Jetha and Others v Gordhandas (C.C. No. 61/1936) [1936] EACA 131 (1 January 1936)

### ORIGINAL CIVIL

### BEFORE LANE, AG. J.

# MULJI JETHA, SHIVJI JETHA, AND LALJI MULJI, TRADING AS MULJI JETHA, Plaintiffs

#### v.

## JAMNADAS GORDHANDAS, AS ADMINISTRATOR OF THE ESTATE OF THE LATE PITAMBER GORDHANDAS, Defendant

## C. C. No. 61/1936

- Maker of Promissory Note making himself responsible for debt in bankruptcy owed by a different party, an undischarged bankrupt —Fresh consideration renders agreement good and maker liable— Agreement not void as being contrary to spirit of bankruptcy law or as inconsistent with good faith to other creditors. - *Held* (13-12-37).—An agreement by a third party to pay a debt originally owed<br>by a different party to a creditor, which debt had become a claim proved in bankruptcy, is binding and renders the third party liable, provided there has been fresh consideration.

Christie for Plaintiffs.

Inamdar (with Doshi) for defendant.

The deceased, whose administrator was the defendant, by a promissory note agreed to pay to the plaintiff a sum of money which was in fact a part of a debt owed by a different party, a firm who were undischarged bankrupts, to the plaintiffs. This debt was part of a claim which had been proved in bankruptcy by the plaintiffs, and in respect of which they had received certain dividends from the bankrupt estate. The deceased before his death received financial assistance from the plaintiffs which constituted valuable consideration for his promise to pay. It was held therefore that the deceased's agreement to pay was good and rendered him liable and that it was not void on the ground of being contrary to the spirit of the bankruptcy laws or inconsistent with good faith to other creditors.

Cases cited: $-$

Wild v. Tucker (21 Manson, 181).

Jakeman v. Cook (4 Ex. D. 26).

JUDGMENT.—The plaintiffs are suing for Sh. 7,784/55 being the balance claimed as due by the defendant on an account. The first item in the account attached to the plaint is a debit against the defendant of Sh. 9,716/24; this item is the only matter in dispute between the parties as the rest of the account is agreed to be correct, and it is claimed to be due on an account stated and signed by the deceased Pitamber, on 31-12-33, the latter's administrator being the defendant in this case.

A promissory note for Sh. 10,000 dated 30-12-33 signed by the deceased Pitamber admittedly formed the basis of the amount acknowledged by Pitamber in the account stated (Exhibit 2). The promissory note is marked Exhibit 3 in this suit.

The defence is an allegation of want of valuable consideration for Exhibit 3. There is no dispute about Pitamber's signature to the account stated or to the promissory note.

The defence says that the sum claimed is not recoverable because the Sh. 10,000 for which the promissory note (Exhibit 3) was given formed part of a debt in bankruptcy owed to the plaintiffs by a firm named Gordhandas Bhagwanji and Co., that the plaintiffs proved this claim against the latter firm's bankrupt estate, and received two dividends against it; and that the deceased Pitamber having given the promissory note as a promise to pay a part of that debt in bankruptcy, the claim became merged in bankruptcy, and that the present claim is not legally enforceable as being time-barred and irrecoverable at common law and in consequence that there was no consideration for the promise contained in the promissory note.

It is of course presumed in law that there was valuable consideration for the promissory note and it was for the defence to show the absence of it.

It is common ground that in 1929 Gorhanda's Bhagwanji, the father of Pitamber, and a partner in the firm of Gorhandas Bhagwanji and Co., became bankrupt, together with his partner Hansraj. They are undischarged bankrupts still. They were goldsmiths in business at Mombasa. As soon as they became bankrupt Pitamber began in business as a goldsmith, Gordhandas working with him and being interested in the business. This latter is my own opinion formed from Gordhandas' evidence; although he has not specifically admitted this interest, he spoke of his son's business as "ours" and constantly said "we" did so and so, in connexion with the business. Pitamber carried on this business until his death, and had dealings from 1929 onwards with the plaintiffs, who are bullion merchants and who supplied him with gold for his trade. Pitamber's relationship with the plaintiffs was on the whole good and they regarded him with a certain amount of confidence, and a customer worthy of credit. Gordhandas his father continued to help him in the business and although he, Gordhandas, had failed in business himself in 1929 with a large debt due to plaintiffs, Mulji Jetha, the senior partner of the plaintiff firm, remained friendly with Gordhandas and continued to deal with his son. I say "although he failed" because as I have explained, when Gordhandas and his partner went bankrupt, the plaintiffs proved a claim against them amounting to over £800, only a small portion of which has been paid by dividends in bankruptcy.

The defendant's case is that Pitamber gave the promissory note (Exhibit 3) on 30-12-33 solely because his father persuaded him to; and that the father did this because he was ashamed of the debt which his firm had owed to the plaintiffs, ever since 1929. This the defence says does not constitute valuable consideration.

The plaintiffs' case is that when Pitamber started in business in 1929 he had no capital and was obliged to get assistance and credit from some bullion merchant or other in order to obtain gold for his trade; that the plaintiffs' support and assistance was sought by Pitamber and his father and that it was given and formed the consideration for a promise to pay to the plaintiffs a sum of Sh. 10,000, in the form of a promissory note signed by Pitamber and three others who incidentally were Pitamber's relatives. That this promissory note when it was in danger of being time-barred was renewed

by Pitamber alone in the form of Exhibit 3, the promissory note of 30-12-33. Thus the plaintiffs say the consideration for it was the credit and support of the plaintiffs, when Pitamber started business.

It is important to follow the sequence of the transactions as related by the plaintiffs; namely the debt owed by Gordhandas Bhagwanji and Co, to plaintiffs and proved in bankruptcy in 1929, the promissory note for Sh. 10,000 executed by Pitamber and three others in plaintiffs' favour shortly afterwards, i.e. in 1930 or 1931; the promissory note for Sh. 10,000 in renewal of this, executed by Pitamber on 30-12-33 in plaintiffs' favour; followed by the account stated on 31-12-33 signed by Pitamber disclosing a balance due by him of Sh. 9,716/24. The plaintiffs' case shortly is that Pitamber made himself responsible for the Sh. 10,000, this being a portion of the old bankruptcy debt of Gordhandas Bhagwanji and Co., in consideration of the plaintiffs' help to himself in starting a new business in 1929 when his father failed; that he did this by signing the first promissory note for Sh. 10,000, alone with three of his relatives; that he was induced to renew it on 30-12-33 by pressure being placed upon him by the plaintiffs who threatened to discontinue business unless it were renewed, and that he did so in the form of the promissory note (Exhibit 3). And that this formed the basis of the account stated.

In my opinion there is no doubt that, as the plaintiffs allege, the consideration for Exhibit 3 was the plaintiffs' help to Pitamber in 1929 and that in fact Pitamber was making himself responsible for a part of the old bankruptcy debt. I think that the plaintiffs have established also that there was a promissory note executed in 1930 or 1931 by Pitamber and three other men for Sh. 10,000 for this consideration and that Pitamber renewed it in the form of Exhibit 3, thus avoiding limitation.

I think there is no doubt of the existence of this first promissory note in view of the evidence of Mulji, Chhotabhai and the letter of Mohanial (Exhibit 8). I find this in spite of Gordhandas' denial that there was a promissory note prior to Exhibit 3 and the fact that no mention of any such promissory note appears in either party's books prior to 1933. I accept Mulji's explanation that it was not his practice to show in his books promissory notes of this description.

This disposes of the defendant's argument, as I understand it, to the effect that because there was a gap of four years and some months between the proof in bankruptcy of the original debt of Gordhandas Bhagwanji and Co., and the making of Exhibit 3, the consideration for the latter was time-barred under the Indian Limitation Act (which was in operation at that time) and that it thus became an agreement without consideration, which was consequently void; and that this time-barred debt could not be revived by Pitamber under exception 3 to section 25, Indian Contract Act, because he was not the person originally liable to pay the debt, i.e. the firm of Gordhandas Bhagwanji and Co., or that person's agent.

As I say the existence of the first promissory note disposes of this argument because the promise was obviously kept alive.

The admissions of Gordhandas in the course of his evidence taken together with the evidence of Mulji are proof to my mind that Pitamber had to have the plaintiffs' assistance in starting the business in 1929 and that it was given for the consideration described by the plaintiffs.

Mr. Inamdar raised several points of law in his argument for the defence.

One was that the plaintiffs were not entitled to bring evidence as to valuable consideration for Pitamber's promise at the time of the first promissory note because they had filed no reply to the defence putting this in issue. I have already held that the matter was already in issue by reason of the pleadings as they stood.

Another point was that secondary evidence regarding the first promissory note was inadmissible because the plaintiffs had given no notice to produce. This point was not taken at the time by Mr. The promissory note itself was of course not produced Inamdar. Mr. Christie had served a general notice to produce; Gordhandas denied its existence. The secondary evidence appears to me to be. in order.

A further point was that production of a Supreme Court Civil Case record No. 36/36 was contrary to section 33 Indian Evidence Act. I cannot see that section 33 applies or that this evidence was inamissible.

There was also this interesting point which was of some importance, that the original debt in bankruptcy of Gordhandas Bhagwanji and Co. could not form consideration for a fresh promise by Pitamber to plaintiffs because it had become merged in the bankruptcy. And that such an agreement by Pitamber to pay was contrary to the spirit of the Bankruptcy Laws and inconsistent with good faith to other creditors, and therefore void as contrary to public policy.

The important feature of this aspect of the case is that fresh consideration was given by the plaintiffs to Pitamber in return for his undertaking to pay part of the old bankruptcy debt, namely the supply of gold and giving of credit to Pitamber. This consideration was given to Pitamber and not to the bankrupts and the promise was given by Pitamber who was not a debtor in bankruptcy.

Thus the case falls within the authority of Wild v. Tucker (21 Manson's Bankruptcy Cases p. 181) and Jakeman v. Cook (4 Ex. D. p. 26); wherein it was held that an agreement by an undischarged bankrupt that he would pay a debt provable in bankruptcy in consideration of an advance made to him by the creditor is not an agreement which is contrary to the bankruptcy law, but may be enforced by the creditor against the bankrupt. And in fact this case is more strongly in the plaintiff's favour than if the circumstances were as in those two cases. For as I have said the promisor for fresh consideration here was a third party, Pitamber, who was not a debtor and it is against his estate that the agreement is being enforced. Whereas in each of the two cases cited the promisor for fresh consideration was the debtor himself, and it was against the debtor himself that it was held that the agreement could be enforced.

And in addition to this, there is the account itself signed by Pitamber which defendant could only upset on very strong grounds. The only ones brought forward have not been established.

There must therefore be judgment for plaintiffs for Sh. 7,784/55 and costs and interest as prayed.