1. This is a second appeal which raises a very nice point of evidence, or rather the admissibility of evidence, a point which is constantly arising in various forms, and about which there is really a good deal of authority both in the English reports and in the Indian reports.
2. The appeal is brought by the defendant, whose defence has in substance bean struck out, on the ground that he has not been allowed to prove his real case, because it has been held against him that his real case consists of evidence which is rendered inadmissible by Section 92 of the Evidence Act. Inasmuch as the learned District Judge, who is now a member of this High Court, followed a reported decision, which seemed to be in point, by two Judges of this High Court which was undoubtedly binding upon him; he naturally decided in the way that he did. We are not making any complaint, and the existing practice is perhaps intelligible, but as a matter of fact it is extremely embarrassing to have to decide the admissibility, or otherwise, of a fundamental piece of evidence, tendered in support of defence, when one has only the vaguest idea as to what that evidence is. It is not only embarrassing but also dangerous to the parties because if the Court of appeal is compelled to interfere and order either a new trial, or further evidence to be taken, there is great temptation to the party tendering the evidence, so to frame his evidence as to fit it into the propositions which have been extracted; from the Court of appeal.
3. It is perhaps necessary therefore to utter a word of warning to the Court which will have to take the evidence again in this matter, that a substantial variation from the original statements tendered, or attempted to be made, at the first hearing should be regarded with suspicion; but at the same time it is desirable to utter a warning that suspicion ought not to be allowed to rest upon evidence which is additional and is really only developing the point which the defendant all along desired to make. A further warning seems necessary, owing to the old complaint of the lack of training in precise pleadings, and the vague and inartistic way in which pleadings are allowed to pass muster in these provinces it would be unjust, as this Court has said scores of times, to apply a rigid standard of scrutiny to a pleading which, however clumsy, was really endeavouring to set up the real defence, and is not flagrantly inconsistent with the story which the party attempts to support by his evidence. In a case of this kind it is true to say that whatever instructions are given to the pleader in the initial stages of the case, when the pleadings have to be framed, no body really knows what the case of either side is until the matter conies into Court; and as a matter of strict justice the fault, where the Court has to deal with a vague and clumsy attempt in a pleading be set up a definite defence, is not entirely on the shoulders of the defendant and his pleader. The law has, for excellent reason, and as the result of long experience, provided machinery by which the other side, if there is doubt, prolixity, or vagueness about the pleading may apply to the Court for an order for particulars, and the plaintiff in this case could undoubtedly have applied to the Court to direct the defendant to give further and better particulars of the defence sought to be set up under paragraph.3 of the further pleas. We recognize, however, that this machinery, valuable though it is for the purpose of clearing ground before the parties come into Court, is almost wholly ignored in the proceedings of the trial Courts, and little or no notice is taken of it until the unfortunate Court of appeal is asked to disentangle the knot into which the case has tied itself for lack of adequate preparation.
4. The question of law, which we have to determine, turns upon the true application of two sections of the codified law, and we think we should be doing less than our duty-indeed we have no right to interfere with this decision at all, without expressing our disagreement with the legal position which has been taken in the matter up to this moment, giving our reasons for so doing, and stating what we believe to be the law applicable to the evidence. The two sections are Section 46 of the Negotiable Instruments Act and Section 92 of the Evidence Act. Possibly owing to the unfamiliarity of the ordinary Courts with cases relating to bill transactions, the point has been discussed in the case before us, and other authorities which have been cited as depending solely upon Section 92 of the Evidence Act. There is really no difference in substance between the two provisions, but at any rate in English business transactions the question arises far more often in relation to negotiable instruments, or promissory notes, than in relation to any other documents, and is easier to expound and easier to apply in relation to such documents. It must be borne in mind that the liability in relation to a promissory note, or negotiable instrument, attaches by or from delivery and Section 46 of the Negotiable Instruments Act provides that as between the parties to an instrument (that means to say the immediate parties) it may be shown that the instrument was delivered conditionally, or for a special purpose only, and not for the purpose of transferring absolutely the property therein. There really should be no difficulty in applying this simple provision. A note is sometimes given as, what is described as collateral security. The term 'security' is misleading because a note of hand conveys no higher security than the personal liability of the executant; but it is a collateral liability, and arms the creditor with conclusive documentary evidence of loan, for the recovery of which nonetheless he might sue even if he had no document at all; and in a case in which A lends B a thousand on a verbal promise to repay on demand, and a day or two afterwards B gives A a promissory note for a thousand as what is called 'collateral security, it is clear law that if after B repaid the thousand to A, A put the promissory note in suit, it would be open to B to set up the true story under Section 46, and to show that he gave the promissory note conditionally, or for a special purpose only, namely as a document on which the plaintiff could sue in the event of B failing to pay the loan, or fulfil his verbal promise. Another illustration is that of a signature upon a bill given by a guarantor. A guarantor, or surety, is always able under Section 16, to show that he put his name upon the bill merely as a guarantor for the debtor originally liable, and received no consideration, and that may be a matter of the utmost importance, because a surety has defences open to him, which are not open to the debtor. If the creditor gives the debtor unreasonable time for payment, so that the position of the surety is altered, the surety may set up in defence that he is discharged by the creditor having given time to the debtor, and he could not do that unless he could show under this section that he signed only in the capacity of a surety. In the great majority of cases nobody can tell by looking at the bill whether the names are the names for example, of three joint debtors, or of three persons who have accepted different liabilities. Similarly it may be shown that the instrument was delivered conditionally, that is to say as a collateral undertaking, given to the creditor, to be enforced only in the event of the debtor failing to discharge some contemporaneous undertaking. There is as we have said, no difference in substance but only in illustration and application between the provision in Section 46 of the Negotiable Instruments Act, and proviso 3 to Section 92 of the Evidence Act. Proviso 3 of Section 92 of the Evidence Act runs as follows:
The existence of any separate oral agreement constituting a condition precedent to the attaching of any obligation under any such contract may be proved.
5. Applying that to the illustrations which we have given, and bearing in mind that the attaching of an obligation under the Negotiable Instruments Act is delivery, it is quite consistent with Section 92 of the Evidence Act that the signatory to a bill should be able to prove by oral evidence that the condition precedent at the time of the making of the bill, or the delivery of the bill, was that it should merely be a record of a collateral liability against the failure of some other undertaking.
6. Applying these considerations to the defence set up in this case, it appears to us, after hearing such evidence as the defendant gave, not apparently in the ordinary course of the trial, but under the exceptional procedure of an examination conducted by the Court itself by way of anticipation and the wholly vague allegation in para. 3 of the defence that the defendant desired to prove, or was attempting to prove that the promissory note in question was not the substantive liability such as it would be if given for a loan, or for the payment of the price of goods sold and delivered, but was a collateral undertaking, or recognition of liability arising out of another contract in the nature of a partnership transaction under which the defendant had become answerable to the plaintiff for the sum of Rs. 2100, set out in the note, which represented the plaintiff's share of the capital in the partnership when the partnership came to be dissolved.
7. The defendants' statement to the Court, roughly, was that he had bought or entered into a bargain and sale for the purchase of certain springs, in Lahore some time in May and that being unable to put up the whole amount of the price, which of course would be the working capital in the business of selling these springs and iron things at a profit, he approached certain persons to come in as partners. He had deposited, he says, a thousand rupees to bind the bargain and to secure delivery, and had secured a person named Maula Baksh to come in as a partner, and presumably to provide capital. The story was very sketchily told, and was not extracted from him by anybody. He went on to say that the plaintiff joined in the spring transaction only for Rs. 2,100. He gave the plaintiff no receipt. It only appeared in his account books, but either at the request of the plaintiff, or in the ordinary course of events, as would be expected between two business men, it was considered right that the plaintiff should have some document which he could use as what we have described as a collateral liability, or which he could produce as conclusive evidence of his share in the partnership capital, or which, when dissolution came and there were substantial profits to be divided, he could tender as the mark of his claim in the distribution. The defendant distinctly stated, if he meant by what he appears to have said, that the promissory note was executed by him, which means given to the plaintiff to repay the sum of Rs. 2,100 which the plaintiff had paid towards the total sum necessary for purchasing the goods through him, the defendant, who was conducting the negotiations for their purchase and delivery from Lahore. We have not the slightest hesitation in holding that such evidence is not, only admissible, but is precisely the class of evidence contemplated by the proviso, which we have only partly cited, in Section 45 of the Negotiable Instruments Act, and in Section 92 of the Evidence Act. We might emphasize an expression in Section 46, to which we have not hitherto adverted, namely that it may be shown that the instrument was delivered not for the purpose of transferring absolutely the property therein. It is a significant feature of the evidence and cannot be altered as the result of any observation which we make in this judgment, that the defendant alleged that he deposited the money necessary for securing the goods in Lahore on the 21st of June 1921. That may not be so, but it is a significant fact that the promissory note in question is dated the 15th of June; that is to say, before the actual liability of the defendant towards the plaintiff in the partnership transaction had become crystallized. The moment the money was handed over by the plaintiff to the defendant, the defendant became entitled to restore it if the transaction fell through; but if the transaction went through the plaintiff would have no claim upon the defendant until the partnership was dissolved, and it does seem to support the defendant's case, with regard to the preliminary deposit of the money in Lahore and the negotiations for the purchase which were taking place there, that the promissory note should have been dated the 15th of June.
8. The Courts below followed the decision of a two Judge Bench of this Court, Sri Ram v. Sobha Ram Gopal Rai A.I.R. 1922 All. 213. No arguments are set out in the report, and Section 46 of the Negotiable Instruments Act was not even referred to. We doubt whether we should have come to the same decision as that Bench did on that occasion, but we desire to make it plain how we think authorities, which seem to be inconsistent with the view which we take, ought to be dealt with. The point of law, as we have said, in this case is clearly statutory. We have no authority to vary the language of the statute, or to attempt either to alter or defeat its plain meaning. We have to apply it. There are cases where ambiguous expressions in statutes give rise to fundamental differences of opinion. But where an authority is cited merely as an illustration of a particular application of language in a statute, which is not in dispute, one can only say that a decision in such a case is not necessarily binding in another case. Circumstances alter cases and we hold that we are free to apply what we understand to be the plain English of the statute to the circumstances of this case, without regard to the fact that in another case a Bench of this High Court applied the same language to circumstances apparently similar in a different way. Whether these observations would be of any assistance to any subordinate Court, which was invited to decide or distinguish between the decision we are giving to-day and the decision in the Allahabad Law Journal, we are unable to say, and therefore we will go this much further and say that if there is pronounced inconsistency between our decision and that decision, we do not hesitate to say that decision was not correct. If anybody should feel a difficulty in applying the provisions of these two sections he cannot do better than study the decision in New London Credit Syndicate v. Neale 2 Q.B.D. 487. The law in England and the law is India in this matter does not differ. There was a simple bill of exchange for 110.
9. There the contention was that, at the time the bill was accepted, an oral agreement was made, and was relied upon by the defendant, that if the defendant could not meet it at maturity, the drawers would renew it. The first observation is that defence appears to be an attempt to vary the terms. The internal provisions of the bill were that it should be payable on a certain date, and an oral agreement that it should not be payable on that date but some other looks very much like an attempt to vary the substance of the bill. The importance of the case is that Mr. Justice Darling, who tried it, believed the defence. Whether the evidence was objected to or not, it probably was, it was received and acted upon by the learned Judge. He held that the defendant's story was true and that the negotiation of the bill by the holders, which of course would put it in the hands of a third party, who could sue upon it, was in breach of good faith and a trick upon the defendant, having regard to the agreement that it should be renewed at maturity. The point of law therefore arose in the most concrete form. There was a finding by an experienced Judge that the defence was true, and that the plaintiffs had agreed not to negotiate the bill, not to enforce it, but to renew it at the date of maturity; and therefore if that evidence, which was accepted, was admissible by law the plaintiff's suit failed; the old cases were cited in argument, including Pim and Campbell, and the Court of appeal held that it was inadmissible, because it was an attempt to vary the liability. The case is valuable because it contains two clear statements by two great commercial lawyers, which enable anybody who takes the trouble to study them, to guide his course without possibility of mistake. Lord Justice A.L. Smith said at page 490:
If the evidence be to the effect that the document is only delivered as an escrow (which means to say, a provisional liability) or that it is not to take effect as a contract until some condition is fulfilled, it is admissible. But that is not this case.
10. Lord Justice Vaughan Williams on the next page of the report said this:
For lawyers practising under the old system of pleading there was a convenient test in these cases as to whether the oral evidence which it was sought to give was admissible. If the evidence ware such as would support a plea of the general issue in as action of contract like non ast factum, that is to say if it amounted to showing that, though the defendant signed the instrument he signed on the understanding that it should not be an effective instrument until some condition was fulfilled, then it was admissible.
11. If in this case the truth really is that the defendant gave this promissory note on the understanding that it should be an effective instrument, if and when the liability arose upon his part to restore to the plaintiff his share of the capital, that evidence would in accordance with that exposition of the statute law in India be admissible.
12. We would only repeat that the Court to which we propose to refer the issue will of course in taking the additional evidence, which will be necessary, do so with great care and be careful to see that in substance advantage is not taken of this decision by the defendant and his witnesses to trim their case according to what they now understand to be the admissible aspect of it in the view of the law. We think that on the whole it would be to the interest of the parties if we retain control of the case, and therefore we refer an issue to the lower appellate Court under Order 41, Rule 25. We direct the following alternative issues: A.I.R. 1922 All. 213 Was the promissory note in suit given to the plaintiff in discharge of an existing debt for past consideration or for the purpose of transferring absolute property therein to the plaintiff, or (2) was it given as a collateral security or undertaking only to be enforced if and when the defendant became liable to refund of pay to the plaintiff the sum of Rs. 2,1.00 as the result of their joint undertaking. The parties will be at liberty of course to give further evidence and the usual ten days will be allowed for objections, and the Judge will be at liberty if he finds himself unable on a consideration of the whole evidence to answer either of these issues definitively, to set out in a separate statement what he believes to be the true facts.