Section 92 of the Indian Evidence Act does not bar evidence of an oral agreement or course of dealing to supplement a written contract on matters where the document is silent. Additionally, banks may refuse further advances if the realizable value of pledged security is insufficient.

Judgement

Appeal from a judgment and decree of the High Court (November 20, 1916) affirming a decree of Macleod J. (March 26, 1916).

The suit was instituted by the respondent bank against the appellants in the High Court to recover 36,427 Rs. as the balance due upon an account which the appellants had been allowed to overdraw upon the security of cotton and under a written agreement. The appellants counterclaimed (1.) for an account, on the ground that they had been charged compound interest with monthly rests, which they alleged was not in accordance with the agreement; (2.) for damages for the dishonour of two cheques for 15,000 Rs., each drawn upon the respondents upon August 1, 1916, which they contended that the respondents were bound to honour under the terms of the agreement.

Law. Rep. 47 Ind. App. 17 ( 1919- 1920) Haridas Ranchordas V. Mercantile Bank of India, Limited

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The facts material to this report appear from the judgment of their Lordships.

The trial Judge, Macleod J., made a decree for the amount claimed by the respondents, and dismissed the counterclaim for damages. With reference to the amount charged for interest the learned judge said "ft was contended that the plaintiffs are not entitled to charge compound interest. Now there is not the slightest doubt that the defendants knew that the plaintiffs were charging compound interest, and agreed to that interest being charged in that way with monthly rests. The only question is whether when the plaintiffs are suing on the accounts they can ask the Court to give them interest calculated in that way considering the terms of the letter of hypothecation. Clause 2 of that letter merely gives the rate at which interest will be charged ; and if the case had stopped there interest would run in law at that rate perhaps with half-yearly rests, certainly with yearly rests. But there is no reason as far as I can see why the plaintiffs should not be entitled to prove that the method by which interest should be charged was not included in the letter of hypothecation. That was arranged orally between the bank and the defendants. I do not think that s. 92 of the Evidence Act prevents the plaintiffs from proving such an agreement. That section has always caused me considerable difficulty. But proviso 2 to the section seems to apply to this case The existence of any separate oral agreement as to any matter on which a document is silent and which is not inconsistent with its terms may be proved. The document is silent as to the way in which interest should be charged, and it is no answer to that to say that if there had been no oral agreement the law would allow interest either simple or with yearly rests." He also held that the respondents in refusing to honour the cheques had committed no breach of the agreement.

The decision of the trial Judge was affirmed on appeal. The learned judges (Sir Basil Scott C.J. and Heaton J.) found that the evidence established that the cotton in the hands of the bank as security, having regard to the conditions prevailing on August 1, 1914, was not enough to cover a further loan, or even for the loans already advanced, and held that in those circumstances under the terms of the contract the appellants had not a right to a further advance. They were of opinion that though it was contemplated that the appellants should take their advances by cheques, the outstanding cheques which had been drawn in favour of third parties did not prevent the respondents from exercising their rights under clause 1 of the agreement to discontinue the overdraft at any time. Upon the question of interest the learned judges held that the rate was fixed by the contract, but the method of calculation by the long existing practice between the parties.

1919. Oct. 28. De Gruyther K.C. and E. B. Raikes for the appellants. The written agreement provided for yearly interest. It is conceded that the passbook showed that compound interest with monthly rests was being charged. An