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Perumal Chettiar Versus Kamakshi Ammal

1938 (2) TMI 8 - MADRAS HIGH COURT

Dated:- 10-2-1938 - Alfred Henry Lionel Leach, C.J., Madhavan Nair, S. Varadachariar, Stodart and K.P. Lakshmana Rao, JJ. JUDGMENT Alfred Henry Lionel Leach, C.J. 1. The question which the Court is called upon to decide in this case is whether a person who has lent money on a promissory note can sue to recover the debt apart from the note when the note embodies the terms of the contract with the borrower but is inadmissible in evidence owing to a defect in the stamping. In England the right to s .....

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ion 91 of the Evidence Act is a bar to a suit on the debt when the loan and the instrument are contemporaneous. Before turning to examine the decisions of this Court and certain of the other authorities to which reference has been made I should point out that the Court is not considering the case where a promissory note has been given in respect of an antecedent debt. It is well settled both in England and in this country, that where a negotiable instrument is given in respect of an antecedent d .....

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f a loan to the family. The instrument was improperly stamped, but the Court held that this was no bar to the suit because the cause of action for the money lent was complete in itself before the giving of the note. The report does not set out the facts and apparently the Court was of the opinion that the instrument had been given for an antecedent debt. The question was raised before Collins, C.J. and Parker, J., in Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94. There the loan having been a .....

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Sankaran Nair, JJ., in Yarlagadda Veera Raghavayya v. Gorantla Ramayya (1905)15MLJ484 , by Sadasiva Aiyar and Spencer, JJ., in Muthu Sastrigal v. Visvanatha Pandara Sannadhi (1913) 26 M.L.J. 19 : I.L.R. 1913 Mad. 660 and by Varadachariar and Burn, JJ., in 'Chockalingam Chettiar v. Palaniappa Chettiar (1934) 67 M.L.J. 595 : I.L.R.1934 Mad. 660. The same principle was applied by Madhavan Nair, J., in Pulugurta Somaraju v. Machiraju Venkatasubbarayudu (1924) 20 L.W. 943 and Reilly and Anantakri .....

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n these terms: We have taken from you on credit this day 10 kalams of Kuruvai paddy at ₹ 3 a kalam for ₹ 30 arid we have executed this hand-letter promising to pay the sum of ₹ 30 with interest thereon at 3 pies per rupee per mensem to you or to your order. 4. The document was unstamped and it was conceded that it was inadmissible in evidence. It had not been given in respect of an antecedent debt, but was a contemporaneous document executed at the time of the sale of the paddy .....

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e the question. If it is clear on the face of the promissory note that it is the contract, then no further evidence can be permitted. The Court held that the suit was maintainable because it considered that the promissory note was merely given as a conditional payment for the paddy. Cornish, J., reserved his opinion on the question whether the payee of a note given for a contemporaneous loan has or has not a right of action on the debt. In Chockalingam Chetti v. Annamalai Chetti (1915) 34 I.C. 4 .....

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hat where the cause of action is complete before the giving of the promissory note the creditor may sue on the debt. This is another case in which the promissory note was given in respect of an antecedent debt. 5. The two cases which conflict with Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94 are Gopala Padayachi v. Rajagopal Naidu AIR1926Mad1148 and Chinnayya Naidu v. Srinivasa Naidu (1934) 67 M.L.J. 912. In Gopala Padayachi v. Rajagopal Naidu AIR1926Mad1148 , Wallace, J., stated that when .....

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ivasa Naidu (1934) 67 M.L.J. 912 Venkatasubba Rao, J., expressly held that where the loan and the giving of the promissory note are contemporaneous the lender may fall back on the original contract. This decision is, therefore, in direct conflict with Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94 and the cases which followed it. The learned Judge in the course of his judgment, referred to a marked conflict of judicial opinion in this High Court. He regarded the decision of 'Stone, J., in .....

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n Pothi Reddi v. Velayudasivan I.L.R.(1886) Mad. 94 has, however, now been called in question and in view of the importance of the matter the present case has been placed before a bench of five Judges. 6. The question under discussion was considered by a Full Bench of the Rangoon High Court of which I was a member in the case of Maung Chit v. Roshan N.M.A. Kareem Oomer and Co I.L.R.(1934) Rang. 500 (F.B.) and there all the important decisions, both Indian and English, were discussed in the cours .....

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operates prima facie as a conditional payment only, and not as a satisfaction of the debt unless the parties so regard it. (4) If the promissory note is itself the consideration for the loan or if it is accepted as an accord and satisfaction of the original debt, the lender is restricted to his rights under the instrument. (5) The lender is entitled to sue on the original consideration if the instrument is given merely as a collateral security. (6) If the terms of the agreement under which the l .....

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facie as a conditional payment of the debt. On further consideration I have come to the conclusion that this must depend on the facts of the particular case and that there is no presumption that the instrument has been given as conditional payment. Therefore, in my opinion, when the lender wishes to sue on the original contract on the ground that the instrument was given by way of conditional payment he must prove facts which warrant the inference. 7. I am in agreement with the observations of .....

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contract except the document itself or secondary evidence of its contents where it is admissible. If therefore the hundis are the embodiment of the whole contract between the parties and those hundis are not admissible in evidence and cannot be looked at for the purpose of finding out the terms of the contract, the plaintiffs cannot be allowed to adduce other evidence to prove the terms of such contract. It is conceivable that in special cases a bill of exchange or a promissory note may be the o .....

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romise to pay a fixed amount on or after a. certain date. It does not necessarily contain all the terms of the agreement between the parties as a bond, for instance, would do. In many cases, a promissory note or a hundi may merely be a written security taken for the loan. The promise to pay the amount may be only a part of the whole contract between the parties, in which case it cannot be said that that contract has been reduced to the form of a hundi. In such cases it would be impossible to hol .....

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estion without further knowledge of the facts. 9. Krishnan, J., observed: If there is an obligation apart from the one under the note itself it may clearly be enforced. The fact that the 'loan and the note are contemporaneous' is not conclusive of the non-existence of such obligation. 10. In my opinion the law may be stated shortly in this way. If the promissory note embodies all the terms of the contract and the instrument is improperly stamped no suit on the debt will lie. Section 91 o .....

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ment. Whether a suit lies on the debt apart from the instrument therefore depends on the circumstances under which the instrument was executed. 11. It has been stressed in argument that the English rules of evidence do not run counter to Section 91 of the Indian Evidence Act, and therefore it is said that the section cannot be regarded as a bar to the application of the principle accepted in England that a suit lies on the debt apart from the instrument. This argument ignores two important facto .....

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the Evidence Act insists that where a contract has been reduced to writing the document alone shall be looked at. 12. The suit out of which the present petition arises was for the recovery of a sum of ₹ 400 lent on a promissory note on the 17th June, 1928. The plaintiff's case was that there had been payments to account and that these payments had been endorsed on the instrument. The defences were: (1) the promissory note was not supported by consideration; (2) there had been no payme .....

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d not consider the question whether the promissory note embodied the whole of the terms of the contract between the parties. The case should, therefore, be remanded to the trial Court for further consideration and decision in the light of this judgment. The petitioner is entitled to his costs in this Court. Madhavan Nair, J. 13. I agree. S. Varadachariar, J. 14. I agree. In deference however to the decisions which have laid down a different rule, I feel bound to explain my inability to follow th .....

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at in enacting that prohibition, the legislature expected that it would be made effective, by the combined operation of that section, and Section 91 of the Indian Evidence Act. The possible hardship to the lender was noted by Sir Richard Couch, as early as 1873 in Ankur Chunder Roy Chowdhry v. Madhub Chunder Ghose (1873) 21 W.R. 1. The learned Chief Justice observed that the law has to be so, for the reason that "if the consequence of not stamping a document of this kind was not serious, th .....

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n on this point, the general principle underlying the section hardly admits of any doubt. In the words of Sir Richard Couch (quoted by the Judicial Committee in Subramcmian v. Lutchman (1922) 44 M.L.J. 602 : L.R. 50 IndAp 77 : 1922 I.L.R. 50 Cal. 338 (P.C.) "the rule with regard to writings is that oral proof cannot be substituted for the written evidence of any contract which the parties have put into writing". The question is, how far does this rule or the reason of the rule apply to .....

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answer seems to me to depend on, whether it is not true even in this case that the writing, namely, the promissory note is "tacitly considered by the parties as the only repository and the appropriate evidence of their agreement" {per Sir Richard Couch in the case already quoted from). 17. The course of decisions in the Indian High Courts may be briefly stated. The Allahabad and Lahore High Courts have after some fluctuation of opinion adopted the stricter view in their latest Full Be .....

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f the unstamped promissory note; with all respect, it is difficult to see how the indorsee who could not even prove the note could sue on the original consideration between the maker and the payee. (See Waynawi v. Bend (1808) 1 Camp. 175 : 170 E.R. 918. In Sheikh Akbar v. Sheikh Khan I.L.R.(1881) Cal. 256 Garth, C.J., re-affixmed the stricter rule; but in Pramatha Nath Sandal v. DwarkaNath Dey I.L.R.(1896) Cal. 851 his statement of the law was interpreted in a manner not easily reconcilable with .....

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d by the Bombay High Court in Krishnaji v. Rajmal I.L.R.(1899) 24 Bom. 360. In Jacob and Co. v. Vicumsey (1926) 29 Bom. L.R. 432 the learned Judge seems to be adopting the view of Page, C.J., in the Rangoon case. In Patna, the question can scarcely be regarded as settled (cf. Dhaneswar Sahu v. Ramrup Girl I.L.R.(1928) Pat. 845 where Macpherson, J., concurred only on the ground of stare decisis). 18. As some of the Indian decisions purport to follow the" English rule, it is necessary to note .....

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ts, permit certain facts to be esablished by proof at large. Though it may generally be true to say that Section 91 of the Indian Evidence Act embodies what is known as the 'best evidence' rule in the English law, the terms in which the rule has been codified here do not permit to the Courts in India the latitude which English Courts enjoyed at a time when the rule was being developed and administered there substantially as a rule of caution in leaving evidence to the jury. Thus, the sam .....

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r, rules of exclusion which had been developed mainly with a view to avoid ignorant juries being misled or confused, were not scrupulously adhered to by Courts of Chancery where the Judge himself adjudicated both on law and on fact, especially when the exclusion of a writing by reason of the prohibition arising from the Stamp laws threatened to defeat a just claim. In Huddlestone v. Briscoe (1805) 11 ves. 583 : 32 E.R. 1215 when pressed with an objection based on the Stamp laws, Lord Eldon state .....

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o. Thus (A) Where a promissory note appears to be improperly stamped, the plaintiff may resort to the original consideration (S). If a plaintiff succeeds in making out a case of implied or oral contract and it does not appear on the cross-examination of his witnesses that there was any contract in writing, the defendant will not be allowed to give an unstamped written contract in evidence for the purpose of non-suiting the plaintiff. 21. The proposition that I have marked (B) in the above extrac .....

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roposition that I have marked (A) in the above extract purports to be based on Farr v. Prices and Tyte v. Jones reported as a foot-note to Farrv. Priced (1800) 1 East. 55 : 102 E.R. 22. 22. Farr v. Price (1800) 1 East. 55 : 102 E.R. 22 Will On examination be found to be an action by an indorsee of a pronote; and in view of what is taken by Lord Ellenborough in Waynam v. Bend (1808) 1 Camp. 175 : 170 E.R. 918 to be indisputable, that is, that the indorsee cannot recover under any of the money cou .....

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inciple which had at one time been enunciated in England that an unstamped document was a mere paper which did not amount to an 'agreement' and which therefore left the plaintiff's evidence where it stood (The King v. The Inhabitants of Padstow (1832) 4 B. & Ad. 208 : 110 E.R. 434). Such a theory is scarcely maintainable in view of later authorities (see Alcock v. Delay (1855) 4 El. & Bl. 660 : 119 e.R. 243 ; Roscoe, p. 227 Evidence in Civil Actions; see also Ram Bahadur v. D .....

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1800) 1 East. 55 : 102 E.R. 22 seems to rest on another principle of the English law which the Indian Legislature had deliberately departed from, in enacting Section 22 of the Evidence Act. The proof that was permitted in Tyte v. Jones was to the effect that when the money for which the unstamped promissory note had been given was demanded of the defendant, he acknowledged the debt. This is explicable in the light of the rule supported by some authority in England that admissions by a party, eve .....

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ent being unstamped, no evidence of its contents whether primary or secondary is admissible, evidence of admissions by the defendant is equally inadmissible. The position may be different where admissions are made in the pleadings themselves (cf. Huddleston v, Briscoe (1805) 11 Ves. 583 : 32 E.R. 1215 and Thynne v. Protheroe (1814) 2 M. & S. 553 : 105 E.R. 488 because by reason of Section 58 of the Evidence Act, it may not be necessary to prove admitted facts and the objection under Section .....

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on" the document within the meaning of Section 35 of the Stamp Act; see also Ankur Chunder Roy Chowdhry v. Madhub Chunder Gkose (1873) 21 W.R. 1. 24. It seems to me that the other English authorities which have been referred to in this connection by text writers or in the Indian decisions do not really bear on the objection arising under Section 91 of the Evidence Act, Henry Gomperts v. Thomas Bartlett (1853) 2 El. & Bl. 849 : 118 E.R. 985 turned on the rights and obligations of vendor .....

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warrant the conclusion that a person lending money on an unstamped note can maintain an action for money had and received. I shall recur to this point later. 25. Sutton v. Toomer (1827) 7 B. & C. 416 : 108 E.R. 778 proceeded on the footing that though by reason of the alteration, the promissory note had become unenforceable, the alteration did not extinguish the debt "and that it was competent to the plaintiff to give the paper in evidence to prove the terms on which the money was depo .....

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s to Brown v. Watts (1808) 1 Taunt. 353 : 127 E.R. 870 and to Cundy v. Marriott (1831) 1 B. & Ad. 696 : 109 E.R. 945 which was a case of a bill given for goods sold (see also Plimley v. Westley (1835) 2 Bing. N.C. 249 : 132 E.R. 98). 26. It may be convenient to refer next to those of the Indian decisions which when dealing with claims for money lent under unstamped notes invoke the principle that the giving of a negotiable instrument only operates as a 'conditional discharge' or mere .....

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ument in satisfaction of his existing claim but only as a security or as means of obtaining satisfaction from the drawee of the bill or cheque. Even in cases where money is lent contemporaneously with the giving of a cheque by the borrower or the drawing of a bill on a third party, it may be reasonable to treat the bill or cheque as an attempt at payment and to presume that it was only a 'conditional' payment. The difficulty created by Section 91 of the Evidence Act will not arise in thi .....

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al' payment. 27. So far as I have been able to examine the English cases which enunciate the doctrine of 'conditional' payment, I do not find that any of them relates to a promissory note executed as part of the loan transaction itself. I am therefore with all respect unable to concur in the proposition stated by Page, C.J., as proposition No. 3 in Maung Chit v. Roshan N.M.A. Kareem Oomer and Co. I.L.R.(1934) Rang. 500 (F.B.) and statements to the same effect in other reported decisi .....

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ideration for the loan,' if, as later observations in the judgment imply, a promissory note cannot, according to the learned Judge, be reasonably presumed to have been taken as 'consideration' for the loan. I am free to confess to some difficulty in understanding what the learned Chief Justice had in mind when he postulated the possibility of a promissory note by the borrower being 'consideration' for the loan as distinguished from the 'contract' of loan. I can unders .....

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at there is any presumption that a promissory note taken from the borrower as part of the loan transaction is taken merely as 'collateral security'; but in particular cases the evidence may lead to that conclusion. (See per Pratt, J., in Maung Kyi v. Ma Ma Gale (1919) 54 I.C. 84 (F.B.)) 28. The theory propounded by Ormond, J., in Maung Kyi v. Ma Ma Gale (1919) 54 I.C. 84 (F.B.) that in every case of a promissory note loan "there are two distinct promises made by the borrower (1) tha .....

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Shaw v. Foster (1872) L.R. 5 H.L. and applied by the Judicial Committee in Subramanian v. Lutchman (1922) 44 M.L.J. 602 : L.R. 50 IndAp 77 : 1922 I.L.R. 50 Cal. 338 (P.C.) would not preclude the lender from falling back on the implied promise when the contract between the parties had been reduced to writing. 29. It has been asked why a man should be put in a worse position when he takes a worthless document than when he does not take any. Lord Cairns said: Any implication that might be raised, .....

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to any implied contract; if he recovers at all, it must be on the contract actually made and he must prove that, if it is denied, and he must do it by the production of the writing, which, not being stamped, cannot be seen in evidence," (Ankur Chunder Roy Chowdhry v. Madhub Chunder Ghose (1873) 21 W.R. 1.) 31. This case has sometimes been explained away on the ground that the suit was there laid on the note and not on the consideration. (See Golap Chand Marwaree v. T. Mohokoom Kooaree (187 .....

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Section 91 will not arise (see Mulla and Pratt, Commentaries on the Stamp Act, 3rd Edition, p. 134). The decision in Subramanian v. Lutchiman (1922) 44 M.L.J. 602 : L.R. 50 IndAp 77 : 1922 I.L.R. 50 Cal. 338 (P.C.) furnishes the answer even to this suggestion. In the absence of a document embodying the terms of the security created by the deposit of title deeds, the lender could have proved the deposit by oral evidence and obtained the benefit of the security; but when the transaction was accom .....

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posit of title deeds (with intent to create a security) would suffice, but in the case referred to, their Lordships declined to allow even the fact of such deposit to be proved when the document turned out to be inadmissible. It is obvious that when the creditor is asking for permission to prove the fact of the loan, he is only seeking to invoke the theory of an implied promise to repay. In Krishnaswami Pillai v. Rangasami Chetti I.L.R.(1883) Mad. 112 the learned Judges held that: the defendant& .....

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like the present seems to me, with all respect, to ignore the distinction between the 'contract' and the 'consideration' for the contract. We only fall back on the question whether the promissory note represents the contract or the consideration for some other contract. In view of the judgments delivered in Sinclair v. Brougham I.L.R.(1883) Mad. 112 it seems to me that neither the theory of failure of consideration nor the formula of money had and received is available in the cas .....

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depends' forms no part of but is merely collateral to the main contract (per Lord Parker in Sinclair v. Brougham (1914) A.C. 398 The claim for 'failure of consideration' can arise only when the contract has been proved and the very question for decision is whether or not Section 91 of the Evidence Act prevents the contract being proved without the production of the note. 34. The observations of Bowen, L.J., in In re Guardian Permanent Benefit Building Society (1883) 23 Ch. D. 440 qu .....

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re that the document is duly stamped - though, according to several decisions he may not incur the penalty prescribed by Section 62 of the Stamp Act by taking an unstamped document. It only remains to add that Section 70 of the Indian Contract Act, which has sometimes been appealed to, is scarcely appropriate to a case of money lent to the defendant. There is no possibility in such a case or even a contemplation of the 'thing delivered' being restored - which obviously means in specie; a .....

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use it is improperly stamped. Assuming that the promissory note contains a recital of the consideration for which it was executed is the promisee debarred from proving the fact that consideration passed and must he therefore fail in a suit to recover the consideration? All the High Courts in India appear to be agreed that when the consideration passed prior to the execution of the note-as when the note is executed for money due on account-or when the consideration arises out of a transaction whi .....

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the form: For money which I owe you on account I promise to pay you, etc.," or "For money received from you to-day I promise to pay you, etc. 38. Then, if the recital of consideration is a term of the contract it cannot on a strict interpretation of Section 91 be proved at all except by proof of the promissory note. See the similar opinions expressed by Phillips and Reilly, JJ., in Venkata-chalapathi v. Ramakrishnayya AIR1930Mad168 . 39. The question for decision as formulated by my L .....

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and the promisee can never be wholly embodied in the promissory note. One of the terms of the contract is that the promisee agrees to accept the promissory note in satisfaction of the debt due to him by the promisor. What he agrees to accept is a valuable security and not a worthless piece of paper - which is all that the note is if it is not properly stamped. If then the note is valueless the promisor has not done that which he contracted to do. The promisee has not got what he bargained for. T .....

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y note could so operate. This implied warranty is in my opinion a term of the contract and such a warranty is in my experience not generally embodied in a promissory note or other negotiable instrument. 41. Reverting to the first proposition which I have stated, namely, that the recital in a promissory note of the existence of the debt is not a term of the contract, it is permissible, I think to refer to the opinion of the learned and distinguished authors of the Commentary on the Indian Stamp A .....

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loan was not made at the request of the debtor, there is a liability to make compensation under Section 70 of the Contract Act. 42. In spite of the conflict of decisions in Indian Courts on the question whether a separate cause of action arises on the consideration in the case where consideration passes at the same time as the promissory note, I think that it is possible to interpret the decision of the Judicial Committee in Sadasuk Janki Das v. Maharajah Kishan Pershad (1918) 36 M.L.J. 429 : L. .....

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his behalf. The Judicial Committee held that the Maharajah could not be made liable on the hundis but that the plaintiffs could in the alternative have based their suit on the consideration: It would have been open to the plaintiffs had they thought fit to have framed their case in an alternative form and to have sued both on the hundis and alternatively upon the consideration. 44. In Venkatachalapathi v. Ramakrishnayya AIR1930Mad168 already cited in another connection, the principle of this de .....

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