act on the part of the creditor that the payment would necessarily be appropriated in the manner indicated in the covenant. A similar view has been taken by a Bench of this Court in Kruttiventi Perraju v. Sabbella Bapireddi (1926) 99 I.C. 694 and also in Gopinath Singh v. Hardeo Singh I.L.R.(1909) All. 285 where a payment in such circumstances was treated as a payment of ' interest as such ' for the purpose of Section 20 of the Limitation Act. It seems to us therefore clear that the payment of Rs. 1,000 must to the extent of Rs. 31-8-0 be deemed to have been appropriated as soon as it was made towards interest and the payment of Rs. 2,300 made in 1936 being less than the amount of interest then outstanding must be deemed to have been entirely appropriated to interest as on the date on which it was made. Applying the provisions of the Act to the debt in the light of this finding, it follows that the plaintiff is entitled to the amount which he has claimed in his plaint.
6. The appeal is therefore allowed with full costs in both Courts and the plaintiff will have a decree for the amount claimed in the plaint with interest on Rs. 5,031-8-0 at 6 1/4 per cent. till date fixed for payment and subsequent interest on the aggregate amount at six per cent. Time for redemption three months.