Curran v. Fernando.
1933Present: Garvin A.CJ. and Maartensz AJ.CARRON v. FERNANDO et al.
360—D. C. Negombo, 6,637.
Lease—Mortgage of leasehold interest—Nature of notarial lease—Jus in re—?Effective charge against third party—Rate of interest—Proof that it isnot unreasonable—Ordinance No. 2 of 1918, s. 4..
A notarially executed lease of land creates a real right in the land anda duly registered mortgage of the leasehold interest is an effective andan enforceable charge into whosoever’s possession that interest may pass. –
A person is not entitled to recover interest at a higher rate than 15per cent, upon a loan exceeding Rs. 2,500 in the absence of proof ofspecial circumstances showing that the rate is not unreasonable.
HE plaintiff, as the executrix of the estate of the late T. K. Carron,instituted this action to recover moneys alleged to be due to the
estate upon a bond No. 450 of January 9,1929, whereby the first and seconddefendants hypothecated to and with the'said T. K. Carron all theirinterests in a lease of the premises described in schedule A and, inaddition, the lands and premises described in schedule B. The leaseholdinterests hypothecated were created by a deed No. 35 of June 28, 1927,whereby the fourth defendant granted the premises to the first and seconddefendants for a term of 12 years from April 4, 1927. The plaintiff furtherpleaded an assignment to Carron by the first and second defendants of amortgage of the premises referred to in schedule C to secure the repaymentto them of a sum of Rs. 40,000 advanced to the fourth defendant at thetime of the lease. It was pleaded that this assignment had been grantedby way of further security for the sum advanced on the principal bond.The plaintiff prayed for judgment for the sum claimed and a decreedeclaring that the leasehold interests referred to in schedule A and thepremises described in schedules B and C be specially bound and executablefor the amount of her claim. The first and second defendants admittedthe debt but pleaded that the rate of interest, i.e., 18 per cent., wasexcessive and should be reduced. They further pleaded that Carron hadnot paid them the consideration for the assignment and asked that thissum Rs. 40,000 be set off against the money due on the bond. The thirddefendant who claimed to be vested with certain interests in the leaseholdpremises objected to a hypothecary decree being entered in respect ofthem. The learned District Judge entered judgment in favour of theplaintiff for the sum claimed and granted her a hypothecary decree inrespect of the leasehold premises and the premises described in schedule C.
H. V. Perera (with him D. W. Fernando), for defendants, appellants.—The assignment to Carron by the first and second defendants of themortgage created in their favour by the fourth defendant is an assignmentfor a money consideration of Rs. 40,000 and not an assignment by way ofsecurity for the moneys advanced upon the bond sued on. The con-sideration has not been paid and the first and second defendants claimthis amount in reconvention. The plaintiff’s answers to the interro-gatories served on her amount to an admission of this claim. She is
Catron v. Fernando.
further not entitled in law in view of the provisions of section 92 of theEvidence Ordinance to seek to contradict the terms of the assignment byparol evidence.
The rate of 18 per cent, interest prescribed in the bond sued upon isexcessive and by reason of the provisions of the Money Lending Ordinancethe Court has jurisdiction where interest is excessive to entertain anyapplication to reducd the rate of interest.
The terms of the lease prohibit subletting except with the consent ofthe lessor; this would necessarily also include assignment either simplyor by way of mortgage by the lessee except with the consent of the lessor—Wille on Landlord and- Tenant, p. 173; Demos v. Saris and ChronisThe mortgage of their leasehold interest by the first and second defendantsto Carron without the written consent of the lessor is not binding on thelessor Tor on the third defendant who is the purchaser from the lessor of- the premises leased.
*A lease in Ceylon does not create a jus in re. Under the Roman-Dutch• law a' tenant only received a personal right or jus in personam—Wille■ p. 204. According to Sande (De Prohib. Alienat. Rerum, Pt. 1., ch. 1, s. 46)never, in law does any real right arise from a simple lease for whateverterm nor is e quasi dominium transferred.
The law in South Africa as regards a tenant’s rights is different—Willepp. 208 and 209. This is so by virtue of the law relating to registrationof leases.
Hayley, K.C. (with Soertsz, K.C.), for plaintiff, respondent.—Withregard to the argument that the claim in reconvention should succeedas the plaintiff is debarred by section 92 of the Evidence Act from sayingthat the assignment was not for a money consideration, as the deedof assignment is for such a consideration, it is submitted that, as thedefendants deny receipt of the consideration, although in the deed ofassignment consideration is recited as having been given, it is open tothe plaintiff to prove the real nature of the transaction. See Nadaraja v.Ramalingam Mudaliaralso Kiri Banda v. Saly Marikar
The rate of interest is not excessive in the circumstances of the case.The burden of proving that it is excessive is on the party alleging it.With regard to the contention that the mortgage by the first and seconddefendants of the leasehold interests was bad and cannot give the mort-gagee any preferential rights as subletting was prohibited without thewritten consent of the lessors, it is submitted—(a) that the evidence of thelessor shows that she consented to the mortgage, she was the only personconcerned to consent or withhold her consent at the time of the mortgageand the third defendant’s attitude in that matter is of no consequence,(b) Such prohibitions, as the one relied on, are to be strictly construed.A prohibition against subletting must be construed as prohibiting thatkind of dealing alone and no other. The lessor could have prohibited amortgage of the leasehold interests as well, and as she did not do so, amortgage was good and once the mortgage was. good, all the practicalconsequences of a mortgage must be allowed to result, although theultimate effect may be to substitute another lessee for the original lessee.
» (1909) T. H. 112.. * 5 C. W. R. 304.M C. W. R. SOS.
GARVIN A.CJ.—Carton v. Fernando.
The ultimate result of a mortgage followed by a sale amounts to anassignment rather than to a subletting, and in the original deed of leasean assignment must be assumed to have been envisaged as permissible,for assigns are specially mentioned.
A lease does create a jus in re. It gives possession to the lessee. Alease has been held to amount to a pro tanto alienation and on that footingit creates a right in a thing, the right to possess. See Goonewardana v.Rajapakse.1
Jn Roman-Dutch law a lease creates not only conractual rights' between the parties, but also proprietary rights which the lessee can makegood against all the world. It is upon that fact that the maxim “hiregoes before sale ” is based. The Roman-Dutch law thus differs from theRoman law.
In Ceylon the view that a lease creates ownership in land has alwaysbeen followed. See Abdul Azeez v. Abdul Rahimans; Isaac Perera v. .Baba Appu3 It is now too late to disturb that view.
It results, therefore, that the secondary mortgage by the lessees mustbe subject to the rights of the plaintiff who is the primary mortgagee.The lessees having mortgaged the leasehold interests with plaintiff’sintestate cannot by a subsequent act derogate from the earlier rightscreated by them in favour of the earlier mortgagee.
Cur. adv. vult.
December 1, 1933. Garvin, A.C.J.—
The facts material to this appeal are fully set out in the judgment ofMaartensz J. which I have had the advantage of reading and with whichI agree. The plaintiff is the executrix of the estate of the late T. K.Carron. She instituted this action to recover moneys alleged to be dueupon a bond No. 45 of January 9, 1929, whereby the first and seconddefendants hypothecated to and with the said T. K. Carron all theirinterests in a lease of the premises described in schedule A to the plaintand in addition the lands and premises enumerated in schedule B thereto.•.The leasehold interests hypothecated were created by a deed No. 35 ofJune 28, 1927, whereby the fourth defendant granted the premises to thefirst and second defendants for a term of 12 years from April 4, 1927.The plaintiff further pleaded an assignment to Carron by the first andsecond defendants of a mortgage of the premises referred to in schedule Cto secure the repayment to them of a sum of Rs. 40,000 paid and advancedto the fourth defendant at the time of the execution of the lease by her intheir favour. She pleaded that this assignment had been granted by wayof further security for the sum advanced on the principal bond andprayed for judgment for the sums claimed and a decree declaring theleasehold interests referred to in schedule A and the premises describedin -schedules B and C specially bound and executable for the amount ofher. claim. The first and second defendants admitted the debt and theironly plea in respect thereto was that the rate of interest, i.e., 18 per cent,was excessive and should be reduced. They pleaded further that Caroonhad not paid them the consideration for the assignment which wasRs. 40,000, which they pleaded was due, and asked that this amount be1 (1895) 1 N. L. R. 217.2 1 Current Law ReportsJ?75.3 (1897) 3 N. L. R. 48.
GARVIN A.C.J.—Carton v. Fernando.
set off against the moneys due from them on the bond m Carron’s favour.The third defendant who claims now to be vested with certain interestsjn the leasehold premises described in schedule A raised various pleas andobjections to a hypothecary decree being entered in respect of the lease-hold interests in and over the premises discribed in schedule A and thepremises described in schedule C. The learned District Judge enteredjudgment for the plaintiff for the amount claimed by her and grantedher a hypothecary decree in respect of the leasehold interests referred toand the premises described in schedule B.
In the course of the trial objection was successfully taken to any parolevidence being offered by the plaintiff to show that the assignment toCarron by the first and second defendants of the mortgage created intheir favour by the fourth defendant was not, as it appears upon the faceof the documents to be, an assignment for a money consideration ofRs. 40,000 but was merely an assignment by way of security for themoneys advanced upon the bond No. 45 of January 9, 1929. From thisorder the plaintiff has not appealed, but the appellants have raised anobjection to the reservation by the learned District Judge to the plaintiffof a right to institute further proceedings if so advised upon that assign-ment. It is a question whether the reservation made by the learnedDistrict $udge is of any legal force at all, but the objection is, I think,jvell founded. If any rights of action survive to the plaintiff in respectjf that assignment she must be left to take such action as she may beadvised without any reservation to her of a special right to do so.
Now the only portion of the judgment of which the first and seconddefendants appear to. complain relates to the dismissal of their counter-claim for the sum of Rs. 40,000. No evidence was led in support of thisclaim except the answers to certain interrogatories which had beenserved upon the plaintiff. In the replication filed by the plaintiff thereis an express denial that anything is due from her to the first and seconddefendants upon the assignment. Nor is ’there anything in her answersmade to the interrogatories which amounts to an admission of the claim.
On the contrary,-it is clear both from this document and from whathappened in the course of these proceedings that she maintains that thetransaction was intended to be additional security for the repayment ofthe money lent on the bond No. 45. There is therefore no admission ofthe claim and no evidence led in support of it. The learned DistrictJudge was. therefore right in my opinion in dismissing it. It is -urged*however, that the plaintiffs answer to the claim could only be substan-tiated by parol evidence which was not admissible in law in view of theprovisions of section 92 of the Evidence Act. That is an objection thatmight possibly have been urged if evidence had been led in support ofthe claim, and it is also possible that since the first and second defendantswere themselves seeking to contradict the statement in the bond^JbatRs. 40,000 had actually been paid and received by them that it mighthave been held that in such circumstances it would have been competentfor the plaintiff to establish by parol evidence her defence that no moneywas due. Moreover, the evidence in this case proves conclusively thatthe first and Seconddefendants have by the various complicated trans-actions subsequent to the fease and the assignment in their favour to
GAKVIN A.C.J.—Carron v. Fernando.
which they were parties obtained the full benefit of the mortgage grantedin their favour by the fourth defendant. There is nothing due from thefourth defendant to the first and second defendants and there is nothingtherefore upon which the assignment of the mortgage can operate. Theyare in effect seeking to recover Rs. 40,000 when they have themselvesobtained the full benefit of the mortgage in their favour and have beenrepaid all moneys due to them on that mortgage. In such circumstancesit is quite understandable why these defendants refrained from enteringthe witness box to give evidence in support of their claim.
There is more substance in their prayer for relief from what they pleadis the excessive rate of interest. Te rate of interest prescribed*, in thebond is 18 per cent, though provision is made for the acceptance ofinterest at the lesser rate of 15 per cent, where in strict compliance withthe .provisions of the bond the interest is paid on the due date. It isurged that, despite the terminology used, the additional 3 per cent, is ineffect a penalty. It was further pleaded that by reason of the provisionsof the Money Lending Ordinance the Court has jurisdiction where interestis excessive to entertain any application to reduce the rate of interest.Section 4 of that Ordinance declares what rates of interest shall be deemedto be unreasonable. In the case of loans of over Rs. 2,500 anything inexcess of 15 per cent, is to be deemed to be unreasonable “imless thecreditor or any person claiming through the creditor shall satisfy theCourt that in all the circumstances of the case the rate charged would infact be reasonable”. There is no evidence in this case of any specialcircumstances which leads to the inference that in this case the rate of18 per cent, is not unreasonable. I agree therefore that the plaintiffshould not be allowed to compute the interest at anything in excess of15 per cent.
This brings me to the main appeal which is the appeal of the thirddefendant. What he seeks relief from is the decree in so far as it declaresthat the interest created in the premises described in schedule A by theindenture of lease No. 35 of June 27, 1927, are saleable. The maingrounds upon which it was sought to impeach the judgment on this point -were (1) that the mortgage decree would be ineffective inasmuch as thelessor had the right to refuse to recognize any assignee of the lease,(2) that the lease had been terminated by the surrender of the 'unexpiredterm thereof, (3) that no valid mortgage such as would bind subsequentmortgagees or assignees of the lessee’s interest had been created. Insupport of the first of these contentions we were invited to look at-theterms of the lease whereby subletting was prohibited except with theconsent in writing of the lessor. This it was urged would necessarily alsoexclude assignment by the lessee except with the consent of the lessor.But in this case there is evidence given by the lessor herself. She states;
" Mr. Carron informed me that he was taking a mortgage of the lease-hold interests. I agree”. Since the interest of a mortgagee consists -of the right to bring the property mortgaged to sale for the recovery ofhis claim, it is manifest that in consenting to the mortgage ttfli lessormust be taken to have consented to accept any purchaser at^such a salea.5 her tenant in place of the original lessee. -There is therefore clearevidence that m this instance the lessor has consented to this transaction.
GARVIN A.C J.—Carron v. Fernando.
Moreover, -she has not appealed from the decree which is dearly bindingupon her. It was then said that subsequent to the institution of theseproceedings and during their pendency the third defendant had becomethe purchaser of the premises leased. If he did purchase these premiseshe did so with the full knowledge of the mortgage in favour of Carron andpresumably also with full knowledge of the circumstance that the fourthdefendant had consented to the mortgage in his favour. Whateverinterests he may have acquired were acquired subsequent to this mortgagemade with the consent of the then owner and he cannot be now heard toobject to the decree on the ground now under consideration.
The plea that the lease had been terminated was first raised on whatwas thought by Counsel to be a surrender by the first and second defend-ants to the lessor by the document P 10 of September 1, 1931, to whichall the present defendants were parties. But this was shown to be amisapprehension. The document had been drawn up for quite a differentpurpose. Not only was there no surrender but the continuance of thelease was expressly contemplated. The ground was then shifted andwas based upon documents P 6, P 7, P 8, P 9, P 11 and P 12. It wasurged that the combined effect of these documents was to vest in thethird defendant all the rights of the lessor in the unexpired term of .thelease, that by the document P 11 one Sockalingam Chettiar became thepurchaser of these leasehold interests at a sale in execution of a subse-quent mortgage created in respect thereof by the first and second defend-ants and that he had by the document P 12 surrendered to the thirddefendant. Here again there was a misapprehension as to the actual facts.It is true that by the document P 6 the lessor, that is to say the fourthdefendant, had assigned all her interests in the lease and the benefit andadvantage thereof to one Anamalai Chettiar and that Anamalai Chettiarhad by the document P 9 of September 1, 1931, assigned these intereststo the third defendant. But the interests created by the document P 6were expressly declared to remain operative “ only so long as mortgagebond No. 1,013, dated April 4, 1929, remained uncancelled and undis-charged ”. It was admitted that that mortgage had been cancelled anddischarged at the date of the alleged surrended by Sockalingam. Thereivas therefore no surrender by Sockalingam, if indeed he was vested with-legal rights in this leasehold, to the lessors or to any person authorizedby them to accept the surrender. Finally it was urged that by thedocument P 8 by which the fourth and fifth defendants mortgaged thesepremises in favour of the Bank they had also assigned to the Bank theright to possess and take the rents, profits, issues and income of the saidIahd during the continuance of the mortgage and that by reason of'thisright to possess and enjoy the premises the third defendant becameentitled to accept a surrender of the term, from the persons entitled thereto.Apart from the words referred to, there is nothing in the deed whichjustifies the contention that it was the intention of the fourth and fifthdefendants to constitute the third defendant their' agent for the purposeof obtaining a cancellation of this lease by surrender or otherwise. Onthe contrary one of the obligations which was specially imposed uponthe fourth and fifth defendants was the obligation to “accept from thesaid J. X. Fernando and M. T. Mathes (the first and second defendants)
358GARVIN A.CJ.—Carron v. Femando.
a surrender of the unexpired term of the lease created by the aforesaidIndenture No. 35 and place the Obligee Bank (the third defendant) invacant possession of the said land and premises referred to Assumingtherefore that the rights of the lessees had passed to Sockalingam Chettiarthere is no evidence here that this lease had been terminated by the lessoror by any persons specially authorized by him to do so. There ist ofcourse, the further objection that the interests, if any, of Sockalingam inthe lease were subject to the mortgage in favour of Carron. If as hasbeen urged by the respondent this mortgage was validly executed and waseffective to charge the interests mortgaged in the hands of any person towhom- they may have passed subsequent to this mortgage, then clearlythe surrender by Sockalingam even if it were in other respects unexcep-tionable may not be permitted to prejudice the mQrtgagee’s rights.
The last and the main contention urged on behalf of the third defendantwas that the mortgage in favour of Carron, though it may have beeneffective as between the immediate parties, was ineffective to chargethese leasehold interests^ the hands of any person to whom they mayhave passed from the lessees. It was urged that the interests of a lesseedid not amount to a real right in the land but were purely in the matureof personal rights and that the hypothecation of such personal rightsunless accompanied by an assignment of the lease did not create a chargeeffective against persons to whom the rights of the lessee may have passed.
The question whether the rights which a lessee obtains is a real right(jus in rem) or a purely personal right (jus in personam) is one in regardto which there appears to have been a considerable difference of opinion.There can be no question that in its inception a lessee’s interests were notconsidered to amount to anything more than purely personal rightsenforceable against the lessor. But under the Roman-Dutch law themaxim “ Hire goes before sale ” has been called in aid to give some reliefto the lessee and gradually the lessee was further permitted to bring actionsto protect him in his possession and enjoyment of his leasehold rights notonly against the lessor but as against all others who endeavouredto interfere with him in the exercise of his rights. His position has thusgradually grown stronger and more secure and at the present time heenjoys for the term of his lease such security as the owner of any otherreal right. In South Africa as a result of this development of the law aduly registered lease for over 10 years is now given the same status as aninterest in the land and is definitely regarded as a jus in re. The lesseeunder such a lease “ obtains a real right to the property as against allpersons other than a creditor under a mortgage bond which has been dulyregistered against the same property before the lease was registered”.See Wilier on Landlord and Tenant, p. 210. On the other hand the interestsof tenants under short term leases are still treated as purely in the natureof jura in personam.—Wille on Landlord and Tenant, p. 209.
A similar development in regard to the position of a lessee of land hastaken place in Ceylon. In Goonewardana v. Rajapakse when .the rightof a lessee to maintain an action against his lessor and others to be restoredto the possession of the premises and ,for damages was, considered,Bonsir C.J., after referring to the various actions given to a lessee under
J (2895) 1 N. f,. R. 217.
GARVIN A.C.J.—Carron v. Fernando.
the Roman-Dutch law to secure him in the enjoyment of his leaseholdrights and after referring to the provisions of Ordinance No. 7 of 1840,allowed the action and expressed himself in the following terms:—“Inmy opinion we ought to regard a notarial lease as a pro tanto alienationand we ought to give the lessee under such a lease during his term thelegal remedies of an owner and possessor In Isaac Perera v. Bapa Apputhe law as stated by Bonser C. J. was affirmed and a lease under a notarialcontract though he had not been put in possession by his lessor waspermitted to establish his lessor’s title and vindicate his right to thepossession of the land leased. And later in 1909 in Abdul Azeez v. AbdulRahiman’, Hutchinson C.J. in the course of his judgment observes “Alessee under a valid lease from the owner is dominus or owner for the termof his lease. He is owner during that term as against all the world,including his lessor”.
Now the provisions of Ordinance No. 7 of 1840 require every lease otherthan a lease at will or for a period not exceeding one month to be in writingand executed in the presence of a licensed notary public and two witnesses.This is a requirement which must be complied with-if any “ sale, purchase,transfer, assignment or mortgage of land or other Immovable property ”,and any “ promise, bargain, contract or agreement for effecting any suchobject, or for establishing any security, interest or encumbrance affectingland or other immovable property ”, is to be of any force or avail in law.So also, by reason of the provisions of Ordinance No. 14 of 1891 “ everydeed or other instrument of sale, purchase, transfer, assignment ofmortgage of land or other immovable property, or of a “ promise, bargain,contract or agreement for effecting any such object or for establishing ortransferring any security, interest or encumbrance affecting such land orproperty other than a lease at will or for any period not exceeding onemonth ” is required to be registered and in the event of failure to registersuch a “deed shall be deemed void as against all parties claiming anadverse interest thereto on valuable consideration”. In the result, inCeylon every lease for any period exceeding a month must be evidencedby an instrument duly executed before a notary and two witnesses likeevery other instrument affecting land and must also as in the case of all'instruments affecting land be duly registered. In Ceylon the position isnot quite the same' as in South Africa. Every lease which is executedbefore a notary and duly registered is placed upon the same footing asthe law in South Africa places a duly registered lease for more than 10years, and every notarially attested lease is regarded as an alienation forthe term of the lease and as creating a real right as distinct from a purelypersonal right. It has to be admitted that there are some respects inwhich the position of a lessee does differ'from that of persons who areentitled to real rights. His title is a defeasible one and dependent uponthe observance of the conditions and covenants of the lease. Further,his possession is not in the fullest sense and cannot fo£ all purposes beregarded as a possession ut dominus. It differs from other jura in realieno in that the owner of the land has certain duties imposed upon himby the tehns of the lease which is not the case with other rights in realieno. Iq this and possibly in other respects a lessee’s position differs
» (1897)<3 N. L. R. •* (1909) 1 Current Law tleporls. 971..
MAARTENSZ AJ^-Ccmn v. Fernando.
from that of persons entitled to real rights in the land. On the otherhand the strength of his position has developed so considerably since theearly days in which he was not permitted any rights other than purelypersonal rights as against the lessor that it approximates closely to thatof a person entitled to a real right in the land. “ The peculiarity of a realright or jus in rem, as distinguished from a personal right or jus in perso-nam is that it adheres or is attached to the thing, which is its object, soclosely that it may be enforced by the person, who is entitled to it, againstany person whomsoever who interferes with it, and not merely against aparticular person who is under special obligations with regard to it”.—Maasdorp’s Institutes of Cape Law, p. 12. Such is the position of a lesseeunder our law that his rights may be enforced by him “ against any personwhomsoever who interferes with it”, and not merely against the lessor.Thus it would seem that that feature which Maasdorp regards as thepeculiarity of a real right is a feature of the right of a lessee in Ceylon. Itseems to me to be too late now to urge that a notarially executed lease ofland in Ceylon does not create a real right in the land.
A duly registered mortgage of immovable property is a charge upon theland and adheres to it .notwithstanding that it may have passed into thehands of others, unless of course adverse interests thereto have beencreated by duly registered instruments which by reason of registrationtake priority. Similarly as the interest of a lessee in land is a real right aduly registered mortgage of those interests will remain an effective andan enforceable charge into whosoever’s possession those interests maypass. The law in Ceylon is exactly the same as the law in South Africarelating to registered long leases where “such a lease can be effectuallymortgaged or pledged by an instrument registered in the Deeds Office ”.—Wille on Mortgage and Pledge, p. 132.
In my judgment the plaintiff is entitled to the decree she claims inrespect of the rights in the lease hypothecated by the first and seconddefendants.
I agree therefore to the order proposed by Maartensz A.J.
This was an action by the administratrix of the estate of the lateMr. T. K. Carron to recover from the first and second defendants a sum ofRs. 31,250. alleged to be due as principal and interest upon bond No. 45dated January 29, 1929, and for a hypothecary decree, against- them andthe third, fourth, and fifth defendants in respect of the properties hypothe-cated by the bond described in schedules A and B of the plaint, and theproperty described in the schedule to deed of assignment No. 44 datedJanuary 9, 1929, and in schedule C of the plaint.
The plaintiff averred that the payment of the amount due on the saidbond No. 45 was further secured to the mortgagee by the said deed ofassignment.
The first and second defendants admitted the execution of the bond,but alleged that the rate of interest 18 per cent, stipulated in the bondwas excessive.
MAARTENSZ AJ.—Carron v. Fernando." 361
They denied that the deed of assignment No. 44 was given as securityfor the payment of the amount due on the bond No. 45, and claimed fromplaintiff a sum of Rs. 40,000 with legal interest, being the amount of theconsideration for the assignment of the bond referred to in deed No. 44.
They prayed for a dismissal of plaintiff’s action and for judgmentagainst the plaintiff for a sum of Rs. 26,845, the difference between theamount due to plaintiff on the bond sued on and the amount due to firstand second defendants on the deed of assignment No. 44.
The third defendant pleaded that even if the plaintiff was entitled tojudgment against the first and second defendants for the amount sued for,she was not entitled to a hypothecary decree in respect of the propertiesdescribed in schedules A and C of the plaint for the reasons set out inparagraphs 9 and 10 of the third defendant’s answer, which I shall setout later.
The learned District Judge entered judgment for plaintiff for the sumsued for and granted her a hypothecary decree in respect of the propertiesdescribed in schedules A and B of the plaint.
The first, second, and third defendants appeal from this decree in onepetition of appeal—but the grounds of appeal are entirely different andthey must be dealt with separately.
1 shall first deal with the third defendant’s pleas to the plaintiff’s claim toa hypothecary decree over the property described in schedule A of theplaint. For this purpose it will be necessary to refer to the exhibits inthe case.
By deed No. 35 (P 1) dated June 28, 1917, the fourth defendant leasedto tiie first and second defendants an estate called Kahatawila estatealios Crooswatta for a period of 12 years commencing from April 4, 1927,for a sum of Rs. 114,000. Rs. 40,000 was to be paid in advance and thebalance in quarterly instalments which varied from year to year, provisionbeing made for the reduction by instalments of the sum of Rs. 40,000.
The indenture provided that “the lessees shall not have the right tosublease the said premises without the written consent of the lessor. ”The lessor inherited the premises under the will of one John de Croossubject to an entail for the benefit of the fifth defendant.
By bond No. 36 (P 2) of the same date the fourth and fifth defendantsmortgaged the estate to the first and second defendants to secure therepayment of the sum of Rs. 40,000 advanced by them.
By bond No. 45 (P 4) dated January 9 the first and second defendantsto secure repayment of a sum of Rs. 20,000 mortgaged and hypothecatedto T. K. Carron the property described in schedules A and B of the plaint.
The property described in schedule A is the interest of the first andsecond defendants in the unexpired term of the lease of Kahatawila estatealias Crooswatta set out as follows:—
“All that the right, title and interest of the obligors and over theindenture of lease bearing No. 35, dated June 28, 1927, and attested by
S. Kirthisinghe, Notary Public of Nego'mbo, together with theresidue and unexpired term of lease thereby granted and the moneypaid in advance in respect of the lease created by the said indentureNo. 35 and affecting—
All that land and premises called and known as Kahatawila estatealias CroosWat+a … ”
MAARTENSZ AJ.—Carron t;. Fernando.
The bond carried interest payable at the rate of 18 per cent, payablequarterly in advance subject to the proviso that if the interest was paidon the due date or within one week of the date “ the obligors will have theprivilege to pay the aforesaid interest calculated only at and after the rateof 15 per cent, per annum anything to the contrary notwithstanding”.
By deed No. 44 (P 3) of the same date the first and second defendantsassigned to T. K. Carron the mortgage bond No. 36 as well as the sum dueon the bond for a £Ujn of Rs. 40,000 the receipt of which the first andsecond defendantS*«xpressly admitted and acknowledged. Kahatawilaalias Crooswatta hypothecated by bond No. 36 is described in schedule C.of the plaint. It was plaintiff’s case that this bond No. 36 was assignedto T. K. Carron as additional security for the sum of Rs. 20,000 secured bybond No. 45. The learned District Judge has rejected this claim and theplaintiff has not appealed from his order.
I shall have to refer to this deed of assignment again in connection withthe claim of the first and second defendants that Rs. 40,000 is due to themfrom Carron’s estate.
By bond No. 1,013 (P 5) dated April 4, 1929, the fourth and fifthdefendants mortgaged -Kahatawila estate to Annamalai Chettiar tosecure repayment of a sum of Rs. 100,000.
The attestation clause recites that Rs. 60,000 was paid to the obligorsby cheques drawn in their favour by the obligee and the balance Rs. 40,000retained by the obligee to be paid in satisfaction of bond No. 36 (P 2).
By deed No. 1,015 (P 6) of the same date (April 4, 1929) the fourthdefendant assigned the lease No. 35 and the full benefit and advantagethereof and all the estate, right, title, interest, claim, and demand whatso-ever of the fourth defendant into and out of the same thereof to AnnamalaiChettiar for a sum of Rs. 10 subject to the proviso that the assignmentshall remain operative only so long as the bond No. 1,013 remains uncan-celled and undischarged, and that on the cancellation and discharge ofthe said mortgage bond the assignment shall cease and determine.
By bond No. 2,001 (P 7) dated October 16, 1929, the first and seconddefendants to secure^ the repayment of a sum of Rs. 25,000 mortgagedand hypothecated with Suppramaniam Chettiar and Ram'anathanChettiar the unexpired term of the lease of Kahatawila estate secured tothem by indenture of lease No. 35 (P 1) and all their right, title, andinterest in the sum of Rs. 40,000 paid by them to the lessor (fourthdefendant) and secured to them by bond No. 36 (P 2).
The attestation clause recites that Rs. 2,254.17 was paid .‘to the obligorsand Rs. 21,850 “ set aside ” to be paid in settlement of the existingmortgage.
That mortgage was Carron’s mortgage.
The mortgagees put bond No. 2,001 in suit in case No. 41,647 of theDistrict Court of Colombo, for the recovery of the sum of Rs. 2,254.17.The leasehold interest was sold in execution of the decree and purchasedby Sockalingam Chettiar.
By deed No. 860 dated February 3, 1932 (P 11) their interests wereconveyed to Sockalingam Chettiar by the Secretary of the District Courtof Colombo.
MAARTENSZ AJ.—Carton v. Fentando.
By deed No. 833 (P 8) dated August 2, 1931, the fourth and fifthdefendants to secure repayment of a sum of Rs. 100,800 mortgaged andhypothecated Kahatawila estate to and with the third defendant.
The bond recites (1) that a sum of Rs. 70,494 was due from the obligorsto Annamalai Chettiar on bond No. 1,013 and that he had not paid anddischarged the bond No. 36, (2) that there was due and owing on bondNo. 36 the balance sum of Rs. 26,050, (3) that the obligors had by deedNo. 1,015 assigned to Annamalai Chettiar the benefit of lease No. 35,(4) that the obligors had arranged with the lessee^ under indenture oflease No. 35 for the surrender of the unexpired. tertn oT the lease onpayment of the sum of Rs. 26,050, (5) that the sum* of Rs. 100,000 wasborrowed to pay the sums.of Rs. 70,494 and Rs. *26,050.
The bond provided “that the obligors shall and .will immediately onthe execution of these presents accept from the said John Xavier Fervando-and Mary Thecla Mathes Fernando (first and second defendants) asurrender of the unexpired term-of the lease created by the aforesaidindenture No. 35 and place the Obligee Bank in vacant possession of thesaid land and premises ”, subject to the proviso that on repayment of theprincipal and interest the obligor shall be entitled to a cancellation anddischarge of the bond and to possession of the land and premisesmortgaged.
By deed No. 840 (P 9) dated September 1, 1931, Annamalai Chettiarassigned to the third defendant the benefit of the lease assigned to himby the lessor, the fourth defendant by deed No. 1,015.
By deed No. 841 (P 10) dated June 8, 1931, the first, second, third,fourth, and fifth defendants and Sockalingam Chettiar entered into anagreement by which it was agreed (1) that the balance due to the firstand second defendants upon bond No. 36 was Rs. 26,050 and that'1 this ’sum-should be paid from and out of the rents payable' by the firsthandsecond defendants, (2) that Sockalingam Chettiar shall be placed inpossession of Kahatawila estate and that he* should manage it and pay theincome left- after expenditure in payment of the rent'due to fourth andfifth defendants and the balance, if any, in reduction of the debt ofRs. 26,050, (3) that nothing in the agreement shall be deemed to Cancelor determine or vary the: conditions of the indenture of lease No. 35 andthe bond No. 36.
By deed No. 1,051 dated April 28, 1932 (P 12) Sockalingam Chettiar,who had acquired by deed No. 860 the unexpired term of the lease,purported to surrender to the third defendant “ the'.estate, plantations,and premises comprised in and expressed to be demised by. the -saidindenture of lease No. 35 ”.
It was at one stage urged in support of third defendant’s appeal, thatthe indenture of lease No. 35 (P 1) had been cancelled and discharged bythe execution of deed No. 1,051.
This contention was based on a misapprehension-as to. the effect ofdeeds P 6, P 8, and P 12. The assignment of the lessor’s interest in' deedP 6 was subject to the proviso that it should be operative only as lohg asthe mortgage bond*No. 1,013 remained uncancelled and undischarged.By the bond No. 833 (P 8) the third defendant retained the amouiif dueon bond No. 1,013 for the purpose of discharging it. The assignment P 9
MAARTENSZ A.J.—Canon v. Fenumdo.
was superseded by the agreement P 10. The contention was accordinglyabandoned that the third defendant stood in the place of the lessor andwas therfore entitled to agree to a surrender of the lessees' interestswhich may have passed to Sockalingam Chettiar. The argument thatthe third defendant was entitled to agree to a cancellation of the leasebecause the Bank was given a right of possession by the bond P 8 was anuntenable one. The Bank had ho authority under that clause to cancelthe lease.
I am of opinion that the indenture of lease No. 35 was not cancelled ordischarged when this action was instituted.
The main contention of the third defendant was that a lease in Ceylondid not create a jus in re and that the mortgage to Carron was invalid asthe first and second defendants had not assigned their interests in thelease to him.
Wille in his work on Landlord and Tenant at page 204 says that—
“Under the Roman-Dutch law, according to the majority of theRoman-Dutch Jurists, a tenant also only received a personal right, orjus in personam. Thus Sande (De Prohtb. Alienat. Rerum, Pt. 1.,ch. I, s. 46) says: ‘ Never in law does any real right arise from a simplelease for whatever term, nor is a quasi dominium transferred’.” (Healso cites Voet.)
On the other hand Grotius says that hiring does not merely give thetenant a personal claim against the landlord but a distinct and independentright of his own. Merula lays down that “though a tenant is not inpossession, he nevertheless has a writ of* maintenue for such right as hehad, even against the owner ”.
In South Africa, according to Wille, pages 208 and 209, the juridicalnature of a tenant’s rights under a lease is as follows:—
“ (1) Under a short lease.
The tenant obtains a personal right against the landlord to enforcehis right to the use of the property leased. As against a particularsuccessor of the landlord, the tenant obtains a right to the extent ofbeing able to enforce his right to the use for the period of the lease:this right, when viewed from the fact that it lies against a certain class,is clearly only a personal right. As against a creditor of the landlord,other than a creditor under a mortgage bond duly registered before thelease was entered into, the tenant obtains the right to enforce his rightto the jise, this right, again, is only a personal right …..
(2) Under a long lease'.
If duly registered.—The tenant obtains a real right to the propertyas against all persons other than a creditor under a mortgage bondwhich has been duly registered against the same property before theleate was registered.
If not duly registered.—The tenant obtains a personal right againsttiie landlord for the use for the period of the lease, if, though notregistered, the lease has otherwise been validly executed as between,the landlord and the tenant, as e.g., if notarially drawn in the Transvaal.
MAARTENSZ AJ.—Catron v. Fernando.
– As against creditors or subsequent purchasers the tenant's right to theuse is of no effect, at any rate in so far as the lease exceeds ten years,unless such purchaser had actual notice of the lease
Lee in his Introduction to Roman-Dutch Law after referring to theopinions of the Roman-Dutch Jurists and South African decisions, statesthe law thus:—
“ From what has been said, it is plain, that in modern times, as in thelater stages of the Roman-Dutch law of Holland, a lease creates notonly contractual rights as between the parties but also proprietaryrights, which the lessee can within the limits above stated make goodagainst all the world. We are fully justified therefore in regarding alease as a species of ownership of land
He adds a note (page 144) “ So in Ceylon, a lessee under a valid leasefrom the owner is dominus or owner for the term of the lease. He isowner during that time against all the world”. Hutchinson C.J. inAbdul Azeez v. Abdul Rahiman*; and again “ in my opinion we ought to.regard a notarial lease as a pro tanto alienation ”, Bonser C.J. in Goone-wardana v. Rajapakse *; approved in Isaac Perera v. Baba Appu * ”,
The law, as it has developed in Ceylon, is in accordance with theopinion expressed by Lee. The authorities cited by him have beenaccepted and acted upon, and 1 see no reason to dissent from them.
There is no distinction between long leases, i.e., for ten years and upwardsand short leases for under ten years. All leases except leases at will orfor a period not exceeding one month must by section 2 of OrdinanceNo. 7 of 1840 be executed by the lessor before a notary and two witnessesand duly attested.
The section is as follows:—
“No sale, purchase, transfer, assignment* or mortgage of land orother immovable property, and no promise, bargain, contract, ' oragreement for effecting any such object, or for establishing any security,,interest, or incumbrance affecting land or other immovable property(other than a lease at will, or for any period not exceeding one month),nor any contract or agreement for the future sale or purchase of any landor other immovable property, shall be of force or avail in-law unlessthe same shall be in writing and signed by the party making the same,or by some person lawfully authorized by him or her in* the presence ofa licensed notary public and two or more witnesses present a£> the sametime, and unless the execution of such writing; deed, or instrument beduly attested by such notary and witnesses
Registration is not necessary for the validity of the lease. But bysection 7 of the Registration of Documents Ordinance, 1927, a lease, unlessit is duly registered, will become void as against all parties claiming anadverse interest thereto on valuable consideration which is duly registered,unless there has been fraud or collusion in obtaining such subsequentinstrument or in* securing the prior registration thereof.
1 (2969) Current Law Reports, Vol. 275.2 (1895) I N. L. R. 219.
s (1897) 3 N. L. R. 48.
MAARTENSZ AJ,—Catron v. Fernando.
■It was submitted that a long registered lease in South Africa created acorporeal right by virtue of some legislation on the subject of registration.I am of opinion that the nature of the right created by a lease does! notdepend on registration but on the effect of the lease, that is, on whetherit is binding only inter parties or binding against the world.
1 accordingly hold that the lease to the first and second defendantscreated a corporeal right, and there was no necessity to assign the leaseto Carron to create a valid mortgage over the lessees’ interest in theunexpired term of the lease.
It was also contended that the mortgage was only effectual against theparticular successors and creditors of the landlord and not effectualagainst the* creditors of the lessee.
Wille at page 181 says with regard to the rights of a pledgee—
“ In each case the pledgee obtains a preference over only the rightsvalidly pledged to him. If the pledge of a duly registered long leaseis itself duly registered, the pledgee is preferent over the proceeds ofthe lease to other creditors, of the tenant as well as to creditors of thelandlord and subsequent purchasers of the property leased
This statement of the law, if it is right, disposes of the contention thatthe mortgage to Carron did not affect the lessees’ creditors. With duedeference it is, in my opinion, correct. If the mortgage to Carron iseffectual against the landlord, a fortiori it is effectual against the tenant,who created the right, and his creditors.
1 shall now deal with the subsidiary objection raised by the thirddefendant to the mortgage, namely, that the mortgage was executed bythe lessees without the consent of the lessor—which amounted to a breachof the provisions in the indenture No. 35 that the “ lessees shall not havethe right to sublease the said premises without the written consent of thelessor
It has been held in South Africa that if there has been an express- agreement that the tenant may not sublet, he is not entitled to assign orcede his obligations (Demos v. Saris <fe Chronis *). Wille, p. 3. At page178 he lays down that a tenant can only validly pledge his lease withoutthe consent of the landlord where he has the right of ceding or assigningboth his rights and obligations without the consent of the landlord.
The first and second defendants, to effect a valid pledge, had thereforeto get the consent of the fourth defendant the lessor—they did not getthat consent.
The objection however cannot prevail for two reasons: (1) The fourthdefendant in her evidence stated “ Mr. Carron informed me that he wastaking a mortgage of the leasehold interests—I agreed She had there-fore consented to the mortgage, and it is not open to her to say that shewould not accept the execution purchaser of the lessees’ interest aslessee.
– (2) I have held that the fourth defendant has not divested herself of herinterests in the indenture of lease No. 35, and it is only she who can take
» (1909) T. H. 112.
MAABTENSZ AJ.-*-Carron v. Fernando.367
exception to a breach of the provision against subleasing—she has -toottak^p the objection at the trial nor appealed against the Judge’s order inwhich he answered the relevant issue (10) in the negative.
•Third defendant’s Counsel stated at the hearing of the appeal that thethird defendant had acquired Kahatawila estate after the trial andcontended that the third defendant was therefore entitled to raise theobjection. 1 am of opinion that that is a question which cannot beinvestigated in this appeal* Even if the question can be raised, I am ofopinion that the third defendant is bound by the valid pledge createdwith the consent of the fourth defendant.
The first and second defendant appellants’ objections to the decreewere, shortly stated: (1) that the rate of interest sued for on'bond No. 45was excessive, (2) that they were entitled to credit for a sum of Rs. 40,000due on deed of assignment No. 44, and (3) that the District Judge waswrong in reserving to the plaintiff the right to bring and maintain anotheraction in respect of the deed of assignment No. 44.
■ The first objection must, in my judgment, succeed. The rate of interestprovided for by the bond is 18 per cent, per annum, subject to the provisothat 15 per cent, will be accepted if the interest is paid punctually. Theinterest sued for is calculated at the rate of 18 per cent, per annum.Section 4 of the Money Lending Ordinance, No. 2 of 1918, enacts thaj—
“ (1) in considering whether in any case the return to be received *bythe creditor is excessive, the Court shall have regard (amongst otherthings) to the reasonableness of the rate of interest charged..
(2) Any rate of interest charged above the rates following, that is tosay (c) in the case of loans of over two thousand five hundred rupees,fifteen per centum per annum shall be deemed to be unreasonable,unless the creditor, or any person claiming through the creditor, shallsatisfy the Court that in all the circumstances of the case the ratecharged was in fact reasonable
The plaintiff has made no attempt to satisfy the Court that the ratecharged was in fact reasonable. The District Judge has held it wasreasonable on some arithmetical calculations of his own, which are notbased on any facts or figures put before him. They cannot thereforebe given effect to.
The respondent contended that the extra 3 per cent, was in the natureof a penalty the mortgagors agreed to for default of payment. Howeverone may look at it, the return the creditor is now seeking is 18 per cent,per annum, a rate obnoxious to the Ordinance and not proved to bereasonable.
I accordingly hold that the interest recoverable should be calculatedat the rate of* 15 per cent, per annum.
The second objection arises in this way. By deed No. 44 (P 3) thefirst and second defendants assigned to Carron the bond No. 36 execute^in their favour for a sum of Rs. 46^000. The consideration fot the assign-ment was Rs. 40,000, the receipt of which the first and second defendantsexpressly admitted and acknowledged. In their answer they alleged
MAABTENSZ A.J.—Carton v. Fernando.
that they did not in fact receive this consideration, the receipt of whichthey had acknowledged. They then administered the following interro-gatories:—
Was the sum of Es. 40,000 stated in the deed of assignmentNo. 44 dated January 9, 1929, attested by T. P. C. Carron of Negombo,Notary Public, as the consideration therefore paid by the late T. K-Carron to the first and second defendants.
If so, state how and in what manner the said sum of Es. 40.000was paid.
The answers to the questions were as follows: —
The sum of Es. 40,000 was not paid in cash, but there was goodconsideration for the deed No. 44 which as already stated was given asfurther security for the payment of bond No. 45.
The reply to the first interrogatory answers this.
The first and second defendants in proof of the averment that they didnot receive the sum of Es. 40,000 only read the answer to the interro-gatories in evidence.
The plaintiff averred in her plaint that the bond No. 35 was assignedas further security for the repayment of the amount lent on bond No. 45.She was not allowed to prove this fact. It does not follow that she wouldnot be entitled to prove the real nature of the transaction to repel theclaim made by the first and second defendants that the sum of Rs. 40,009is due to them. There was no investigation of this claim, because, I takeit, the first and second defendants did not attempt to prove that Es. 40,000was due to them.
I agree with the learned District Judge that the first and seconddefendants have not established their claim to this sum.
The objection to the reservation of the right of the plaintiff to sue onthe assignment No. 44 in another action should, in my opinion, be allowed.There is no necessity for such a reservation; if the plaintiff is entitled tobring another action her right.to do so need not be reserved; if anotheraction is barred by any rule of law she cannot avail herself of the rightreserved to avoid the bar, except on the ground that the appellantsacquiesced in the order reserving the right and are bound by it.
So that the defendants may not be hampered in their defence to anyother action on the deed No. 44. I direct that the words “ and it is furtherordered and decreed that the plaintiff be at liberty to proceed on with aproper action in respect of the deed of assignment No. 44 dated January9, 1929, and attested by the aforesaid notary public, affecting the premisesdescribed in schedule C annexed hereto ” be. deleted. This directiondoes not in any way determine that such an action is not available to theplaintiff.
Subject to this variation of the decree and the order as regards the rateof interest, the appeal is dismissed. As the third defendant has failedentirely and the first and second defendants only to a small extent, theyshould pay thfee-fourth the costs of appeal.
CARRON v. FERNANDO et al