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Preamt: Be Sampayo and Schneider JJ.GUNAWARDENE v. J>US.
J45—JD. C. Gkitte, 472.
Insolvency—Sale of property belonging to estate of insolvent—Purchaseunder the belief that property was sold free of encumbrances—Beliefinduced by conduct of assignee's proctor—Sale set aside—Fraud—^Misrepresentation.
The Court on the motion of the assignee’s proctor issued aCommission to A to sell a property belonging to the estate of aninsolvent. The steps taken by the assignee’s proctor were suchas to create the belief in would-be purchasers that the propertywas to be sold free of enoumbrances. At the sale B bought theproperty in the belief it was sold free of encumbrances. Subse-quently, the property was sold under mortgage decree. B appliedto Court that the sale to him be not confirmed, and that thedeposit be refunded to him. The District Judge refused theapplication on the ground that(l )B should have made the necessaryinquiries before buying; and (2) that the assignee not being''" anofficer of the Courti the Court could not deal with the matter ofthe petition.”
Held, that both grounds were wrong. .
It does not lie in the mouth of the party, who by his conductor representations misleads another, to say that the latter oughtnot to have acted on the belief induced by himself, and shouldhave satisfied himself as to the truth by independent inquiries.The power of the Court to interfere with the sale and preventinjustice does not turn on the question whether or not the assigneeis on officer of the Court.
“It would be disastrous, it would be shocking, if the Court wereto enforce against a purchaser misled by its duly accreditedagents a bargain so illusory and so unconsoientious as this.”
rjVSE facts appear from the judgment.
J. 0. Pereira, K.O. (with him J. 8. Jayatoardene), for purchaser,appellant.
A. St. V. Jayawardene, K.C. (with him Reuneman), for respon-dents.
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1088. March 6,1022. Db Sampayo J.—
Gtmamjtionc ^ insolvency case a number of extraordinary steps takenv. JHob by the assignee’s proctor have created a curious situation fromwhich the appellant requires to be rescued. In addition to thesimple contract debts provable in insolvency, the insolvent appears4to have incurred debts secured by mortgages of his immovableproperty. One of these mortgage creditors had put his bond insuit in D. C. Colombo, No. 53,153, and having obtained a decreehad issued a writ to be executed by the Fiscal of Galle. Referringto this and other mortgage actions the assignee’s proctot on May13, 1921, submitted a long argumentative motion, and asked thatthe District Judge of Colombo be informed of these insolvencyproceedings arid be requested to stay sale under the writ, as theclaim of the Colombo writ-holler would be paid by the assignee.The motion was allowed, and the District Judge of Colombo wascommunicated with accordingly. This involves the comfortableassumption that the execution proceedings in one Court couldthus be controlled by another Court. It was, on May 30, 1921,followed by an order, on the application of the assignee’s proctor,allowing the assignee to sell the lands belonging to the insolvent,
. it being stated by the proctor that “ he had no objection to thesecured creditors being given credit for the amounts due to themin the event of their purchasing at the sale.” 'In view of whathas since happened this minute is of importance. Notices to thiseffect would appear to have been issued to all the mortgagees.Then, on the application of the proctor, the Court on June 4,1921,issued a commission to one Henry de Silva to carry out the sale.The Commissioner carried out the sale on conditions approved ofby the Court, and at the sale the appellant became purchaser oftwo of the lands; and in terms of the conditions of sale he duly paidthe one-tenth, deposit-which the Commissioner brought into Court..These two lands were properties that had been mortgaged to thedecree-holder in the Colombo case, No: 53,153, and has beenadvertised for sale by him and were, in fact, subsequently, soldunder the writ. The appellant finding himself in a most embarrass-ing position petitioned, the Court, praying that the sale at theinstance of the assignee be not .confirmed, and that the shme becancelled and the amount of deposit be refunded to him.. It issurprising that this petition was not consented to by the asrigneeor allowed by the Court. It is quite dear that the steps taken bythe assignee’s proctor; moire specially the motions of May 13 andMay30,1921, were such as to create the belief in would-be purchasersthat the Commissioner appointed by the Court was to sell theproperty free of encumbrances. In the affidavit submitted insupport of the petition, the appellant swore to his being under thatbelief, and in addition to that he swore that at the sale, before thebidding commenced, he was – informed by the assignee and his
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proctor that the sale was being held to pay off the secured debtsas well as the unsecured debts of the insolvent, and that the bidfor the land in the full belief that he would be given a valid titlefree from enohmbrances. These statements were never effectivelydenied, but, on the contrary, were practically admitted by theproctor Who, as the District Judge, says, gave his evidence Veryguardedly at the inquiry. Ther District Judge, however, refusedthe prayer of the petition on two grounds : (1) that the appellantshould have made necessary inquiries before buying and satisfiedhimself further on the effect of the sale; and (2) the assignee notbeing “ an officer of the Court,” the Court could not deal with thematter of the petition and interfere with the sale. I do not think. that either of these reasons is sound. It does not lie in the mouthof the party, who by his conduct or representations misleadsanother, to say that the latter ought not to have acted on the beliefinduced by himself, and should have satisfied himself as to thetruth.by independent inquiries. The power of the Court to interferewith the sale and prevent injustice does not turn on the questionwhether or not the assignee is an officer of the Court. As I haveendeavoured to show, the Court had allowed itself to he movedby the assignee in matters in which neither the Court* nor theassignee had any concern. Apart from the real position of theassignee, it is sufficient for the present purpose to note thatriotonly did the Court make an order for ike sale of the lands on theapplication of the assignee, but the auctioneer who carried out thesale acted on a commission issued to him by the Court. The .sale 'was, therefore, a sale under the direction of the Court, andwas ^reported to the Court by the Commissioner for confirmation,for Which the conditions of sale approved of by the Court hadprovided. I do not say that the Court ought to have undertakenthe Cede instead of leaving the assignee to act under section 80 ofthe Insolvency Ordinance, or have acceded to the motion of theassignee’s proctor that a commission be issued. I need only notethat it (Hd. In my opinion the Court had full control over the sale.In Katti Mea v. Harperink1 where also the Court had refused tointerfere, on the ground that the purchaser, though he bid undera misajlprehension that the sale was to wipe off a mortgage, might,with ordinary diligence, have discovered the true state of affairs,th6 Ptivy Council said: “ It has been laid down again and againthajb in sales under the direction of the Court it is incumbent on.thq1 Court to be scrupulous in the extreme and very careful to seethit no taint or touch of fraud, or deceit, or misrepresentation isfpfind in the conduct of its ministers. The Court, it is said, must,af any rate, not fall below the standard of honesty which it exactsfrom those on whom it has to pass judgment. The slighest suspicionof trickery or unfairness must affect the honour of the Court and
* (1908) I. L. R 36 Cal* 32$.
impair its usefulness. It would be disastrous, it would be shocking,if the Court were to enforce against a purchaser misled by its dulyaccredited agents a bargain so illusory and so unconscientious asthis.” These observations apply with great force to the circum-stances of this case.
In my opinion the appeal should be allowed, with costs in bothCourts to be paid by the assignee, and the sales in question shouldbe cancelled, and the money paid by the appellant refunded to him.
Schneider J.—I agree.
GUNAWARDENE v. DIAS