DALTON A.C J.—Em.ee Nona v. Winson.
1933Present: Dalton ACJ. and Drieberg J.
EMEE NONA v. WINSON.
106—D. C. Galle, 30,100
Constructive trust—Fraudulent purchase by decree-holder of property in de-fendant’s name—Evasion of Court’s order—Action by administratrix ofdecree-holder for declaration of trust—Trusts Ordinance, No. 9 of 1917,s. 83.
Where the plaintiff’s intestate, the holder of a mortgage decreefraudulently purchased the mortgaged property below the appraisedvalue in evasion of the order of Court, and the conveyance was executedin the name of the defendant,—
Held (in an action for a declaration that the defendant held theproperty in trust for the plaintiff’s intestate), that the plaintiff was notentitled to prove a constructive trust.
^ PPEAL from a judgment of the District Judge of Galle.
N. E. Weerasooria (with him D. E. Wijewardene and V. J. T. de Silva),for defendant, appellant.
V. Perera (with him M. C. Abeyewardene), for plaintiff, respondent.July 18, 1933. Dalton A.C.J.—
The plaintiff, as administratrix of the estate of her late husband EndorisAppu, sought to obtain a declaration of the Court that certain premises pur-chased in the name of the defendant were bought in trust for Endoris Appu.
The defendant, son-in-law of Endoris Appu, pleaded that at the dateof his marriage to the daughter of Endoris Appu, the latter had promised,to provide him and his wife with a house, and that in fulfilment of that pro-mise Endoris had purchased the premises in question and conveyed themto defendant as an absolute gift to him and through him to his daughter.
The property was purchased at a judicial sale in execution on December8, 1923, and thereafter an auctioneer’s conveyance No. 549 of February5, 1924, was made out in the name of the defendant. It is admitted bydefendant that Endoris paid the consideration for the deed.
The parties went to trial on two issues only: —
Did Endoris pay the consideration on deed 549 for the benefit
of the defendant or for himself ?
2. Is the action prescribed ?
The learned trial Judge has answered both issues in favour of the-plaintiff, and came to the conclusion that Endoris paid the considerationon the deed for his own benefit. In the course of the trial, however,plaintiff gave a full and frank account of the circumstances under which,the purchase was made.
Endoris was a wealthy man, a jeweller who had made money in Africa.At the time of his death he had money out on 120 mortgages, and he'owned nineteen different immovable properties. He had lent money on
DALTON A.CJ.—Emec Nona v. Winson.
a bond (No. 250 of 1919) to one Mohamed Haniffa, the premises inquestion being mortgaged. This bond was put in suit in case D. C.Galle, 20,829, instituted on August 17, 1923, to recover Rs. 17,301principal, and Rs. 6,797 or thereabouts as interest. Judgment wasobtained, defendant Haniffa consenting to judgment for the amountclaimed. The plaintiff Endoris then moved for leave to bid at the sale,and to purchase the property in reduction of his claim. Leave wasgranted, but on condition that plaintiff should not be allowed to purchasefor less than the appraised value, which was Rs. 14,000.
The sale was held on December 8. There is no evidence to show thatdefendant was present, or consented at that date to his name being used,or had anything to do with the sale. To get round the order of the Court,Endoris got the witness Wijesekere to bid for him. Wijesekere, a witnessfor the plaintiff in this case, says Endoris asked him to buy for him(Endoris) in his (Wijesekere’s) name “because he wanted to buy for lessthan the appraised value”. Wijesekere says he suggested the name ofdefendant his son-in-law, as his sons were minors at the time. Thissuggestion was adopted, for Wijesekere then made a bid for Rs. 5,000,and he received a receipt for one-tenth of the purchase price and charges(P 3), which was made out in defendant’s name. The sale to defendantwas thereafter confirmed, plaintiff Endoris certifying that he had receivedthe balance nine-tenths of the purchase money from the purchaser, whichof course on the evidence he had not done, being the purchaser himself.Defendant thereafter appears to have been in possession, acting as ownerof the property, bringing and defending actions in respect of it, leasing it,receiving the rent and paying taxes for it, although Endoris on oneoccasion paid a large sum for repairs to it. There is evidence lastly toshow that at the time of the mortgage action Haniffa was insolvent, butwhether or not Endoris proved against the estate for the balance of hisclaim does not appear.
On this evidence being given, during the proceedings defendant’scounsel moved to frame a further issue, as to whether the conveyance 549was not a fraud on Haniffa and his creditors, but the learned Judgerefused the application.
On the appeal, counsel for appellant argued that the learned Judge waswrong in coming to the conclusion on the facts that the consideration ondeed 549 was paid by Endoris for his own benefit. In the event, however,of this Court holding on the evidence that the learned Judge’s finding onthat point could not be set aside, as I think it must hold, he argued thatEndoris, or plaintiff, could not be heard to say that Endoris had boughtfor himself at less than the appraised value.
The holder of a decree in execution of which property is sold is pro-hibited from bidding for or purchasing the property without the previoussanction of the Court. This is enacted by section 272 of the Civil Pro-cedure Code; see Chellappa v. Selvadurai1. The Court at the same timeis empowered to impose terms as to credit or otherwise, as it may deemfit. Any person dissatisfied with any such order has the usual remedy inappeal. In the case cited above, the execution creditor was given leave-to bid and purchase the property but at not less than the appraisement
‘ 15 N. L. R. 139.
DRIEBERG J.—Emee Nona v. Winson.
value, and no bid below that value was to be accepted. At the sale,the Deputy Fiscal, although fully aware of that order, disobeyed it. Theproperty was not put up at the appraised value, and the executioncreditor was allowed to purchase for a mere fraction of that value. Thisorder, as Wood Renton J. points out, was binding upon both the executioncreditor and the Deputy Fiscal.
In the case before us Endoris sought to evade the order made by theCourt, an order binding upon him, by putting up a person to purchase theproperty on his behalf, having the property conveyed by the auctioneerto that purchaser, and then in these proceedings setting up a trust in thepurchaser on his behalf. He disobeyed the order of the Court, and nowcomes to the Court by his administratrix for its protection and to givehim the improper benefit he obtained by his unlawful act. If the learn dtrial Judge’s finding on the facts is correct, the defendant, even if una’/r.-eat the time of the sale that his name was being used by Endoris, ini. thave become aware of what had happened some time later and presunub' /acquiesced in what was done, namely, the evasion of the order of the Courtand the purchase of the property to the benefit of Endoris and to thodetriment of Haniifa and his creditors.
In support of her claim the plaintiff sets up Endoris" illegality, andfraud on Haniffa’s creditors of which she also was fully aware. Theremedy she seeks to obtain under the provisions of section 83 of the TrustsOrdinance is governed by the principles of equity as in force in England,and she cannot obtain that relief in equity by setting up and provingEndoris’ illegality and fraud. Assuming even that the defendant becameaware of that fraud and later acquiesced in it, the maxim in pari deliaopotior est conditio possidentis would apply. Once all the facts are beforethe Court, the Court is bound to have regard to them, and it is no answvrto say that no fraud was pleaded. (Gascoigne v.. Gascoigne'.) The localcases cited to us dealing with applications under .section 282 of the Codeto set aside sales in execution, on the ground of a material irregularity inpublishing or conducting the sale, are not of any assistance on thisquestion as it arises in the case before us. The plaintiff must fail.
The appeal must be allowed and the decree of the lower Court set aside,judgment being entered for defendant with costs in the lower Court, andcosts of this appeal.
I agree with the judgment of the Chief Justice. The defendant, if hewas not aware of Endoris Appu’s reason for buying the land in his name,must have come to know it thereafter. But even assuming that all that. the defendant knew when the action was brought was that Endoris App'uhad for some purpose of his own, to which no objection could be taken,bought the property for himself but in the defendant’s name, and that hedid not know of the element of illegality, which Was that the Court hadprohibited him from buying at less than Rs. 14,000 and that he hadbought it for Rs. 5,000, this will not affect the position. Whether theparties are in pari delicto must be considered as matters stand when theCourt has to consider whether it should lend it its aid to enforce an illegaltransaction. This stage was reached when the real purpose and nature
i (1918) 1 K. B. 228.
DRIEBERG J.—Emee Nona v. Winson,
of the transaction was proved at the trial and each party sought to enforcehis rights under it. In Taylor v. Chester1 Mellor. J. said the maxim inpari delicto potior est conditio possidentis was not established for the benefitof plaintiffs or defendants but on grounds of public policy, and that “ thetrue test for determining whether the plaintiff and the defendant were inpari delicto is by considering whether the plaintiff could make out hiscase otherwise than through the medium and by the aid of the illegaltransaction to which he was himself a party
An instance of the Court refusing to assist the plaintiff when the defend-ant was an innocent party in the transaction is afforded by the case ofBegbie v. The Phosphate Sewage Companytt.
The defendants agreed to sell to the plaintiff the exclusive right to usea certain process in Berlin. They had patented it in England, but not inBerlin. It was found that the purchase was made for the purpose offloating a company, which was done, and with the object of defraudingthe shareholders of it, for it was not possible to obtain a grant of anexclusive right of that kind in Berlin. In an action against the defend-ants to recover the money paid to obtain the agreement for the sale ofthe right, the defendants pleaded that, the agreement having beenobtained for the purpose of defrauding intending shareholders by holdingout the false assurance of an exclusive right, the plaintiff could notrecover the money on the principle that money paid in furtherance of afraud or other unlawful purpose cannot be recovered. It was found thata fraud had been practised on the shareholders, that the plaintiff knewthat no exclusive right could be obtained in Berlin, but that the defend-ants were not aware that they had not obtained a patent for Berlin;they had instructed their agents to take out patents for the principalcountries of Europe and they believed that a patent had been acquiredfor Prussia. Cockburn C.J. said: “The money sought to be recoveredin this action, having been paid in order to obtain from the defendantsthe agreement whereby this fraud could be carried out, the rule of lawinsisted on by the defendants applies and is a bar to the plaintiff's rightto recover …. The plaintiff cannot present his case to a jurywithout necessarily disclosing the unlawful purpose in furtherance ofwhich the money was paid ”
Nor can it be contended in this case that the fraud or deception has notbeen carried out. It was urged that there was no-evidence that EndorisAppu had levied execution or recovered anything in excess ofUs. 14,000 ; but the fraud and deception of the Court was completewithout this, for on the sale the debtor’s liability was reduced by Rs. 5,000and not by Rs. 14,000 as would have been the case if Endoris Appu hadopenly bid for and purchased it in his own name., Nor is it necessary,that the illegality of the transaction should be pleaded by the defendant,North-Western Salt Company v. Electrolytic Alkali Company*, whereHaldane L.C. said (page 469) : “ If the action really rests on a contractwhich on the face of it ought not to be enforced, then as I have alreadysaid the Court ought to dismiss the claim, irrespective of whether thepleadings of the defendant raise the question of illegality
2 L. R. 10 Q. B. 491y on pp. 499 and 500.
2 (lyjj) A. c. m.
1 L. R. 4 Q. B. 309, on p. 314.
EMEE NONA v. WINSON