Decided on September 04,1953

D. RAMADAS Respondents


Venkatarama Aiyar, J. - (1.) This revision arises out of a suit instituted by the petitioner, S.C. No. 2527 of 1950, on the file of the Small Cause Court, Madurai, for the recovery of a sum of Rs. 488-5-1 on foot of a promissory note dated 23-6-1949. The defendant admitted execution of the pronote and the receipt of consideration therefor, but contested the suit on the ground that there was no transaction between him and the plaintiff, that it was one Ismail, the brother of the plaintiff who had advanced the loan, that the promissory note was executed in his account book leaving the name of the payee blank, that it was delivered not to the plaintiif but to Ismail, that subsequently the amount due under the note was repaid to Ismail on 8-21950 and a receipt also taken, that the debt had thus become discharged, that owing to misunderstandings which had arisen subsequently, Ismail had in collusion with the plaintiff entered his name as payee in the instrument and that the plaintiff was not a holder in due course and was not entitled to recover under the promissory note. The Court below held on a consideration of the evidence that the tacts were as stated by the defendant in the written statement, that the plaintiff knew of the true nature of the instrument when it was executed on 23-6-1949 and that of its discharge on 8-2-1950 and that his name was entered as a result of collusion between him and his brother Ismail, only about a week prior to the institution of the suit which was on 1-11-1950. On these findings, the suit was dismissed and it is against that dismissal that this revision is preferred by the plaintiff.
(2.) Mr. K. Vaitheeswaran, the learned advocate for the petitioner, contends that the written statement does not disclose a defence, that it is not open to the defendant to plead that the real payee under the promissory note is not the plaintiff whose name appears on the face of but Ismail and that the payment of the amount to Ismail cannot, under Section 78 of the Negotiable Instruments Act, operate to discharge him from his liability under the note. In -- 'Subbanarayana Vathiar v. K. Ramaswami Iyer', 30 Mad 88 (FB) (A), it was held by a Full Bencn of this court that it was not open to the maker of a promissory note to plead that the payee named in the instrument was a benamidar and that it had become discharged by payment to the real payee. The ground of this decision is that "holder" is denned in Section 8 of the Act as "any person entitled in his own name to the possession of the note and to receive or recover the amount due thereon from the parties thereto"; and that under Section 78 a payment in order to discharge the maker must be to the holder. The contention of the petitioner is that if on 23-6-1949 when Ismail advanced Rs. 420 to the defendant he had taken the promissory note in the name of the plaintiff, it would not have been open to the defendant to resist the suit on the ground that payment of the amount due under the note had been made to Ismail; that it should make no difference in the legal position that when Ismail took the note, the name of the payee had not been entered thereon, because Section 20 of the Negotiable Instruments Act conferred on him an authority to complete the instrument; and that when in exercise of that authority he entered the name of the plaintiff the rights of the latter under the note would precisely be the same as if it had been entered at the time of its execution on 23-6-1949. Reliance was placed on the decisions in --'Cruchley v. Clarance', (1813) 105 ER 316 (B) and -- 'Hriday Singh v. Kailash Singh', AIR 1940 Pat 377 (C). In -- '(1813) 105 ER 316 (S)', the facts were that the defendant who was in Jamaica drew a bill on one Hendry, man of London leaving the name of the payee blank; that subsequently the bill was negotiated by one V. Ashon who endorsed it in blank to the plaintiff. The plaintiff thereupon entered his own name in the bill and sued on it. The suit was resisted on the ground that the plaintiff had no right to enter his own name on the bill. In overruling this contention, Lord Ellenborough C. J. observed: "As the defendant has chosen to send the bill into the world in this form, the world ought not to be deceived by his acts. The defendant by leaving the blank undertook to be answerable for it when filled up in the shape of a bill." Le Blanc J. stated: "It is the same thing as if the defendant had made the bill payable to bearer." This decision was followed in -- 'AIR 1940 Pat 377 (C)'. There, the facts were that one Shamnandan Prasad Singh had lent money to one Dhanukhdari, ana the defendant agreed to be a surety for the repayment of the loan and for that purpose had executed a note with the name of the payee left blank. Shamnandan Prasad Singh to whom it had been delivered entered the name of one Hriday Singh who sued to recover the amount due thereon. The suit was resisted by the defendant on the ground that he had delivered the note only to Shamnandan Prasad Singh, that the latter had no authority to enter the name of another person as payee, that there was no privity of contract between him and the plaintiff and that in consequence the suit was not maintainable. In rejecting this contention, Agarwala J. with whom Rowland J. agreed, referred to Section 20 of the Negotiable Instruments Act and observed: "It is contended on behalf of the defendant-respondent that this section does not authorise the person to whom the stamped and signed paper is delivered to insert in it as payee the name of any one but himself. In this connection reference was made to Section 4 of the Act which defines a promissory note as an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking signed by the maker to pay a certain sum of money only to, or to the order of a certain person, or to the bearer of the instrument. The promissory note in question does, of course promise to pay the sum mentioned unconditionally to a certain person, namely, the plaintiff, and I can see nothing in that section which in any way, curtails the general authority conferred by Section 20 on the person to whom a stamped and signed paper is delivered to convert it into a negotiable instrument payable to any specified person. This appears also to be the law in England." And the conclusion is thus stated: "As in my view the instrument with which we are concerned is a negotiable instrument it is not open to the defendant to plead that the holder of the note, namely, the payee, is not the person entitled to recover on it, that is to say, the defendant cannot plead, that the parson to whom the money is due is not the plaintiff, who is the specified payee, but Shamnandan Prasad Singh. See --'30 Mad 88 (FB) (A)'." These decisions lay down what indeed is cleat on the language of Section 20 of the Act that when an incomplete negotiable instrument is executed and delivered, it is open to the holder to complete the instrument by entering his name or that at any other person, that such a person will be a holder under the Act and that he has a right to sue on the instrument as such holder and that in that suit the defendant cannot be heard to contend that he did not execute the instrument in favour of the plaintiff or deliver it to him. If that were the only defence to the suit, it must be held that the written statement does not disclose a defence. But the plea of the defendant is that the claim has been discharged by payment and that the plaintiff cannot recover as he is not a holder in due course. The answer of the plaintiff to this plea is that when his name was entered on the note he became, by virtue of Section 20, its holder and that under Section 78 of the Act it is only payment to a holder that would operate as discharge, that evidence of payment to any person other than the holder would under that section be inadmissible and that he is, therefore, entitled to recover the full amount without reference to such paymeat. This argument proceeds on a misapprehension of the true scope of Section 20 of the Act. That section runs as follows; "Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in British India, and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount covered by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount: Provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder." It will be seen that under this section, when an incomplete instrument is signed by A and delivered to B, that, clothes the latter with 'Prima facie' authority to complete it and if in execution of that authority the instrument is completed A will be liable on it to a holder in due course. But where that authority conies to an end before the instrument is completed, then Section 20 becomes inapplicable end no rights can be based on the instrument if it is completed thereafter, except by a holder in due course. The decision in -- 'Hatch v. Searles', (1854) 2 8m. & G. 147 (D), is instructive. There, one Searles had signed 2 blank papers impressed as Bills of Exchange and delivered them to one Curtis to enable him to get accommodation. On 11-4-1852 Searles died. On 18-4-1852 Curtis filled up an acceptance in one of the bills for . 100 in the presence of Wallis and Stanway and delivered it to wallis who discounted it with Stanway, who preferred a claim against the estate of Searles for the amount of the bill. Similarly the acceptance in the other bill was completed for . 50 and it was discounted with one Conway, who also sought to prove for the amount of the bill against the estate of Searles. Both these claims were resisted on two grounds that the claimants were not bona fide holders in due course and that the authority of Curtis to complete the instrument had become revoked by the death of Searles. In agreeing with these contentions Stuart V.C. observed: "Independently of any other evidence of a contract between these two persons the blank acceptance is an imperfect instrument, which, in itself, could create no contract, although prima facie, but only prima facie, it might imply some authority to one of the parties. As to a bona fide holder, the question as to the effect of the acceptance or indorsement having been written on a blank piece of paper can be of no importance, unless he is fastened with notice of that imperfection. If the holder has notice of the imperfection, he can be in no better situation than the person who took it in blank, as to any right against the acceptor or indorsee who gave it in blank." The Vice Chancellor, then came to the conclusion on the facts that the plaintiffs were not holders in due course. Then dealing with the question of revocation of authority, the Vice Chancellor observed: "These views of the infirmity of the title on both bills leave untouched the argument as to the revocation of the implied authority given to Curtis by the blank acceptance. If Curtis has given any valuable consideration to Searles, mere would have been room for the argument, that the authority, being coupled with an interest, was not revoked by the death of Searles. But there was no such valuable consideration. The mere possession or the blank acceptances by Curtis did not give him such a beneficial interest in them as to prevent a revocation by the death of Searles." In other words, the position of the person to whom an incomplete instrument is delivered is that of an agent and the scope of his authority must be determined on principles applicable to agents. Applying this principle, when the defendant gave an incomplete instrument to Ismail, the latter became his agent with authority to complete the instrument, out when the debt in respect of which the imperfect instrument was executed became discharged on 8-2-1950 the authority to complete tile instrument also terminated on that date. When Ismail therefore entered the name of the plaintiff as payee on that instrument long afterwards, he did what he had no authority to do and no claim could accordingly be founded on that instrument, unless the plaintiff establishes that he is a holder in due course. That is in accordance with the decision in -- (1854) 2 Sm. & G. 147 (D)', In -'( 1813) 105 ER 316 (B)', no defence was raised that the plaintiff was not holder in due course and Bayley J. observed: "The issuing the bill in blank without the name of the payee was an authority to a bona fide holder to insert the name". In the present case, the finding of the lower court is that the name of the plaintiff was inserted as payee as a result of collusion between him and Ismail and no question of a holder in due course can arise. Indeed in the lower court the plaintiff conceded that that was not his position.
(3.) It was contended on behalf of the petitioner that in view of Section 78 of the Act, the payment to Ismail could not be recognised as valid as he was not a holder of the promissory note. But the short answer to this contention is that there was no promissory note at all in existence at the time when the payments were made and that Section 78 accordingly has no application. Section 4 defines "promissory note" as an instrument containing an unconditional undertaking to pay a certain sum of money to, or to the order of, a certain person. Until, therefore, the name of the payee was entered on the instrument, there was no promissory note as defined in Section 4 of the Act. The instrument might be converted into a promissory note by exercise of the authority conferred by Section 20 of the Act. But, until that is done, there is no promissory note in existence, but only an instrument which is capable of being converted into a promissory note. The character of an imperfect instrument before it is completed is thus stated by Bramwell L. J. in -- 'Hogarth v. Latham & Co' (1878) 3 QBD 643 at p 647 (E), "It was said by Mr. Cohen that this was a negotiable instrument even before the holder's name was put into it. I am of opinion that it was not, end that the cases do not show that it was. -- 'Harvey v. Cane', (1876) 34 LT 64 (F) has been relied upon. But that case wholly differs from the present, for there was only one acceptor who himself accepted in blank. There are, however, some cases that show that an incompleted instrument may be made complete by a person to whom it was not originally handed, not on the ground that it was a negotiable instrument, but on the ground that the defendant when he parted with it, must be taken to have given authority to any one into whose hands it might come to fill up the blank, it is not, there lore, a negotiable instrument but authority has been given to every bona fide holder into whose hands it may come to make it a perfect instrument." Mr. K. Vaitheeswaran, the learned advocate for the petitioner relied on the following observations occurring in 'AIR 1940 Pat 3, at 379 (C)' as supporting his contention that when once the instrument has been completed and is a promissory note as defined in Section 4, any plea of discharge in an action based on that instrument will be governed by Section 78 of the Act. "The defendant in the present suit also pleaded that he had made certain payments to Shamnandan Prasad Singh in respect of the amount for which he is now sued. In a suit by the payee of a handnote against the drawer the defence that payments have been made to someone who is" not the payee cannot be taken into consideration. See Section 78 of the Negotiable Instruments Act. We are, therefore, not concerned with the truth of the defendant's allegations regarding these payments." It does not appear from the statement of facts whether the payments pleaded were made before the name of the plaintiff was entered or after. If the latter, the decision would clearly be correct because on completion, the instrument became a promissory note and therefore, the rights of the parties would thereafter be governed by the provisions of the Negotiable Instruments Act. But if the payments were made before the instrument was completed and before it had acquired the status of a negotiable instrument, it is difficult to see how Section 78 could have any application.;

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