JUDGMENT

This was an action brought by a merchant in Cuddapah, called Venkatasubbiah Chetty, against two persons, who may for brevity be called the “Naidus”, the South’ Indian Export Company and Heinrich Brandt. The facts giving rise to the action are as follows:—

The Naidus were the owners of some mica mines in Nellore. On the 17th of February 1906, they entered into an agreement, Exhibit I, with the South Indian Export Company regarding the working of the mines and disposal of the produce. The general nature of the agreement was that the Company should receive the produce of the mines and sell it, should receive a commission on the gross amounts realized by sale and certain specified disbursements incurred in connection therewith. They were further to give the owners a standing advance of Rs. 55,000, and were to receive on that sum and on any further sums they might advance, interests at 6 per cent. (cl. 5). It was provided by cl. 11 that the Company should first pay the commission, interests and disbursements due to themselves out of the realized proceeds of the mica sales, then pay various creditors of the Naidus in certain proportions and hand the balance, if any, to the Naidus. Cl. 12 provided that the Company should, subject to cl. 11, have a lien on all cash and mica in their hands as security for the repayment of all sums which might fall due under the agreement. The agreement was to continue to be in force for five years from 1st of March 1906, and all moneys due to the Company, including the standing advance of Rs. 55,000, were to be paid off and discharged not later than two months before the expiration of the agreement, i.e, by the 1st of January 1911.

The agreement duly came into force, and under it quantities of mica were sold and payments made by the Company to the various creditors of the Naidus including the plaintiff. Meanwhile the Naidus were being pressed by the plaintiff for further security and a further share of the proceeds of the mines. He had apparently obtained decrees against them to an amount exceeding a lakh of rupees. In these circumstances the Naidus entered into an arrangement with the plaintiff, which is set out in a letter, dated the 20th of November 1908 (Exhibit E). The material part of that letter is as follows:—

“We undertake that all the mica produced in our mines at Kalichedu and “Tellabodu will be delivered only through the South Indian Export Company; “and that the net sale proceeds after deducting their commission will be paid to “you only by the said Company. In confirmation of this our undertaking, we “have this day caused the Manager, South Indian Export Company, to give you “an undertaking that the sale proceeds will be paid to you by him as aforesaid. “We hereby agree and give you a Hen on the mica now in our hands and future “mica from the above said mines till the above said amounts are fully repaid.”

On the same date the Naidus wrote to the South Indian Export Company a letter (Exhibit A1) which contains the following passage:

“We request you to give an undertaking to Venkata Subbiah Chetty that “you will pay him from time to time the net sale proceeds, after educting your “commission of all the mica produced in our mines at Kalichedu and Tellabodu “that we shall deliver through you as per agreement between ourselves.”

On the following day the 21st of November, the South Indian Export Company wrote to the plaintiff a letter (Exhibit A) in these terms:

“We have received a letter from Messrs. Subba Naidu and Kondappa Naidu, “dated the 20th November, copy of which we enclose for your information. The “contents of this letter have been duly noted by us and the instructions given “therein will be carried out as occasion arises.”

Enclosed with this letter was a copy of the Naidu's letter of the 20th November to the Company (Exhibit A1) and both documents were headed “without prejudice.”

It will be observed that, whereas the agreement of the 17th February 1906 enabled the Company to deduct their commission, disbursements, and interest in the first instance out of the sale proceeds of the mica, Exhibit A1 is a direction to the Company to pay the net sale proceeds after deducting commission only, without any mention of disbursements or interest. It seems quite clear in the light of what happened subsequently that ‘commission’ was in fact used as a compendious term to include interest and disbursements as well, and that neither the Company nor the Naidus, who were parties to the agreement of February 1906, nor the plaintiff who was also acquainted with it, noticed the variation in phraseology. It has been suggested in this Court that we ought to suppose that the parties deliberately and with intention altered the rights of the Compnny under the agreement of February 1906, by this correspondence, and that we may assume that some forbearance on the part of the plaintiff in pursuing his remedies against the Naidus was the inducement offered to the Company for giving up their right of priority in payment of interest and disbursements. There is no trace of anything of the sort in any of the documents, and no evidence to that effect was sought to be given at the trial. Mr. Simson, the managing director of the Company was examined as a witness, and even although it was not directly in issue, it is almost impossible to believe that he would not have been asked some question about it if any such tripartite arrangement had taken place. In accordance with the instructions contained in the letter of the 20th November 1908 (Exhibit A1), the Company proceeded to remit the balance of the proceeds of the Kalichedu and Tellabodu mica to the plaintiff. It is not in evidence what deductions they made from it in respect of their own charges. But again it is difficult to believe that, if they had in fact discontinued the deduction of interest and disbursements, that tact would not have been brought out at the trial. Their interpretation of what their rights were, would not of course determine them; but it is an element in the history of the case. While we are on this point we may say that we do not share the doubt expressed by one of the learned Judges who heard the first appeal as to our power to look to surrounding circumstances in deciding what the intention of the parties was [See River Wear Commissioners v. Adamson]

All went well until June 1909 when the Company received instructions from the Naidus to deliver the proceeds of certain cases of mica to one Ramachandra Chetty. They at once by a letter of the 24th of June (vide Exhibit B) notified the plaintiff of these instructions; and on the 26th of June Mr. Ramachandra Raju, the plaintiff's then vakil, answered by a letter (Exhibit F) of that date protesting against the proposed delivery to Ramachandra Chetty, informing the Company that the proposal was an unlawful one and demanding delivery of the sale proceeds to the plaintiff. The company, thereupon, communicated with the Naidus, who informed them (vide Exhibit H] (1) that the 37 cases of mica did not come from Kalichedu or Tellabodu; and (2) that the plaintiff had broken his contract with the Naidus and consequently absolved them from the further carrying out of the arrangement of 1908. In fact both these statements proved to be untrue, though doubtless the Company had not then the means of knowing their falsity. At any rate, on the 16th of July, by a letter of that date (Exhibit J), the Company informed the plaintiff that they had been instructed that the mica did not come from Kalichedu or Tellabodu, and that they were, therefore, about to deliver to Ramachandra Chetty. This brought the matter to a head, and, after some further correspondence, the plaintiff instituted this suit, joining as defendants the two Naidus and the South Indian Export Company as the 3rd defendant. The plaintiff in his plaint set out the effect of the correspondence of November 1908, claimed specific performance ‘of the contract evidenced by’ that correspondence, and payment to him of the net sale proceeds of the 36 cases of mica. The company then applied to the Court to have Heinrich Brandt, the 4th defendant, added to the suit on the ground that he, as a secured creditor of the Naidus, had claims against the proceeds of the mica, which might conflict with the claims of the plaintiff. They also filed a written statement in which they set out the provisions of the agreement of February 1906, and asserted their claim to deduct interest, commission and disbursements under that agreement and disclaimed any interest in the balance, asking only to be protected against the rival claims of the plaintiff and the Naidus and the 4th defendant (vide paragraphs 11.13 and 16). Subsequently the claim of the 4th defendant was in some manner satisfied and withdrawn; and an application was made to Bakewell, J., by the defendant Company to amend their written statement. Leave was given and certain amendments were made. It was strenuously argued by Mr. Ranga Chariar on behalf of the plaintiff that this leave ought never to have been given and that the amendments should be disregarded, on the ground that until the amendments were made the defendant company had only taken up the position of stake holders, and that on the withdrawal of the 4th defendant from the suit, they ceased, on their own showing, to have any defence and that they ought not, after the action had been pending for a considerable time, to be allowed for the first time to resist the plaintiff's claim on any other ground than the presence of rival claimants. If it were the fact that the defendant company had conceded the plaintiff's claim as now formulated, except as subject to the claims of the 4th defendant, this contention would have great force. But it is not the fact that the defendant company ever submitted to the claim ultimately made by the plaintiff in this action. The claim made in the plaint appears on examination to be one thing, the submission in the defence another, the claim being for the net proceeds less commission only, the submission being to pay the net proceeds less not only commission but interest and disbursements as well. We very much doubt whether the parties or their pleaders had at this time realized this discrepancy, or whether any question as to the nature or extent of the deductions was present to the mind of the plaintiff at the time that the suit was filed. But whether the parties had realized it or not, there it was on the pleadings and it is not correct to say that the amendment allowed enabled ‘the defendant company to resist the claim finally made that they were not entitled to deduct disbursements and interest. What the amendment did effect was to enable the company to claim for the first time an alleged lien on the mica and its proceeds by reason of the termination, reached during the pendency of the suit, of the agreement of February 1906. All sums repayable under that agreement had fallen due on the 1st of January 1911, including the standing advance of Rs. 55,000; and if their lien was valid, the debt in respect of which it was exercised would be increased by at least Rs. 55,000 as from that date. This was a claim, good or bad, which the company could not have made in their original written statement, and it cannot be seriously pressed that we ought to interfere with the discretion of the learned Judge allowing the amendment which raised it.

A long discussion took place in the argument before us as to whether the present action was maintainable at all. Mr. Chamier contended on behalf of the defendant Company that there was no contract between the defendant Company and the plaintiff and, assuming that to be established, there was no contract between the Naidus and the defendant Company on which the plaintiff could sue. Mr. Ranga Ghariar for the plaintiff, while resisting those propositions, further contended that the point was not open to the defendant Company, as it was not raised in the pleadings and that the first additional issue settled by Sankaran Nair, J., after the 3rd defendant had amended his written statement implied the existence of a valid contract between the plaintiff and the defendant Company. It is no doubt a strong thing to allow the defendant to take a point which does not appear in the pleadings and the issues, and both the trial Judge, Wallis, J., and the Bench before whom this appeal was originally heard refused to allow them to do so. This, however, is a very exceptional case, because, in our opinion, it is reasonably-clear that, at the time of the drafting of the pleadings, and the first settlement of issues, certainly the defendant Company and probably the plaintiff, and their respective advisers, had not grasped the extent of the plaintiff's ultimate claim. However, in the view we take of this case, it is not necessary to decide the point whether it is open to the defendant Company or not, or whether either of the alleged contracts were made. There was—and this is not disputed —at any rate a valid assignment in favour of the plaintiff, and the real question is, what, on the true construction of the documents, was it, that passed by the assignment?

It seems to be clear law that where there is an assignment of moneys in the hands of a debtor and the debtor communicates to the assignee his assent to deliver the moneys in accordance with the terms of the assignment, he cannot afterwards assert, as against the assignee, any claim or charge in his own right, of which he has given the assignee no notice. It is not quite clear from the authorities whether this obligation is based upon contract, estoppel or waiver, but the existence of the obligation is clearly recognised in the English authorities both before and after the Judicature Act. See Walker v. Rostron, and Griffin v. Weatherhy. These cases are not altogether easy to reconcile with Liversidge v. Broadbent, But the decision in Macfarlane v. Lister, seems quite unequivocal.

It seems reasonably clear that the simple word ‘commission’, used in Exhibit A1, to describe deductions to be made by the defendant Company, was used per incuriam; and that there was no intention to cut down the defendant Company's rights under the agreement of February, 1906. Moreover, as has been pointed out, it was not until the action was well started that the discrepancy between the language of the assignment and the agreement was discovered. Similar inaccuracies occur elsewhere in the correspondence. For instance, in Exhibits B, D, F and G, “the proceeds of the mica” is used where what was meant was ‘the net proceeds after deduction, (even on the plaintiff's own showing) of the commission fees.’ However clear the intention of the parties may be, they are bound by the words they have used, and it is impossible to say that commission means commission plus something else. If, therefore, there were nothing to qualify or amplify the word’ commission’ in Exhibit A1, or in the defendant Company's adoption of it in Exhibit A, we should be constrained to hold that the defendant Company had given away their right to interest and disbursements. It is to be observed that by Sect. 132, of the Transfer of Property Act the assignee prima facie takes subject to all existing equities. It is the duty of the assignee to ascertain the extent of the existing equities [Vide Mangles v. Dixon] and where there is an existing right, the onus will be upon the assignee to show affirmatively that the assignment to him was free of it. We have come to the conclusion that Exhibits A and A1, when carefully examined, do not amount to an assignment free from the claims of the defendant Company to interest and disbursements. In the first place Exhibit A1 speaks of the mica as being “delivered as per agreement between ourselves.” That clearly informed the plaintiff that mica was being delivered in accordance with a contract subsisting between the Naidus and the defendant Company. It is in evidence, that the plaintiff was cognizant of the terms of that contract under which indeed he took a direct benefit. (See clause 11—II). It must, we think be taken that this brought to his acknowledge the fact that there was an agreement under which the defendant Company had a right to deduct interest and disbursements as well as commission. The business purpose of Exhibit A was to inform the plaintiff that in future the proceeds of the Kalichedu and Tellabodu mines would go to him in their entirety after they left the defendant Company's hands and not to the Naidus, and further would not be depleted by prior payments to other creditors of the Naidus. Still, again, though that may have been the business object of the latter, if it reallly purported to cut down the Company's rights, the plaintiff is entitled to take advantage of that.

Finally, both to Exhibit A and Exhibit A1 the Company prefixed the words “without prejudice.” When used in connection with actual or impending litigation, these words have a well-known meaning which is quite inapplicable to their use in these documents. On the other hand it is a strong thing to treat them, as the plaintiff desires us to treat them, as unmeaning and of no effect. The writer undoubtedly meant something by the phrase, and if what he meant could or ought to have been understood by the recipient, we must give effect to it. We know what the writer meant, because he said what he meant in the witness box. The question was probably inadmissible, but it was put and answered without objection. He said that he meant ‘without prejudice to the Company's rights under the agreement of 1906.’ The question is, did the plaintiff know, or ought he to have known whal Mr. Simson meant? We think that the proper inference is he ought and did. He had in Exhibit A1 a clear reference to the agreement of 1906 of whose terms he was cognizant before. And after all this interpretation seems to us to be in accordance with the ordinary and natural meaning of the words. It is quite true that when a man makes an offer “without prejudice” the effect is to prohibit the reading of the letter if the offer is not accepted. But the actual meaning of the words in such a case is this: “I am making an offer which I do not admit I am bound to make; and I make it without prejudice to my existing legal rights.” In other words “you shall not use this letter as an admission that I owe what I offer.” So here we think that “without prejudice” meant ‘without prejudice to the Company's existing legal rights,’ that is, to their rights under the agreement of 1906, to which express reference was made in Exhibit A1. There is in fact no offer, only a notice that they were aware of a certain assignment, and an assurance that the instructions would be given effect to without prejudice to their own rights, and without binding themselves to any course in future. That is in our view the effect of the letter.

This disposes of the main point in the appeal; for Mr. Rangachariar concedes that, if the defendant Company's claim to deduct interest and disbursements is good, no enquiry is necessary to ascertain whether the proceeds of the 36 cases of mica will be exhausted thereby. But the further question was decided by the learned trial judge, and is before us, as to whether, as after 1st January 1911, the defendant Company were entitled to exercise a lien on the goods for their advances which then became repayable, as well as for interest and disbursements. As we have held that the plaintiff took subject to the defendant Company's rights under the agreement of 1906, it follows that he took subject to any lien created by that agreement; and reliance is placed on clause 12 as creating such a lien. Mr. Ranga Chariar in effect argues that no lien at all was created by that instrument. He says that the lien created by that clause was in terms subject to cl. 11, and cl. 11 obliged the defendant company to pay all current belance after satisfying certain claims to the owners, the Naidus. A Court will not readily adopt a construction that reduces one important clause of an agreement to a nullity; and where a man professes by his contract to give a lien to another, any reasonable construction will be adopted to give effect to it: ut res magis valeat quam pereat. A perfectly natural construction gives effect to both clauses; viz., that the operation of the lien is subject to the discharge of all payments guaranteed to be made except those to the Naidus themselves; and that their right to receive the balance depended on there being no further increase under cl. 5 of the standing loan of Rs. 55,000, We are, therefore, of opinion that the lien created by the agreement of February 1906, was valid and could be exercised in respect of the capital sums falling due from the Naidus to the Company. The right to enforce it against the proceeds of any particular consignment might conceivably depend upon the facts as to that consignment; and the only consignment in question in these proceedings is that of the 36 cases of mica already referred to, with regard to which the question need not be considered on Mr. Rangachariar's admission. We understand that subsequent consignments with regard to which the question of the general lien will be important are the subject of another pending action. We, therefore, desire to guard ourselves against prejudging in any way the results of those proceedings.

One other contention requires to be noticed. Mr. Ranga chariar contended that the lien which the Naidus purported to give the plaintiff by the concluding words of Exhibit E was of such a nature that, as soon as they extracted any mica from the designated mines and put it in a deliverable condition, there was a specific appropriation of such mica to the purposes of the lien passing a special property in it to the plaintiff. In support of this contention he cited Venkataratnam v. Ramanna. It is more than doubtful whether in face of cl. 12 of the agreement of February 1906 the lien purported to be given to the plaintiff was one which the Naidus could validly give. But be that as it may, it could obviously give no property in the mica as the arrangement never contemplated that the mica should ever be handled by the plaintiff at any stage after it left the mine in a merchantable condition; it was to be consigned for sale not to him, but to the defendant Company; and even if the lien is to be treated as an assignment, the assignment to him was not of the proceeds in his own hands but in the hands of the defendant Company. In these circumstances it is impossible to hold that there was at any time any appropriation of the mica to him.

The appeal fails and is dismissed with costs. Certified for two Counsel.

Appeal dismissed.