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1929 Supreme(SC) 78
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD ATKIN, SIR JOHN WALLIS, SIR GEORGE LOWNDES AND SIR BINOD MITTER.
NATIONAL BANK OF UPPER INDIA, LIMITED, IN LIQUIDATION - Appellant
Versus
BANSIDHAR (DEFENDANTS) - Respondents
On appeal from the Chief Court at Lucknow.
Decided On : Oct. 24. 1929.
Solicitors for appellants:T. L. Wilson & Co. Solicitor for respondents: H. S. L. Polak.
A payment of interest by a third party who has undertaken to discharge a debt can extend the limitation period if implied authority is found. Additionally, a party participating in a deceptive scheme to conceal indebtedness cannot claim inducement to avoid personal liability on a signed instrument.
Headnote:(A) Limitation Act - Section 20 - Payment of interest by a person liable or authorized agent - Extension of limitation period - Negotiable Instruments Act - Section 28 - Liability of agent signing without indicating agency - Evidence Act - Section 92 - Oral agreement to not hold a party liable on a written instrument.
(B) Under Section 20 of the Limitation Act, a new period of limitation begins if interest is paid by the person liable or their authorized agent. Implied authority can be found where a party has undertaken to discharge the debt of another and the debtor leaves it to them to do so.
(C) Under Section 28 of the Negotiable Instruments Act, a person signing a note without indicating agency is personally liable, unless induced by the holder to believe only the principal would be liable. This exception does not apply where the signer participates in a scheme to deceive the holder.
(D) Oral agreements to the contrary are inadmissible against a written contract under Section 92 of the Evidence Act.
Facts of the case:
A promissory note was executed to substitute the debtor of a bank with another person to conceal the original debtor's indebtedness during an audit. The executor received no funds but was promised he would not be held liable. The suit was filed after the three-year limitation period. The bank relied on a payment made by the original debtor, which was allocated as interest on the note, to extend the limitation period.
Findings of Court:
The credit given to the original debtor constituted sufficient consideration. The executor was not an agent and was personally liable. The payment made by the original debtor was an act of an impliedly authorized agent and was paid as interest, thereby extending the limitation period.
Issues: Whether the credit to a third party constituted consideration; whether the executor was an agent under the Negotiable Instruments Act; and whether a payment made by a third party who undertook to discharge the debt could save limitation under Section 20 of the Limitation Act.
Ratio Decidendi: The court held that implied authority to pay interest can be inferred when there is an agreement for a third party to discharge the debt. Furthermore, a party who participates in a deceptive arrangement to conceal a debt cannot claim they were induced by the creditor to believe they would not be held liable under the Negotiable Instruments Act.
Result: Appeal allowed.
Legal Category Hierarchy
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civil law
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contract law
- consideration
- agency
- negotiable instruments
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limitation law
- extension of limitation
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practice and procedure
- evidence
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contract law
Judgement
Appeal (No. 115 of 1928) from a decree of the Chief Court at Lucknow (November 18, 1925) affirming a decree of the Subordinate Judge, Lucknow.
On August 9, 1921, the appellant bank sued the respondents upon a promissory note for Rs.20,000 dated December 17, 1917, signed by the first respondent and payable on demand to the appellant bank; they alleged by their plaint payments in respect of interest, including a payment of Rs.908 on December 23, 1918, as extending the period of limitation. The first respondent by his written statement pleaded that there was no consideration for the note, and that it had been verbally agreed by Bishambhar and the bank that he was not to be liable upon it. He also denied that there had been any payment of interest which, under s. 20 of the Indian Limitation Act, extended the period of limitation, and that accordingly the suit was barred.
The Subordinate Judge held that the suit was barred by art.69 of the Limitation Act, since it was not commenced within three years of the promissory note falling due.
Upon appeal to the Chief Court the decree dismissing the suit was affirmed upon grounds which are stated in the judgment of the Judicial Committee; the facts of the case also appear therefrom.
1929. July 2, 4, 5. De Gruyther K.C. and Parikh for the appellants. The giving of credit to Bishambhar was good consideration for the note. The first respondent signed it as principal. He was not agent for Bishambhar to do so, consequently s. 28 of the Negotiable Instruments Act has no bearing on the case. Under s. 20 of the Limitation Act the payment in December, 1918, caused a fresh period of limitation to run from the date of payment. There was an appropriation of Rs.908 by the bank with Bishambhars approval, to the payment of interest on the note; that was a payment of interest for the purposes of s. 20. Upon the facts Bishambhar was impliedly the authorized agent of the first respondent to pay the interest. Further, as between himself and the first respondent, he was under a duty to pay, and he was consequently "the person liable to pay" within s. 20 Bradshaw v. Widdrington ([ 1902] 2 Ch. 430.); In re Lacey ([ 1907] 1 Ch. 330.); Hasluck v. Ashbury (( 1882) 19 Ch. D. 539.). Brajendra Kishore Roy Choudhury v. Hindustan Co-operative Trading Society (( 1917)
I. L. R. 44 C. 978, 994.) does not conflict with that view; the decision was based upon there being in that case two separate debts, one by the principal debtor and one by his guarantor.
Dube for the respondents. As the period of limitation prima facie had expired the burden was on the plaintiffs to prove under s. 20 that within the period a sum had been paid as interest by the person liable to pay or by his authorized agent. No payment was made as interest; a subsequent appropriation, even if proved, does not satisfy the words of s. 20. Upon the construction of s. 20 "the person liable to pay " must be the person under a legal obligation to pay, and Bishambhar was not. The English cases, decided on different Acts, do not apply. But if they do, Bishambhar was a stranger to the contract on the note, and therefore his payment did not affect limitation Chinnery v. Evans . (( 1864) 11 H. L. C. 115.)
De Gruyther K. C. replied.
Oct. 24. The judgment of their Lordships was delivered by
SIR GEORGE LOWNDES. On December 22, 1917, the first respondent executed in favour of the National Bank of Upper India, Ld., a promissory note payable on demand for Rs.20,000, and interest, together with a formal receipt for the money. The bank is now in liquidation, and the liquidators, suing in the name of the bank, claim from him the money due under the note. The second respondent, his brother, has been joined with him as a defendant to the suit, but no relief is sought as against him before this Board, and there seems to be no reason why he should have been made a party to this appeal. The suit was dismissed by both Courts in India, and the liquidators have appealed
