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Pynda Venkatachalapati Garu v. Pynda Ramakrishnayya
Structured Summary of the Opinion (Phillips, J.; Reilly, J.)
Factual and Procedural Background
The plaintiff sued to recover two loans that had been given to a firm comprised of four brothers (defendants 1–4). For each loan a promissory note was executed and signed by defendant 3 alone, in his personal name and not in the partnership name. The Subordinate Judge held that because the promissory notes had been executed by defendant 3, the plaintiff could not base his claim on any other cause of action and therefore refused the plaintiff leave to adduce evidence or pursue an alternative cause. The plaintiff appealed. The High Court considered whether, despite the notes being signed only by defendant 3, the other partners could be made liable because the loans were given to the partnership and whether the plaint should be allowed to be amended to plead an alternative cause of action based on the contract with the partnership.
Legal Issues Presented
- Whether partners other than the partner who signed promissory notes can be held liable for loans if those loans were made to the partnership (i.e., whether an independent partnership obligation exists separate from the note).
- Whether a plaintiff who sues on promissory notes signed by one partner can alternatively plead and prove a distinct cause of action based on the consideration (the loan) made to the firm.
- Whether the plaint (as drafted) sufficiently alleges an alternative cause of action against the firm so as to permit evidence and a decree against all partners, or whether amendment should be permitted to plead that alternative case.
Arguments of the Parties
Plaintiff / Appellant
- The loans were given to the partnership (Paida & Co.), so although the promissory notes were signed by defendant 3 alone, the other partners (defendants 1, 2 and 4) are also liable for the loans made to the firm.
- The plaint, while primarily framed on the promissory notes, is capable of being interpreted to allege an independent cause of action against the partnership; alternatively, the plaintiff should be permitted to amend to make that allegation clear.
- Authorities (e.g., Karmali Abdulla and Darguvarapu Sarrapu) support holding others liable where the transaction evidenced by the negotiable instrument was in fact a partnership transaction or where the note merely evidences a separate contract with the firm.
Defendants / Respondents
- The promissory notes were executed by defendant 3 alone in his own name; on their true construction the notes disclose liability only of defendant 3 and not of the firm or other partners.
- It was urged that decisions (for example, Shunmuganatha Chettiar) go beyond earlier authorities (Karmali Abdulla) and are not good law; the Subordinate Judge relied on the proposition that the maker of a promissory note alone is liable unless there is an express alternative cause of action pleaded.
- Counsel for defendants (Mr. Varadachariar) suggested a distinction between suing a principal on a loan made to his agent and suing a firm on a loan represented by one partner; the respondents argued that the pleadings in this case did not adequately plead the loan to the firm as an alternative cause.
- It was contended that statutory and evidentiary requirements (including those discussed in the Privy Council decision Sadasuk Janki Das v. Kishan Pershad) require clear indication on the face of a negotiable instrument of who is to be charged; absent such indication, only the signer can be sued on the instrument itself.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Sheik Akbar v. Sheik Khan. [1881] 7 Cal. 256 | When the original cause of action is the bill or note itself and does not exist independently of it, there is no separate cause of action for money lent; the note is the only contract between the parties. | Used as authority for the proposition that if no independent cause of action exists apart from the note, only the maker can be sued on the note. The Court contrasted cases where an independent contract does exist. |
| Karmali Abdulla v. Karimji Jwanji. A.I.R 1914 P.C. 132 | Held that one partner could be held liable upon hundis drawn by another partner when the transaction for which the hundis were drawn was a partnership transaction. | Relied upon to support the view that partners may be liable where the negotiable instrument relates to a partnership transaction; used to show that where the hundis formed an item in an account between parties, partners could be held liable on the account (alternative pleading). |
| Shunmuganatha Chettiar v. Srinivasa Iyer. [1916] 40 Mad. 727 | Bench held that in a suit on a promissory note executed by two out of three partners for money advanced for purposes of the firm the third partner was also liable. | Invoked by the appellant as supportive authority; the Court noted that the case relies on Karmali and observed that some considered it goes beyond Karmali and was open to challenge. |
| Krishna Iyer v. Krishnaswami Iyer. [1900] 23 Mad. 597 | Recognized an instance (under Hindu Law, manager of a Malabar tavazhi) where the manager's note binds the family/tavazhi; an exception to the general rule that only maker is liable on the note. | Referenced as an example where an independent liability under Hindu law made others liable despite the note being signed by one person; used to show exceptions exist when an independent obligation is present. |
| Thankammal v. Kunhanna. [1919] 37 M.L.J. 369 | Another authority recognizing liability of family/tavazhi members where manager executed a note (Hindu law context). | Referred to alongside Krishna Iyer as showing recognized exceptions in Hindu law where an independent liability may bind others beyond the maker of the note. |
| Sadasuk Janki Das v. Kishan Pershad. A.I.R 1918 P.C. 146 | Held principal could not be made liable on a promissory note not signed in his name, but remarked plaintiffs could have "framed their case in an alternative form and have sued both on the hundis and alternatively upon the consideration." | Used as key authority to support the proposition that alternative pleading (suing on the instrument and alternatively on the underlying consideration/contract) was permissible and that failure to plead the alternative can be fatal to recovery against a non-signatory. |
| Darguvarapu Sarrapu v. Rampratapu. [1902] 25 Mad. 580 | Held that when a promissory note was given by one partner for the price of goods sold to the partnership, the other partners were liable. | Adduced to analogize that there is no principled distinction between money payable for the price of goods and money payable for repayment of a loan; supported the view that partners could be liable where the obligation was incurred for the partnership. |
Court's Reasoning and Analysis
The Court examined whether the plaintiff's action could proceed against partners other than the maker of the promissory notes. Two principal strands of legal reasoning guided the analysis:
- Distinction between an action founded solely on a negotiable instrument and an independent cause of action: The Court reiterated the long-standing rule (Sheik Akbar) that when the cause of action is the bill or note itself and there is no separate contract, the note alone can be sued upon and only the signatory is liable. However, the Court emphasized that this rule does not preclude an action based on an independent contract or consideration when such an independent cause exists.
- Permissibility of alternative pleading and partner liability: The Court relied heavily on the Privy Council's observation in Sadasuk Janki Das v. Kishan Pershad that plaintiffs could have framed their case alternatively — suing on the hundis and alternatively upon the consideration. Applying that approach, the Court reasoned that where the loan or transaction was in truth a partnership transaction and the plaintiff can show a contract with the partnership independent of the promissory note, all partners may be liable. The Court treated decisions such as Karmali Abdulla and Darguvarapu Sarrapu as supporting the proposition that partners can be bound when the negotiable instrument evidences a partnership obligation; it observed, however, that some decisions (e.g., Shunmuganatha) might extend beyond Karmali and be open to challenge.
Phillips, J. concluded that the Subordinate Judge was wrong to refuse the plaintiff the opportunity to adduce evidence on the independent contract: if the plaintiff can establish a contract with the partnership, the promissory notes would be merely evidence of that contract and all partners could be liable. Accordingly, Phillips, J. would allow an amendment to the plaint and remand the suit for fresh disposal after amendment.
Reilly, J. reached the same practical result but stressed the pleading point: on the promissory notes themselves liability was clearly confined to defendant 3, and the plaint as it stood did not, in his view, adequately aver an alternative cause of action against the firm. Reilly, J. reviewed the statutory and precedent material (including the requirement that the person to be charged should be clearly stated on negotiable documents) and concluded that while a lender can both sue the maker of a note and alternatively sue the principal or firm on the loan, the plaint must sufficiently plead that alternative case. Given the pleadings' deficiencies, Reilly, J. agreed the plaintiff should be given a short adjournment to amend; if amended, the decree of the Subordinate Judge would be set aside and the suit remanded for fresh disposal.
Holding and Implications
Core Ruling: The plaintiff is permitted to amend the plaint to plead, alternatively, that the loans were made to the partnership and to proceed on that independent cause of action; the suit is remanded for fresh disposal after such amendment. (Final disposition in the opinion: Suit remanded.)
Direct consequences:
- The Subordinate Judge's refusal to allow evidence or to accept an alternative pleading was set aside insofar as the plaintiff is given leave to amend.
- If the plaintiff amends to plead the alternative cause (loan to the firm), the suit will be remanded to the Subordinate Judge for fresh disposal on the amended plaint; the plaintiff may then seek a decree against all partners if he proves the loan was to the firm.
- Costs in this Court were ordered to abide the result of the suit (i.e., costs to be determined by the outcome after remand and any amendment).
Broader implications: The opinion applies established authorities to permit alternative pleading where appropriate and does not purport to establish a new rule of law beyond those authorities. The decision's immediate effect is procedural — granting leave to amend and remanding the suit for reconsideration on the amended pleadings.
Final Disposition: Suit remanded for fresh disposal after leave to amend the plaint.
Phillips, J.:— This suit is brought by the plaintiff to recover two loans given to a firm of four brothers, defendants 1 to 4. For each of the loans a promissory note was executed by defendant 3 alone which he signed in his own name and not in the name of the partnership. On the promissory notes therefore defendant 3 can alone be held liable; but it is contended for the plaintiff appellant that as the loans were given to the partnership, the other three partners will also be liable for their amount. The plaint is not worded so as to indicate clearly that the plaintiff bases his suit not only on the promissory notes but on the independent liability of the partnership, but it is I think capable of such interpretation; no question of amending it was raised in the lower Court because the Subordinate Judge held that because the promissory notes had been executed for the loans by defendant 3, it was not open to the plaintiff to base his claim on any other cause of action.
2. One of the earliest cases in which this question was considered is Sheik Akbar v. Sheik Khan . [1881] 7 Cal. 256. There it was held that, when the original cause of action is the bill or note itself, and does not exist independently of it, there is no cause of action for money lent, or otherwise than upon the note itself, for the note is the only contract between the parties. If really there is no independent cause of action, this decision that the note alone can be sued upon must be accepted and has been accepted in many cases since it was propounded. The appellant, however, relies on the case in Karmali Abdulla v. Karimji Jwanji . A.I.R 1914 P.C 132, in which the Privy Council held that one partner could he held liable upon hundis drawn by another partner when the transaction for which the hundis were drawn was a partnership transaction. In that case the suit was not based upon the hundis but upon the account between the parties, of which the hundis formed one item. In Shunmuganatha Chettiar v. Srinivasa Iyer . [1916] 40 Mad. 727 a Bench of this Court held on the strength of the above case that in a suit on a promissory note executed by two out of the three partners of a firm for money advanced for purposes of the firm the third partner was also liable. If this latter decision is correct, the plaintiff's contention that he has a cause of action against the other partners, defendants 1 and 2 and 4 must succeed. It is, however, argued for the respondent that the case in Shunmuganatha Chettiar v. Srinivasa Iyer, goes beyond the case in Karmali Abdulla v. Karimji Jivanji, and is not good law. Even in the case in Sheik Akbar v. Sheik Khan, it was recognized that, where there was a cause of action independent of the note, resort could be had to that cause of action; and in this Court it has been held that, where the note has been executed by the Manager of a Malabar tavazhi, the other members of the family or the tavazhi are liable: Krishna Iyer v. Krishnaswami Iyer . [1900] 23 Mad. 597. and Thankammal v. Kunhanna . [1919] 37 M.L.J 369. The Subordinate Judge has distinguished these cases as being cases governed by Hindu Law and has held that they are the only exceptions to the rule that the maker of a promissory note alone is liable thereon. This is quite true if there is no alternative cause of action, but in Sadasuk Janki Das v. Kishan Pershad . A.I.R 1918 P.C 146, the Privy Council while holding that the principal could not be made liable on a promissory note which was not signed in his name, remarked that the plaintiffs in that case could:
“had they thought it fit to have framed their case in an alternative form and have sued both on the hundis and alternatively upon the consideration.”
3. In that case the money was lent to the Maharaja Sir Kishan Pershad Bahadur, defendant 1, through his agent, Mohan Lal, defendant 2, and the suit was brought upon the hundi alone, and it was held that, as the alternative relief had not been put forward in Courts below, the plaintiff's suit as against defendant 1 must fail because he was not liable under the hundi itself. In the present case, if the plaintiff really entered into a contract with the partnership that is clearly a contract which is independent of the contract evidenced by the promissory notes, because in those notes the contract was one between the plaintiff and defendant 3 alone whereas the other was a contract between the plaintiff and the partnership of which defendant 3 was a member.
4. In Darguvarapu Sarrapu v. Rampratapu . [1902] 25 Mad. 580., where a promissory note was given by one partner for the price of goods sold to the partnership, it was held that the other partners were liable. In principle there would appear to be no distinction between money to be paid for the price of goods and money to be paid for repayment of a loan; if that is so, in this case the partnership would be liable to the plaintiff. There appears to me to be no reason why the liability incurred by members of a joint family under the Hindu Law in respect of a promissory note should be put upon any different footing to the liability incurred by the partners of a firm under Section 251 of the Contract Act; but the language of their Lordships in Sadasuk Janki Das v. Kishan Pershad at p. 668 (of 46 Cal.) very clearly indicates the view that no liability attaches under a promissory note unless such liability is expressly recited. Possibly, therefore, Darguvarapu Sarrapu v. Rampratapu, inquires reconsideration. However, it is, unnecessary to discuss the question now, for the cause of action may be based on the contract independent of the promissory note.
5. In that event the real question at issue is not whether the firm benefited by the transaction, but whether the firm did enter into the contract. If the plaintiff can show that there was a contract with the partnership and the promissory note was merely evidence of such contract, all the partners would appear to be liable. The principle that only the maker of the promissory note can be held liable thereunder is not applicable in a case like this where an independent contract is alleged. I think, therefore, that the Subordinate Judge ought not to have refused to allow the plaintiff to adduce evidence as to this independent contract. I would, therefore, allow plaintiff to amend his plaint and after the amendment is approved the suit will be remanded for fresh disposal in the light of the above remarks.
6. Costs in this Court will abide the result of the suit.
Reilly, J.:— The promissory notes on which the plaintiff sues in this case have not been translated; but it is admitted that there is no word in them to indicate or suggest that the plaintiff in lending the amounts mentioned in them, was dealing with any one but defendant 3, who executed the notes. Whatever may have been the relations of defendant 3 to the other defendants at the dates when he made these notes, on no fair, nor even possible, interpretation of the notes themselves could it be held that any person but defendant 3 was liable on them. Mr. Ramachandra Iyer does not suggest that an undisclosed principal can be held liable on a promissory note executed by his agent; but he contends that a person to whom no reference whatever is made in a promissory note executed by his partner may be held liable on the note. His argument is that, though under Section 27 of the Negotiable Instruments Act, an agent must act in his principal's name when making a, promissory note, if he is to bind his principal by the note, that section has no application to partners, whose liabilities for each other's acts are regulated by Section 251 of the Contract Act. I see no basis for the contention. Under Section 251 of the Contract Act, a partner can bind his copartners to the same extent as if he was their agent and no further. If such a contention as Mr. Ramachandra Iyer's was ever possible, it is not possible after the language used by the Privy Council in Sadasuk Janki Das v. Kishan Pershad:
“It is of the utmost importance that the name of a person or firm to be charged upon a negotiable document should be clearly stated on the face or on the back of the document, so that the responsibility is made plain and can be instantly recognized as the document passes-from hand to hand.”
7. There is no distinction in this respect, between what is necessary to make it clear that a firm is bound by a promissory note made by one of its partners and what is necessary to make it clear that a principal is bound by a promissory note made by his agent. I agree that on the promissory notes in this suit the plaintiff can get a decree against no one but defendant 3, and that he has got.
8. But it is further contended that the plaintiff could get a decree against all the defendants as partners on the consideration for the promissory notes, that is on the loans made to the firm represented by defendant 3 in the transactions. That is so, if it is proved that the loans were made to the firm and if the pleadings are sufficient to support such a case. I do not think it is of any profit now to discuss the old question whether, when a promissory note has been executed for a certain amount, a suit can be based on the consideration only if the consideration has been antecedent to the execution of the note or that can be done also when the consideration and the note are contemporaneous. That question appears to me to have been concluded by the case which I have already mentioned: Sadasuk Janki Das v. Kishan Pershad. In that case it is stated in the judgment of the Privy Council that.
“it would, of course, have been open to the plaintiffs, had they thought fit, to have framed their case in an alternative form and to have sued both on the hundis and alternatively upon the consideration.”
9. There the execution of the hundis and the making of the loan were contemporaneous. In this part of the case Mr. Varadachariar for defendants 1, 2 and 4 suggested in his turn that there was a distinction in this matter between suing a principal on a loan made to his agent acting within authority for him and suing a firm on a loan made to them represented by one of the partners. There again in my opinion no distinction can properly be drawn. If when an agent takes a loan for his principal but executes a promissory note for the amount which does not disclose that the borrower is his principal, the lender can sue the agent on the note and alternatively the principal, on the loan, I see no reason, why, when the loan is made to a firm but a promissory note is taken from one of the partners, which does not disclose that any one but he is liable on it, the lender should not sue the partner on the note which he has made and alternatively the firm on the loan itself. It appears to me to make no difference in this matter that the agent is a different person from his principal, while the partner is included in the persons forming his firm. But, if the firm is to be made liable in such a suit the lender must not only allege and prove that the loan was really taken for his firm by the partner who made the promissory note but must base the suit on the loan to the firm. Although we have not got the full plaint in Sadasuk Janki Das v. Kishan Pershad before us, it is instructive to notice that the report shows that in that plaint it was alleged that the money was borrowed by
“defendant 2 who executed the hundis for and on behalf of and as agent of defendant 1
(his principal); but nevertheless the plaint was confined in the opinion of their Lordships to an action brought on the hundis themselves. That shows that if the suit is to be based on the note and alternatively on the consideration, it is not enough to allege that the loan was taken for the principal or the firm. In the present case the suit is obviously upon the promissory notes. Is it also or alternatively on the consideration? In connexion with each note the plaint states that defendant 3 borrowed the amount
“for the trade carried on by the defendants as Paida & Co.
10. In para 7 it is stated that
“demand for the repayment of the principal and interest due on the two promissory notes was made by the plaintiff.”
and in para 8 it is stated that
“the cause of action for this suit arose on 11th April 1920 and 17th August 1920 the dates of the two promissory notes.”
11. With great respect it is quite impossible in my opinion to get out of those statements any averment that the loans were made to the firm of which defendant 3 was a partner or any allegation that the plaintiff has or bases his suit upon an alternative cause of action against the firm. The plaint also contains a statement that the defendants, that is the firm, repaid Rs. 100 towards the second promissory note; but repayment of part of the debt by parties not liable on the notes cannot make them liable on the notes or on the consideration. I have no wish to insist on technicalities of pleadings to the detriment of any party. But it is the duty of a plaintiff to make clear to the Court and to his opponent what his alleged cause of action is. In my opinion only by torturing the language of the plaint in this case or by an effort of the imagination can we say that the plaintiff intended to sue the defendants alternatively on the loan to the firm. Nor could we do so without implicitly criticizing the opinion expressed by the Privy Council of the plaint before them in Sadasuk Janki Das v. Kishan Pershad. I have no doubt that, when presenting his plaint, the plaintiff was under the impression that he could sue all the defendants on the promissory notes themselves, as was contended for him before us. But that was undoubtedly a mistake. On the plaint as it stands, although I do not agree with all his opinions or reasoning in my opinion the decision of the learned Subordinate Judge was right. But in the circumstances I think the plaintiff may properly be allowed an opportunity to amend his plaint. I agree that we should give him a short adjournment in which he may, if he wishes, amend his plaint so as to make it clear that he is alternatively suing all the defendants as members of a firm or loans made to that firm. If he makes the amendment, I would set aside the decree of the Subordinate Judge and remand the suit to him for fresh disposal on the amended plaint, the costs of this appeal in that event to abide and allow the result of the suit at the new trial. (After allowing the amendment, their Lordships remanded the suit for fresh disposal).
P.R.S/V.S
12. Suit remanded.
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