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1975 Supreme(Goa) 4
Goa High Court
K. N. SHUKLA, Addl. J. C.
Jose Inacio Lourenco, Plaintiff - Appellant
Versus
Xec Hamza and another, Defendants - Respondents
First Civil Appeal No. 4 of 1974
Decided On : 27 January 1975
C. F. Alvares, for Appellant, P. G. Navelkar, for Respondents.
The presumption of consideration under Section 118 of the Negotiable Instruments Act can only be rebutted by direct or circumstantial evidence.
Headnote:
NEGOTIABLE INSTRUMENTS ACT, 1881 - SECTION 118 - PRESUMPTION OF CONSIDERATION - REBUTTAL - BURDEN OF PROOF - GUARANTEE - LIABILITY OF GUARANTOR.
Fact of the Case:
Plaintiff filed a suit to recover Rs. 30,000/- and interest on a promissory note executed by Defendant No. 1. Defendant No. 1 admitted execution of the note but claimed it was without consideration and that he signed it at the instance of his brother-in-law, Shaikh Daud, who owed money to the plaintiff. The trial court dismissed the suit, finding that no consideration passed to Defendant No. 1.
Finding of the Court:
The High Court held that the presumption of consideration under Section 118 of the Negotiable Instruments Act was not rebutted by the defendant. The court also held that even if the defendant executed the note as a guarantor for his brother-in-law, he would still be liable to the plaintiff.
Issues: 1. Whether the promissory note was executed without consideration. 2. Whether the defendant could be exonerated from liability as a guarantor.
Ratio Decidendi: 1. Under Section 118 of the Negotiable Instruments Act, there is a statutory presumption that every negotiable instrument was made or drawn for consideration. The burden of proving the contrary is on the defendant. 2. The defendant failed to discharge the burden of proving that the promissory note was made without consideration. 3. Even if the defendant executed the note as a guarantor for his brother-in-law, he would still be liable to the plaintiff because the plaintiff had absolved the brother-in-law of his liability and accepted the defendant's guarantee.
Final Decision: The High Court allowed the appeal, set aside the trial court's judgment and decree, and decreed the plaintiff's claim with costs against Defendant No. 1. The claim against Defendant No. 2 was dismissed.
2. Defendant No. 1 admitted execution of the promissory note in suit. He also admitted that plaintiff had made a demand on 25-5-1970 but the defendants did not honour it.
3. Plaintiffs case was that defendant No. 1 signed the promissory note in question on receipt of Rs. 30,000/-, as loan which he was liable to pay with interest.
4. The defence was that no amount was received by defendant No. 1 and the promissory note was without consideration. It was pleaded that one Shaikh Daud, brother-in-law of defendant No. 1 owed some amount to the plaintiff. At the instance of the said Shaikh Daud, defendant No. 1 executed the promissory note in plaintiffs favour without receiving any consideration. Shaikh Daud had promised to this defendant in writing that he would repay the amount of the promissory note to the plaintiff. The said Shaikh Daud later resiled from his promise and prompted the plaintiff to bring this action against the defendants.
5. The learned trial Judge framed only one issue which is as follows :-
"Whether the promissory note was executed without consideration."
6. After examining the evidence the learned Judge held that no consideration passed to defendant No. 1 and the promissory note was executed by him at the instance of Shaikh Daud who was the actual debtor. The learned Judge observed in para. 11 of his judgement that "defendant No. 1 ............ signed the hundi at the request of Shaikh Daud only to give a guarantee to the plaintiff". On the basis of the finding that the transaction was in fact between plaintiff and Shaikh Daud and not between the plaintiff and the defendant No. 1, the learned Judge dismissed the suit.
7. Under Section 118 of the Negotiable Instruments Act there is a statutory presumption, unless the contrary is proved, that every Negotiable Instrument was made or drawn for consideration. In the present case defendant No. 1 admitted execution of the promissory note and the Court was bound to presume that the instrument was made or drawn for consideration. The burden of proving the contrary was on the defendant. This legal position is clear. Learned counsel for the respondents/defendants cited Kundan Lal v. Custodian Evacuee Property, AIR 1961 SC 1316, probably to show that this presumption was only a presumption of fact which could be rebutted by direct or circumstantial evidence. Now, Section 113 itself permits the drawer of a promissory note to prove facts which may rebut the presumption. In Kundanlals case this principle was reiterated and on facts it was held that the plaintiff had suppressed material documentary evidence which entitled the Court to draw an adverse inference and treat it as a fact in rebuttal of the presumption arising under Sec. 118 of the Negotiable Instruments Act.
8. In the present case the defence plea was not maintainable and also not proved as facts. Firstly there was no reason to doubt the statement of the plaintiff
that the loan was obtained by defendant No. 1 himself. The defence case that defendant No. 1 executed the promissory note because his brother-in-law Shaikh Daud wanted him to do so does not appear to be probable. The sum involved was substantial. Defendant No. 1 as admitted by him was a fairly literate person and it was not conceivable that he would bind himself under a promissory note only to protect his brother-in-law. Further, the instrument alone can be looked into to determine the promisor or promisee. Surrounding circumstances cannot be looked into while deciding whether the maker of a promissory note has executed it as the agent or the representative of another. (D. Jayarami Reddy v. Revathi Mica Co., (1972) 1 Andh WR 7: Sivagurunatha Pillai v. Padmavathi Ammal. AIR 1941 Mad 417 (FB)).
9. But assuming that defendant No. 1 executed the promissory note only to guarantee "repayment of the
