Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Judges
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Attorney(S)
Judges
Acts
Smart Summary

Factual and Procedural Background

The plaintiff, identifying himself as the owner of the firm Gordhandas, Bhagwandas, filed suit to recover Rs. 61,419-3-1. He claimed that the first four defendants conducted business as partners under the name Pathak Shanghavi and Company, and that the claimed sum arose from advances made to that partnership. The fifth defendant was alleged to be liable by virtue of a guarantee of the partnership's indebtedness. The first and second defendants admitted the claim, while the third, fourth, and fifth defendants contested it on various grounds, including denial of the advances, retirement from partnership, and invalidity of the guarantee.

The Additional First Class Subordinate Judge of Ahmedabad ruled in favor of the plaintiff, awarding him recovery of the claimed sum apportioned among the defendants and the partnership property, with interest and costs. The fourth and fifth defendants appealed the decree. During the appeal, the plaintiff died and was substituted by his son, the second defendant.

Legal Issues Presented

  1. Whether the advances were made by the plaintiff or by his son, the second defendant, and the legal significance of this fact.
  2. The legal effect and binding nature of the guarantee given by the fifth defendant for the partnership's indebtedness.
  3. The liability of the third defendant after his retirement from the partnership.
  4. The implications of the substitution of the deceased plaintiff by his son, who was also a defendant, on the execution and enforceability of the decree.

Arguments of the Parties

Appellants' Arguments

  • The advances were made not by the plaintiff but by his son, the second defendant.
  • The guarantee by the fifth defendant was not binding, contesting both the oral guarantee and alleging fraud in obtaining the written guarantee.
  • The third defendant argued that having retired from the partnership in October 1895, he should not be liable beyond that date.

Respondent's Arguments

  • Admitted that advances were made from joint family funds of the plaintiff and second defendant, members of a Joint Hindu family, making the identity of the actual advancing party immaterial.
  • Asserted the validity of the guarantee by the fifth defendant.
  • Maintained that the third defendant remained liable until the plaintiff had notice of dissolution of the partnership.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Jugal Kishore v. Hulau Ram Rule that where an individual is a common partner in two firms, no action lies between the firms while such individual is common partner. Used to explain why the funds of the firm could only be recovered in a suit involving both plaintiff and second defendant as plaintiffs.
Bosanquet v. Wray Illustration of the rule preventing one individual from being both plaintiff and defendant in the same action in different capacities. Supported the procedural rule limiting suits involving common partners.
Luke v. South Kensington Hotel Company Equity courts' approach to allow adjustment of rights despite procedural limitations of same individual as plaintiff and defendant. Justified equitable adjustment of rights among parties to achieve justice despite procedural barriers.
Piercy v. Fynnoy Authority for courts to administer equity in adjusting partnership accounts and rights. Supported the Court's power to declare equitable shares and adjust partnership accounts.
Sakharam v. Hari Power of appellate courts to vary decrees on grounds arising after the original decree was passed. Permitted the Court to vary the decree on appeal considering events occurring after the lower court's decree.
Indian Contract Act, 1872, section 145 Implied promise by principal debtor to indemnify surety and surety's right to recover from principal debtor sums paid under guarantee. Applied to conclude that the surety's liability is co-extensive with principal debtor's and that the surety can claim indemnity from the principal debtors.

Court's Reasoning and Analysis

The Court began by addressing the dispute over who made the advances, concluding that since the advances were made from joint family funds of the plaintiff and his son (a Joint Hindu family), the identity of the actual advancing party was immaterial. The Court emphasized the procedural rule that the same individual cannot be both plaintiff and defendant in the same suit, citing precedents that restrict suits between firms sharing common partners.

However, the Court noted that equity courts allow adjustments of rights among all interested parties to prevent injustice, even if procedural rules create difficulties. Applying this principle, the Court determined that the shares of the plaintiff and his son in the partnership should be considered equal for adjustment purposes.

The Court further analyzed the effect of the plaintiff's death and substitution by his son, who was also a defendant. It held that the decree as it stood could not be executed in favor of the son because it would place him as both plaintiff and defendant, which is impermissible. Instead, the son is entitled only to credit in the partnership accounts for the amount advanced.

Regarding the third defendant's liability after retirement, the Court accepted the lower Court's application of section 264 of the Contract Act, which protects partners from liability after dissolution once notice is given, and found no error in the judgment.

On the issue of the fifth defendant's guarantee, the Court found no convincing evidence of fraud in obtaining the written guarantee and no distinct finding supporting the oral guarantee. The Court interpreted the guarantee as a direct suretyship for the partnership debt. Since the son (now plaintiff) is also a principal debtor, equitable principles prevent him from recovering from the surety for amounts he owes himself.

Consequently, the Court concluded that the original decree could not stand. Instead, it declared that the son is entitled to credit in the partnership accounts for the advances made, with the total sum and interest to be accounted for among partners according to their shares and relevant dates.

Holding and Implications

The Court varied the decree under appeal.

The Court held that the son of the deceased plaintiff, substituted as plaintiff, cannot be awarded a decree for payment against the partners due to his dual role as plaintiff and defendant. Instead, he is entitled only to credit in the partnership accounts for the advances made from the firm's funds. The sums advanced, including interest, must be allocated among the partners based on the timing of advances, debts discharged, and their respective liabilities. The Court did not disturb the lower Court's decision on costs, ordering the appellants to bear half the costs of the respondent in this Court.

No new legal precedent was established; the decision primarily affects the parties by clarifying equitable adjustments in partnership disputes involving substituted plaintiffs who are also defendants and the limits of surety liability in such contexts.

    Rustomji Aspandyarji Sethna v. Sheth Purshotamdas Chaturdas

    Jenkins, C.J:— The plaintiff, describing himself as the owner of the firm of Gordhandas, Bhagwandas, brought this suit to recover Rs. 61,419-3-1. His case against the first four defendants is that they carried on business in partnership under the name of Pathak Shanghavi and Company; and that the sum he claims is the result of advances made to the partnership. He alleges that the fifth defendant is liable to him by reason of a guarantee of the partnership's indebtedness. The first and second defendants alone admit the claim.

    The third, fourth and fifth defendants assert that the advances were made not by the plaintiff, but by his son the second defendant; the third defendant contends that in any case he retired from the partnership in October, 1895, so that he is liable for nothing after that date; and the fifth defendant maintains that the oral guarantee alleged against him is not proved and that the written guarantee is vitiated in its origin.

    The case was heard by the Additional First Class Subordinate Judge of Ahmedabad, who passed the following decree in plaintiff's favour:

    I therefore order that out of the sum of Rs. 61,419-3-1 claimed by the plaintiff, he (plaintiff) do recover Rs. 19,008-3-7 from defendants 1, 2, 3 and 4; that out of the remainder he do recover Rs. 13,723-1-8 from defendants 1 2 and 4; that he do recover the rest, viz., Rs. 27,787-13-10, from defendants 1 and 2 only and from the property of Pathak Shanghavi and Company; that on all the above sums awarded to the plaintiff, he (plaintiff) do recover simple interest at 4½ per cent, from the date of this suit till the payment of the sums by the respective defendants; that the plaintiff is at liberty to recover from the fifth defendant the amount which he is entitled to recover from the fourth defendant. The plaintiff do recover bis costs from all the defendants. Defendants to bear their own costs.

    From this decree the present appeal has been preferred by the fourth and fifth defendants.

    During the pendency of the appeal the plaintiff has died and his son the defendant Nagindas has been substituted in his place To this order we will refer later.

    The main contentions before us have been that the advances were made, not by the plaintiff, but by Nagindas, and that the guarantee is not binding. The first of these points has been urged before us by the appellant with great care and elaboration, but in view of the admissions that have been made, we think, so far as the facts, go it invites a simple solution. It is admitted on both hands that the advances were made out of the joint family funds of the plaintiff and the second defendant, who, as members of a Joint Hindu family, were jointly interested in the firm of Gordhandas Bhagwandas. We think it therefore of little importance whose hand actually advanced the money, though, if it be a matter of any moment, we agree with the learned Judge in the Court below that the advance was actually made by Seth Purshotamdas Chaturdas out of the firm's funds.

    It becomes, however, a point of some difficulty to determine what are the legal consequences which flow from this. It is clear that Purshotamdas Chaturdas and Nagindas were the owners of the firm of Gordhandas Bhagwandas, so that prima facie the funds of that firm could only be recovered by a suit in which they both were plaintiffs—Jugal Kishore v. Hulau Ram. This is in accordance with the doctrine that where an individual is a common partner in two houses of trade no action can be brought by one house against the other house upon any transaction between them while such individual is a common partner. In illustration of this we may refer to Bosanquet v. Wray.

    This doctrine is founded on the elementary rule of procedure, too often disregarded in this country, that the same individual, even in different capacities, cannot be both a plaintiff and a defendant to one and the same action. While, however, at Common Law this rule led to the result we have indicated, the Courts of Equity surmounted this difficulty. Though they observed strictly the rule that a man cannot be both plaintiff and defendant, they did not allow it to stand in the way of doing justice between the parties; for provided all interested were before the Court either as plaintiffs or as defendants, they adjusted and determined their rights. This is aptly exemplified in Luke v. South Kensington Hotel Company,

    Similarly, we think the fact that Nagindas was interested both as creditor and debtor cannot stand in the way of our adjusting the rights of the parties in accordance with the enjoined rule of justice, equity and good conscience. To learn the goal to which that guiding principle should direct our steps it will be well to consider separately what the rights first of Purshotamdas, and then of Nagindas, would have been had the money advanced been in each case his alone. Now if Purshotamdas had been the sole creditor, he dearly could have recovered the amount in a suit properly framed for that purpose: had the advance been out of Nagindas' separate moneys, a suit to recover the money would not have lain; for one partner cannot sue for money lent by him to a firm of which he is a member, as the advance would be but an item in the partnership account.

    This we think gives a clue to the proper equitable principle to be applied here. First, we must determine the shares in which Purshotamdas and Nagindas were interested in the firm of Gordhandas Bhagwandas. In some cases this might be a matter of considerable difficulty, but not in the present instance; for it is not questioned that the two were equally interested in this firm, and we think we are entitled to take that as the basis of adjustment.

    That it is within the power of the Court to administer equity on these lines is we think, to be inferred from Piercy v. Fynnoy. Therefore we think there should in the lower Court have been a declaration, that Purshotamdas and Nagindas were entitled to the amount advanced in equal shares and a decree, that one moiety therefore should be paid to Purshotamdas, and the other moiety treated as an item to the credit of Nagindas in the partnership accounts.

    Now had that decree been passed, Purshotamdas during his life-time would have been entitled to execute the decree passed in his favour. On his death, however, the decree was transferred to Nagindas, so that under section 232(b) of the Civil Procedure Code it would have been incapable of execution.

    But if we pass this decree on appeal, section 232(4) will have no application, and in that case quoad Purshotamdas' half share, Nagindas, one of the judgment-debtors, would be able to execute it, though he could not himself, according to the rule to which we have alluded, have sued originally for that part of the debt. The substitution of Nagindas in Purshotamdas' place made Nagindas both a plaintiff and a defendant, a position not ordinarily permissible. The result in this case is, that though Nagindas was equally liable with his co-partners, if we confirm the decree as it stands, he will, both as regards Purshotamdas' share and his own, be at liberty to execute the decree against any one of his co-partners.

    In our opinion, therefore, we cannot, as things now stand, pass a decree in Nagindas' favour for payment to him of the amount due from the partners even in respect of Purshotamdas' share. We can only declare that for this amount too Nagindas is entitled to credit in the partnership accounts. It is true this is due to what has occurred since the decree of the lower Court, but it is open to this Court to vary a decree under appeal, not only for error, but also on grounds which have come into existence since it was passed—Sakharam v. Hari. Subsequent events have placed Nagindas in the position of the sole plaintiff, and we can under the circumstances of this case only give him such relief as would have been possible bad he occupied that position at the institution of the suit.

    Bhagubhai, the third defendant, it is true, has contended before us, that as he left the partnership in October, 1895, the Judge erred in treating him as liable up to the following January. The ground of the decision is the rule prescribed in section 264 of the Contract Act, in reference to which the Judge held on the evidence that the plaintiff was not shown to have had notice of the dissolution before January. We see no ground for holding that the Judge's appreciation of the evidence was wrong, but the point does not now arise. Nagindas can only be entitled to credit in the partnership accounts as against those who actually were his co-partners from time to time; for section 264 merely operates in favour of strangers to the partnership. Obviously, however, this is a matter of no practical importance, if, as is alleged, the advances went to pay off indebtedness of the firm incurred while Bhagubhai was a partner: for in that event the rights and liabilities of the partners will be worked on the taking of the partnership accounts.

    If this be the position so far as defendants 1 to 4 are concerned how does defendant No. 5 stand? The case against him is that he is liable as a surety, and it is alleged that he gave Purshotamdas both an oral and a written guarantee. Defendant No. 5 denies the oral guarantee, and it is said, and we think rightly, that there is no distinct finding of the leaned Judge in favour of the oral guarantee. As to the existence of the written guarantee there can be no question, but it is contended that it waff obtained by a fraud which is a complete answer to any suit on it. The fraud imputed is twofold; first, It is said defendant No. 5 was induced to sign the guarantee by a false misrepresentation of his son's determination to commit suicide unless freed from his pecuniary embarrassment, and secondly, that defendant 5 was assured the letter of guarantee would be submitted to his brother Shapurji for approval before it was treated as operative.

    Now it was obvious that the onus of establishing this plea was on defendant 5, and it was incumbent on him to make it out beyond dispute, as it involved a charge of fraud. The lower Court held that defendant 5 had not made out his case, and it is for us to say whether we can on the evidence hold that the charge of fraud is so dearly established as that we ought to reverse the Judge's finding of fact. The evidence has been sifted before us carefully and critically by Mr. Donald, but we are unable to say that the Judge's appreciation of the evidence is wrong The witnesses were; examined before him, and in a conflict of evidence any appeal Court must be slow to differ from the Judge's estimate as to the credibility of the witnesses examined before him. We therefore would not disturb the finding of the lower Court on this point.

    We do not now propose to examine the evidence in detail) because it seems to us there is another ground which is fatal to the claim. Taking the guarantee as established we have to see what is its true construction. Mr. Inverarity has argued before us that though the fifth defendant thereby became liable for the whole debt of the partnership, that is so only because he guaranteed his son's obligation. We are not prepared to say that if this were so, it would make any difference; but in any case we do not so read the document: it is true Rustomji alone of the partnership is named, but we read the document as constituting defendant 5 directly a surety for the partnership debt. We start then with this, that defendant No. 5 was the surety and the partners were the principal debtors. But the liability of a surety is co-extensive with that of his principal debtor, therefore it follows from what we have already said that we cannot now pass a decree for payment against defendant No. 5. Nor does the matter rest there: in every contract of guarantee there is an implied promise by the principal debtor to indemnify the surety; and the surety is entitled to recover from the principal debtor whatever sum ha has rightfully paid under the guarantee (Indian Contract Act, 1872, section 145). But Nagindas, the present beneficial owner of the debt, is one of the principal debtors, so that it is obvious by no equitable adjustment of rights can he be entitled to any relief against defendant 5, who stood surety for him This no doubt was not the position of affairs when the decree of the lower Court was passed, but we have already dealt with this in an earlier part of our judgment and the same considerations are equally applicable here.

    The conclusion, then, to which we come is that the judgment under appeal cannot stand, and in place of it there must be a declaration that Nagindas in the taking of the partnership accounts is entitled to credit for the amount advanced out of the funds of Gordhandas Bhagwandas and that the sums so advanced with interest thereon amount in all to Rs. 61,419 -3-1, In determining how that amount is to be borne by the various partners regard must-be had to the dates on which the amounts making up that total were advanced, and to the debts discharged thereby, and to the proportions in which the partners are liable to contribute. We do not disturb the decree of the lower Court as to costs: the appellants must bear half the costs of the respondent Nagindas in this Court.

    Decree varied.
    Use AI to get other relevant cases.

    Comments

    Rustomji Aspandyarji Sethna v. Sheth Purshotamdas Chaturdas
    (Mar 6, 1901)