M L M RAMANADAN CHETTIAR Vs. GUNDU AYYAR

JUDGEMENT

(1.) The appellant sued upon three promissory notes executed by defendant 1 in favour of defendant 2 for Rs. 3000, Rs. 2000 and Rs. 500 respectively. The first two notes were executed on succeeding days 7 July 1920 and 8 July 1920 and the third one on 15th March 1921. The learned Judge has found that the consideration did not really pass and that whatever consideration did pass was of an unlawful nature being given for immoral purposes. This finding has been impeached by Mr. Somayya on behalf of defendant 2 but the circumstances of the case are so glaring that we must accept the finding of the learned Judge. Out of the Rs. 3000 under the first note only Rs. 1000 purports to have been paid and Rs. 2000 was left with the payee to be drawn as required. Notwithstanding this fact, the very next day the second note for Rs. 2000 was executed. This fact cannot be explained away and the evidence clearly establishes the finding as indicated. Under Section58, Negotiable Instruments Act when a negotiable instrument has been obtained from any maker by fraud or for an unlawful consideration, the ordinary presumption that the holder is a holder in due course is rebutted and the case comes under the proviso to Section 118 (g) and the burden of proving that the holder is a holder in due course lies upon the holder.

(2.) In the present case defendant 2 was largely indebted to the plaintiff and was being pressed by him for payment in the early part of 1921. On 17 May 1921, defendant 2 executed a promissory note for Rs. 19,000 odd in plaintiff's favour and pledged with him these promissory notes and other notes and bonds. These promissory notes were at that time endorsed in blank. It is contended for the plaintiff that this endorsement constituted him a holder in due course and that he possessed full proprietary rights in the notes. The endorsement being in blank, the plaintiff was not the endorsee until the endorsement had been filled up in his name and, therefore, the rights given by Section 50 of the Act would not accrue to him. When the notes were handed over defendant 2 executed Ex. L which shows clearly that he did not intend to transfer the ownership of the notes to the plaintiff but only left them with him as security and this may be shown under Section 46, Negotiable Instruments Act. On 5 January 1922, this deed, Ex. L, was cancelled and an out-and-out assignment of the notes was made to the plaintiff. In the seven months which intervened it is in evidence that defendant 2's agent, D. W. 4 demanded payment of the notes from defendant 1 but could not obtain the money. The plaintiff's agent, P.W. 1 admits that when he asked defendant 2 why he could not pay the money in the space of seven months, "he said he was not able to collect and he would collect and send". In view of the fact that none other of the promissory notes assigned to plaintiff was for a greater amount than Rs. 600 it is clear that the plaintiff or his agent must have been anxious that defendant 2 should collect the amount under the suit notes, especially when he was informed of the status of the makers of the various notes, defendant 1 being the son of a rich and influential landowner. When therefore the plaintiff's agent was told that the money could not be collected notice can certainly be imputed to him that the notes had been dishonoured by non-payment. It is also clear that he knew that a demand for payment had been made and if a demand for payment had been made the notes became overdue. Under Section 59 therefore whether we take it that the notes had been dishonoured or that they had matured, the plaintiff can only obtain the rights therein of his transferrer, defendant 2. As found above defendant 2 having obtained the notes by fraud and for an unlawful consideration, has no rights at all against defendant and consequently the plaintiff also has no right. The suit was dismissed also as against defendant 2, but inasmuch as he guaranteed in Ex. L and also in the subsequent assignment deed, Ex. J, that the notes transferred were valid and good notes and agreed to indemnify the plaintiff against loss in respect thereof, the plaintiff is entitled to a decree against him in respect of these notes by way of damages. To that extent the decree must be modified but as defendant 2 is dead the plaintiff will have a decree as prayed for against defendant 2's estate in the hands of respondents 3-5 with costs throughout.

(3.) As against defendant 1 the suit is dismissed with costs throughout. Thiruvenkatachariar, J.