An agreement that a promissory note will not be presented for payment and that the amount secured thereunder will be adjusted towards the payment of outstanding bills is not enforceable as it is in defeasance of the unconditional undertaking embodied in the promissory note.

DIXIT, J.

This is a first appeal from a decision of the Additional District Judge Gwalior, whereby he decreed the plaintiff-respondents claim for the recovery of Rs. 10125/- from the appellant on the basis of a promissory note.

2. The plaintiffs case was that on 5th November 1951 he advanced Rs. 10,000/- as loan to Col. Horsburgh Director of the appellant-company; that the payment was made at Gwalior by a cheque drawn on 5-11-51 on the Bombay Branch of the United Commercial Bank Ltd. and that on this date Col. Horsburgh executed a promissory note, as a Director of the company, promising to pay the amount of loan at Gwalior on 31st December 1951; that when on the due date the promissory note was presented to Col. Horsburgh and the appellant-company for payment, they refused to pay any amount.

On these allegations the plaintiff instituted a suit for the recovery of Rs. 10,000/- together with interest thereon amounting to Rs. 125/- from 28th January 1952 i.e., the date of the refusal of the payment till the date of the institution of the suit.

The plaintiff also claimed further interest from the date of the suit till the date of repayment at the rate of 6 per cent. per annum. He also sought to make Col. Horsburgh personally liable for the payment of the amount. In their defence both Col. Horsburgh and the Eastern Factors Ltd., admitted the execution of the pronote and the receipt of Rs. 10,000/- by a cheque on the Bombay Branch of the United Commercial Bank Ltd.

They, however, registered the suit mainly on the ground that the plaintiff was not entitled to sue for the recovery of the amount of Rs. 10,000/- as the amount of Rs. 10,000/- though given as a loan was in fact a part payment towards an outstanding bill of the appellants for Rs. 45,053/- against the plaintiff; the payment was to be adjusted at the time of the final settling of accounts between the parties and that the pronote was executed by Col. Horsburgh as a Director of the Eastern Factors Ltd., on the express stipulation that it was not to be presented for payment.

The plea of the defendants was that the Eastern Factors Ltd., of which Col. Horsburgn was a Director entered into a contract with the plaintiff for the erection in Gwalior of a potato-seed storage plant together with a power house; that the construction was complete about the end of May 1951 and soon after the defendants presented to the plaintiff a bill for the amount of Rs. 45,053/- for payment on account of the construction; that the plaintiff withheld payment of the bill alleging that the plant was defective in certain particulars, that thereupon the defendants offered to set right the alleged defects on the condition of the plaintiff making a part payment of Rs. 10,000/- towards their bill; that after protracted correspondence and discussion between the parties, the plaintiff ultimately offered to lend and advance to the defendants a sum of Rs. 10,000/- against a promissory note payable on demand.

The defendants proceeded to say that this proposal was rejected by them but later on in order to resolve the deadlock of the repairs to the plant and the settlement of the outstanding bills, they "agreed to pass a promissory note upon the express stipulation that such note was not to be presented for payment but that the amount ostensible secured thereunder was to be given to the second defendant as a payment on account against their said outstanding bill and the plaintiff was to receive credit for the said amount in the final adjustment of account between the parties.

According to the defendants the plaintiff acquiesced to the proposal and thereupon Col. Horsburgh on behalf of the Eastern Factors Ltd., executed a promissory note for Rs. 10,000/- in favour of the plaintiff and received a cheque for Rs. 10,000/- payable in Bombay. The defendants also took the objection that as the promissory note was executed in Bombay, the payment of Rs. 10,000/- was made in Bombay and the payment of the defendants bill wa