- (1.)The defendants, Durga Prasad and Salig Ram, who kept a shop in Benares, styled "Durga Prasad-Salig Ram", borrowed a sum of Rs. 1,200, from the plaintiff on a hundi dated the 22nd June 1910, payable in 91 days. The hundi was dishonoured when presented for payment on the 7th August 1910.
(2.)The plaintiff, therefore, sued for the money with interest on the 18th August 1910. Various pleas were raised in defence, one of which was that the hundi being insufficiently stamped was inadmissible in evidence. The Court of first instance found that the terms of the loan were embodied in the hundi and that the cause of action was not complete independently of the hundi, but, following Sri Nath Das v. Angud Singh 7 A.L.J. 459 : 6 Ind. Cas. 126 came to the conclusion that evidence aliunde was admissible to prove the debt and decreed the plaintiff s suit. On appeal, the lower Appellate Court came to the conclusion that evidence was not admissible apart from the hundi and that the case fell within the second class of cases contemplated by Garth, C.J. in Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533. On that solitary ground, the lower Appellate Court, without going into other questions raised in the appeal, dismissed the suit. In second appeal, it is urged that the plaintiff is entitled to sue for the money had and received notwithstanding the fact that the insufficiently stamped promissory note was inadmissible in evidence. Long and able arguments have been addressed to us and a large number of cases, English and Indian, have been cited. Before going into the case law on the subject, it is desirable to have two points cleared up:. 1. Where A. pays X a sum of money for a consideration which wholly fails, he is entitled to recover his money from X by means of an action for money had and received by the defendants "for the plaintiff s use. Lord Mansfield in Moses v. Macpherlan (1760) 2 Burr. 1005 at p. 1012 : 1 W.B1. 219 speaking of this action, observes: "This kind of equitable action to receive money back which ought not in justice be kept is very beneficial and, therefore, much encouraged. It lies only for money which ex (sic) et bono the defendant ought to refund.... It lies for money paid by mistake or upon a consideration which happens to fail." Sir William Anson, in his Law of Contract, page 391, 11th Edition, is of opinion that Lord Mansfield stated the rule of equity too broadly and in a note says: The liability to re-pay money for a consideration which has wholly failed is some-times classed among the foregoing obligations, but is based upon a genuine contract though shortly stated in the form of an indebitatus count." The liability, with due respect to the learned jurist, in our opinion, is not based upon a contract, for the contract is to give consideration agreed upon and not to return the money paid therefor, if the consideration fails, bat it rests upon equity. Apart, however, from the basis on which it rests, it is a well established rule of English Law: Where money has been paid for a consideration which has wholly failed, the person, who made the payment, may recover the money back as money had and received to his use." (The Laws of England by the Earl of Halsbury, Vol. VII, page 481). "Money paid for a consideration which fails may be recovered back, as the price of goods sold which the seller fails to deliver wholly or partly" Giles v. Edwards 7 Term. Rep. 181 : 4 R.R. 414 and Devaux v. Conolly 8 C.B. 640 : 19 L.J.C.P. 71 : 79 R.R. 659. (Leake on Contract, page 65, 4th Edition). Upon the same principle, money paid and purchased on discharge of bills on securities which are delivered as valid, but which are, in fact, forged or void, may be recovered back though the defect may be unknown to both parties." (Lsake on Contract, page 67, 4th Edition). The law in British India is the same. Their Lordships of the Privy Council in Hanuman Ramat v. Hanuman Mandur 8 C.B. 640 : 19 L.J.C.P. 71 : 79 R.R. 659 have, in effect, held that money received by the vendor of property as its price is money had and received to the account of the vendee within the meaning of Article 62 of the Limitation Act, if there never was any consideration for the purchase, that is, if the sale was ab initio void see also Mahomed Wahib v. Mohamel Ameer 32 C. 527 : 1 C.L.J. 167. The result of the rule laid down by their Lordships of the Privy Council is that if A. pays X a sum money for a consideration which wholly fails, A. may sue for money had and received. Now, if X, in consideration of a debt due by him, gives his creditor A. a promissory note, which is inadmissible in evidence, the consideration of the debt wholly fails and A. in equity is entitled to recover the money paid by him as money had and received by X. to the use of A. On principle, it is perfectly immaterial when and how the debt came into existence and when the insufficiently stamped promissory note was given. The debt may have been a pre- existing debt for goods sold or services rendered or money advanced or it may come into existence immediately before or after the taking of the promissory note in consideration of the money. In such cases, the time at which the note is given is no element in the creation of the liability to re-pay. That liability comes into existence by receiving the money and not paying the consideration. The debtor, when in consideration of the debt, gives a promissory note which turns out to be waste paper, the debt is not satisfied unless the rule be that a debtor may discharge his debt by giving a bit of waste paper to his creditor. This power is too inequitable to be a rule of law. To say that a debtor can discharge his debt by giving waste paper is to punish a creditor for the misfeasance of the debtor and this is too absurd for words. The action for money had and received and the action to enforce a contract reduced to the form of a promissory-note are two very distinct actions. The former is to enforce a claim based on the principles of equity and the other is to enforce a contract. 2. It is a well settled rule of the law of evidence that when the terms of a contract have been reduced to the form of a document, no evidence shall be given to prove the terms of such contract (Section 91, Indian Evidence Act). An application of the rule is that if the terms of the contract of loan are reduced to the form of a promissory-note and that note is inadmissible in evidence, no other evidence of the term shall be received and the suit, if based on that promissory-note, shall fail. This rule of evidence has, however, nothing to do with the action for money had and received by defendant for the plaintiff s use, the basis of which action is not the contract reduced to the form of a promissory-note, but the doctrine of equity that a person, who has received a sum of money from another for a consideration which wholly fails, must return the money to the payer. A promissory-note which is inadmissible in evidence may have been taken by the creditor in substitution for an antecedent debt or in consideration of a debt, but in both cases, when a suit is based on such a promissory note, it is bound to fail and on principle there is no justification for the distinction, that if the note is taken in substitution of an antecedent debt, the creditor is entitled to fall back upon the original liability of the debtor, and to sue him for money had and received, but that if the note is taken in consideration of the debt which was not pre-existing, the creditor has no right to sue for money had and received. The proposition that in the former case, there is a cause of action independently of the promissory-note while in the latter, the note itself is the cause of action, is due to some confusion of ideas. The cause of action for money had and received is the failure of consideration for that money and exists in both cases independently of the note. If it be accepted that in the latter case, the note itself constitutes the cause of action, it will constitute a cause of action for the enforcement of the contract contained therein, and not for money had and received by the defendant for the plaintiff s use.
(3.)Coming to the cases in which the debtor gives the creditor an insufficiently stamped promissory-note, we find that Grarth, C.J., divided them, in Sheikh Akbar v. Sheikh Khan 7 C. 256 : 8 C.L.R. 533 into two classes: (a) "When a cause of action for money is once complete in itself, whether for goods sold, or for money lent, or for any other claim and the debtor then gives a bill or note to the creditor for payment of the money at a future time, the creditor, if the bill or note is not paid at maturity, may always, as a rule, sue for the original consideration, provided that he has not endorsed or lost or parted with the bill or note under such circumstances as to make the debtor liable upon it to some third person. In such cases, the bill or note is said to be taken by the creditor on.account of the debt and if it is not paid at maturity, the creditor may disregard the bill or note and sue for the original consideration see James v. Williams (1845) 13 M. & W. 828 and other cases mentioned in Addison on Contract, 3rd Edition, page 1204. The cases of Clay v. Crowe (1853) 8 Exch. 295 : 17 Jur. 262 : 91 R.R. 496 and Wain v. Bailey 10 Ad. & E. 616 : 2 P.& D. 507 : 50 R.R. 514 cited in argument before us by Mr. Dass were of this nature." (b) When the original cause of action is the bill or note itself, and does not exist independently of it, as, for instance, when in consideration of depositing money with B., B. contracts by a promissory-note to re-pay it with interest at 6 months date, here there is no cause of action for money lent or otherwise than upon the note itself, because the deposit is made upon the terms contained in the note and no other. In such a case, the note is the only contract between the parties and if, for want of a proper stamp or some other reason, the note is not admissible in evidence, the creditor must lose his money. Of this nature, were the cases referred to by the Judge of the lower Court: Ankur Chunder Roy Chowdhry v. Madhub Chunder Ghose 21 W.R. 1 and Prosunno Nath Lahiree v. Tripoora Soonduree Dabee 24 W.R. 88. The case to which he refers, decided by Kennedy, J., Golap Chand, Marwaree v. Thakurani Mohohoom Kooaree 3 C. 314 : 2 C.L.R. 412 note, apparently belongs to the former class; and in Farr v. Price (1800) 1 East 55 : 5 R.R. 515 : 102 Eng. Rept. (Reprint.) 22 all that Lord Kenyon ruled was, that if, on the new trial, the plaintiff could prove his claim under the common counts, that is to say, independently of the note, he might recover. There is no doubt as to the principle of these authorities. The difficulty often is to ascertain as, a matter of fact, to which class any particular case belongs."