1936 (3) TMI 15 - HC - Indian Laws

Summary

Issues Involved:
1. Whether the plaint showed any cause of action.
2. Whether the plaintiff could sue defendant No. 1 based on the agreement between defendant No. 1 and defendant No. 2.
3. Whether the plaintiff, having taken judgment against defendant No. 2, precluded himself from proceeding further against defendant No. 1.
4. Whether the liability of defendant No. 1 to pay the debts of defendant No. 2 included debts incurred before April 1, 1934.
5. Whether the sums claimed by the plaintiff were trust moneys or mere debts.
6. Whether a third party beneficiary can sue on a contract under Indian law.

Detailed Analysis:

1. Whether the plaint showed any cause of action:
The primary issue was whether the plaint demonstrated any cause of action. The court initially held that it did, based on the material facts. Defendant No. 2, who operated under the name National Petroleum Company, had entered into a contract with the plaintiff, appointing him as a selling agent. The plaintiff had deposited Rs. 1,000 as security and was owed Rs. 3,649 under the agreement. Defendant No. 1 took over the business and liabilities of defendant No. 2. The plaintiff terminated the agreement and demanded the return of his deposit and the balance due, subsequently filing a suit when the demands were not met.

2. Whether the plaintiff could sue defendant No. 1 based on the agreement between defendant No. 1 and defendant No. 2:
The plaintiff's claim against defendant No. 1 was based on an equity that defendant No. 1, having taken over the business and assets of defendant No. 2, and having covenanted to discharge all liabilities of defendant No. 2, was liable to the plaintiff. However, the court noted that the plaintiff did not make a case of novation or estoppel and did not plead any independent contract, express or implied, with defendant No. 1. The court concluded that the plaintiff could not sue defendant No. 1 directly for the debt under the contract between the two defendants.

3. Whether the plaintiff, having taken judgment against defendant No. 2, precluded himself from proceeding further against defendant No. 1:
The court held that once the plaintiff took judgment against defendant No. 2, the debt of defendant No. 2 was merged into the judgment, leaving nothing for defendant No. 1 to pay under the indemnity contract. The claim against defendant No. 1 was considered an alternative claim, and by electing to pursue the claim against defendant No. 2, the plaintiff abandoned any claim against defendant No. 1.

4. Whether the liability of defendant No. 1 to pay the debts of defendant No. 2 included debts incurred before April 1, 1934:
The court examined the agreement between defendant No. 1 and defendant No. 2 and concluded that the obligation to discharge the debts and liabilities of defendant No. 2 was not limited to debts arising after April 1, 1934. The agreement was interpreted as a contract by defendant No. 1 to pay all debts and liabilities of defendant No. 2 in respect of the business assigned.

5. Whether the sums claimed by the plaintiff were trust moneys or mere debts:
The court determined that the sums claimed by the plaintiff were mere debts and not trust moneys. The deposit of Rs. 1,000, under the terms of the agreement, could be utilized by defendant No. 2, making the obligation to return the deposit a mere contractual obligation. Similarly, the sum of Rs. 3,649, which represented moneys credited to the plaintiff, was also considered a mere debt.

6. Whether a third party beneficiary can sue on a contract under Indian law:
The court discussed the principle that only parties to a contract can sue upon it, a rule established in English law and applicable in India. The court referred to various authorities and concluded that there was nothing in the Indian Contract Act suggesting that a third party beneficiary could sue on a contract. The court disagreed with the broader interpretation adopted by some Calcutta High Court decisions, emphasizing that any change to this principle should be introduced by the legislature, not the courts.

Conclusion:
The appeal was allowed with costs throughout, and the charging order obtained by the plaintiff was vacated. The court held that the plaintiff's right to sue defendant No. 1 did not exist, or if it did, it was lost when the plaintiff took judgment against defendant No. 2. The sums claimed were determined to be mere debts, and the principle that only parties to a contract can sue upon it was upheld.