Sockalingam Chettiar Et Al. V. Ramanayake Et Al.,

1933 Present: Dalton A.C.J. and Koch A.J.

SOCKALINGAM CHETTIAR et al. v. RAMANAYAKE et al.

59 (Inty.)- D. C. Colombo, 43,649.

Promissory note-Mortgage bond to secure future advances of money-Money lent on promissory notes-Notes fictitious and unenforceable-Bond unenforceable-Money Lending Ordinance, No. 2 of 1918, ss. 10, 13, and 14.

Plaintiffs sued on a mortgage bond, which was entered into by the defendant to secure loans given to him by the plaintiffs from time to time on promissory notes, which did not comply with the requirements of section 10 of the Money Lending Ordinance.

Held, that the bond was unenforceable to the extent of the money lent on the promissory notes.

THE plaintiffs brought this action on a mortgage bond No. 515 of July 28, 1928, to recover from the first defendant the sum of Rs. 129,415.87 alleged to be due to them on money lent on promissory notes and an I. O. U. The second plaintiff is an assignee of one of the original lenders. The second and third defendants were joined as puisne encumbrancers. The bond sets out that the first defendant had applied for loans from plaintiffs and that they agreed to make such loans up to such amount as they thought fit, upon his entering into the bond and giving the security. The plaint set out that, in pursuance of the agreement in the bond, the first plaintiff lent and advanced to the first defendant various sums of money, which were still owing and due to him on sixteen promissory notes. The second plaintiff lent similar sums of money on eight promissory notes and an I. O. U. The first defendant pleaded that only a sum of Rs. 11,600 was due to the plaintiffs and alternatively that as the notes did not comply with the provisions of the Money Lending Ordinance, the plaintiffs were not entitled to claim any sum. The learned District Judge held that in an action to recover any money due on the bond, the plaintiffs are entitled to use the notes as evidence of the loans made by them to the first defendant and gave judgment for the plaintiffs.

Hayley, K.C. (with him Rajapakse, Yogaratnam, and Wijeratne), for first and second defendants, appellants.-Where a penalty is attached to the making of a contract, if the contract is contrary to public policy it is illegal (1910 A. C. 514). Apart from the question of security on the bond, plaintiff can sue on a verbal promise as well as a written one. So that a money lender who incurs a penalty under the Ordinance can always tear up the note and sue on a verbal statement that the money is due. If the notes are illegal he cannot sue on the notes. He cannot also sue on the transaction on which the note was given. The whole transaction is one act and any illegal act in it makes the whole transaction void. See English Money Lenders' Ordinance; Sterling v. Johnson1[(1923) 1 K. B. 557.]; Mertsz v. The South Wales Equitable Money Society2[(1927) 2 K. B. 366]; Victorian Daylesford synaicate, Ltd. v. Dott3[[(1906)2 Ch.624]; Cannan v. Bryse4[3 Barnewall and Alderson 119.]. There is reported case in :

a plaintiff suing in this way has been allowed to sue alternately on the money count. Where a note is invalid under the Bills of Exchange Act. e.g., if it has been altered, there is some authority that plaintiff can sue on the money count. But where the note is illegal and invalid he cannot (Ashling v. Boon1[(1891) 1 Ch. 568]. The note cannot even be used as evidence.

H. V. Perera, for plaintiff, respondent.-Even if the notes are unenforceable that would affect only the action on the notes. This is an action on the bond on money lent. Unless section 10 avoids the note altogether, the debt on the note will still exist. Section 10 only makes the note unenforceable. The action on the bond must be distinguished from a joinder of a number of causes of action on the various sums lent.

[DALTON A.C.J.-Is not this another method of enforc

Click Here to Read the rest of this document