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TMI Blog1936 (3) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... th defendant No. 2 a sum of ₹ 1,000, which was to be returned to the plaintiff on termination of the agreement. In the meantime the deposit was to carry interest at the rate of six per cent, if made in cash, but: if made in Government Securities, the actual interest collected from such securities was to be paid to the plaintiff. Defendant No. 2 was to be entitled to utilise and use the deposit, whether in 'Cash or in Government Securities. The plaintiff duly made his deposit, of ₹ 1,000, which is one of the sums for which he sues. There was also at the date of the commencement of the suit a sum of ₹ 3,649 due to the plaintiff under the agreement in respect of the balance of moneys due to him in manner mentioned hereafter. On May 21, 1934, the first defendant company was formed, and it became entitled to commence business on July 17. On June 5, 1934, an agreement was entered into between defendant No. 2 and defendant No. 1 by which all the assets of defendant No. 2 were assigned to defendant No. 1. The sale was to take place, so far as the Bombay business was concerned, as from April 1, 1934. The consideration consisted partly of cash and partly of shares in de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e plaintiff. 3. The first point taken by the appellants is that under the agreement of June 5, 1934, defendant No. 1 only covenanted to pay the debts of defendant No. 2 arising after April 1, 1934. The language of the agreement in this respect is certainly open to doubt. The purchasing company was taking over the vendor's business as from April 1, 1934, and as from that date, therefore, defendant No. 1 would necessarily be liable for the debts of the business, because it was his business, and it is impossible to say that an obligation to pay those debts formed part of the consideration for the sale, and yet the obligation to pay the debts of the vendor is expressed to be part of the consideration for the sale. It is also to be noticed that the obligation to discharge the contracts and engagement of the vendor is not limited in point of time by the terms of the agreement. Taking the agreement as a whole, I think it does amount to a contract by defendant No. 1 to pay all the debts and liabilities of defendant No. 2 in respect of the business assigned. It is,.. I think, the ordinary type of agreement for purchase entered into by a company formed to acquire a going concern. 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der the old procedure he could have filed a suit in equity, even if he could not have sued at common law. Those cases are a recognized exception to the general principle that only parties to a contract can sue upon it. There seems to me to be nothing in the Indian Contract Act which suggests that that principle does not apply in India. It is true that the definition of ' consideration' in Section 2 of the Indian Contract Act gives a wider meaning to that term than is accepted in English law, because it includes consideration moving from the promisee or any other person. But the fact that consideration may move from a third party does not involve the proposition that a third party may sue upon a contract. The learned trial Judge based his judgment very largely on Debnarayan Dutt v. Chunilal Ghose I.L.R. (1913) Cal. 137. But the facts of that case were peculiar, because the plaintiff, who was not a party to the contract sued upon, had given up something, which was believed to be a charge upon property, to the defendant, who had undertaken with the other contracting party to pay the debt of that party to the plaintiff. Therefore there was communication to the plaintiff of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a mere debt, but were moneys held in trust for him, and if he could establish that defendant No. 2 had in his hands moneys or assets which belonged to the plaintiff, and transferred those moneys or assets to defendant No. 1 with notice of the trust, then no doubt the plaintiff could sue defendant No. 1 as cestui que trust suing a constructive trustee. But, in my opinion, the facts do not establish that the moneys were trust moneys. The deposit of ₹ 1,000, under the terms of the agreement, could be utilised by defendant No. 2, and that being so, I think that the obligation to return he deposit was a mere obligation in contract, that is to say, a mere debts it has been held by this Court in In re Manekji Petit Manufacturing Co. (1931) 34 Bom. L.R. 728 that a deposit of that nature must be proved for in insolvency, and cannot be claimed as moneys subject to a trust. The other sum claimed by the plaintiff, namely, ₹ 3,649, arose in these circumstances. As I have pointed out, he plaintiff had to pay, when he ordered goods, the market value fixed by defendant No. 2. When the goods were subsequently sold at a greater or less price, the plaintiff was credited or debited wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellants took over the assets and liabilities of defendant No. 2 as from April 1, 1934. In June, 1934, the plaintiff gave notice terminating the agency agreement, and in August, 1934, he made a demand on defendant No. 1 for the payment of two sums, ₹ 3,649 in respect of the dealings between him and defendant No. 2, and ₹ 1,000, the amount deposited with defendant No. 2. Some correspondence took place, and thereafter the plaintiff drew certain bills of exchange in respect of these two sums, which were not honoured by the appellants. He then filed this suit as a summary suit. Defendant No. 2 applied for leave to defend the suit, which was granted on his depositing ₹ 3,500 within two weeks; but as he failed to deposit the amount, an ex parte decree for the amount claimed by the plaintiff was made against him. Defendant No. 1, the appellants, were given unconditional leave to defend. The suit came on for hearing before Mr. Justice Chitre. The appellants contended that there was no cause of action as against them. This contention was negatived by the learned Judge, who held that having regard to the agreement of June 1934 between the appellants and defendant No. 2, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the deposit whether in cash or in Government Securities. Now, although the agreement provided that the selling agent should pay to the firm the approximate market value of the goods indented by him as against the railway receipts sent to him, in practice it appears the plaintiff used to send moneys on account to the firm, sometimes much in excess of the market value of the goods actually sent to him at the time. The moneys so sent by him were credited to him in his account, and when the goods were despatched to him for sale, and sold, the price realized was debited, and interest was allowed on both sides of the account, both on the value of the goods as well as on the moneys advanced by the plaintiff. 10. The second important agreement is dated June 5, 1934, which was between the second defendant firm and the appellants. It was in the nature of the usual preliminary contract by which a company takes over a business as a going concern. The material provisions of that agreement are these. Clause 1 says : It is hereby agreed that the vendor shall sell, assign, transfer and hand over and the company will purchase and take over the entire concern of the National Petroleum Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be no consideration for such an undertaking. It seems to me, therefore, reading the agreement as a whole, that the parties really intended that the appellants should undertake to discharge the liabilities of the firm whenever they were incurred, but up to April 1, 1934, when they became the owners of the business, and I think the learned Judge was right in construing the agreement in that way. 12. Coming now to the second contention raised on behalf of the appellants, the question is what really is the nature of the liability, if any, of the appellants in the circumstances of the case ? Was the claim against the defendants jointly, severally or in the alternative ? The appellants say that the remedy was alternative. The respondent says that it was joint or several, and that the taking of the decree against one of the co-promisors would not bar a suit against the other co-promisor. It is clear on the English authorities that if the claim was joint, then only a judgment against defendant No. 2 would bar the suit against the appellants. It makes no difference whether the claim was several or in the alternative (see judgment of Collins M. R. in Morel Brothers Co., Limited v. Westm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad Askari v. Radhe Ram Singh I.L.R. (1900) All. 307. In that case it was held by Strachey C. J. that a decree obtained against a joint promisor is not a bar to a suit against other joint promisors. It is not necessary, in view of the contentions raised before us, to refer to the decisions of the Calcutta or the Bombay High Court, which seem to take a different view. These decisions, however, it may be pointed out, are criticised by the learned authors, Pollock and Mulla, in. their commentary to Section 43 of the Indian Contract Act, and on this question they observe as follows (6th edn., p. 295):- We think it the better opinion that the enactment should be carried out to its natural consequences, and that, notwithstanding the English authorities founded on a different substantive rule, such a judgment, remaining unsatisfied, ought not, in British India, to be held a bar to a subsequent action against the other promisor or promisors. No doubt the point is open, and it is not necessary for me to express any definite opinion on it, but since the question has been argued, I am inclined, as at present advised, to think that the reasoning of Strachey C. J. has considerable force in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; contract with defendant No. 2 and in virtue of the fact that the appellants had taken over the liability to discharge the obligations of defendant No. 2. There is nothing in the whole of the claim to suggest that any representations were made by defendant No. 1 whereby they led the plaintiff to adopt a particular course of conduct to his prejudice. There is no case of estoppel, there is no case of an implied promise to pay. It seems to me the claim really was in the alternative. The plaintiff's case is that by virtue of the contract of 1933 defendant No. 2 are liable to pay the amounts to him, and by virtue of the agreement between defendant No. 2 and defendant No. 1 made in 1934 defendant No. 1 are liable, as they on behalf of defendant No. 2 agreed to pay the debt which was due by the latter. That is the very highest at which the case can be put, if it rested in contract. That clearly is a case which comes very near to the case referred to in Section 233 of the Indian Contract Act, and if so, the case is clearly one of election, and if the promisee chooses to proceed against one of the co-promisors and obtains a judgment, then it is clear that he has no right to proceed ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent the next day releasing the old one. If C. were a cestui que trust it would have that effect. I am far from saying that there may not be agreements which may make C. a cestui que trust. 16. Dunlop Pneumatic Tyre Company, Limited V, Selfridge and Company, Limited [1915] A. C. 847 is also an authority for both these propositions. In that case Viscount Haldane L. C. observes as follows (p. 853):- My Lords, in the law of England certain principles are fundamental. One is that only a person who is a party to a contract can sue on it. Our law knows nothing of a jus quaesitum tertio arising by way of contract. Such a right may be conferred by way of property, as, for example, under a trust, but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personam, A second principle is that if a person with whom a contract not under seal has been made is to be able to enforce it consideration must have been given by him to the promisor or to some other person at the promisor's request. Another equally well-established principle is that there must be privity of contract for a right of action. The Indian law, however, differs from this rule of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Chunilal Ghose I.L.R. (1913) Cal. 137, on which Mr. Munshi relies and on which the learned Judge also relied in support of the conclusion to which he came. In that case A advanced ₹ 300 to B on the security of a pattah relating to Immovable property and deposited by him with A. B executed a registered instrument of transfer of all his property to C for a sum of ₹ 2,000. This sum of ₹ 2,000 was not all paid in cash, but there was a provision and declaration in the kabala that out of this consideration money of ₹ 2,000, a sum of ₹ 300 due to A should be paid by C. A sued C for ₹ 300, basing his claim on the kabala. It was found that there was no agreement between A and C, nor was there a novatio, but on that very day on which the kabala was executed C acknowledged the obligation to pay ₹ 300 to A, that the acknowledgment was communicated to, and accepted by A, and that as a result of this the pattah, which was believed by the parties as constituting a charge, was handed over by A to C. Upon these facts it was quite clear that the decision to which the learned Chief Justice came was perfectly correct, and well within the principles to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke the view that the legislature in this country also has accepted the well-established principle that a stranger to the contract has no right of action to enforce it. With the utmost respect to the learned Judges, therefore, I have no hesitation in dissenting from that judgment. It seems to me to be contrary to all recognised decisions in English law as well as to all modern decisions in Madras and other High Courts, and also to the decision of their Lordships of the Privy Council in Jamna Das v. Ram Aular Pande I.L.R. (1911) All. 63 : 14 Bom. L.R. 1 (See Subbu Chetti v. Amnachalam Chettiar I.L.R. (1929) Mad. 270.) 17. These then being the principles, the question is whether an obligation in the nature of a trust arises in this case, as the learned trial Judge has held, and whether the plaintiff is a cestui que trust. As regards the first sum, undoubtedly the clause in the agreement between the parties shows that it was a deposit, but it also shows that it was deposited as a security for the performance of the services which the plaintiff had to render under the agreement. It further shows that the moneys were not ear-marked, and that it was open to defendant No. 2 to mix them ..... X X X X Extracts X X X X X X X X Extracts X X X X
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