Contract Law

Kapur Chand Godha v. Mir Nawab Himayatali Khan

AIR 1963 SC 250; 1963 SCR (2) 168

Facts

The appellants sold jewellery to the Prince of Berar.
The debt, including interest, eventually exceeded ₹27 lakhs.
A governmental debt-settlement committee recommended payment of ₹20 lakhs in full satisfaction of the claim.
The appellants accepted ₹20 lakhs in two instalments.
They initially attempted to reserve the right to recover the remaining balance.
The authorities refused payment on such a conditional receipt.
The appellants then endorsed the promissory notes as fully satisfied and received the payment.
They later sued the Prince for the balance.
They argued that acceptance of payment from the Government did not discharge the Prince’s remaining liability.

Whether acceptance of a lesser amount in full satisfaction discharged the entire claim.
Whether the creditor could accept payment while rejecting the condition attached to it.

Section 63 permits a promisee to:
dispense with or remit performance;
extend time;
accept any satisfaction considered appropriate.
Unlike English common law, fresh consideration is not required for remission under Section 63.
Where money is clearly offered only on the condition that it constitutes full satisfaction, the recipient cannot:
accept the money; and
reject the condition.
Under Section 41, acceptance of performance from a third person may prevent later enforcement against the original promisor.

The ₹20 lakhs were not offered as an ordinary part-payment.
The committee expressly offered the amount in full satisfaction of the entire claim.
The appellants understood that condition.
Their initial attempt to reserve a right to sue for the balance was rejected.
They then voluntarily:
accepted the second instalment;
discharged the promissory notes;
endorsed full satisfaction.
Having accepted the benefit on the stated basis, they could not later separate the payment from its condition.
The fact that payment came through the Government rather than directly from the Prince did not preserve the balance claim.
The appellants knowingly accepted third-party performance as full satisfaction.
Sections 41 and 63 therefore prevented them from reopening the debt.

The Supreme Court held that the entire debt had been discharged.
The appellants could not sue for the balance after accepting ₹20 lakhs in full satisfaction.
Use this case for: a creditor accepting conditional payment in full satisfaction cannot retain the money and later reject the condition.