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D. C., Colombo, 60,617.
Fraud—Implied trusts—Resulting and constructive trusts—English Law—Roman-Dutch Law—-Deed secured by debtor, in name of thirdparties, in fraud of creditors—Ordinance No. 7 of 1840—Parolevidence to prove fraud.
Where the price for the purchase of certain lands was paid by oneA, but the names of the plaintiffs were fraudulently entered in theconveyances as purchasers and as having paid the consideration,for the purpose of concealing the true ownership from A’s creditors ;and where the purchases were intended to be for A’s benefit, and towithdraw from his creditors the purchase money and certain otherlarge sums of money which he disbursed on the improvement of thelands and in erecting buildings on them ; and where there was asecret understanding between A and plaintiffs that the latter shouldformally convey the lands to the former after he should compoundwith his creditors, and that in the meantime A should possess thelands as his own from the date of the conveyances to plaintiffs andwith their knowledge and assent; and where at the date of theconveyances A was and ever since has been in insolvent circum-stances, and where plaintiffs were parties to his fraud on his cre-ditors—
Held, that the plaintiffs were not entitled to a declaration of titleto these lands, nor to have them released from seizure under a writsued out by defendants as creditors of A.
Per Berwick, D.J.—English trusts are the offspring of theRoman Law, enlarged and developed from the‘Roman fidei com-missa, which were only testamentary, so as to embrace trustscreated by parties inter vivos, and ultimately trusts created byimplication of law, which are analogous to obligations arising quasiex contractu.
Though in the Roman-Dutch Law there are no technical termscorresponding to implied or resulting or constructive trusts, owingto the system of administration of law and equity being such that ,there was no occasion for such terms, yet the doctrine of impliedtrusts is in substance part of that law.
To establish such trusts parol evidence may be admitted withoutviolating the Ordinance of Frauds.
Where a transaction is intended to effect a fraud, parol evidenceis at all times admissible to establish and create a resulting orconstructive trust.
HE facts of the case and the propositions of law applicable
to them are fully stated in the following judgment (dated9th October, 1873) of Berwick, D.J. :—
This is an action to set aside a seizure of certain lands and goodson a writ of execution issued by the judgment-creditors of oneAbbas, and to have plaintiffs declared the owners thereof. Thelands are claimed by the plaintiffs in virtue of various purchasedeeds in their names from third parties. Th • claimed bythe creditors as the property of their debtor.
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On the facts, I find with respect to lands I. and III. in the libelthat the purchase money was paid by Abbas ; that’ the names ofthe plaintiffs were fraudulently entered in the conveyances aspurchasers and as having paid the consideration, for the purposeof concealing the true ownership from Abbas’ creditors ; that thepurchases were intended to be for Abbas’ benefit, and intended towithdraw from his creditors the purchase money and certain otherlarge sums of money which he disbursed on their improvementand in erecting buildings on them ; that there was a secret under-standing between him and plaintiffs that the latter should formallyconvey them to him after he should compound with his creditors,and that in the meantime he (Abbas) should possess the propertyand deal with it as his own; that he accordingly entered intopossession and dealt with it as his own from the date of the con-veyances to plaintiffs and with their knowledge and assent,
I also find that at the date of the purchases he was, and hasbeen ever since, in hopelessly insolvent circumstances; and thatthe plaintiffs, who were the nominal purchasers, and his brotherand sister-in-law were parties to this fraud on his creditors.
With respect to lands II. and IV. I find the same facts, withthis difference : that the whole of the purchase money was paidwith money borrowed from Mrs. De Vos on the security of theproperty, the bond being executed by plaintiffs, the nominalpurchasers and nominal borrowers, but both the purchase and theloan being secretly intended for and on behalf of Abbas ; and therebeing the same understanding as before, that the plaintiff shouldmake a written transfer to him after he compounds with hiscreditors, and that meanwhile he should possess the propertyand deal with it as his own. The purchase money having been, wholly raised by mortgage of the property, Abbas’ estate was notin fact diminished thereby. Wherefore his creditors are onlyprejudiced to the extent by which the improved value of the pro-perty may exceed the mortgage to Mrs. De Vos.
The vendors of the lots I., II., and IV. are not shown to havebeen parties to the fraudulent intent, nor, of course, Mrs. De Vos.There is reason to conclude that the vendor of lot III. was.Though I do not think this point material to the decision of acase of this nature, it is perhaps desirable to find a verdict on it,to avoid the contingency of the case being sent back for thepurpose.
With respect to the goods, the finding is that they'formed partof Abbas’ stock-in-trade, and were fraudulently transferred byhim while in insolvent circumstances to his brother-in-law, thefirst plaintiff, without consideration.
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Finally, I find that at the date of all these fraudulent dealingsthe defendants were creditors of Abbas.
A review of the evidence on which these conclusions of factare based is annexed to this judgment.
Having recorded the findings on the facts, I have now to con-sider the questions of law raised by the learned counsel for theplaintiffs, and to apply this law to the different circumstancesof the different lands. Lots I. and III. are distinguished fromlots II. and IV. by the special finding that in the case of the latterthe insolvent’s estate was not diminished by the amount of thepurchase money, wherefore the general creditors were not pre-judiced as respects that sum ; but it has to be determined whether,nevertheless, they have a beneficiary interest in these lots. First,as to lots I. and III. It was urged that these lands (and theothers) never were the property of the defendants’ debtor (thepresent case differing in this respect from the ordinary one of afraudulent transfer by an insolvent), whence it was argued thatthey cannot belong to his creditors ; and the argument strenuouslyinsisted on by the learned counsel, Mr. Dias, is that parol evidenceis not admissible to show that the transferee under a deed whichstates that he has paid the consideration is a mere nominaltransferee, and that the consideration was in fact paid by some oneelse who is the actual purchaser ; that such evidence would beto contradict the terms of the written deed and to violate theOrdinance No. 7 of 1840; and it was further strenuously insistedon that the doctrine of resulting trusts is not part of the Law ofCeylon, it being contended (1) that this is no part of the DutchLaw; (2) that the English Law on this subject has never beenintroduced here and grafted on our Dutch Law; and (3) that itcould not be without violation to our Ordinance.
The question raised is of very great impbrtance, and deservesto be solemnly determined and finally set at rest.
I will first consider the third point, viz., whether the Englishdoctrine of resulting and constructive trust would be contra-dictory to our Ordinance No. 7 of 1840, which provides in effectthat no interest in land can be created by sale, purchase, or transfer,or agreement therefor, otherwise than in writing.
There is a well-known distinction between the meaning ofthe technical terms “ resulting ” and “ constructive ” trusts, butboth are “ trusts created by operation of law,” not trusts createdby parties. By the 8th section of the English Statute of Frauds(29 Carol II.) all such trusts were expressly exempted from thatAct, and the only difficulty which arises in ourthat it has
not expressly made the same exception. Itmembered
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that the 7th section of the English Act requires all declarationsor creations of trusts of any land to be proved by some writingsigned by the party who is by law entitled to make such trusts ;and that the 8th section exempts from the preceding enactmentall trusts which “ arise or result by the implication or construc-“ tion of law.”
Now, the admirable and sound reasoning of Lewin at the endof his chapter on resulting and constructive trusts has shown tomy mind conclusively that the 7th section does not embrace alltrusts indiscriminately, but is confined to those created by parties,and that the exception in section 8 could only have been insertedex majori cautela, that the extent of the enactment might not beleft to implication.
The same line of reasoning when applied to the correspondingsubstantive enactment of our Ordinance, section 2, which doesnot specially provide for trusts, but includes them generally asbeing, or creating interests in lands, demonstrates that it also doesnot embrace all interests in lands indiscriminately, but only suchas are created by parties, and npt such as are created by operationof law ; and the very nature of the language used in the Ordinancerequiring the contract to be signed by the party making the sameshows this to have been the true intention, and that interests notmade nor created by parties, but by operation of law, are not in itspurview. So also Van Leeuwen, speaking of the Dutch Ordinancesof Frauds, says: “ From the operation of these regulations“ are excluded all alienations acquired titulo universoli by“ inheritance, marriage, donation, bequest by last will, community“ of property in consequence of marriage, separation of estate orc‘ the like ” (Van Leeuwen's Corns., pp. 124 and 380); and he mighthave added judicial decrees, prescriptive title, adjudication ofbankruptcy, and others. This seems to me to dispose of theobjection founded on the Ordinance.
With respect to the objection that the doctrine of impliedtrusts is no part of the Dutch Law, it is quite true that we haveno technical terms corresponding to implied or resulting orconstructive trusts, but we have the things themselves; and theonly reason we have not the terms arises from the difference inthe system of administration of law and equity being such thatthere is no occasion for them. But it is to be remembered thatEnglish trusts are the very offspring of the Homan Law, enlargedand developed from the Roman fidei commissa (which were onlytestamentary), so as to embrace trusts created by parties intervivos and ultimately embracing trusts created by implication oflaw, which are analogous to what, ages before, were known to the
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Civil Law as obligations arising ex quasi contractu, such as thecondictio indebiti [the action whereby “ whatever has been“ delivered or paid on an erroneous conception of duty or obligation“ may be recovered on the ground of equity, provided, the person“ receiving it has no ground on natural right, implied donation, or“ compromise to rely on the acquisition as his own ” (Bell’sPrinciples, sections 531-587). The action by which is recoveredwhatever was paid without being due (Voet, XII. 6, 1) ]—the con-dictio sine causa—[an action whereby the thing is recovered whichanother contrives to possess without (just) cause, although hemay have originally obtained it justly, or when the considerationfails or is void in law (Voet, lib. 12, tit. 7); see an enumeration ofvarious condictions at page 397 of Tombin's and Jencken's Com-pendium of Modern R. Law], &c.
It cannot be denied that in the ordinary course of development, of our Colonial Law to overtake the circumstances of modern life(what Warnkoenig calls the “amplification of these rationes“ vitae ”) express trusts inter vivos are now as much part of thelegal system of Ceylon as of England, though unknown in thepractice of the old Civil Law (I mean virtually unknown, fortraces of them are mentioned by Spence, Equit. Jurisd., vol. I.,pp. 37, 438); and if in further assimilation to English Law we findit convenient, when dealing with what the English Law calls“ implied trusts,” to use that technical term, so as to collect underone denomination the many cases of implied obligations (quasicontracts) of a certain class there is not the less an identity inthe things though the terminology be different, and though theforms by which substantial effect is given to equity differ, orthough the law as to what circumstances will raise an “ implied“ trust ” under the English Law or an obligation ex quasi contractuunder the Civil law may, as it unquestionably does, sometimesdiffer. As illustrations of the substantial identity of the things,I need only point to the conditio sine causa or to the restitutio inintegrum, of which last an example singularly in accord with thethe English principles of implied trusts is given in the Digest andby Voet ad Pond, IV. 3, 11—that of a legatee who, havingbeen bequeathed a legacy larger than that proportion of a testator’sestate which the law allowed to be bequeathed away from heirs,has obtained payment of the whole by misrepresenting the truevalue of the estate to an ignorant heir, and is obliged to restorethe fraudulently acquired surplus ; or as English jurisprudencemight put it, would be decreed to hold it in trust for the heir,the difference being merely in the form of decreasing equity,but not in the substance; and the difference in form arising
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solely from the peculiar separation of legal and equitable estatesin English Law. See another example in Voei, XIII. 6, 3. TheCivil Law, Mandates, Liens, and negotiorum gestio all involvetrusts by implication of law; and other illustrations are affordedby the action rei vindicatio in such a case as non-payment of pur-chase money (Voet, VI. I, sections 14, IS) and by the actio publi-ciana, which actions, as Voet tells us, subsist in Dutch Law,though under other names (VI. 2, 11); also practically in the caseof rescinding sales. In fact, the whole doctrine of resulting trustsin English Law (at least in the class of cases to which the presentone belongs) is embraced and summed up in, if not perhaps foundedon, the grand Roman maxim, Jure naturae aequum est, neminemcum alterius detrimento et injuria fieri locupletiorem.
Having established the doctrine of implied trusts to be insubstance part of the Roman-Dutch Law, and that parol evidenceto establish them would not violate our Ordinance of Frauds,and that therefore there is no legal difficulty on these grounds inholding that plaintiff was a trustee under a resulting trust forAbbas, and therefore for the creditors who succeed to whateverbeneficiary rights he himself possessed, it is hardly worth whileto point out that third parties not privies to deeds are not boundby recitals in them (such as the recital that plaintiffs had paid theconsideration); and that there never has been a doubt that whena transaction is intended to effect a fraud, parol evidence is atall times admissible to establish and to create a “ constructive ”trust, notwithstanding the Statute of Frauds. To use technicallanguage we have here (under English Law) a “ resulting ” trustin favour of Abbas and those who have his rights, and a“ constructive ” trust in favour of the creditors whom he andplaintiffs conspired to defraud.
The real difficulty as it presents itself to my mind is whetherthe facts proved, though they constitute an “ implied trust ” ofthe land in English Law, do by Roman-Dutch Law create in respectto the land, as distinguished from the purchase money, an“ implied obligation ” or quasi contract by plaintiff in favour ofAbbas and those representing him as creditors, there being, asalready observed, frequently a conflict between the English andCivil Laws with respect to these implications of law. For example,though under English Law, whenever (as in this case) a personpurchases an estate in the name of a third party who has paidthe consideration (being a stranger in blood), there is a resultingtrust in favour of the latter; there is under Scotch Law no suchpresumption; and in the Civil Law it is a general rule that theproperty in a thing does not belong to him with whose money it
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id purchased, but to the person who purchased it with the stranger’smoney in his own name, the consequence of which rule is that thefinder of the funds cannot recover the land by rei vindicatio, buthas only a personal action against the purchaser to recoverhis money (which is not, however, the object of the defendantsin this case), Deinde generaliter in jure traditum, rem ex mea petuniaemptam mearn non esse, sed ejus qui earn nummis alienis emit, autcujus nomine empta est; cui consequent est, ut per nummorumdominum nequeat uUa ratione vindicari sed sola ei competat propetunia personalis actio (Voet, VI. 1, 11). And again at section21: Denique, cum id quod petunia mea comparatum ab alio estmeurn non fiat, etiam neminem vindicare posse rem suis nummisper alium emptam, the authority for which will be found in theCode, lib. 4, tit 50, and I have not been able to find anything inthe Dutch Law to lead to the supposition that it is different fromthe Roman and the Scotch Law. But the grounds on which Ithink that those representing Abbas (even if there had been noconspiracy to defraud them of the money spent on the purchases)may “ vindicate ” the property—and it makes no difference butin form whether we call plaintiff a trustee for the creditors, orwhether they “ vindicate,” i.e., recover the property from him—are these : (1) It is a matter of indifference in the Civil Lawwhose name is inserted in the instrument of sale (Code, IV. 50, 4,and Voet, XVIII. 1, 18); (2) the circumstances satisfy the Courtthat plaintiff, when making the purchases, acted as a mandatory. for Abbas ; and (3) the crucial test of right to recover the landsprevious delivery and possession, on which see every section ofthe book of the Justinian Code already cited, and sections 4and 5 may perhaps be deemed most forcibly at one with the presentcase, for the evidence fully proves the possession of the landand the exercise of the dominium to have been from thebeginning with Abbas, as well as that the purchase money,' wasfurnished by him, and that the present claim of property by plain-tiffs is also contra bonam fidem, all which three incidents are includedin the sections. 4 and 5 specially cited. These concurring—butmore especially the possession from the first by Abbas—seems tome to except the case from what Voet states to be only the generalrule.
The foregoing line of discussion brings us to see plaintiffs’position in its true light, that, namely, of a person out of possessionat the time of suit and who is not proved ever to have hadpossession, nor actual dominion, seeking to vindicate his title tothe property against the representatives of Abbas, who has had
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undoubted possession and dominium. This view makes it unneces-sary to inquire whether, if the plaintiffs were in possession at thetime of suit, the defendants could vindicate the land from them orestablish a trust in them (whioh is the same thing, save in form ofremedy). A plaintiff in Roman-Dutch Law, which combines theciviliter and utiliter actions—the legal and praetorian jurisdic-tions—must show both a legal and equitable title ; and as the merefact of his name being inserted in the deed of purchase does not givehim this under Civil Law, the rule applies in aequali jure mdiorest conditio possidentis. But, further, assuming that the plaintiffstaking unfair advantage of Abbas’ imprisonment "have recentlyobtained the actual, I mean the natural, possession (which, how-ever, is not proved), or were in such possession at the time ofseizure by the Fiscal, this is precisely one of those cases in which,if necessary, a feigned legal possession would be asoribed to thedefendants by the fiction of equity introduced by the actiopubliciana, which is given against every possessor sive bonae sivemalae fidei qui jure debiliori possidet (see Voet, VI. 2, 6, <fcc.), andsection 11, to show that the principle of this action is in force inDutch Law.
It is on these principles that I think that whether we deal withthe case by the English Law of implied trusts, or, as the learnedcounsel for the plaintiff asks, by Roman-Dutch Law, the defendantshave a right at their option either to recover the purchase moneyfrom the plaintiffs or the land itself, were the latter in possessionof it, and that they, as plaintiffs, out of possession (whetheractual or legal), cannot maintain a title in equity to the landagainst defendants’ better title. To hold otherwise in favour ofa plaintiff who paid no part of the price of the land, andwho therefore can only have a “ lucrative ” title, and that, malafide, would be to violate the maxim, which cannot be too oftenreiterated, aequum est neminem cum alterius detrimerdo et injuriafieri iocupletiorem, and would moreover be to sustain a, gross fraud.
Had the suit been one by defendants, to recover merely themoney fraudulently alienated by Abbas to plaintiff for the purposeof these secret purchases, the foregoing questions would not havearisen, and the whole case would have been simple and manifestlygoverned on the principles to be found in tit. 8 of book 42 of Voetad. Pand.
I may further remark that the claim, as the case stands, to thelands purchased with the funds so fraudulently alienated fromcreditors might, have been very shortly and simply disposed ofin favour of the defendants if English Law were applied (seeLewin on Trusts, chapter 19, sections 2, 10, p. 130); but it is very
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doubtful indeed, to say the least, whether the money could havebeen followed into the land under Dutch Law merely on the groundthat money fraudulently obtained had been so converted (seeVoet, VI. 3), and this judgment therefore goes on other grounds asfar as concerns the Dutch Law.
The plaintiff’s claim to lots I. and III. will be dismissed, andthey will be declared liable to be sold in execution as prayed forin the answer.
With respect to lots II. and IV. purchased with money whollyborrowed on the security of the property, whereby therefore, ashas been specially found, Abbas’ funds available to creditors werein no degree diminished, this finding would have been verymaterial if the defendant’s claim were simply founded on an allegedfraudulent or gratuitous alienation of funds to the plaintiffs.But this distinction of fact between this and the other casesis in no way material when the question is, as here, simplywhether the land formed part of Abbas’ estate, though colourablyheld under the name of another. Such being the real question,the principles applied in the other lots apply equally to theselots. It is of no consequence whose name was inserted in theinstrument of purchase. The purchase was intended to be onbehalf of Abbas by plaintiff as his secret mandatory. Thepossession was by Abbas, and by plaintiff’s consent and know-ledge the actual exercise of dominium was by him, and they wereessentially, though secretly, a part of his estate. From anEnglish point of view he had beneficial use, though not the legaltitle, and the defendants have a beneficiary interest in theproperty acquired on his behalf ; from the Civil Law* point ofview plaintiffs had neither a legal nor an equitable title. It canhardly be even said that the purchase money was raised on theoredit of the plaintiffs ; it was raised on the credit of the land,and as has been seen in reviewing the evidence it was raised bythe procurance and interference and for the use of Abbas. Thefact that plaintiff’s name stands in the mortgage bond to Mrs.De Vos has no more significance than his name standing in thepurchase deed. There, too, he was simply acting as the secretagent of Abbas, a second concealment, without which the latter’sreal ownership could not be effectually concealed. The convey-ance being in plaintiff’s name, it was necessary that the samename should appear as mortgagor. The purchase and the bondwere but parts of one simultaneous transaction, namely, a secretacquisition of property by the insolvent in the name of another;wherefore according to English Law that other is a trustee forAbbas and his representative; according to Civil Law the latter
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are simply entitled to be deemed the owners without distinctionof legal and equitable interests, the effect being substantially thesame though the form of judgment differs. Plaintiff is unable tomaintain rei vindicatio, and cannot have judgment.
It has been clearly proved, circumstantially and direotly, thatthe whole transaction as regards the names appearing in the deedswas a fraud upon Abbas’ creditors to conceal from them a part ofhis estate, in which fraud plaintiffs participated, and neither ofthem can be suffered to obtain any advantage over third partiesfrom their fraud on them. Following the principles laid down inrespect to the other lots, the lots II. and IV. will also be decreed apart of Abbas’ estate ; and this claim of the plaintiff’s will be dis-missed, and these lands will be declared liable to be sold in executionon the defendants’ judgment, subject to the mortgage in favourof Mrs. De Vos, whose preferential rights as special mortgageewill be reserved intact.
With respect to lot V., the finding on the evidence leaves noquestion of law, and plaintiffs are entitled to judgment for it.
The goods are also free of any question of law on the facts found.
Judgment for defendants for lots I., II., III., IV., and for themovables forming item VI. With respect to lot V. (Madangaha-watta), the plaintiffs will have judgment.
Plaintiffs to pay costs of suit.
Plaintiffs appealed. No appearance for them.
Ferdinands and Browne appeared for respondents.
The case came on for argument before Morgan, A.C.J., andStewart and Cayley, J.J., and on 19th November, 1874, theSupreme Court affirmed the judgment of the Court below, seeingno reason to the contrary.