Summary Suits under Order 37 & 'Written Contract" : The Law

Justice SN Kapoor

The Delhi High Court in Daya Chand Uttam Prakash Jain And Anr. vs Santosh Devi Sharma has held that a suit on the basis of a written acknowledgement of a pre-existing debt being a written contract could form a basis for recovery of an existing debt based on the said written contract in the shape of a written acknowledgement. While examining the provisions of Order 37 of the Code of Civil Procedure, the Court held as under;

(6) 6. Before proceeding further it would be relevant to reproduce Rule 1 of Order 37, Civil Procedure Code It reads as under:

"Subject to the provisions of Sub-section (1), the Order applies to the following classes of suits, namely :

(A)suits upon bills of exchange, Hundies and promissory notes;

(B)suits in which the plaintiff seeks only to recover a debt or liquidated demand in money payable by the defendant, with or without interest arising-

(I)on a written contract; or

(II)on an enactment, where the sum sought to be recovered is a fixed sum of money or in the nature of a debt other than a penalty; or

(III)on a guarantee, where the claim against the principal is in respect of a debt or liquidated demand only."

(7) In this light it is required to be seen whether the present suit relates to recovery of "Debt" arising out of a "written contract" or not?

(8) BLACK'S Law Dictionary (6th Ed.) defines "Debt" as under :

"A sum of money due by certain and express agreement. A specified sum of money owning to the person from another, including not only obligations of debtor to pay but right of creditor to receive and enforce payment". State v. Ducey, 25 Ohio App. 2d 50, 266 N.E. 2d. 233, 235. Liability on a claim. Bankruptcy Code $ 101.

A fixed and certain obligation to pay money or some other valuable thing or things, either in the present or in the future. In a still more general sense, that which is due from one person to another, whether money, goods or services."

(9) In Food Corporation of India v. Bal Kishan Garg, a Division Bench of this Court considered the requisites of debt in connection with the suit for recovery of the price of goods. It was held to be maintainable under Order 37, Civil Procedure Code by treating the unpaid price as debt. In regard to "Debt" following observations of the Division Bench of this Court in para 7 are relevant here

"7.What there is a debt? Relying in Webb. v. Stenton, (1883) 11 Qbd 518 it was held in Commissioner of Wealth Tax v. Pierce Leslie & Co. Ltd., , that the essential requisites of a debt are, (1) an ascertained or readily calculable amount; (2) an absolute unqualified and present liability in regard to the amount with the obligation to pay forthwith or in future within a time certain; (3) the obligation must have accrued and be subsisting and should not be that which is merely accruing. A contingent liability or a contingency debt is, therefore, neither a liability nor a debt. A debt is a 'debitum in prasent, solvendum in future. We, therefore, hold, that the amount covered by the suit is an ascertained amount payable liability. The obligation has accrued and subsists. It is a debt accruing under a written contract".

(10) The term "written contract" in the words of Black's Law Dictionary (6th Ed.) means as under :

"A."written contract" is one in which all its terms is in writing". Commonly referred to as a formal contract."

11.1.According to Black's Law Dictionary an "acknowledgement" means as under:

"To "acknowledge" is to admit, affirm, declare, testify, avow, confess or own as genuine, Favello v. Bank of America Nat. Trus & Savings Ass'n, 24CalApp. 2d 342, 74 P. 2d 1057m 1058. Admission or affirmation of obligation or responsibility. Weyerhaeuser Timber Co. v. Marshall, C.C.A. Wash., 102 F.2d 78,81. (sic.) states have adopted the Uniform Acknowledgement Act.

The debtor's acknowledgement of the creditor's debt and or right of action that will revive the enforceability of a debt barred by the statute of limitations. Part payment of obligation which tolls statute of limitations is a form of "acknowledgement of debt". In re: Badger's Estate, 156 Kan. 734. 137 P. 2nd 198,205."

11.2.According to stroud's Judicial dictionary acknowledgement means as under:

(1),"an acknowledgement, in writing of a debt......so as to take such debt out of the Limitation Act.....(1) must admit that debt is due, and (2) promise, or justify the inference of promise, of payment unconditionally, or (if conditionally) it must be shown that the condition has been accomplished.... A statement in a balance sheet presented to a creditor-shareholder of a Company and signed by the Directors or their agents is sufficient acknowledgement (Jones v. Bellgrove Properties, (1949) 2 K.B. 700), and an acknowledgement is within the section if it indicates that a debt is due, even if it does not state the amount (Dungate v. Dungate, (1965) 1 W.L.R. 1577). But a signature on a balance sheet, notwithstanding that the debt appeared therein, was held not to be a sufficient acknowledgement (Consolidated Agencies v. Bertram, (1965) A.C. 470. An acknowledgement by one of the several executors suffices (Re Macdonald [1897] 2 Ch. 181, distinguishing Tullick v. Dunn, Ry. & Moo. 416, and Scholey v. Walton, 13 L.J. Ex. 122; see Astbury v. Astbury, infra). "Acknowledges the claim" (Section 23(4) means "acknowledges the debt or other liquidated pecuniary amounts" (Good v. Parry, [1963] 2 W.L.R. 846). "Acknowledgement" (Section 24(1) means acknowledgement of liability.... -. "

(2)"An acknowledgement of a Deed, or Speciality, by writing or part payment or part satisfaction (Civil Procedure Act, 1833 (c. 42), Section 5 will suffice if it contains a clear admission of the speciality debt (see Moodie v. Bannister, 28 L.J. Ch. 881; Howcutt v. Bonser, 3Ex. 499; Forsyth v. Bristowe, 8 Ex. 721, [See also Read v. Price (1909) 1 K.B. 7; affirmed (1909) 2 K.B. 724, cited Party Liable, where it was held that parole evidence is admissible to prove the contents of a written acknowledgement which has been lost; see now Limitation Act, 1939, Sections 23,24. As to acknowledgement is writing within Civil Procedure Code, 1908, Section 5 see Viscount Burnham v. Atlantic & Pacific fibre Importing & Manufacturing Co. Ltd., 44 T.L.R. 702.

11.3.In Elvira Rodrigues v. Godnicalo Hypolito Constancio, Air 1934 Privy Council 144, it was observed a? under :

"Their Lordships think that what has been forgotten is that there are two forms of account stated. An account stated may only take the form of a mere acknowledgement of a debt, and in those circumstances, though it is quite true it amounts to a promise and the existence of a debt may be inferred, that can be rebutted, and it may very well turn out that there in no real debt at all, and in those circumstances there would be no consideration and no binding promise.

But on the other hand, there is another form of account stated which is a very (stc.) form as between merchants in business in which the account stated is an account which contains entries on both sides, and in which the parties who have stated the account between them have agreed that the items on one side should be set against the items upon the other side and the balance only should be paid; the items on the smaller side are set off and deemed to be paid by the items on a larger side, and there is a promise for good consideration to pay the balance arising from the fact that the items have been so set off and paid in the way described."

Their Lordships were further of the view that :

"That was done. The man writes an account which was demanded by the servant for the express purpose of knowing what sum he would be entitled to get and which, it seems to their Lordships, was stated by the Managing Partner of the business, for the sole purpose of enabling the servant to know what his final remuneration was to be. To make quite clear that it was intended to express something in the nature of an obligation he authenticated the document and that can be the only effect of that particular part of the transaction - by writing his signature over two 10 cent stamps.

In their Lordships' view, that was a plain case of a promise made to pay the balance for a good consideration. One cannot help thinking that if an account stated in those circumstances did not give rise in Kenya to the promise to pay, and for a good consideration, Kenya would be certainly without one of the most ordinary business facilities which has been common to everybody who carries on business under any system which incorporates any of the ordinary principles of English contract law."

11.4 In Gharabharan v. Sri Radha Kishan & Ors., a Division Bench of the Allahabad High Court about 'account' stated as under:

"(12).....Where the accounts contain a series of cross-entries, one evidencing payment of loans advanced at various times by the creditor and the other evidencing payment of amounts paid towards the same loans at various times by the debtor, and the parties agree to set one series of entries against the other & after doing the same, finally arrive at an agreed balance, the final settlement of accounts thus made constitutes an "account stated."

That fact that both the entries relate to the same transaction of loan does not take the transaction out of the category of "account stated", nor does it make the transaction a unilateral one. Such a transaction is really a bilateral one as both the parties have met together and after mutual accounting in respect of the advances made by the one and payments made by the other have finally agreed by a joint application of their minds to treat a certain specific figure as the amount due on that date. Both the parties participating in this transaction have combined in finally adjusting their rights.

They have jointly co-operated in wiping off their previous or antecedent rights and liabilities and substituting therefor a new or a fresh right and liability. The procedure of surrender and discharge involved in such a transaction for the purpose of arriving at an agreed settlement is truly a bilateral one. The process of "give and take" which such a transaction demands from either side, itself constitute a sufficient consideration which is enough to sustain the fresh agreement as valid in law.

Reference in this connection might be made to the case of Bishnu Chand v. Girdhari Lal in which their Lordships of the Privy Council have expounded the law in this regard. Then such an "account stated" is signed by the party sought to be made liable or its duly authorised agent, the "account stated" as envisaged in Art. 64 is created. Such an "account stated" gives rise to a new cause of action and a suit brought within three years of the date of such a cause of action is not barred by limitation. Such a suit cannot be thrown out on the ground that some of the items antecedent to the date of the "account stated" were barred by limitation.

Previous rights and liabilities having been swept away by the concerted and agreed Will and action of parties themselves, the previous items which formed the material for arriving at the agreed figure must, for the purposes of the suit, be eliminated from consideration, and a fresh cause of action be deemed to be born on the date on which such a transaction is entered into. In such a situation, it is not open to the Court to reopen the closed transaction and to scrutinize the antecedent entries for the purpose of applying the bar of limitation. Such a procedure would be the very negation of the real purpose of "account stated" and would constitute a violation of fundamental principles underlying the legal doctrine of "account stated".

In the present case, there is also no manner of doubt that this "account stated" was signed by a partner of the firm. Every partner of a firm has in law an inherent right to do it, and must, therefore, be presumed to act as such."

11.5.In Shapoor Freedom Mazda v. Durga Prasaal Chamaria, it was observed that :

"15.In construing this letter it would be necessary to bear in mind the general tenor of the letter considered as a whole. It is obvious that respondent 2 was requesting respondent I to avoid the sale as he did on an earlier occasion in November, 1931. The previous incident shows that when the property was put to sale by the first mortgagee the mortgagor rushed to the second mortgage to stop the sale, and this obviously was with a view to persuade the second mortgage to prevent the sale which would otherwise affect his own interest as such mortgagee. The theory that the letter refers to the interest of respondent 1 as an intending lessee or purchaser is far fetched, if not absolutely fantastic. Negotiations in that behalf had been unsuccessful in 1926 and for nearly five years thereafter nothing was heard about the said proposal. In the context it seems to us impossible to escape the conclusion that the interest mentioned in the letter is the interest of respondent I as a puisne mortgagee and when the said letter appeals to him to take up the whole it can mean nothing other than the whole of the mortgagee's interest including the interest of the prior mortgagee. An appeal to respondent 1 to stop the sale on payment of Rs. 10,000.00 as he infact had stopped a similar sale in November 1931, is an appeal to ensure his own interest in the security which should be kept intact and that can be achieved only if the threatened sale is averted. We have carefully considered the arguments urged before us by the learned Attorney- General but we see no reason to differ from the conclusion reached by the Court of Appeal below that this letter amounts to an acknowledgement. The tenor of the letter shows that it is addressed by respondent 2 as mortgagor to respondent 1 as puisne mortgagee, it reminds him of his interest as such mortgagee in the property which would be put up for sale by the first mortgagee, and appeals to him to assist the avoidance of sale, and thus acquire the whole of the mortgagee's interest.it is common ground that no other relationship existed between the parties at the date of this letter, and the only subsisting relationship was that of mortgagee and mortgagor. This letter acknowledges the existence of the said jural relationship and amounts to a clear acknowledgement under Section 19 of the Limitation Act. It is conceded that if this letter is held to be an acknowledgement there can be no other challenge against the decree under uppeal."

11.6.In Hiralal & Ors. v. Badkulal & Ors, it is true to find that "Defendant H who was in mutual understanding with the plaintiff signed an entry in the plaintiff's Khata on which earlier mutual account had been entered to the following effect : "Rs. 34.000.00 balance due to be received upto Bhadon Sudi 11 Sam. 2000 made by check and understanding to accounts with H's books. The acknowledgement was signed by H with the following endorsement. After adjusting the accounts Rs. 34,000.00 found correct and payable. The plaintiff brought a suit on the basis of the entry for recovery of the amount. The Supreme Court observed in para 11 as under :

"11.Mr. Bindra next urged that the plaintiff 's suit should have been dismissed because it could not be maintained merely on the basis of an acknowledgement of liability, tha such an acknowledgement could only save limitation but could not furnish a cause of action on which a suit could be maintained. The Judicial Commissioner took the view that an unqualified acknowledgement like the one in the suit, and the statement of the account under which the entry had been made, were sufficient to furnish a cause of action to the plaintiffs for maintaining the present suit. We are satisfied that no exception can be taken to this conclusion. It was held by the Privy Council in Maniram v. Seth Rupchand, 33 Ind. App. 165 (P.C.) (C) that an unconditional acknowledgement implies a promise to pay because that is the natural inference if nothing is said to the contrary. It is what every honest man would mean to do. In Fateh Mahomed v. Ganga Singh, Air 1920 Lah. 264 (D), the same view was taken. It was held that a suit on the basis of a balance was competent.In Kahanchand Dularam v. Dayaram Amritlal, Air 1929 Lah. 263 (E), the same view was expressed and it was observed that the three expressions "balance due", "account adjusted" and "balance struck" must mean that the parties had been through the account. The defendant, there accepted the statement of account contained in the plaintiff's account book, and made it his own by signing it and it thus amounted to an "accounts stated between them" in the language of Art. 64,LimitationAct. The same happened in the preset case. The acknowledgement which forms the basis of the suit was made in the ledger of the plaintiffs in which earlier mutual accounts had been entered and truly speaking, the suit was not based merely on this acknowledgment but was based on the mutual dealings and the accounts stated between them and was thus clearly maintainable."

12.1. ln Mrs. Sushila Mehta v. Shri Bansi Lal Arora & Anr., Ilr (1982) I Delhi 320,the plaintiff paid the allocation money of Rs. 1,00,000.00 for allotment of shares. The defendants accepted the payment as allocation money. The payment, its acceptance and the receipt thereof issued by the defendants held to constitute a written contract for the purposes of Order 37 Rule 1. It was observed that though it may be labelled as receipt but that does not meant that it is not a contract. In paras 10 & 11 it was further observed as under :

"10.The question is whether the receipt dated 26th August, 1978 is a "written contract" or not. In my opinion it clearly is. The plaintiff paid the application money of allotment for shares. The defendants accepted it, though it is true that defendant No. 2 came into existence a few months later. The payment of Rs. 1,00,000.00 by the plaintiff as application money and its acceptance by the defendants constitutes a contract. It may be labelled as a receipt but that does not mean that it is not a contract.

11.It was said that it has not been pleaded that the suit is based on a written contract. This is not required by any provision of law. The Court has to find out whether the suit has been brought upon a negotiable instrument or a written contract or an enactment should guarantee to which Order 37, Civil Procedure Code applies. The acknowledgement of Rs. 1,00,000.00 by the defendants for the purposes allotment of shares as application money therefor clearly amounts to a contract. Because it is their own case that the plaintiff paid allotment of shares and they accepted it. There was "consensus of mind". And "consensus of mind" leads to a contract, as Lord Cairns said. (Cundy v. Lindsay, (1878) 3 App. Case 459 (2) at p. 465). There was promise. There was consideration. There was acceptance. All the elements essential for the formation of the contract are present. What more is needed to make a contract. It was not a nudum pactum."

A suit under Order 37 Rule 1, Civil Procedure Code was filed by the plaintiff alleging that the plaintiff paid Rs. 1,00,000.00 to defendant No. 1 as application money for shares in a proposed private limited company. Receipt of the amount was not disputed by the defendants but Rs. 20,500.00 was stated to have been transferred to some. other account on instructions of the plaintiff. The defendant applied for leave to defendant under Order 37 Rules 3 & 5, Civil Procedure Code alleging that the suit was not maintainable under Order 37 as the same has not been instituted on the basis of Negotiable Instruments Act or a written contract. In this regard the above Paras 10 & 11 of the judgment are worth reading.

12.2.An incidental question is "Whether such an agreement should be signed by both the parties?" It is not necessary that written agreement should be signed by both the parties. If any authority is needed one may refer to Jugal Kishore v. Goolba Hormusji (S), . In this case Venkatarama Ayyar, J. observed as under:

"7.But it is settled law that to constitute an arbitration agreement in writing it is not necessary that it should be signed by the parties, and it is sufficient if the terms are reduced to writing and the agreement of the parties thereto is established".

In Sushila Mehta (supra) receipt which was taken to be written contract was not signed by both the parties. It was signed by defendant No. 1 Bansi Lal Arora only.

12.3.In this regard one may also refer to Seth Banarsi Das v. Cane Commissioner, . In the construction of a written document, it is legitimate in order to ascertain their true meaning if that be doubtful, to have regard to the circumstances surrounding the creation of the subject matter to which it was designed and intended that it should apply. It must be seen what is the intention expressed by the words used; but whether the language is imperfect, and it is impossible to know what the intention is without enquiring further, the circumstances with reference to which the words were used should be looked. The contract must be construed as a whole and the intent of the parties must be ascertained from the documents as a whole.

12.4.In Jiwibai v. Rarnkunwar Shriniwas Murarka Agarwala, Air (34) 1947 Nagpur 17, a Full Bench of the Nagpur High Court took the view that the express authority given to the agent to 'compromise' under Mukhtarnama included the power to refer the suit to arbitration because the deed set out in separate phrases the two aspects of 'compromise' which the single English word normally connoted. It may further be added that document embodying a business agreement should be construed formally and broadly and there must in such documents imply a term which will give such business efficacy to the transaction as must have been intended by the parties. One cannot add to a contract an implied term inconsistent with or which contradicts express terms of the contract. But in a suitable case one may imply a term if it is necessary to give it a business efficacy (see Gulabchand Gambhirmal v. Kudilal Govindram & Anr., [Full Bench], Cholldhri Gulabchand Jain v. Bhama, ).

(13) A Single Bench of this Court in J.S. Sood (supra) took the following view in para 12 p. 724 :

"12.As to whether the written contract may be signed by both the parties does not call for decision in the present case though it appears that the words "written contract" envisage some sort of a formal document between the contracting parties. I would rather think that it would be a condition precedent that there should be a formal agreement executed by the parties and signed by them. Plaintiffs own version is that it was a verbal contract and the document on the basis of which the suit has been filed merely acknowledges the money due under the aforesaid verbal contract. Such a writing may at best be a written acknowledgement which extends the period of limitation under Section 18 of the Limitation Act, 1963, but no more. Thus, I do not think that such a document would fall within the definition of written contract and the provision of Order xxxvii would not apply. It must, therefore, be held that the present suit is not maintainable under the summary procedure prescribed under Order XXXVII."