A. RASU CHETTIAR et al , Appellant, and S. PONWANDU, Respondent

066-NLR-NLR-V-57-A.-RASU-CHETTIAR-et-al-Appellant-and-S.-PONWANDU-Respondent.pdf

1955Present : Gratiaen, J., and Swan, J.A. RASU CHETTIAR et al., Appellants, and S. PGNWANDU.Respondent
S. C. 335—D. C. 2?meant Eliya, 3,427
“ Account stated ”—Money Lending Ordinance (Cap. 07)—Sections 2, 3, S, 10—Promissory note given partly as security for a renewed loan and partly forrepayment, of money due on a non-loan transaction—“ Capital sum actunlh/borrowed ”—“ Inadvertence ”—“ Pegular account of each loan ".
Plaintiffs were professional money-lenders anil general merchants. Thedefendant carried on a business of iiis own, mul borrowed monej’ from time totiino from tho plnintiffs on the security of promissory notes. In addition,ho purchased textiles from them, lie in turn would deposit monies withthem mul transport their rico in lorries for hire. Details of all these trans-actions were faithfully recorded in boolcs of account maintained by the plaintiffs.On 13th January, 1052, tho plaintiffs and tho defendant met for tho expresspurpose of looking into the accounts. They mutually agreed ns to thecorrectness of tho cross items of account appearing in tho plaintiffs’ books ofaccount anil, after treating the items so agreed on one sido as discharging thoitems on tho other side, went on to ngreo that tho balaneo only was payable.Four earlier promissory notes given by tho defendant as security for loansfor sums totalling Rs. 5,000 were discharged and returned to tho defendantwho in oxchango granted in favour of tho plaintiffs a fresh promissory notefor Rs. 7,000 representing the total amount of his agreed liability after deductinghis claims for lorry hire and sums deposited on general account as well ashis various payments in settlement or redact ion of liability on contracts of loan.
The present action was instituted by the plaintiffs for 1 be recovery of Its. 7,000and interest due upon tho promissory note dated 13th January 1052. It wascontended on behalf of tho defendant that the action was not maintainableon the ground of non-complinnco with tho requirements of sections 10 and Sof the Money Lending Ordinance. Tho defendant also asked that the trans-actions between himself and the plaintiffs bo reopened, and an account taken,under section 2. It was submitted that inasmuch as tho promissory note wasgiven partly to secure four “ renewed ” loans amounting to Rs. 5,000 it couldnot bo onforced unless there was entered on the face oT the document a statementns to “ tho capital sum actually borrowed ” umlcr tho loan transaction ; inother words, the promissory noto for Rs. 7,000 ought clearly to have indicatedthat it was partly given to secure four renewed ” loans amounting to Rs. 5,000.
Held, that what took placo between the plaintiffs and the defendant on13th January 1052, immediately beforo (he promissory noto for Its. 7,000 wassigned, represented an “account stated” (as opposed to "a mere acknowledg-ment of a debtTherefore, tho promissory note was not given, cither
wholly or in part, “ as security for n loan ” within tho meaning of section 10of the 2Coney Lending Ordinance. Rut, although the earlier debts were ex-tinguished by reason of “ the account stated ", the statutory right to havo tholoan transactions reopened under section 2 of the Money Lending Ordinancewas kept alive for six years commencing from 13th January 1052.
Held further, (i) that, assuming that tho transaction of 13th January 1052could not bo regarded in law ns an “ account staled ” ami that the pronvssorynoto for Rs. 7,000 contravened the requirements of section 10 of tho MoneyLending Ordinance, the omission lo insert tho capital smn borrowed in regardto tho renewed loans amounting to Rs. 5,000 was dud to inadvertence withintho meaning of section 10 of the Money Lending Ordinance. “ Inadvertence ”is wide enough to cover errors of non-compliance made in good faith througha mistaken interpretation of the law.
(ii) tlmt n money lemlcr who enters in his books loan transactions ns wellns non-loan transactions in such n manner that the transactions nro separablefrom one another keeps ** a regular account of each loan ’* within llio meaningof section S of tlio Money bending Ordinance.
PPEAL from a judgment of (he District Court, Nuwara Eliya.'
II. V. Perera, Q.C., with .V. Kumarasingham and P. Xagulcsicaram,for the plaintiffs-appellants.
S. Nadesan, Q.C., with T. K. Curtis and Frederick ll Obeyesekere,for the defendant-respondent.
Cur. adv. vult.
November 10, 1955. Gratiakn, J.—
The plaintiffs, who carry on business in partnership at Udapussellawa,sued the defendant in tin's action for the recovery of Rs. 7,000 and interestupon his promissory note dated 13th January 1952 in' their favour.The defendant, having disputed liability on the merits, pleaded that inany event the action was not maintainable for non-compliance (so healleged) with the requirements of sections S and 10 of the Money LendingOrdinance. He also asked that the transactions between himself andthe plaintiffs be reopened, and an account taken, under section 2.
The learned District Judge rejected as entirely false the defendant’sversion of the circumstances in which the promissory note was granted.He accejJted the evidence of the 1st plaintiff and of his witnessNagaratnam Pillai but decided, with regret, that the action must bedismissed because in his opinion (1) the plaintiffs had not kept “ a regularaccount of the loan ” as required by section S of the Ordinance and (2)the note sued on did not comply with the provisions of section 10.
The plaintiffs are professional money-lenders and general merchants.The defendant carried on a business of his own, and borrowed moneyfrom time to time from the plaintiffs on the security of promissory notes.In addition, he purchased textiles either from their shop or from anestablislunent owned by them called ” Kathiresan Cash Stores”. Hein turn would deposit monies with them and transport their rice in lorriesfor hire. Details of all these transactions were faithfully recorded inbooks of account maintained by the plaintiffs.
The evidence which the learned Judge has accepted proves that the1st plaintiff (on behalf of his firm) and the defendant met on . 13thJanuary 1952 . for the express purpose of looking into accounts. .Nagaratnam Pillai who was present at the time states that " the interestand other particulars were looked into ”, and in due course the defendantsigned a document P2 incorporating an agreed statement as to howtheir accounts stood at that date. According to P2, the defendantowed the plaintiffs (1) Rs. 5,000 being .the aggregate principal amountof four earlier 'promissory notes which he had given them as security
for loans, (2) Rs. Gil -4.0 on another current account and (3) Rs. 1,100-93due to the “ Kathiresan Casli Stores ” owned by the plaintiffs. These,figures represent the balances struck and mutually agreed upon in respectof the cross items appearing in the plaintiff's books of account markedP3, P4, and P5 respectively. The document P2 also contains a recordof the fact that on the date on which these various accounts were lookedinto a further sum of Rs. 194-17 was advanced to the defendant whoseagreed liability thus amounted to Rs. G,912*50. On this basis, theearlier promissory notes for sums totalling Rs. 5,000 were discharged andreturned to the defendant who in exchange granted in favour of theplaintiffs a fresh promissory note for Rs. 7,000 representing the totalamount of his agreed liability (together with Rs. S7-50 which wasadmittedly retained by the plaintiffs as interest in advance for 30 daysat 15% interest). This is the promissory note PI sued on in the presentaction. It was attested by the witness Nagaratnam Pillai after thedefendant had confirmed in his presence that “ the amount was correctAlthough the learned Judge accepted this version of the circumstancesin which the promissory note Pi was signed, he rejected the argumentthat it represented security for the amount of the defendant’s liabilityto the plaintiffs upon an “ account stated ”. He decided that, on thecontrary, the note was given partly as security for the “renewal ofloans ” within the meaning of the section 10 (6) of the Money LendingOrdinance. The basis of this decision was that, as Rose C.J. held inRodger v. de Silva 1, there had been “ no more than a looking into theaccounts-between the parties and not an account stated in the technicalsense of the term. ”
With great respect, I think that what took place between the 1st plaintiffand the defendant on 13th January 1952 immediately before the pro–missory note PI was signed represented a very clear example of an“ account stated ” (as opposed to “ a mere acknowledgment of a debt ”).The true distinction was explained by Lord Atkin in Siquera v. Koronhaand was clarified by Lord Wright in I'irm Bush CJwnd v. Seth Girdhanet al. 3:
■' The essence of an account stated is not the chamcler of the itemson one side or the other, but the fact that- there are cross items of' account and that the parties mutually agree the several amounts ofeach and, by treating the items so agreed on one side as dischargingthe items on the other side pro tanto, go on to agree that the balanceonly is payable : such a transaction is in truth, bilateral, and createsa ncic debt and a neic cause of action. ’’
This authoritative decision of the Judicial Committee has finally disposedof the earlier theory that an “ account stated ” can arise only in trails-actions where there have been either “ cross items of claim ” as opposedto mere “ cross items of debit and credit. ” Annnmalai Chilli/ v. Thorn-hill J. As it happens, the relevant pages in the Account Rook P2 containitems of both kinds, for instance, the defendant’s claims for lorry hire
(1952) 51 X. 11. 210.3 (1951) 50 T. L. It. 105.
— (1931) A . C. 552.J (1935) 50 X. Ts. Tt. 55S.
and sums deposited on general account as veil as his various paymentsin settlement or reduction of liability on contracts of loan. In respectof all these transactions, a balance vas struck and an account stated,so that the earlier items of credit and debit vere pro tanlo extinguishedand the balance only vas mutually agreed to be due by the defendant.Moreover, the final entries in P2, P3, P4, and P5 make it clear that thisvas in fact the intention of the parties : the defendant’s liability undereach head of account vas recorded as settled in full, and his earlier pro-missory notes given “ as security for loans ” vere cancelled and returnedto him. The promissory note for Rs. 7,000 vhich is the subject mattervas therefore given as security for the “ nev debt ” created in the placeof the earlier liabilities vhich had been extinguished.
It follows from this analysis of what took place that the promissorynote PI vas not given, either wholly or in part, “ as security for a loan ”within the meaning of section 10 of the Money Lending Ordinance. Thecircumstance that the amount of the new debt happened to include asum equivalent to the principal amounts due under earlier money lendingtransactions does not alter the substance of the later transaction. PerSoertsz J., in 3Iarikkar v. Supramaniam Chetly 1. This does, not mean,however, that the defendant thereby lost the remedy vhich vas pre-viously open to him under section 2 of the Money Lending Ordinanceif (for instance) he could prove that the earlier loan transactions hadbeen “ harsh and unconscionable ", or induced by undue influence.Although the earlier debts were extinguished by reason of “ the accountstated ”, the statutory right to have the loan transactions reopened waskept alive for six years commencing from 13th January 1952 (videsection 3). But the learned Judge has correctly decided upon the meritsthat there were no grounds up on which this remedy could be established.
But let it be supposed that no account was “ stated ” (in the strictsense of the term) on 13th January 1952, and that the promissory notesued on was in truth given partly as security for the original loans aggre-gating Rs. 5,000, and partly for the repayment of sums due on “ non-loan ” transactions. Does it follow that section 10 of the Money LendingOrdinance applies to the case ?
Section 10 (1) refers to promissory notes given as security for “theloan of monej- ”, and section 10 (G) makes these provisions equally appli-cable to “ renewals of any loan ”. It is clear enough that the singularincludes the plural in this context, so that the section also applies to' anote given as security for more than one loan, or for the renewal of morethan one loan. But the real difficulty arises when a note is given notmerely as security for a loan but also for the repayment of money dueon some other genuine (as opposed to merely colourable) non-loan trans-action. Mr. iNadesan argued that a comprehensive note given in such-a .situation cannot be enforced unless there is entered on the. face of thedocument a statement as to “ the capital sum actually borrowed ” underthe. loan transaction.; in other words, the promissory note for Rs. 7,000ought clearly to have indicated that it was partly given to secure four“ renewed ” loans'amounting to Rs. 5,000.
(1043) 44 A*. L. n. 400 at 430.
. Our combined researches have failed to bring to light any earlier decisionof this .Cotirt. in which this special problem lias been discussed. Theissue might well have arisen in Rodger v. de Silva (supra) where a pro-missory note for Rs. 13,062-50 had been given partly to secure the plain-tiff’s loans to the defendant and partly to secure a sum of Its 5,002-50due to the plaintiff as commission on other loan transactions negotiatedby him for the defendant's benefit. But the Court decided that, on thefacts of that particular case, “ all the transactions were pure and simpleloan transactions between the parties For this reason, and becausethere was no “ account stated ”, section 10 was held to apply.
X am not at all convinced that the draftsman of the Ordinance hadin contemplation transactions other than what Rose C.J. described aspure and simple loan transactions ”. liven section 2 (4) makes it clearthat a Court’s jurisdiction to reopen a money lending transaction wasextended to “ any transaction, which, whatever its form may be, issubstantially one of money lending. ” Tin's provision protects a borrowerwho has in truth borrowed money upon a colourable transaction whichwas designedly clothed in the disguise of a non-loan transaction. Butflic Ordinance does not provide expressly for promissory notes givenin respect of several transactions only some of which can properly bedescribed as contracts of loan.
• X sec no necessity to decide for the purposes of tiic present appealwhether Mr. Nadesan’s argument is necessarily correct. Suffice it to saythat, upon the learned Judge’s findings of fact, the plaintiffs were notactuated by any sinister motives when they did not mention in themarginal column of the promissoiy note for Its. 7,000 that the totalconsideration included principal sums aggregating Rs. 5,000 due on theearlier notes. If an honest money lender were to seek legal opinion asto what form a promissory note should take in a situation such as hasarisen here, ho might well receive conflicting advice. Some lawyers,adopting the view of-Abrahams C.J. in Abeydeera v. Ra man a than Chetlymight consider that there had been “a notional lending and borrowing”of Us. 7,000 (not merely Rs. 5,000) when the accounts were looked intoon 13th January, 1052 ; others might jjrefer the view of Soertsz J.in Alarikkar’s case – that a transaction cannot be a non-loantransaction in reality and a loan transaction notionally any more thana thing can both be and not be ” ; yet another lawyer might think thatthe solution lies in the interpretation now suggested by Mr. Xadesan.Whichever view be correct, the legislature did not intend that an honestcreditor, finding himself in this predicament, must discover the trueanswer at his peril. It is in just such a situation that the Court is em-powered to grant relief under section 10 (1) of the Ordinance :
“ Provided that in any case in which the Court shall be satisfiedthat the default was due to inadvertence and not to any intention toevade the provisions of this section, it may give relief against the effect’ of this subsection on such terms as it may deem just. ”
1 (1030) 3S -V. L. 11. 330.
2 {1013) 11 .V. I.. I!- 100 at 430.
The earlier authorities as to the meaning of ** inadvertence ” in thiscontext are not, perhaps, capable of perfect reconciliation. A professionalmoney lender who deliberately refrains from advising himself as to therequirements of tfie Ordinance will not obtain relief if he fails to complywith some simple provision which no layman could misunderstand. Onthe other hand, “ inadvertence ” is certainly wide enough to cover errorsof non-compliance made in good faith (i.e., after due care and attention)through a mistaken interpretation of the law.
I would respectfully adopt the interpretation given to the proviso byCinrvin J., in Fernando v. Fernando *. The word " inadvertence ” issharply contrasted with the words “ and not to any intention to evadethe provisions of this section ”, so that “ tiic act which the law intendsto penalise Was the intended evasion of the jtrovisions of the- section. ”
It is unnecessary to decide whether the promissory note sued oil tloesin fact contravene the requirements of section 10. Even upon theassumption that it docs, 1 am perfectly satisfied that all (he circumstancesshow a complete absence of bad faith on the part of the plaintiffs. Thenote was taken as security for sums actually due ancl agreed to be clueto them, and any suggested non-compliance with the requirements ofsection 10 was unintentional and therefore :: inadvertent ”.
Finally, I cannot agree with the learned Judge that the book P2 docsnot contain ” a regular account of each loan 11 (within the meaningof section S) in respect of which the earlier promissory notes amountingto 11s. 5,000 had been given. It is true that the various pages in whichparticulars of these loans were contemporaneously recorded also containdetails of other transactions between the parties. But the loan trans-actions and the non-loan transactions are separable one from the other,and section S nowhere prohibits a professional money lender from keepinghis books in such a way that they woe Id show at a glance the exactamount of his debtor’s liability upon a running account (including, butnot confined to, loans). Mr. Nadesan pointed out that P2 does notspecifically state how much interest was deducted at the time wheneach loan was originally granted. That is true, but P2 does containin each case a cross reference to a relevant page in another accountbook in which particulars of “ interest deducted ” have been regularlyrecorded. The latter book is also paged and bound in such a manneras not to facilitate the elimination of papers or the interpolation andsubstitution of other pages. ”
For all these reasons, I have reached the conclusion that (whetheror not the Ordinance applies to the facts of this particular case) the appealshould be allowed. I would enter judglncnt in favour of the plaintiffsas prayed for with costs in both Courts. – .
Swax, J. —I agree.
Appeal allowed.
1:JG X. L. R. 77.