114-NLR-NLR-V-58-B.-MOHAMEDALLY-Appellant-and-G.-E.-MISSO-and-another-Respondents.pdf
[In tub Phivv Council]
Present: Viscount Siraonds, Lord .Oaksey, Lord Tucker,Lord Somervell of Harrow and Mr. L. M. D. de SilvaMOHAMEDALLY, Appellant, and G. E. MISSO andanother, Respondents
Privy Council Appeal No. 40 of 1954
S. C. 2S2—D. G. Colombo, 11,594'
Promissory note—Discharge by merger or novation—Quantum of evidence—Bills of
Exchange Ordinance (Cap. CS), ss. 36 (1), 50 (1), 62 (1), 63 (1), 90 (1)
and (2)—Evidence Ordinance (Cap. 11), ss. 91, 92 (proviso (2))..
The maker oF a promissory note subsequently executed a mortgage bond(“ JsTo. 44 ”) as additional security for tho payment of tho sum duo on tho note.Tlio promissory noto was attached to tho bond and continued to remain in thopa3-ee’s hands (without any indication of “ discharge ” or “ cancellation ”on tho faco of it) and, on the reverse side of it, tho following endorsement wasmaclo by the notary who attested the mortgage bond :—“ The amount duo onthe promissory noto together with interest thereon from tho date hereof has boonsecured by mortgage bond No. 44
In the present action the plaintiff, to whom the promissory note was indorsedand delivered by the payee after tho mortgage bond had been executed, suedboth the maker and the payee on the note.
Held, that the promissory note was not discharged by merger or novationupon the execution of the mortgage bond. Therefore, tho indorsee of tho notewas entitled to sue not only tho payee but also the maker.
Held further, that section 91 and proviso (2) to section 92 of the EvidenceOrdinance precluded parol evidence from being given by tho notary to the effectthat it was understood by tho mortgagor and tho mortgagee (neither of whomwent into tho witness box) that tho promissory note was cancollodand dischargedby tho bond.'
A
PPEAL from a judgment of the Supreme Court reported in56 N. L. R. 370.
Sir Frank Soskice, Q.G., with R. K. Handoo, for the 1st defendantappellant.
Colvin R. de Silva, with Ralph Milner and L. Kadirgamar, for theplaintiff respondent.
Cur, adv. i)ult.
May 7, 1957.[Delivered by Lord Tucker]—
The appellant was sued in the District Court of Colombo as maker of apromissory note dated 16th October, 1947, for Rs. 49,393-64 with interestthereon by the first respondent as holder in due course. The secondrespondent was also sued as indorser of the note. The trial Judge gavejudgment against the second respondent and dismissed the claim against20Lvni
2J. N. B GGoGO-1,503 (7/57)
the appellant. The first respondent appealed against the decision dis-missing his claim against the.appellant and on 11th February, 1954, the .Supreme Court of Ceylon allowed the appeal holding that the firstrespondent, the holder, was entitled to judgment against the appellant,the maker, as well as against the second respondent, the indorser.
From this decision the appellant now appeals to Her Majesty in Council.The second respondent has taken no j)art in the appeal and tho onlyquestion is as to the rights, if any, of the first respondent against theappellant.'
The case for the appellant is that the promissory note had been dis-charged on loth January, 19-18, by a mortgage bond executed by him infavour of the second respondent, the payee of the note, before it wasindorsed and delivered to the first respondent.
It will be convenient to refer to the jiarties hereafter by theirnames, as follows, the appellant the maker as “ Mohamedally ”, the firstrespondent the holder as “ Misso ”, and tho second respondent thepayee and indorser as “ Picris ”.
There are now only two issues, viz. ,(1) whether the bond given byMohamedally to Picris was an effective discharge of the note as betweenthemselves and (2) if so, whether such discharge precludes Misso theholder for value by subsequent indorsement and delivery from recoveringagainst Mohamedally the maker.
Both questions must be answered in the affirmative for Mohamedallyto succeed in this appeal.
Although the issues are now narrowed as indicated above andMohamedally rests his claim on the validity of the mortgage bond it is to beobserved that in his pleadings in the present action, as well as in otherproceedings between himself and Pieris, he has alleged that he was■“ wrongfully and deceitfully induced by Pieris to sign the mortgage bond ”,and in fact two actions between.these parties were eventually settled on5th July, 1919, on terms which included the cancellation of this.mortgage bond.••
It may be convenient at this stage to refer to the .relevant sections oftho Ceylon Bills of Exchange Ordinance (Ch. 6S)—.
Section 3(3 (1) “ Where a bill is negotiable hi its origin it continuesto. be negotiable until it has been—
res trie lively indorsed or.(If), discharged by payment or otherwise
Section 59 (1) “A bill is discharged by payment in due courseby or on behalf of the drawee or acceptor.
Payment in due course ’ means payment made at or after thematurity oT the bill tb 'thV holder thereof in good faith and withoutnotice that his title to (lie bill is defective
Section 62 (1) t: When the holder of a bill at or after its maturityabsolutely and unconditionally renounces his rights against theacceptor the bill is discharged.
The renunciation must be in writing unless the bill is delivered upto the acceptor
Section 03 (1) ‘‘ Where a bill is intentionally cancelled by theholder or lus agent, and tho cancellation is apparent thereon, thebill is discharged
Section 00 (I) “ Subject to the provisions in this Part, and exceptns by this section provided, the provisions of this Ordinance relatingto bills of exchange, apply, with the necessary modifications, topromissory notes
(2) “ In applying those provisions tho maker of a note shall bedeemed to correspond with the acceptor of a bill, and the first indorserof a note shall be deemed to correspond with the drawer of an acceptedbill pa3'able to drawer’s order ”.
Prior to tho execution of the bond on loth January, 194S, Mohamedallyv'as indebted to Pieris in the sum of Its. 119,125 on four promissory notesincluding the note now sued on.■
The bond recited that Its. 25,000 together with interest liad been paid toPieris in part payment of the sum of Its. 37,500 due on one of thesenotes dated 5th September, 1947, and that the sum of Rs. 94,125 withinterest thereon at ten per cent, per annum from the date of the bondremained due. It then recited that Mohamedally had agreed to secureunto Pieris the said sum of Rs. 94,125 with interest iii the maimer therein-after expressed. Mohamedally then bound himself to Pieris in the saidsum “ being tire money borrowed by me on tire promissory notes ( thodates and amounts of which are then set out) (the receipt whereof I dohereby acknowledge ”) to be paid to the obligee (Pieris) his heirs executorsadministrators or assigns with interest at ten per cent, per annum fromthe date thereof on demand. For securing the payment of all sums dueand payable under the bond lie specially mortgaged and hypothecatedto the obligee as a first and primary mortgage free from any mortgagecharge or other encumbrance the lands and premises described, in thefirst schedule, and as a second mortgage the lands described in the secondschedule..-
It was then provided ns the condition of the bond that on paymentof tho said sum advanced and in the meantime of interest thereon atten per cent, per annum paj'able monthly on or before the 15th dayof each and every month and on the obligor carefully keeping and main-taining the mortgaged lands and premises and the buildings thereonthe bond should be null and void, with a proviso that in the event'ofany default in pajment of interest or breach of any other covenant orcondition all monies due under the bond should be recoverable. •
As required by the law of Ceylon a Notary Public added the followingattestation I, Sannuigam Coomaraswamy of Colombo in the Island ofCeylon, Notary Public, do hereby certify and attest that no considerationpassed in my presence but the same was setoff against the amounts dueon promissory notes dated 5tli September 1947, 26th September 1947, 11thOctober 1947, and 16th October 1947 in favour of the said obligee andwhich said promissory notes have been duly identified by mo and annexed
to the original of this instrument and that the duplicate of this instru-ment bears twelve stamps to the aggregate value of Its. S37 and the'original a stamp of Its. 1. Which I attest
(Signed) S. Coomahaswamy,Notary Public,
The following endorsement was also placed on the reverso side of thenote now in suit:—
“The amount due on this promissory note together with interest
thereon from the date hereof has been secured by mortgage bond
No. 44 dated 15th January 194S attested by me ”.
(Signed) S. Coowa raswamy,Notary Public.
Three weeks later the bond with the notes attached was handed bythe Notary to Pieris and retained by him.
Subsequently the note now sued on was indorsed by Pieris and deliveredfor valuable consideration to Misso.
The learned District Judge held that the note in suit was dischargedupon the execution of the bond with the result that Misso could notrecover thereon from MohamcdaUy, but that by virtue of section 55 (2) (c)of the Bills of Exchange Ordinance he conkl recover against Pieris ashis immediate indorsee who was precluded from denying that the notewas at the time of indorsement a valid and subsisting note and thatho had a good title thereto. lie based his decision as to the dischargeof the note upon the uncontradicted evidence of the Notary (which willbe referred to later) together with the terms of the attestation clauseand the indorsement of the note.
In the Supreme Court Mr. Justice Gratiaen, with whoso judgmentMr. Justice Gunasekara agreed, held that Misso was entitled to recoveragainst Mohamcdally as well as against Pieris. He said “ In the presentcase the language of the indorsement made on t he note (and signed by bothdefendants) by no means makes it manifest that the liability' on thenote had been extinguished. On the contrary, it is calculated to givethe imjjression that the repayment of the amount due on the note wasalso secured by the mortgage bond dated 15th January 19-1S. Besides,at the time when the note was subsequently indorsed to the plaintiff forvalue it still remained in the payee’s hands and boro all the appearancesof an undischarged note
After referring to Glasscock v. Balls 1 and certain Ceylon authoritieshe continued :—“ Be that as it may, it is certainly permissible to regardthe fact that a promissory note remained in the payee’s hands (withoutany indication of ‘ discharge ’ or ‘ cancellation ’ on tlio face of it) as arelevant circumstanco to bo taken into account in deciding the questionof fact whether the liability had been extinguished by novation. More-over the first defendant (as maker of the note) is in my opinion precluded-as against an indorsee for value without notice from alleging that the
1 {1889) 24 Q. B. D. 13.
execution of tho mortgage bond was intended by him to have moreserious implications than those which were actually indicated in the-indorsement which he signed. Tho language of his indorsement is quiteinsufficient to support the idea of discharge by novation, and is especiallybinding on tiic maker of a note who allows it thereafter to remain incirculation with all the appearances of a valid promissory note. Besides,to my mind the language of the bond itself is equivocal
Their Lordships are in full agreement with these observations in so faras they relate to the issue of discharge. They do not find it necessaryin-the present case to express any view with regard to the suggestedestoppel which had not in fact been pleaded and would only arise ifdischarge of the note had in fact been established.
The Supreme Court judgment does not, however, contain any referenceto the evidence of the Notary Public on which the District Judge hadlargely based his decision. It is therefore necessary to refer to it. Theeffect of it can be summarised as follows :After attesting the bond
lie explained to Mohamedally and Pieris why he had done so. He saidit was because no money had passed in his presence and he informedthem that the promissory note was cancelled and discharged by the bond.He said lie had received instructions from Peiris to prepare the bond andMohamedally and Pieris attended at his office on several occasions andthe bond as finally settled was in accordance with the instructions ofboth parties.
In re-examination the following questions and answers appear :—
“ Q. What did he (i.c. Pieris) tell you about these four notes ?
A. They were to bo cancelled immediately the bond was signed.
Q.Did you make that position of Vernon Pieris clear to Mohamed-alty ?
A. Yes. ’’.
In so far as this evidence relates to the meaning of the bond it wasclearly inadmissible (vide section 91 of the Evidence Ordinance). Thelanguage of the bond together with that of the notes attached theretospeaks for itself ancl even if admitted without objection the Court couldnot properly act on such evidence.
In so far as the questions and answers in re-examination are reliedupon as supporting a separate and independent agreement upon a matteron which the bond was silent (see proviso (2) to section 92 of the EvidenceOrdinance) they are not evidence against Misso of an oral agreementbetween Mohamedally and Pieris neither of whom went into the witnessbox. Enrthermore if such an agreement was in fac-t made it is clearthat it was not carried out as the notes were not “ cancelled ” in themanner provided in section 03 (1) of the Bills of Exchange Ordinancewith regard to intentional cancellation.
Their Lordships consider that the bond by itself is equivocal but theindorsement on the note and the fact that the notes were attached to thobond and retained by the mortgagee and payee are conclusive to negative
2*J. X. B 605C9 (7/57)
the discharge by merger or novation relied upon and show tliat the bond■was taken by way of additional security. This conclusion is in no wayvitiated by the evidence of the Notary.
For these reasons their Lordships are of opinion that the appellantfails on the first limb of his case and they will accordingly humbly adviseHer Majesty that the appeal be dismissed. The appellant 7uust paythe costs of the appeal.
AjJpenl dismissed.