Samarasinghe v. Balasuriya
1966Present: Sansoni, C.J., and Siva Supramaniam, J.
A. SAMARASINGHE, Appellant, andW. F. BALASURIYA, Respondent
S. C. 675/1964—D. C. Colombo, 8542/MB
Debt Conciliation Ordinance (Cap. 81)—Sections 40 (J), 43 (1), 44—Settlemententered between the parties—Effect—Remedy of creditor thereafter—Meaningand effect of “ merger
When a debt secured by a mortgage has been settled between the parties inaccordance with the provisions of the Debt Conciliation Ordinance, the creditorhas no right thereafter, in view of the provisions of section 40 (1) of the Ordin-ance, to sue on the cause of action arising from the mortgage bond. If thedebtor fails to comply with the terms of the settlement, the creditor’s remedy isto make an application to a court of competent jurisdiction and seek executionin terms of sections 43 and 44.
SAKS ONI, C.J.—Samaraainghe v. Balasuriya
Appeal from a judgment of the District Court, Colombo.
H. W. Jayewardene,Q.C., with J. Weerasekera, for the plaintiff-appellant.A. C. Nadarajah, for the defendant-respondent.
Cur. adv. vult.
September 18, 196G. Sansoni, C.J.—
The plaintiff sued the defendant on two causes of action to recoverRs. 8,172 together with interest on Rs. 7,000 at 15 per cent, per annum.He also asked for a hypothecary decree binding certain lands described inthe plaint. On the first cause of action he pleaded a mortgage bondexecuted in 1956 by which the defendant promised and bound himselfto pay him the principal sum of Rs. 5,000 with interest at 16 per cent.On the second cause of action he pleaded a mortgage bond of 195S, bywhich the defendant promised to pay a sum of Rs. 2,000 with interestat 15 per cent. The cause of action in each case was the failure to paythe amounts due under the said bonds.
The defendant admitted the execution of the bonds. She pleaded thatin May 1959 she made application bearing No. 6972 to the Debt Conci-liation Board for relief in respect of the. two bonds and another bondwhich has been sued upon in D. C. Colombo Case No. 8543/MB ; thatthe Board madeorder on 22nd February 1961 reducing the rateof interestpayable, ordering Rs. 2,400 to be paid on that day and Rs. 1,500 everysix months thereafter commencing from 22nd August 1961, and thatthe whole amount due should be paid by 29th February 1964. She setout various payments made before and after the order of the Board wasmade. In her prayer she asked that the action be dismissed exceptto the extent admitted by her.
At the trial the defendant’s Counsel stated that the plaintiff could notmaintain this action in view of ss. 40 (1) and 43 (1) of the Debt ConciliationOrdinance, Cap. 81. The plaintiff’s counsel replied that s. 40 (1) gavethe plaintiff the right to sue the debtor on the bond and that the remedyprovided under s. 43 (1) was merely one of the remedies available to theplaintiff. Both Counsel agreed that it was not necessary to call anywitnesses.
Thereafter judgment was delivered dismissing the plaintiff’s action.The learned Additional District Judge took the view that the combinedeffect of ss. 40 (1) and 43 (1) was to prevent the plaintiff maintainingthis action. I shall set out the two sections referred to by Counsel at thetrial. Section 40 (1) reads :—
“ A settlement under section 30 or section 31 shall when the originaland duplicate thereof have been countersigned by the Chairman andsubject to any order the Board may make in respect of that settlement
SANSONI, C.J.—Samarasinghe V. Balaauriya
under section 54, be final between the parties, and the contractin respect of any debt dealt with in the settlement shall become mergedin the settlement:
Provided, however, that where any debt secured by any charge,lien or mortgage over any property, movable or immovable, is dealtwith in any settlement, the rights of the creditor under such charge,lien or mortgage shall, unless otherwise expressly provided in thesettlement, be deemed to subsist under the settlement to the extentof the amount payable thereunder in respect of such debt, until suchamount has been paid or the property over which the charge, lien ormortgage was created has been sold for the satisfaction of such debt. ”Section 43 (1) reads :—
“ Where the debtor fails to comply with the terms of any settlementunder this Ordinance, any creditor maj', except in a case where adeed or instrument has been executed in accordance with the provisionsof section 34 for the purpose of giving effect to those terms of thatsettlement, apply to a court of competent jurisdiction, at any time afterthe expiry of three months from the date on which such settlementwas countersigned by the Chairman of the Board, that a certified copyof such settlement be filed in court and that a decree be entered in hisfavour in terms of such settlement. The application shall be by peti-tion in the way of summary procedure, and the parties to the settle-ment other than the petitioner shall be named respondents, and thepetitioner shall aver in the petition that the debtor has failed to complywith the terms of the settlement.”
The position of the parties at the trial clearly was that a settlementhad been entered into between these two parties; and the only disputewas whether the action was maintainable in view of that settlement.The answer to that depends on the meaning to be given to the words
in s. 40 (1) “A settlementshall
be final between the parties, and the contract in respect of any debtdealt with in the settlement shall become merged in the settlement”.
The meaning of these words seems to me to be too clear for argument.The settlement being final, the dispute between them must be decidedon the terms of that settlement and that alone. The contract in thiscontext is clearly the contract set out in the two mortgage bonds, wherebythe defendant promised to pay the plaintiff certain sums of moneyborrowed and interest. The money borrowed on those bonds was thedebt: and that debt was dealt with in the settlement. Therefore whens. 40 (1) provides that the contract shall become merged in the settle-ment, it surely means that the right of action which the plaintiff wouldhave had on the contracts contained in the mortgage bonds became mergedin the settlement, and was extinguished by it. The debt due from thedefendant to the plaintiff became a new debt, due not on the bonds buton the settlement. The proviso which says that “ w'here any debt secured
by anymortgage over any property
is dealt with in any settlement, the rights of the creditor under suchmortgage shallbe deemed
SANSOXI, C.J.—Samarasinghe v. Balasuriya
to subsist under the settlement to the extent of the amount payablithereunder ”, preserves to the creditor his rights as a mortgagee ; ancthe. mortgage which subsisted under the bonds is now deemed to subsisiunder the settlement, so that the creditor still remains a secured creditoiby virtue of the proviso.
The entering of the settlement does not extinguish the debt. Insteacof being a debt due under the contracts, it becomes a debt due underthe settlement. The plaintiff’s remedy is no longer an action under thecontracts contained in the bonds, for his cause of action now arises outof the settlement.
The effect of merger has been described in various ways, and it hasbeen likened at different times to annihilation, or sinking, or drowning.In a case of merger which arose where judgment had been entered upona mortgage debt, Silva v. Leiris Appu Koch, J. said : “ Once the inter-vention of the Court has been sought and once a decree has been entered,the contractual relations are determined and the liability of one to anotheris no longer under the contract but under the decree which takes its place
The parties thereupon pass out of the domain of
contract and enter that of a decree ”. If one were to substitute “ settle-ment ” for “ decree ” and “ Board ” for “ Court ” in this passage, thechanged positions of the parties in this case is apparent. In Rama-lingam v. James 2, Soertsz, A.C.J. dealt with a decree entered on a pro-missory note. He said “ When decree was entered, the promissorynote was swallowed up by it and lost its identity. The judgment mergedand destroyed the original cause of action. The debt due on the decreeis a new debt ”.
This being the consequence of a settlement, it is easy to understandthe meaning of s. 43 (1). The creditor, where a debtor fails to complywith the terms of a settlement, could apply to a Court of competentjurisdiction asking that a certified copy of the settlement be filed inCourt and that a decree be entered in his favour in terms of such settle-ment. The application would be by summary procedure, and unlessthe debtor proves that he has complied with the terms of the settle-ment, the decree nisi entered under s. 43 (2) will be made absolute andexecuted as if it were a decree entered in a civil action. The provisionsof ss. 43 and 44 are clear on this point.
The plaintiff in thi3 case has mistaken his remedy. He had no rightto sue on the causes of action arising from the bonds, because he wasconfined to enforcing the settlement. Accordingly, this appeal mustbe dismissed with costs.
Siva Supramaniam, J.—I agree.
* (1936) 38 N. L. R. 295.
(1939) 40 N. L. R. 489.
A. SAMARASINGHE , Appellant, and W. F. BALASURIYA, Respondent