086-NLR-NLR-V-38-ABEYDEERA-v.-RAMANATHAN-CHETTIAR.pdf
ABRAHAMS CJ.—Abeydeera v. Ramanathan Chettiar.
389
1936Present: Abrahams CJ. and Soertsz J.
ABEYDEERA v. RAMANATHAN CHETTIAR.
139—D. C. Galle, 33,428.
Money Lending Ordinance—Promissory note given after account stated—Moneylending transaction—Compound interest—When chargeable—OrdinanceNo. 2 of 1918, ss. 10, 13 and 14.
The defendant gave three cheques to the plaintiff at various times tocover the value of goods sold and certain advances made to him.
Thereafter the cheques were returned and the promissory note whichwas the subject matter of the action was given representing the amountdue upon an account stated between the parties at that date.
Held, that the note wa3 given for a money lending transaction althoughno money actually passed between the parties at the time the note wasgiven.
In Ceylon compound interest may be recovered where the partycharged has agreed to pay it.
^ PPEAL from a judgment of the District Judge of Galle.
N. E. Weerasooria (with him J. R. Jayawardana), for defendantappellant.
H. V. Perera (with him E. B. Wickramanayake), for plaintiff, respondent.October 30, 1936. Abrahams C.J.—
This is an action for the recovery of a sum of Rs. 22,099.97 alleged tobe due on a promissory note dated July 19, 1932, made out for Rs. 20,000with interest thereon at the rate of 14 per cent, per annum. The plaintstates that this sum was “ the amount found to be due from defendantto plaintiff upon an account stated between them on the said date inrespect of their prior dealings”. The plaintiff is a money lender, and healso appears to be a dealer in rice. On May 15, 1931, the defendant gavethe plaintiff a cheque for Rs. 4,000 in payment for rice purchased fromhim, with interest on the amount owed. There had also been moneylending transactions between the parties, and on February 6, 1932, thedefendant gave the plaintiff two cheques for Rs. 14,000 and Rs. 1,000respectively to cover certain advances made and interest charged on the-amounts due. On July 19, 1932, the promissory, note, which is the subjectmatter of the action, was given by the defendant to the plaintiff, and thethree cheques previously mentioned were returned.
It was objected at the trial, on behalf of the defendant, that the capitalsum actually borrowed did not appear on the face of the note as requiredby the provisions of section 10 of the Money Lending Ordinance, No. 2 of
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ABRAHAMS C.J.—Abeydeera v. Ramanathan Chettiar.
1918, and therefore the note was not enforceable. It was further objectedby him that the capital, sum of Rs. 20,000 appearing on the note includedcompound interest, and that therefore the note was void, and also that itwas a fictitious note within the meaning of section 14 of the MoneyLending Ordinance and that it came under the provisions of section 13 ofthe Ordinance. At the trial it was admitted by Counsel for the plaintiffthat in arriving at the sum of Rs. 20,000 compound interest was charged.
The following were the issues at the trial:—
Does the capital sum of twenty thousand rupees, appearing on the
note include interest on interest on previous transactions ?
If so, is the note void ?
Does the capital sum appearing on the note represent the actual
sum due to plaintiff at the date of the note ?
If not, is the note enforceable.?
What amount if any is due on the note ?
Was the default if any, incorrectly – setting out the capital sum
borrowed due to inadvertence and not due to an intention to
evade the provisions of the Money Lending Ordinance ?
In view of what I am about to find in this appeal, there will be no reasonto discuss the learned Judge’s finding on the 6th issue. He answeredthe other five as follows :—The first in the affirmative, the third in thenegative, the second and fourth in favour of the plaintiff, and on the fifthhe held that the plaintiff was not entitled to recover the full amountclaimed on the note, as compound interest was not permissible, and thatthe claim must be deleted. The decree was formulated accordingly.
I am of the opinion that the first issue was properly answered in theaffirmative on the admission of the plaintiff’s Counsel “ that in the noteis included the interest on a sum of Rs. 284 which was itself interestThen comes the question as to whether the note was void on that accountas issue 2 suggests it might be. The learned District Judge, so far as Ican gather from the judgment, has held that compound interest is notlegally chargeable, but he appears to consider that the note is not avoidedthereby because it was not given on a purely money lending transaction,amounting as it did to an account stated which incorporated loans ofmoney, sales of rice, and a few rupees representing plaintiff’s travellingexpenses. I propose to say something presently on what I take to be thetrue* nature of the transaction for which the promissory note was given,but for the moment, dealing with the question of compound interest Iam of the opinion that compound interest may be lawfully charged. TheMoney Lending Ordinance does not say that compound interest may notbe charged. The only section in that Ordinance which has any referenceto interest is section 4 which provides that rates above the rates mentionedin it are matters to be considered when a transaction is under review forthe purpose of ascertaining whether it is harsh and unconscionable.Under the Roman-Dutch law, although it is not legal to charge compoundinterest, the South African Courts have allowed compound interest whenthere has been an undertaking to pay such interest or where there is arecognized custom to charge compound interest, or where the contractbetween the parties sanctions it, unless the amount charged can be saidto be usurious. (See Manfred Nathan, Common Law of South Africa,
ABRAHAMS C.J.—Abeydeera v. Ramanathan Chettiar.
391
vol. II., pp. 667-670). In Ramasamy Putte v. Thamby Candoe ’, it washeld that the Dutch usury laws were purely local enactments and werenot introduced into Ceylon. Section 3 of Ordinance 5 of 1852, as amendedby section 97 of the Bills of Exchange Ordinance, No. 25 of 1927, enacts“ that no person shall be prevented from recovering on any contract orengagement any amount of interest expressly reserved thereby, or fromrecovering interest at the rate of nine per cent, per annum on any contractor engagement, in any case in which interest is payable by law and nodifferent rate of interest has been specially agreed upon between theparties, but the amount recoverable on account of interest or arrears ofinterest shall in no case exceed the principal ”. In National Bank v.Stevenson compound interest was allowed by reason of the custom ofthe banks and the acquiescence of the defendant. In the present casethere is no doubt that the defendant did agree to pay interest uponinterest. He says in his answer that he was compelled to grant the notebecause he was hard pressed, and was afraid that the plaintiff would puthim in Court.
It follows then from the foregoing view that the third issue ought tohave been answered in favour of the plaintiff, and that the appeal oughtto be dismissed at this stage, although as the plaintiff has not appealedagainst the finding that he is not entitled to recover the full amountclaimed on the note he cannot, of course, claim any further benefit fromthis finding than the mere dismissal of the appeal.
As I said earlier in the judgment, I propose to say something about thetrue nature of the transaction for which the note was given, because bothat the trial and at the appeal it was contended by the defendant that asthe actual amount due did not appear on the note, the note did notcomply with the provisions of section 10 of the Money Lending Ordinanceand was not enforceable, and that for the same reason the note was afictitious note within the meaning of section 14 of the Money LendingOrdinance and was not enforceable. The plaintiff on the other handcontended that the Money Lending Ordinance did not apply as thetransaction was not a purely money lending transaction, involving as itdid a multiplicity of dealings between the parties only some of whichwere concerned with the lending of money. The learned District Judgesaid, “ The note was not given on a purely money lending transaction.It includes a large sum on account of the sale of rice. Also a few rupeesrepresenting plaintiff’s travelling expenses in connection with the trans-actions. The accounts were looked into between the parties and it wasagreed that the sum of Rs. 20,000 was due. There was in fact no loan ofmoney on the note. It created a novation of a pre-existing debt ”.
I am of the opinion that the note was given for a purely money lendingtransaction although no money actually passed between the parties atthe time the note was given. The plaintiff’s manager, giving evidence,said that no money was lent on the note itself. The learned Judgeaccepting this, which, meaning as it did, that no money actually passedbetween the parties physically, came to the – conclusion that no moneywas actually lent and he thereby overlooked the implications which arosefrom the return of the three cheques and the consequential giving of thepromissory note. The obligation to pay the sums of money represented
1 {1872-1875) Ramanathan 189.* 16 N. L. R. 496.
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ABRAHAMS CJ.—Abeydeera v. Ramanathan Chettiar.
by the cheques was extinguished when the promissory note was given forvalue received. What is the actual analysis of that transaction ? Thecheques, by being returned, were deemed to have been paid. Thedefendant had no money to pay them, and the payment was thereforemade by the plaintiff notionally lending the defendant the money to paythe sums due and the defendant notionally handing back the money tothe plaintiff and securing the repayment of the loan by the promissorynote, the value received being the money which was notionally receivedby the defendant and notionally returned to the plaintiff. The fact thatthe plaintiff did not physically hand the Rs. 20,000 to the defendant andthe defendant hand it back to him does not make any difference to thesubstance of the transaction. The facts of Lyle v. Chappell*, bear asubstantial resemblance to the facts in this case. In that case a loansecured by a promissory note was extinguished, and a fresh promissorynote given for a larger amount, the lender handing to the borrower acheque for the amount due which the borrower endorsed and handedback to the lender who treated it as settling the first transaction.Greer L.J. said, “ In my view, the document signed by the defendant. . . . is an agreement by him to discharge whatever was due onthe promissory note of April 25 by borrowing from the plaintiffs a sum of£200 and authorizing them, instead of physically handing over the moneyto the defendant to pay themselves the £200. The money-lenders seemto have thought it necessary or desirable that they should physicallyhand over a cheque for £200 to the defendant and get it back again, butthere is nothing in the agreement to the effect that this should be done,and, in my judgment, it was not essential that the agreement should becarried out in that way. If the money to be borrowed was intended tobe used for the extinction of the debt agreed by the parties at £200 itseems to me unnecessary that the parties should go through the idle formof passing the cheque backwards and forwards ”.
With regard to the alleged fictitiousness of the note, that contentionalso fails. “ Section 14 of the Money Lending Ordinance defines fictitiouspromissory notes as one given in respect of a loan in regard to which adeduction was made or a sum paid at or about the time of the loan inrespect of interest, premium or charges payable in advance, without suchdeduction or paying being set forth upon the document in accordancewith section 10 …. and any promissory note in respect of a
loan, with regard to which at or about the time of the loan any paymentwas made, or any collateral transaction entered into with a view todisguising the actual amount ”. In this case it was stated that a sum ofRs. 233.37 was paid in advance as one month’s interest on the sum ofRs. 20,000. That sum was set forth upon the document in accordancewith section 10, therefore the note is not fictitious with the meaninggiven in the first part of section 14 of the word “ fictitious ”, nor is itfictitious within the meaning of that word in the second part of section 14,because neither party has submitted that any payment was made, or anycollateral transaction entered into to disguise the actual amount advanced.
In my opinion this appeal fails and should be dismissed with costs.
Soertsz J.—I agree.Appeal dismissed.
1 48 T. L. R. 119.