K.M. Mohamad Abdul Kadir Rowther vs S. Muthiah Chettiar

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Introduction

The case is in regard to whether or not every advanced amount can be considered as a loan, and whether or not in absence of an express provision in a contract in regard to paying back the advance amount in case of a loss of purpose, the concerned party to whom advance was made can be held liable to pay back.

Facts

  • A business was being run under the name of ‘Amar Jyothi Talkie Distributors, Dindigul’ where the appellant was a partner. At Tiruchirappalli another business was set up by the respondent under the name of ‘Nethaji Picture Circuit’ who had acquired a right to the distribution of a Tamil film called ‘ Vikata-yogi’ in the Madurai district. They gave such rights to the Amar Jyothi Talkie Distributors for a term of years in 1947 through an agreement. Under this arrangement an advance of 15000 has to be paid by the appellant’s business firm to the respondent in exchange for the right to distribute the film for 41 years.
  • Two (2) prints of the picture were to be given by the respondent along with all the available publicities to the appellant firm. The appellant’s firm had the right to exploit and distribute the picture at their own discretion, at whatever prices and on whatever terms and circumstances they found suitable.
  • The appellant’s firm was to get a 2% commission on the net proceeds from the film’s exhibition, while the respondent was to get the remaining 87%. However this 87% of the respondent was not to be paid by the appellant’s firm until they have recouped the entire 15000 that they paid as advance.
  • Both the parties performed their respective obligations by respondent delivering two prints of the film along with the publicity and appellant’s firm advancing amount of 15000 to the respondent.
  • It was found by the appellant’s firm on 25th February 1947 that an amount of 2000 was to be received by M/s. Dinamani Talkies, Madurai by the respondent for the exhibition of a specific film. At the request of the respondent the appellant’s firm debited the money in their account for this purpose.
  • The picture was a total flop and at the end of contract period the share of the respondent of the realisations for the exhibition of the film fell short of the sum advanced i.e. Rs. 15,000. There was a debit claim of Rs. 7323-2-5 by the appellants against the respondent which included the Rs. 2000 that was paid by the appellants on the request of the respondents to the Dinamani Talkies. The appellants claimed the same from the respondents.
  • The respondent at first complained that the loss was due to the inefficient management by the appellant’s firm and suggested to the appellant to take an extension of the contract and minimize the loss, he also promised to settle the account.
  • Since the picture was an evident flop, the appellants firm was not ready to agree with the suggestion of extension of contract and therefore they demanded that their dues be paid and issued a notice of demand for the same. The respondent denied their personal accountability for the transaction and said that the appellant’s only recourse under the agreement was to collect the advance sum paid, or any portion thereof, from and out of the revenues of picture. And in light of these the suit was filed in lower court.
  • The subordinate judge of the lower court held that as there was a special provision under the contract that the amount advanced by the Amar Jyothi Talkie Distributors should be discharged out of the respondent’s share of the realisations from the picture, there could be no right in the appellant to maintain the action personally against the former.
  • On that finding, there was dismissal of the entire claim even though that finding would sustain only the dismissal of the claim in respect of the advance paid and there would be no answer for the sum of Rs. 2000 paid by the appellant for the respondent’s benefit. Aggrieved by such an arbitrary decision, the plaintiff filed an appeal.

Issues

Whether the respondent would be personally liable to pay the balance of the advance amount that remained unrecouped at the end of contract period i.e. Rs. 5481-0-8 along with an interest from 22nd January, 1953 to 22nd November, 1953 at the rate of 12 per cent i.e. Rs. 748-1-8 and the amount paid to the Dinamani Talkies, Madurai on behalf of the respondent by the appellant i.e. Rs. 2000?

Arguments

Side Appellant

  1. The advocate for the side of appellants contended that the advance given by appellants firm should be held to be a loan to the respondent and therefore the portion which remained undischarged should be held to be repayable as there would be an implied promise to repay a loan. It was further contended that the word ‘Advance’ implies a loan in itself would. ‘Advance’ word means a payment made ahead of time which can be a loan in some situations, but it cannot be argued that a sum given in advance is always a loan.

The advocate for appellants took reference of various judgements to prove his point, he contended that in case of London Financial it was observed, that the words ‘advancing’ and ‘lending’ might each have a different signification, money might be ‘advanced’ without being ‘lent’ and that the relation of borrower and lender did not exist in a great variety of the transactions. Further he discussed the case of Lincolnshire Sugar Company v. Smart L.R. wherein it was observed that the term ‘advanced’ in the British Sugar Industry (Assistance) Act of 1931 was ambiguous and might either refer to the prepayments of what would become due in future or be a polite euphemism for loans; but when ‘advance’ were declared to be ‘repayable’ (though only conditionally) they certainly would lean to the side of loans.

  1. Next it was contended by the appellants that even though the advance couldn’t be categorized as loans still the amount intended to be recovered by the the appellant’s firm, and therefore there an obligation to repay the sum on part of respondent and that there was also an implied promise which is evident from the terms of contract that the appellant were liable to use all of the 15000 and therefore the personal liability on part of respondents to pay back the amount would subsist.
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Side Respondents

  1. The advocate general on side of respondents contended that there would be no scope for extending the express terms of the agreement by implication if the parties reduced the terms of their agreement in the form of a document providing ex facie for the respective rights and obligations of the parties thereto. To prove this point the respondents relied on the well-known principle of document interpretation that when parties express the terms of their contract in writing, they should be deemed to have expressed all of their terms and conditions under which their rights inter se were to be governed, and that the Court should not add to the terms expressly agreed to by the parties.

It was further contended that a particular mode of discharge of the obligation of the respondent in regard to the advance paid was provided in clause 6 of the agreement and that would exclude any other mode of discharge a fortiori personal liability.  Respondent’s contention was also based on the legal maxim “expressio unis est exclusio alterius” which means that the express mention of one thing implies the exclusion of another. To prove the relevance of these points a reference of various judgements and books were made like that of Brooms Legal Maxims page 504 where this rule is stated which says “Where parties have entered into written engagements with express stipulations, it is manifestly not desirable to extend them by implications; the presumption is, that having expressed some, they have expressed all the conditions by which they intend to be bound under that instrument.”

Further in the case of Singjee v. Tiruvengadam there was a contention regarding whether or not a hypothecation bond comprised a personal covenant. The bond required the debtor to pay the creditor a part of the revenues from firewood sales at his business every day. In the event of default, the creditor was given permission to recover the debt from the mortgaged properties. Finally it was decided by the court that no personal covenant could be inferred from the document

Further, the respondents also took a reference of the case of Chennapatnam Gopal Rao v. T. Narasimha Rao to prove their point. In this case there was a mortgage and an even-date lease, and the lessee, who was also the mortgagee’s husband, was told to pay the mortgagee’s due interest. It was found that the transaction between the parties was a tripartite one, with the mortgagor having no personal duty to pay the interest, which was to be paid solely by the lessee.

Summary of Court’s Decision and Reasoning

In regard to the first argument made by the appellant i.e. the advance given by appellants firm should be held to be a loan to the respondent the court held that in the present case the advance of Rs. 15,000 cannot be described as a loan. The advance was made on account of distribution for a period of 4 1/2 years and according to the contract the appellants’ firm was to be in charge of the actual exploitation of the picture for which they would have been getting the monies. This right was assigned to the appellants in the hope that they would be capable to screen the film more efficiently than the respondent and recoup at least the advance payment. The 87 1/2 % of the collections that respondent had to receive was the payment that was an advance of the respondent’s portion in the future realization of the picture and hence a provision for the recovery of the same was made but that cannot mean in any way that the sum of Rs. 15,000 was given as a loan.

Now coming to the second argument between the appellant and the respondent i.e. even if the advance is not a loan will the respondent be personally liable to pay back the amount and whether the rule of ‘expressio unis est exclusio alterius’ as contended by respondents can be applicable in present agreement. The court said that the said rule is not a rule of law but the one relating to the construction of document which is also applied in certain cases to the construction of statutes. It could only serve as a guide for interpreting a statute or document to determine the legislature’s or parties’ purpose or intention but cannot always be relied upon as a reliable guide for determining the intention, as there can be various instances when there is absence or removal of particular phrases in a document may be due to inadvertence, accident, or other factors.

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An example for this can be that it is often seen in partnership agreements, there is absence of the clause of the sharing of losses. It is because of the reasons like personal sentiments of the parties or because they don’t want to anticipate loss in the business in the starting itself and therefore they don’t provide a clause related to the sharing of the losses. But that doesn’t in any way mean that in case the partnership sustains loss both the partners are not liable to share the same as the case of sharing of loss in proportion is implied in such agreements as the profits are also agreed to be shared. The nature of the transaction and the parties’ intentions would determine whether a term in a contract had to be implied or not.

Also the Court found that Brooms legal itself mentions that maxim ‘expressio unis est exclusio alterius’ must be used with great caution as it is not for universal application and depend totally upon the intention of parties which is evident from the general wordings used in the agreement and it is to be determine that whether those words intend to include other matters besides such as are specifically mentioned or not.

According to the court in the present case the intention of the parties have already been disclosed i.e. to recover the sum of Rs 15000. The clause 6 of the agreement provided that the intention of the parties was to create a right to lien or set off over the 87 1/2 percent of the collection which otherwise would have to be paid over to the respondent. It just gave an impression of an extra privilege and cannot be construed as excluding a responsibility to repay the advance, or the amount of it that remained unpaid after the contract time had expired.

Clause 10 of the agreement provided for a situation in which if the responder proceeded to sell the picture to any third party during the contract’s term then the appellant’s firm will be entitled to receive 5% of the sale proceeds. But in such a case we cannot be assumed that the appellant firm has to forfeit the sum of 15000 and be satisfied with that 5% only as it will be totally unjust and not the intention of parties. Similarly it is proper to assume that the appellant firm would be entitled to the unrecouped amount of the advance, as well as 5% of the picture’s sale price. And also in such situation the previously discussed maxim is of no relevance and there was an intention on the part of parties to adjust the advance sum of Rs. 15,000 at the end of the contract period implied by the terms of document which thereby converts into an obligation on the part of the respondent to pay the unadjusted portion of the advance amount that remained due at the contract’s termination.

The court also made the respondents liable to a sum of Rs. 2,000 paid to Dinamani Pictures by the appellant’s firm on behalf of the respondent. Further in regard to the interest to be paid on the sum of Rs 15000 the court said that there is no mention of any interest in the agreement therefore demanding an interest of 12% will be totally arbitrary and hence the appellant can only get an interest of 6% from the date of demand. The total amount that the respondents are liable to pay is 7855-1-6.

Analysis

The judgement passed by the court is right and totally justified. The judge has looked into every small aspect of the situation and has rightly interpreted it in the light of the current laws, annexed evidences and previous judgements. The court has taken into consideration a lot of previous judgements, which have discussed similar situations like that of this case or have interpreted the maxims or principles that have been used in the contention of the parties, to reach a conclusion which would look into the concerns of both the parties. The court has first rightly interpreted that in the current situation

In terms of no express provision in the agreement for the repayment of advance the court has not just prima facie applied the maxim of ‘expressio unis est exclusio alterius’ but has looked into how the previous judgements have interpreted this maxim and has understood that the applicability of the same is not universal. The court has rightly taken the method of determining whether or not there was an intention on the part of  the parties to adjust the advance sum of  Rs. 15,000 at the end of the contract period. The court has also looked into the concern of respondents and made sure they don’t have to pay the arbitrary interest of 12% against the claimed amount.

Conclusion

The case has a great relevance in terms of determining in what situations an advance can be considered as a loan. In certain cases an advance can be said to be a loan but it cannot be said that a sum paid by way of advance is always necessarily a loan. Secondly it helped in determining that the maxim of ‘expressio unis est exclusio alterius‘ is just a rule for interpreting a statute or document to determine the legislature’s or party’s  purpose or intention and doesn’t have a universal applicability. Ultimately what matters is what the intention of parties was at the time of forming the terms of agreement.

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