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Ranganath v. Pachusao
Factual and Procedural Background
On 22nd June 1930, the plaintiffs sold two fields (Malik Makbuza fields) to the defendant for Rs. 1,200. The payment was to be made by the defendant directly to two creditors of the plaintiffs: Rs. 500 to Budhmal and Rs. 700 to Ganeshdas. No time limit was fixed for the defendant's payment obligation. The defendant paid Budhmal but failed to pay Ganeshdas despite demands. The plaintiffs acknowledged a debt to Ganeshdas for Rs. 700 plus interest at Re. 1% per month compounded. Subsequently, the plaintiffs filed suit to recover Rs. 700 and Rs. 285 interest from the defendant for the period 22nd June 1930 to 22nd June 1933. The defendant objected, claiming the suit was premature. Both lower courts rejected this objection and remanded the case for trial. The defendant appealed against the remand order.
Legal Issues Presented
- Whether the plaintiffs had a cause of action to sue the defendant for Rs. 700 and interest before making actual payment to Ganeshdas or before Ganeshdas obtained a decree against the plaintiffs.
- Whether the defendant's promise to pay the plaintiffs' creditor constituted a contract of indemnity under Section 124 of the Contract Act, and when the cause of action arises under such a contract.
- Whether the suit filed by the plaintiffs was premature and untenable.
Arguments of the Parties
Defendant's Arguments
- The suit was premature because the plaintiffs had only acknowledged the debt to Ganeshdas and had not made actual payment.
- An acknowledgment of debt does not trigger the defendant's liability under the sale deed.
Plaintiffs' Arguments
- The suit to recover the unpaid balance of purchase money was not premature.
- The cause of action arose on the date of the sale deed execution (22nd June 1930).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| 1919 Nag. 126 | Definition and application of contract of indemnity under Section 124 of the Contract Act; indemnifier liable only after indemnified incurs actual loss. | The court held that the defendant’s promise was a contract of indemnity and liability arises only after actual loss by payment or equivalent transfer. |
| 1926 Nag. 429 | Cause of action arises after creditor sues vendor and vendor executes a new mortgage; not on date of sale deed. | The court applied this principle to reject the plaintiffs’ claim that cause of action arose on sale date. |
| 1933 Nag. 379 | When vendee agrees to pay vendor’s creditor without fixed payment date, cause of action arises on actual recovery from vendor. | Affirmed that cause of action does not arise on sale date but on actual payment/recovery. |
| 1930 Pat. 46 | Plaintiff can sue to recover amount defendant agreed to pay third parties; cause of action arises on repudiation or impossibility of performance due to satisfaction of debt. | Distinguished on facts: payment in that case was actual, while here only acknowledgment was made, so no cause of action yet. |
Court's Reasoning and Analysis
The court analyzed the defendant’s promise to pay Ganeshdas as a contract of indemnity under Section 124 of the Contract Act, meaning the defendant’s liability arises only after the plaintiffs incur actual loss through payment or equivalent transfer. Mere acknowledgment of debt by the plaintiffs to Ganeshdas did not constitute actual loss. The court relied on precedents establishing that when no payment date is fixed, the cause of action arises only when the creditor is paid or obtains a decree against the plaintiffs. The Patna High Court decision was distinguished on the ground that actual payment had been made in that case, unlike here. Therefore, the plaintiffs’ suit was premature as they had not made actual payment nor had Ganeshdas obtained a decree against them. Consequently, the court allowed the appeal, set aside the remand order, and dismissed the suit with costs.
Holding and Implications
Appeal allowed.
The court held that the plaintiffs’ suit was premature and untenable because the defendant’s liability under the contract of indemnity arises only after the plaintiffs make actual payment to Ganeshdas or Ganeshdas obtains a decree against them. The suit was dismissed with costs and the remand order was set aside. This decision directly affects the parties by denying recovery at this stage but does not establish any new precedent beyond affirming existing principles regarding contracts of indemnity and the timing of cause of action.
1. The facts giving rise to this appeal are shortly these. On 22nd June 1930 the plaintiffs had sold their two malik Makbuza fields to the defendant for a consideration of Ra. 1,200. Under the terms of the sale the consideration of Rs. 1,200 was to be paid by the defendant to two creditors of the plaintiffs, viz. Rs. 500 to Budhmal and Rs. 700 to Ganeshdas. No time limit was however fixed for the discharge of this liability incurred by the defendant for payment to the plaintiffs' creditors. The defendant paid to Budhmal the debt due to him from the plaintiffs but did not pay anything to Ganeshdas in spite of the demand on the part of the plaintiffs to do so. Ultimately the plaintiffs passed an acknowledgment in favour of Ganeshdas agreeing to pay Rs. 700 and interest thereon at Re. 1 per cent per mensem compound rate due to him from them. Thereafter the plaintiffs instituted the suit, out of which this appeal arises, to recover from the defendant Rs. 700 which he failed to pay to Ganeshdas and Rs. 285 interest on the above from 22nd June 1930 to 22nd June 1933 (the date of suit) at Re. 1 per cent per mensem compound. In para. 2 of the plaint it was alleged that the cause of action for the suit arose on or about 22nd June 1930, which is admittedly the date on which the sale deed of their two fields was executed by the plaintiffs in favour of the defendant.
2. The defendant raised a preliminary objection that, the suit was premature as a mere acknowledgment of the debt due to Ganeshdas by the plaintiffs was not a payment of the debt giving rise to any cause of action to recover the amount from the defendant under the terms of the sale deed.
3. Both the Courts below concurred in holding that the suit being merely to recover the amount of the balance of the purchase money was not premature and therefore not untenable. The lower appellate Court accordingly took further pleadings of the parties and remanded the case for further frial.
4. It is against this remand order that the defendant has filed the present appeal and I have no doubt that it must succeed. The agreement by the defendant, as contained in the sale deed, to pay to Ganeshdas Rs. 700, which the plaintiffs owed to him, was clearly a contract of indemnity as defined in Section 124 of the Contract Act. It follows therefore that the indemnifier could not be called on to make good his promise Until the indemnified had incurred actual loss. The loss could however be incurred by making payment of the debt which the indemnifier undertook to pay, or by a transfer of property which is taken as an equivalent of money and not merely by incurring of pecuniary obligation in the shape of a bond, promissory note or acknowledgment of liability. This principle was applied by this Court in the decision of 1919 Nag. 126(1).
5. In 1926 Nag. 429(2) it was held that the cause of action to recover money from the defendant vendee, which he had undertaken to pay to the plaintiffs' creditor, arose after the creditor had sued the plaintiff and the latter had executed in favour of the creditor a new mortgage. The plaintiffs in the present case could not base their cause of action on the date when they executed the sale deed in favour of the defendant. The same principle was affirmed by a Bench of this Court in 1933 Nag. 379(3) where it is laid down that when a vendee agrees to pay the consideration of the sale to the vendor's creditor and no data is fixed for the payment, the cause of action for the breach of this covenant arises not on the date of the sale but on the date when the money was actually recovered from the vendor.
6. Undoubtedly the Patna High Court in 1930 Pat. 46(4) takes the view that a plaintiff is entitled to sue and recover the amount which the defendant had agreed to pay to third parties and that he is not bound to show that he was in any way damnified by the failure of the defendant to pay the sums left with him upon a sale, but also holds that the cause of action for the recovery of the amount would arise on a date when either there was a repudiation of the liability under the contract of sale or when the contract had become impossible of performance on account of the vendor's debt having been satisfied. Aa a matter of fact the vendor's debt in the case before the Patna High Court was satisfied by actual payment and not by a mere renewal by way of acknowledgment as was done in the present case. The payment of the debt must therefore be taken to have damnified the plaintiff in the Patna case or rendered the contract of indemnity impossible of performance.
7. For the reasons given above I hold that the plaintiffs' present suit is premature and untenable. They would undoubtedly have a cause of action against the defendant, on the contract of indemnity contained in the sale deed only when they make an actual payment to Ganeshdas of the amount which was due to him at the date of the sale and which the defendant had undertaken to pay or when Ganeshdas sues the plaintiffs and obtains a decree against them for it. The result is that I accept this appeal, set aside the order of remand and dismiss the plaintiffs' suit as premature with costs in all the three Courts. As the case was decided on a preliminary point only ¼th pleader's fee will be allowed.
8. Appeal accepted.
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