The judgment established that the execution of a promissory note must be supported by a valid consideration, and the court must examine the evidence to determine the true nature of the transaction. The judgment also clarified the principles governing the allocation of costs based on the conduct of the parties.

Varadachariar, J.

1. This is an appeal by the defendant against a decree on a promissory note (Ex. A) admittedly executed by him in favour of a Marwari firm of Rajahmundry for Rs. 3,250. The defence on the merits is framed in very general terms in issue No. 1, vis., "was the pro-note executed under the circumstances mentioned in the written statement and is it void?" The question has been argued before us under various aspects. One of the pleas put forward by the defendant was that the pro-note was executed nominally. The learned Judge rightly observes that on the defendants own showing it is difficult to understand this plea. The substance of the defence, however, is that the execution of this note is so connected with certain transactions between that Marwari firm and one G. Krishnamurthi, a merchant of Rajahmundry, that the defendant should be held to have incurred no liability whatever except to see that Krishnamurthi paid up his dues to the Marwari firm or that the transaction was illegal as being the result of an agreement to stifle a proposed criminal prosecution by the Marwari firm against Krishnamurthi. The plaintiff apparently wanted to avoid an investigation of some of these questions on the ground that he was a bona fide holder in due course having obtained an endorsement of the promissory note from the Marwari firm for consideration and without notice of any vitiating facts. The learned Subordinate Judge has rightly held that the plaintiff has not made out this ground of claim. There is sufficient justification for the learned Judges opinion that it is the Marwari firm that is conducting the suit through the plaintiff and that the plaintiff must have been aware of the circumstances under which the promissory note came to be executed.

2. In dealing with what we have stated above to be the main defence in the case, it is necessary to examine what exactly happened on or about the date of the suit pro-note, i.e., 26th September, 1930. Krishnamurthi had borrowed moneys from the Marwari firm on the security of the stock of Aluminium circles stored in rooms in Krishnamurthis house, the key of the rooms being in the possession of the Marwari firm. It was the practice for Krishnamurthy to remove from those rooms, with the consent of the Marwari firm, so much of the stock as he wished to utilise for his own purpose, on payment of a proportionate part of the debt calculated on the footing that 500 pound circles could be released on payment of Rs. 325. The books of the Marwari firm as well as Krishnamurthis books show that on or about 26th September, 1930, the firm has credited Krishnamurthi with a sum of Rs. 3,276 out of which, deducting a sundry item of Rs. 26 separately entered, the sum of Rs. 3,250 is separately entered in Krishnamurthis books as having come to him from the defendant, and paid over by him to the Marwari firm. Krishnamurthis book also shows this transaction under a column provided for adjustment entries as distinct from another column dealing with cash transactions. It is the defendants case that on the 25th when the stock in the rooms was weighed it was found to be short by about 5,000. circles, that the Marwari firm through P.W. 1 threatened a prosecution against Krishnamurthi and that as part of an arrangement for the abandonment of the contemplated prosecution it was suggested to him by the Marwari himself that he might execute a promissory note for a sum of Rs. 3,250, because the Marwari was not prepared to accept the suggestion made by the defendant that a pro-note for that amount might betaken from Krishnamurthi himself. The defendant would add that he was assured even at that time that this was merely done to bring a kind of pressure on Krishnamurthi to satisfy the debt in the ordinary course and the pro-note was not intended to be enforced against himself. P.W. 1 attempts to dissociate the suit transaction from the transactions between the Marwari firm and Krishnamurthi. We are not satisfied