SaverimvMu v. Thanga velautham
[In- the Privy Council]
Present: Earl Jowitt, Lord Keith of Avonham and^Mr. L. M. D. de SilvaS. SAVERIMUTTU, Appellant, and P. THANGAVEIATJTHAMet al., Respondents
Privy Council Appeal No. 14 of 1953 –
S. G. 174—D. C. Point Pedro, 2,761
Trust—Sale of land by debtor to creditor—Adequate consideration—Parol evidence
of agreement by transferee to reconvey the land—Admissibility—Prevention of
Frauds Ordinance (Cap. 57), s. 2—Trusts Ordinance (Cap. 72), s. 5 (1) and (3).
Although in some cases the provisions of section 2 of the Prevention ofFrauds ^Drdinju^e have ieen relaxed on proof of fraud on the ground that the“ Statute of Frauds may not be made an instrument of fraud ”, this propositionhas only a limited application, and it is necessary that Courts should approachwith caution the facts and the law on which any case is claimed to be an exceptionto the general rule that a transaction relating to immovable property is invalidunless the terms of the transaction have been embodied in a notarially attesteddocument.
A. transferred for adequate consideration certain immovable property to B.by Deed No. 3. The property in question had previously been the subjectmatter of a mortgage decree on which, at the date of the transfer, a balanceamount of Rs. 2,000 was payable by A. to B. It was stated in Deed No. 3that the coifeideration for the transfer was the balance amount due on themortgage decree. Satisfaction of the decree was duly certified of record, and,on the face of it, Deed No. 3 was an unqualified transfer for consideration.Immediately after the execution of Deed No. 3, on the same day, B. by DeedNo. 4 leased the property to A. for a period of six years.
In a rei vituZicatio action instituted (after the expiry of the lease) againstA. by B.’s successor in title, A. sought to assert by evidence of an informalagreement that the transfer to B. was subject to a condition that B. was tohold the land in trust for A. and reconvey it to A. on payment to B. of a
sum of Rs. 2,000 with interest.
Held, that the informal agreement relied on by A. amounted not to a trustbut to a contract for the transfer of immovable property and was thereforeinvalid as it contravened the provisions of section 2 of the Prevention of FraudsOrdinance.
VaUiamma Atchi v. Abdul Majeed (1947) 48 N. D. R. 289, distinguished.
.^^.PPEAL from a judgment of the Supreme Court reported in54 N. L. R. 28.
Stephen Chapman,'tor the 1st defendant appellant.
2-J. N. B 37761—1,592 (8/54)
MB. L. M. D. DE SILVA—Sciverzmiittu v. OPhangavtUaztffitct/m '
H. J. Phillimore, Q.C., with Robert N. Hales, for the p1a.ir.t-.iff
Our. adv. vult.
July 13, 1954. [Delivered by Mb. L. M. D. de Silva]—
This is an appeal from a judgment of the Supreme Court of Ceylondated 26th July, 1951, which, setting aside a judgment of the DistrictCourt of Jaffna, entered a decree in favour of the first respondent (herein-after called “ the respondent ”) to this appeal.
The respondent instituted the action in the District Court of Jaffnato obtain a declaration that he was entitled to a land called Pannaikad-dadyady situated at Valvettiturai, an order for possession and damages.The appellant was the first defendant in the action. The 2nd to the 10threspondents were the 2nd to the 10th defendants. -, ,,
The respondent in his plaint averred that the appellant and his latewife Annammah had at one time owned the land called Pannaikaddaiyady,that they had by Deed No. 3 of the 12th November, 1937, transferredthe said land to one Karthigesar Aiyadurai who by Deed No. 308 of the24th June, 1946, had transferred it to the respondent. He thusclaimed to be the owner of the land and entitled to possession. Heaverred that the appellant and the 2nd to the 10th respondents were inwrongful possession of the land.
The 2nd to 10th respondents did not appear at the hearing of thisappeal but it is common ground, and their Lordships are satisfied, thattheir position with regard to the land can be no higher than that of theappellant. As their Lordships have decided that the appeal must failtheir case does not call for separate consideration and nd farther referencewill be made to them.
It was pleaded in defence by the appellant that the transfer to Karthi-gesar Aiyadurai was subject to a condition that Aiyadurai wss to holdthe land in trust for the transferors and reconvey it to them on theirpaying to Aiyadurai a sum of Its. 2,000 with interest. At the trialbefore the learned District Judge it was sought to support this plea, notby a notarially attested instrument, but by secondary oral evidence ofan informal writing which it was alleged had been given by Aiyaduraito the respondent and his wife at the time of the exeeutior of Deed No. 3.Secondary oral evidence was permitted on the ground that the originalWriting was not available to the respondent at the date of the trial.On the view^ referred to later, of the facts taken by the learned trial judgesecondary evidence was admissible.
It was pleaded further in defence that the respondent at the tune theland was conveyed to him had knowledge that Aiyadurai held the land
* Mli. L. M. D. £>E SILVA—Saverimuttu v. Thangavelautham
in trust and that therefore the respondent’s position was no better thanthat of Ai^durai. It will be necessary to consider this plea ifthe first plea that Aiyadurai held the land in trust succeeds but nototherwise.
Aiyadvtrai was dead at the time of the trial.
The learned District Judge held that a trust had been established.On appeal the Supreme Court took the view that no trust had beenestablished and the question before their Lordships is whether upon thematerial placed before the learned trial judge and with due regard tohis views on the credibility of the witnesses who gave evidence beforehim it can be said that a trust came into existence.
Section 2 of the Prevention of Frauds Ordinance (Chapter 57, Volume 2,Legislative Enactments of Ceylon) is to the following effect :—
“ No sale, purchase, transfer, assignment, or mortgage of land orother immovable property, and no promise, bargain, contract, oragreement far® effecting any such object, or for establishing anysecurity, interest, or incumbrance affecting land or other immovableproperty (other than a lease at will, or for any period not exceedingone month), nor any contract or agreement for the future sale orpurchase of any land or other immovable property, shall be of forceor avail in law unless the same shall be in writing and signed bythe party making the same, or by some person lawfully authorisedby him or her in the presence of a licensed notary public and twoor more witnesses present at the same time, and unless the executionof such writing, deed, or instrument be duly attested by such notaryand witnessed.”
The amendment to the section made by Ordinance 60 of 1947 leavesunaffected the*questions arising for consideration in this case and theviews expressed hereafter. No reference was made to it at the argumentand no further reference to it will be made by their Lordships.
The segtion has been observed by Lord Atkinson in the case of AdicappaGhetty v. Caruppan Ghetty1 to be “ more drastic ” than the correspondingsection of the English Statute of Frauds in that the latter does notrender an agreement not complying with the formalities required by it“ invalid ”, whereas the Ceylon Ordinance does.
Subsection 1 of section 5 of the Trusts Ordinance (Chapter 72),Volume II, Legislative Enactments of Ceylon is to the followingeffect:—
“ Subject to the provisions of section 107, no trust in relation toimmovable property is valid unless declared by the last will of the
(1921) 22 N. L. B. 411.
SCR. L. SC. D. DE SILVA—Saverimuttu v. ThangavelaAtharti,
author of the trust or of the trustee, or by a non-testamentary instru-ment in writing signed by the author of the trust or the^crustee, andnotarially executed.”
Subsection (2) relates to movable property.
Subsection (B) says :—
“ These rules do not apply where they would operate so as to
effectuate a fraud.”
It thus appears that the law of-Ceylon in the generality of cases refusesto recognise a transaction relating to immovable property unless the termsof the transaction have been embodied in a notarially attested document.Oral evidence and even evidence in writing which does not possess theauthenticity of a notarially attested document are thus rendered of noavail in the generality of cases. It is evident that the aim of the Preven-tion of Frauds Ordinance is to prevent frauds bg; making( evidence otherthan the evidence of a notarially attested document ineffective. TheirLordships think that the departures permitted by law from this generalrule should not be extended as any undue extension would interfereseriously with the object sought to be achieved by the statute law ofCeylon.
Proof of fraud entitles the Court in certain circumstances to departfrom the general rule. This principle has found statutory recognitionin section 5 (3) of the Trusts Ordinance referred to above, and in somecases the provisions of the Prevention of Frauds Ordinance have beenrelaxed on proof of fraud on the ground that the “ Statute of Fraudsmay not be made an instrument of fraud ”. It must however be re-membered that this proposition has only a limited application. Forinstance it may be proved by evidence of the utmost reliability notsupported by a notarially attested document that a person has enteredinto a plain and simple agreement to sell land to another for a considera-tion. A breach of such an agreement is undoubtedly dishonest, but thedishonest conduct resulting from the breach does not amount to fraudwithin the meaning of the proposition that the Statute of Frauds maynot be used as an instrument of fraud. If the contrary view were takenthe Ordinance would be totally ineffective. Their Lordships are of theview that in order that the Ordinance may not be deprived of all efficacyit is necessary that Courts should approach with caution the facts and-the law on which any case, claimed to be an exception to the generalrule referred to above, is founded.
By deed No. 3 of the 12th November, 1937, already referred to, theappellant and his wife transferred to Aiyadurai not only the landPannaikaddaiyadi but also two other lands Elumullupattai, Muthirai-kaddaiadi. The three lands were the subject matter* of a mortgage decreein District Court Jaffua No. 265 on which at the relevant date a balanceamount of Us. 2,000 was payable by the appellant and his wife to
* MIt). L. M. X>. DE SILVA—Saverimuttu v. Tkangauelautham,
Aiyadurai. Five lands had originally been covered by the decree buttwo of thenii had been released. It is stated in Deed No. 3 that theconsideration for the transfer effected by it was the balance amountdue on the mortgage decree. Satisfaction of the decree was dulycertified of record. On the face of D. 3 it is an unqualified transferfor consideration.
Immediately after the execution of Deed No. 3, on the same day, therespondent by Deed No. 4 leased the property to the appellant and hiswife fo" an agreed rental for a period of six years. As stated by theSupreme Court on the face of these documents “ the relationship betweenAiyaJdurai and the appellant had been converted from that of creditorand debtor to that of lessor and lessee
The appellant (by secondary oral evidence of an informal agreement)sought to assert that the true position of the respondent was not thatof a full owner and lessor but that of a trustee. He said, and the learnedtrial judge held, that he had handed the informal writing to one Pomiah,an attorney of Aiyadurai who had wrongfully failed to return it andit is not centesteal that ¥n such circumstances secondary oral evidencewas admissible.
In support of his case it was suggested that the consideration for DeedNo. 3 of 12th November, 1937, was inadequate and this suggestion wasaccepted by the trial judge. The Supreme Court rejected the suggestion.On an examination of the evidence led for the appellant on the questionof the value of the land their Lordships find that the oral evidence was notsufficiently disinterested, and the documentary evidence not sufficientlyrelated, to the land transferred by the appellant as to form a safe basisfor the view that the consideration paid on the transfer was below the valueof the land. They think therefore that the view of the Supreme Courtthat the suggestion should be rejected should prevail. The Supreme Courtdrew the inference that the consideration was adequate from a valuationmade by the ajrppllant of the land in question and certain others for thepurposes of a case instituted in 1946 and an admission by the appellantas to the extent of the general increase in the price of land in the yearspreceding 1946.
The oral evidence led to establish the execution of an informal writingand to prove its contents was that of three persons; Sivagnanam a proctorand notary and nephew of the respondent, the appellant and Virisithamma(4th defendant and 4th respondent to this appeal) a daughter of theappellant. Sivagnanam said that “ an informal writing was also executedsimultaneously ” with the execution of the deed of transfer to Aiyadurai.He did not give evidence as to what the writing contained". The appellantsaid that he agreed to transfer the land to Aiyadurai because Aiyaduraihad said if the debt owed by him to Aiyaduari was paid off within eightyears he would retransfer the land to the appellant. He said> an informalwriting had been given by Aiyadurai to him. Virisithamma was the onlywitness who purported, speaking from recollection, to state what the con-tents of the informal writing were. She said : “ I saw the document
•2J. N. B 37761 (8/54)-
634iaft. L. M. D. DE SILVA—Savgrimuttu v. Thangavelautli&m. '
personally. The agreement referred to was contained in a piece of paperabout 5 in. by 8 in. I can give a summary of the contents. The agreementwas Rs. 1,200 for Elumullupattai and Rs. 800 for Pannaikaddayadi andMuthiraikaddai, and these amounts to be repaid by instalments, andAiyadurai undertook to re-transfer the lands on repaying the amount dueIn answer to a question as to whether any period was laid down in theagreement she said that “ the period mentioned was eight years ”. In thecourse of cross examination in answer to a question by the trial judge shesaid' for the first time “ The rate of interest at ten per cent, was mentionedin the agreement ”.
In the answer filed by the appellant the facts relied upon to sustainthe plea of a trust were contained in the second paragraph which is to thefollowing effect :—
£t These defendants state that the said land and two other landswere conveyed on the said Deed No. 3 by the 1st defendant and hislate wife Annammah to Karthigesu Aiyadurai referred to thereinto be held in trust for them and to be re-conveyed to them on theirpaying to the said Aiyadurai the sum of Rs. S?,000 with<Interest thereonfrom ISfth November, 1937.”
And in the prayer the appellant asked that the respondent be orderedto execute a conveyance in favour of the appellant (and the defendantswho were the representatives of Annammah) on payment of the sum ofJts. 2,000 and such reasonable interest from 12th November, 1937, asthe Court may order. No mention is made in the answer of the period ofeight years or of the rate of interest. A period and a ratq,were necessaryto render the agreement free from the infirmity of indefiniteness but these'elements, if present in the agreement, had not impressed themselvessufficiently on the memory of Virisithamma as to make them part of theinstructions given to the appellant’s proctor for the purpose of filinganswer. She said she “ instructed the proctor at the time of filing answer ”.If the witness Virisithamma showed at the time answer was filed adisregard for the material elements of the agreement to which reference hasbeen made from lack of recollection or even from an incapacity toappreciate their importance her evidence would appear to have lackedthat high degree of reliability and the certainty of a.ccuraey upon whichalone a court can arrive on oral evidence at a finding of fact affectingadversely a title founded upon a notarially attested document.
In these circumstances it would not have been unreasonable for thelearned trial judge, without any reflection on the credibility and honestyof the. appellant and bis witnesses, to have dismissed the appellant’saction on the simple ground that, considering the purpose for which it hadbeen led, he could not regard the evidence as sufficiently reliable as toentitle the appellant to found a case upon it. But the trial judge has notso held and their Lordships hearing this ease as an appellate tribunaldo not feel disposed to act upon the view that the trial judge shouldhave done so.
ilR. Ii. M. D. DE SILVA—Saoerimuttu v. Thangavelautham535
Accepting the secondary oral evidence of Virisithamma as to thecontents of**the informal writing it will be seen that it contained noreference to a trust and was in terms plainly an undertaking by Aiya^duraito retransfer the land to the appellant on the payment of a specifiedamount. It was sought to amplify the nature of the undertaking byresort to the evidence as to what was orally stated before the agreementwas signed. Objection was taken by the respondent to a considerationof this evidence on the ground that once the agreement was reduced towriting oral evidence to amplify it was not admissible. Their Lordshipsdo not find it necessary to consider this objection because they find thefurther evidence, if admissible, to be too slender to be regarded as capableof adding to the terms of the agreement.
It was conceded by counsel for the appellant that a refusal howeverdishonest by a person (say A) to carry out a non-notarial agreement totransfer land for a consideration (to say B) cannot normally be enforcedon the ground that the agreement gives rise to a trust in favour of B. Butit was argued that if B transfers land to A for a consideration by aneffective Qotarrafodocumf&it and A as part of the same transaction agreesorally or by a non-notarial agreement to retransfer the land "to B forthe same or another consideration a trust in favour of B arises. TheirLordships do not agree. They think that further facts clearly indicativeof a trust must be proved before a trust can be said to arise. In thecase of Per era v. Fernando 1 it was held that : “ where a person transferreda land to another by a notarial deed, purporting on the face of it to sellthe land, it is not open to the transferor to prove by oral evidence thatthe transaction was in reality a mortgage and that the transferee agreedto reconvey the property on payment of the money advanced ”. Itwas further held that the agreement relied on amounted not to a trust butto “ a pure contract for the purchase and sale of immovable property ” :Their Lordships are of opinion that Perera v. Fernando sets out correctlythe law of Ceylon. In the case before their Lordships it was a writing(established by ^secondary oral evidence) that was invoked by theappellant but that makes no difference because the statute law referredto earlier excludes for the purposes mentioned in it not only oralevidence but evidence contained in a writing which is not notariallyattested.*
In the case of Adicappa Ghetty v. Garuppan Chetty 2 the facts weredifferent but it was sought to establish by oral evidence that a personwho held a land under a notarially attested document held it in trust foranother. Lord Atkinson delivering the judgment of the Board heldthat parol evidence was inadmissible. He held that the agreement toestablish which parol evidence was given sought to “ create somethingmuch more resembling a mortgage or a pledge than a trust ” and wasconsequently of no force or avail in law if it contravened the provisionsof the Prevention of Frauds Ordinance.
(1914) 17 N. L. R. 486.
(1921) 22 N. L. R. 417.
536MB. L. M. D. DE SILVA—Saverimuttu v. Thangavelautham, '
^ It was urged by the appellant that the decision of the Board inValliamma Atchi v. Abdul Majeed 1 supported his case. ifi that caseit was held on facts established by oral evidence that a creditor held ontrust a land conveyed to him by a debtor by a notarial document whichon the face of it purported to be an outright deed of sale and made noreference to a trust. Chief among the purposes of the trust were‘that thetransferee should enter into possession, collect the income and therewithpay off the debt due to himself and debts due to certain other persons.The transferee was thereafter to reconvey the property to the transferor*One of the points argued in that case was “ that there was no evidenceto support the finding that the trust alleged in the plaint was proved ;that at the most, the evidence showed only that the conveyance P21was in the nature of a mortgage involving*an obligation to reconvey theproperty to the transferor on payment of the debt due to the-transferee ”.This argument was rejected and it is this rejection that the appellantseeks to rely upon. In rejecting the argument their Lordships said thatthey “ have been referred to the relevant evidence and they are satisfiedthat there was ample evidence, if admissible, to justify the finding thatthe trust was established. They accept the cfincurieijjfc cfindip.gs of theCourts in Ceylon upon this point ”. What the evidence referred to wasis not stated in the judgment although the purposes of the trust were,but it is clear that the judgment proceeded upon the basis' that it wasample. No doubt the purposes of the trust would have formed a partof that evidence. The decision does not in terms or otherwise detractfrom the force of the view expressed by the Board in the case of AdicappaGhetty v. Caruppan Ghetty. If the agreement between the parties had beenone creating “ something much more resembling a mortgage or a pledgethan a trust ” it would have been held to have been of no force unless ithad been contained in a notarially attested document, it is true thatin the case of Valliamma, Atchi v. Abdul Majeed and. in the case now beforetheir Lordships there are common elements. There is in each case analleged agreement by a transferee of land to reconvey it to the transferor.The transferor is in each case indebted to the transferee %t cthe time of thetransfer. But these elements by themselves do not establish a trust.They establish an agreement to reconvey. The judgment in ValliammaAtchi v. Abdul Majeed does not indicate that the common elementsmentioned are in all cases sufficient to give rise to a trust. It proceededas already stated upon the view emerging from an examination of theparticular facts of the case that there was ample evidence to establish atrust. In the case before their Lordships although the elements referredto as common elements exist, there is nothing of sufficient weight which,taken together with them, can support the proposition that a trust hasbeen established.^.
For the reasons which they have given, their Lordships will humblyadvise Her Majesty that the %ppeal should be dismissed. The appellantmust pay the costs of the first respondent.
(1947) 48 N. L. R. 289.
* Appeal dismissed.
S. SAVERIMUTTU, Appellant, and P. THANGAVELAUTHAM et al., Respondents
SaverimvMu v. Thanga velautham