1. On 10th December 1933 the respondent executed a promissory note in favour of one Maddipati Tattabayi, alias Tata, defendant 2 in the suit out of which this petition arises. The respondent saya that she paid the amount due on the promissory note two days later, but the instrument was left in the hands of the payee, who the next day endorsed it to the petitioner. The petitioner instituted a suit on the promissory note in the Court of the District Munsif of Kovvur. The District Munsif passed a decree against the respondent and the payee. The respondent then appealed to the Subordinate Judge of Ellore, who confirmed the decree so far as it affected the payee, but dismissed the suit so far as it concerned the respondent. The Subordinate Judge held that the petitioner was a holder in due course, but inasmuoh as the respondent; had paid the amount due on the promissory note to the payee he was not entitled to recover from the respondent. The petitioner filed a second appeal, but as the amount involved was less than Rs. 500 the appeal did not lie. My learned brother Krishnaswami Ayyangar, however, allowed the appeal to be treated as an application for revision under Section 115, Civil P.C., and the case has been placed before this Bench for decision.
2. The opinion of the Subordinate Judge that the petitioner was not entitled to recover is contrary to the provisions of the Negotiable Instruments Act. Section 9 of the Act states that the term '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 indorsee, 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. Section 22 says that the maturity of a promissory note or bill of exchange is the date at which it falls due. It is to be observed that in the case of a promissory note which is payable on demand, (as in this case) it does not become payable until demand is made. On demand being made it falls due immediately : see Glasscock v. Balls (1890) 24 Q.B.D. 13, Harry Van Ingen v. Dhunna Lall Lallah (1882) 5 Mad. 108, Shaha & Co. v. Bengal National Bank Ltd. : AIR1921Cal302 . Section 60 provides that a negotiable instrument may be negotiated (except by the maker, drawee or acceptor after maturity) until payment or satisfaction by the maker, drawee or acceptor at or after maturity, but not 'after such payment or satisfaction.' 'Such payment' means at or after maturity. Section 118 says that until the contrary is proved it shall be presumed that every transfer of a negotiable instrument was made before its maturity, and that the holder of a negotiable instrument is a holder in due course. In this case, there is no evidence of any demand having been made on the respondent before she paid the amount to the payee of the instrument and it must therefore be taken that the indorsement to the petitioner took place before maturity. According to the sections of the Act to which reference has been made the petitioner is clearly entitled to recover from the maker.
3. In Glasscock v. Balls (1890) 24 Q.B.D. 13 the Court of appeal had to consider the position of a person who was a holder of a promissory note in these circumstances. The payee of the instrument had taken from the maker a further security for the same amount in the shape of a mortgage. The payee transferred the mortgage to another person, receiving on the transfer the amount of the debt. Subsequently the payee indorsed the promissory note which remained in his hands to the plaintiff for value, the plaintiff having no knowledge of the circumstanoes. It was held that the note, not having been paid or returned to the maker, was still current at the time of the indorsement, and the plaintiff as a bona fide indorsee for value was entitled to recover upon it. Lord Bsher said:
In this case the plaintiff suea the maker of a promissory note payable on demand as indorsee. It was admitted that the plaintiff was indorsee of the note for value without notice of anything that had occurred. The plaintiff cannot be said to have taken the note when overdue, because it was not shown that payment was ever applied for, and the cases shew that such a note is not to be treated as overdue merely because it is payable on demand and bears date some time back.... If a negotiable instrument remains current, even though it has been paid, there is nothing to prevent a person to whom it has been indorsed for value without knowledge that it has been paid from suing.
4. That is the position here. The principle laid down in Lickbarrow v. Mason (1787) 2 T.R. 63, that wherever one of two innocent persons must suffer by the acts of a third, he who has enabled the third person to occasion the loss must sustain it, has also direct application. The respondent had discharged the promissory note on 12th December 1933, but it was indorsed to the petitioner with, out knowledge of this fact the next day and the respondent as the maker of the note should have insisted on its return to her when she paid the amount. She did not do so and as she 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. In this connexion I may point out that Section 81, Negotiable Instruments Act, provides that any person liable to pay, and called upon by the holder thereof to pay, the amount due on a promissory note, is before payment entitled to have it shown, and is on payment entitled to have it delivered up to him, or, if the instrument is lost or cannot be produced, to be indemnified against any further claim thereon against him. The respondent, having paid the promissory note without insisting on its return to her or without obtaining from the payee a guarantee, acted at her own risk.
5. In Muthureddi v. Velu Asari A.I.R. (1917) Mad. 886, Seshagiri Ayyar J., held that the maker of a promissory note could not plead against a holder in due course that he had paid the money to the payee before the indorsement, and relied on the decision in Nash v. De Freville (1900) 2 Q.B. 72 in which reference to Lickbarrow v. Mason (1787) 2 T.R. 63 was made. The same conclusion was arrived at by Pandrang Row, J., in Venkataratnam v. Kanakasundara Rao : AIR1936Mad879 . The only dissentient note is that struck by Pandalai J., in Venkanna v. Subayya A.I.R. (1933) Mad. 300 on which the respondent relies. There the facts were these. A pro. missory note was executed by A in favour of B, but the note came into the possession of his wife and her nephew who refused to give it up to B. As the result B asked A to give him a fresh promissory note, which A did. The new promissory note was subsequently negotiated by B. Eventually A paid the amount due on the promissory note to the indorsee. After B's death his wife negotiated the original promissory note and the indorsee called upon A for payment. Liability was denied by A and Pandalai J. accepted his defence. This decision is clearly wrong. Apart from the provisions of the Negotiable Instruments Act the principle in Lickbarrow v. Mason (1787) 2 T.R. 63 applied. The maker of the promissory note gave of his own free will a new promissory note without insisting on the return of the original instrument or obtaining an indemnity. Had he obtained an indemnity it would not of course have precluded the plaintiff from recovering from him, but if he had taken a proper indemnity he would have safeguarded his position. Venkanna v. Subbayya A.I.R. (1933) Mad. 300 was wrongly decided and cannot be allowed to stand.
6. It follows that the petition must be allowed and the decision of the Subordinate Judge so far as it exonerated the respondent must be set aside. The decree of the District Munsif will therefore be restored in its entirety. The petitioner is entitled to his costs in this Court and in the lower Appellate Court. The respondent claims to be an agriculturist and to be entitled to the benefit of the Madras Agriculturists' Relief Act, 1938. She must make her application to the trial Court which will hear and decide it.