Strong v. Marikar.
1933Present: Dalton A.CJ. and Driebgrg J.
STRONG v. MARIKAR.
209—D. C. (Inty.) Puttalam, 4,441.
Caveat—Creditor files caveat to prevent alienation of property by debtor infraud of creditors—Object of caveat—Registerable interest in land—Registration of Documents Ordinance, No. 23 of 1927, ss. 30, 32, and 33.Section 32 of the Registration of Documents Ordinance does notentitle a creditor, who has not obtained judgment against his debtor,to enter a caveat to prevent the alienation of property by his debtor infraud of creditors.
The object of the section is to give the caveator notice of a deed inorder that he might have it rectified or cancelled under sub-section (5)if he can show that it is void or voidable or fraudulent as against him orthat it is in derogation of his lawful rights.
It does not alter the substantive law regarding the grounds on whichhe can have the deed cancelled.
Held further, the caveator is not bound to show that he has a register-able interest in the land, the registration of deeds affecting which heseeks to prevent.
N this action the appellant sued the respondent for the recovery of asum of Rs. 10,662.91 and, before the decision of the action, registered
under section 32 of the Registration of Documents Ordinance, No. 23 of1927, a caveat affecting five lands of the respondent. He filed anaffidavit alleging that the respondent was about to mortgage them andthat if he did so, the appellant would be deprived of the means of recover-ing the amount due to him. The respondent moved under section 33 of theOrdinance that the registration of the caveat be cancelled. The learnedDistrict Judge held that the filing of the caveat was wrongful and allowedthe application.
H. V. Perera, for appellant.—Under section 25 of Ordinance No. 14of 1891, only a party to an instrument or deed can lodge a caveat(Annamaly Chetty v. Thornhill1), but under section 32 (1) of Ordi-nance No. 23 of 1927, any person is entitled to enter one. The changein the wording is significant. Section 32 (1) has been deliberatelymade wider in terms, as the party aggrieved has been given a remedyby section 33 and a claim for damages by section 34. As the law nowstands any person can lodge a caveat, but if he does so unlawfully orimproperly he will be liable in damages.
N. Nadarajah, for respondent.—The position taken up by the appellantis not correct. It was not intended to widen the provisions of Ordi-nance No. 14 of 1891. In the statement of objects and reasons by theHon. the Attorney-General in the Government Gazette of April 8, 1927,it is clearly stated that the amendment of section 25 of Ordinance No, 14of 1891 was necessary in view of the fact that the section was beingabused by simple money creditors. The submission made for the appel-lant is that the mischief sought to be averted has been rendered lawful.
35/131 29 K- L■ R- m-
DALTON A.CJ.—Strong v. Marikar.
The class of persons who can come under section 32 is no larger thanunder the clause 25 of Ordinance No. 25 of 1891, but a close examinationof sub-section (5) of section 32 shows what persons are entitled to lodgecaveats. The appellant does not come within the class of persons. Heis only at the best a simple creditor without a decree of Court for his claim.His claim is being disputed. As such he cannot say that the deed isfraudulent as against him or in derogation of his lawful rights. Underthe Roman-Dutch law a simple creditor without discussing the availableproperty of his debtor cannot say that he has been defrauded. This canonly be done after a decree. (4 N. L. R. 81.) It is submitted that asimple money creditor cannot enter a caveat, and the law is the samenow as under section 25 of Ordinance No. 14 of 1891 as far as simplecreditors are concerned.
H. V. Perera, in reply.—The case of Fernando v. Fernando1 only laysdown that a person claiming damages cannot bring a Paulian actionwithout a decree. That does not apply to a creditor who claims a debtwhich is due. He can institute a Paulian action, and as such he canrightly say that his rights are being interfered with when a debtor transfershis property; he can therefore lodge a caveat.
July 13, 1933. Dalton A.C.J.—
I agree that this appeal must be dismissed. I have had the oppor-tunity of reading the judgment of my brother Drieberg, and I concurin the conclusion to which he has come. I should like to add, however,that the idea of a creditor being allowed to enter a caveat to stop hisdebtor dealing with his immovable property, until his ordinary contractdebt is paid, is not strange to me, or in fact unknown in Roman-Dutchlaw. During the course of the argument before us, the remarks ofA. St. V. Jayewardene J. in Fernando v. Fernando' were brought to ournotice, and they do give room for the suggestion that in Ceylon a creditorwhose claim is certain and ascertained, although he has not obtained ajudgment, is in a more favourable position, so far as a Paulian action isconcerned, than one who has a claim for unliquidated damages only.The origin in the Netherlands of the practice of advertisement in the caseof sales of land is referred to by Wessels J. in Houtpoort Syndicate v.Jacobs In British Guiana even at the present day, simple contractcreditors are empowered to enter a caveat against the transfer or mortgageof any immovable property belonging to the debtor. This right of oppo-sition has been the subject of many local decisions there, but does notextend to any claim for uncertain or unascertained damages. TheVendue Regulations for Demerara and Essequebo, as enacted by theAssembly of Ten on October 6, 1784, are referred to by Burge, ColonialLaws, 1st ed., p. 582. By subsequent regulation the requirements inrespect of sales by the vendue master were extended to all alienations ofimmovable property, and they are now governed there by Rules ofCourt under the provisions of the local Deeds Registry Ordinance, 1919.There the conditions under which a creditor can enter an opposition orcaveat before a conveyance or mortgage is executed are set out. They> 26 N. T.. R. 292.3 South Africa. (1904) T. S. 105.
DRIEBERG J.—Strong v. Marikar.
in fact play an important part in the system of conveyancing whichsurvives in its present form to a great extent from Dutch days. Withregard to Ceylon, however, although the provisions of our Registrationof Documents Ordinance (No. 23 of 1927) made considerable changes inrespect of the law applicable to instruments affecting land, and the useof the words “ in derogation of his lawful rights ” in section 32 (5) raisesconsiderable difficulties, Mr. Perera has not satisfied me that the Ordinancehas made any change in the law of the land, as it stood before the Ordi-nance was passed, in respect of the enlargement of the right of creditorsin Ceylon to obtain the rectification or cancellation of deeds alleged tohave been executed to their prejudice.
The appeal' must therefore be dismissed with costs.
The appellant sued the respondent for the recovery of a sum ofRs. 10,662.91 and, before the decision of the action, registered on August3, 1932, under section 32 of the Registration of Documents Ordinance,No. 23 of 1927, a caveat affecting five lands of the respondent. Theappellant says these lands are in the present state of the market worthRs. 100,000 and that the respondent’s liabilities, including the debt tothe appellant, amount to Rs. 91,653.29, of which Rs. 57,000 is securedby mortgage. He alleged that the respondent was preparing further toencumber his property and that if he executed the deeds and registeredthem, he would be completely deprived of any means of recovering theamount due to him; that it was absolutely necessary that he shouldprevent the registration of any documents by the respondent in orderthat in the event of execution he would be able to impugn the same asbeing in fraud of his claim. He gave this explanation in an affidavitfiled by him when the respondent moved to have the registration of thecaveat cancelled. The respondent does not challenge this statementof his liabilities, but he says that the lands affected by the caveat areworth Rs. 100,000. On October 15 the respondent moved undersection 33 of the Ordinance that the registration of the caveat be can-celled. The learned District Judge held that the filing of the caveat waswrongful and not necessary, that the appellant had no right to do so,and he ordered that it be cancelled. The appeal is from this order.
The judgment proceeded on the ground that though the provisionfor the registration of caveats under section 32 of Ordinance No. 23 of1927 was in certain respects different from that under section 25 ofOrdinance No. 14 of 1891, the caveator had still to show that he had aregisterahle interest in the land, the registration of deeds affecting whichhe sought to prevent. It is clear that the appellant would not havebeen entitled to register a caveat under the Ordinance of 1891, but it iscontended it is otherwise under the present Ordinance..
Under Ordinance No. 14 of 1891, section 25, it was competent for anyparty to lodge with the Registrar a caveat to prevent the registration ofany deed or other instrument affecting a particular land which mightthereafter be tendered for registration within a fixed period not exceedingsix months. If a deed was tendered for registration within that periodthe caveator had thirty days within which to bring his action in which
DRH3BERG J.—Strong v. Marikar.
case the registration was suspended until the decision of the action.It is clear that under this provision the only persons to whom this reliefwould be necessary were those who would be affected by the registrationof a deed and who would lose in competition with it. In 191 D. C.Negombo, 16,048,' Bertram C.J. held that by the word “party” wasmeant “party to some deed or instrument”, and that the object of theseotion was to allow a person who claimed a registerable interest in theland under some document to prevent another registration being madeto his prejudice. It was pointed out there and also in Croos v. Ramana-than Chetty1 that this provision was not intended to supplement theprocess which the law allowed of sequestration before judgment, providedby section 653 of the Civil Procedure Code.
Ordinance No. 23 of 1927, which repealed section 25 of Ordinance No. 14of 1891, does not use the word “party” but enacts that “any person”may register a caveat. It provides what the caveator has to provewhen he impeaches a deed submitted for registration while the caveatis in force, and what order the Court may make regarding it. It alsomakes provision, which Ordinance No. 14 of 1891 did not, for the partyaffected by the caveat, though he has submitted no deed for registration,to. apply that the registration of the caveat be cancelled. It bringswithin its scope cases to which the old provision does not apply; thisfollows from the use of the words “any person” instead of the word“ party ”, and it provides for the relief of persons who may be prejudiced,not by the registration of a deed and the consequent loss of their claimsto priority as in the case of the old provision, but by the execution of adeed and the acquisition of rights under it. It will be seen that whereasunder Ordinance No. 14 of 1891, registration was suspended until thecaveator established his claim, under section 32 of Ordinance No. 23 of 1927the object of the caveat is to give the caveator notice of a deed in order thathe might have it rectified or cancelled under section 32 (5) if he can showthat it is void or voidable or fraudulent against him or that it is inderogation of his lawful rights.
Those cases for which provision was made in section 25 of OrdinanceNo. 14 of 1891, namely, where merely suspension of registration is neededfor the protection of those having a registerable interest in a land, areexcluded from section 32 of Ordinance No. 23 of 1927 for the reason that nocaveat is needed for their protection. Provision is made for such casesby the new system of priority notices under section 30. Where a person,called for the purposes of that section a “transferee”, has acquired orproposes to acquire from another person, called the “ transferor ”, anyinterest in land, he can register a priority notice of his intention to registerthe instrument in his favour. Where the instrument is not yet executedthe consent of the transferee is needed for the registration of the prioritynotice; if executed, his consent is not necessary. The notice remainsin force for a period of six weeks, which can be extended by consent.If the deed to the transferee by the transferor is registered while thepriority notice is in force, it is deemed to have been registered on the day
> (1925) 29 N. 1.. R. 241. (191 /). C. Negombo. 16048).
2 (1924) 6 C. L. Recorder 164.
DRIEBERG J.—Strong v. Marikar.
on which the priority notice was registered. There was no provision ofthis kind in the Ordinance of 1891.
The learned District Judge was wrong in holding that a caveator undersection 32 should have a registerable interest, in the land. This sectiondoes not state who may register a caveat but this can be gathered from theprovisions of sub-section (5) regarding the proof to be given by a caveatorwho impeaches a deed tendered for registration and the order which theCourt can make regarding it. The caveator must prove that the deedwas at the time of registration void or voidable by him or fraudulentagainst him or in derogation of his lawful rights, and if he succeeds inproving this the Court may order the deed to be rectified or cancelledand may order the necessary correction in the register. I would heredraw attention to the words “ that the instrument presented for regis-tration is or was at the time of registration void or voidable”.
Whether by this is meant the time of registration of the caveat or thetime of the registration of the impeached deed is not clear. It is nothowever necessary to consider this, but what is clear is that there is noprovision as in the Ordinance of 1891, that the registration should besuspended, and from the provision that on a decision adverse to theimpeached deed the necessary correction should be made in the registerit would appear that a deed presented after the registration of the caveatwould be registered. Its presence on the register implies that it has beenregistered, for registration is effected by entering a deed on the register.The appellant in this case to be entitled to register a caveat should beable to prove that deeds tendered thereafter by the respondent for regis-tration would be, as regards himself, void or voidable or fraudulent or inderogation of his lawful rights. The respondent, on the appellant'sstatement, is not presently insolvent; any transfer would not affect him,but only such as would have the effect of rendering the respondentinsolvent to the prejudice of the appellant, and here again a distinctionwould have to be drawn between voluntary conveyances and those forvaluable consideration, for in the case of the latter a fraudulent intentionon the part of the alienee as well would have to be proved. This wouldmean that the Court would have to examine each deed tendered andallow or cancel it according to whether or not the appellant would beprejudiced by it. Section 32 merely provides a procedure which enablesa person to have notice of a deed which he has the right to have cancelled.It does not alter the substantive law regarding the grounds on which hecan have the deed cancelled. In this case the appellant seeks to procurethe cancellation of deeds which would be, as regards himself, fraudulentalienations to defeat his rights as a creditor. I will briefly state whatthe rights of a creditor in his position are.
If he can satisfy the Court that the debtor was fraudulently alienatinghis property he could, subject to the other conditions of section 653 ofthe Civil Procedure Code, at once institute an action for the recoveryof the amount due to him and get an order for the sequestration of somuch of his debtor’s property as is necessary to satisfy his claim untilhe obtains judgment and executes it. The same remedy is open to himin the course of his action.
DRIEBERG J.—Strong v. Marikar.
Where the debtor has committed an act of insolvency the creditorcan have him adjudicated insolvent in which case conveyances withoutvaluable consideration, with certain exceptions, made while he wasinsolvent would be void against his creditors; Insolvent Estates Ordinance,section 51. Conveyances, though for valuable consideration, madebetween the commission of an act of insolvency and the filing of thepetition, are also under certain circumstances void against creditors;section 57. Where an alienation has been made in fraud of creditorsthis is an act of insolvency which will support an adjudication.
A creditor who has obtained a judgment is amply protected by thenew Ordinance, for, in addition to the provision for registration of seizure,which would render private alienations thereafter void as against rightsenforceable under the seizure under the Civil Procedure Code, he cannow under section 31 register a priority notice as soon as writ of executionis issued and so protect himself in the interval between that and theseizure and its registration.
Was it then intended by section 32 to afford to a creditor who'has notobtained a judgment a means of obtaining what can otherwise only beobtained in a Paulian action? A Paulian action cannot be broughtexcept by a person who holds a judgment “ for the cause of action doesnot arise until the rest of the property of the debtor, not included in theimpeached deed has been exhausted by execution ”, Bonser C.J. inPodisingho Appuhamy v. Loku Singho *. He referred to Voet 42.8.13where it is said of the Paulian action that it “ should be instituted withina year from the time the right of action first arises, the year to be reckonednot from the time of effecting the alienation in fraud of creditors but ofthe sale of the whole estate: as it is then that the right of action firstarises: for, before that, it cannot be ascertained whether the creditorscannot be satisfied out of the rest of the property which has remained inthe patrimony of the insolvent and thus whether or not creditors havebeen defrauded by the alienation (De Vos’ translation.)
The case of Fernando v. Fernando" was cited by Mr. Perera. Therethe plaintiff sued the defendant to recover a boat in the possession of thedefendant and for damages. The plaintiff had bought the boat fromManuel Joseph de Silva. The defendant pleaded that he had an agree-ment with de Silva for the hire of the boat and there was an actionpending in which he sued de Silva for damages for breach of the agreement,and he claimed the right to retain possession of the boat as security forhis claim. He alleged that the transfer by de Silva to the plaintiff wasa fraudulent alienation; he asked that it be declared void as againsthis claim and for that purpose he moved that de Silva be made a partyto the action. The appeal was from a refusal to make de Silva a party.The questions before the Court, as stated by Bertram C.J., were whetherthe defendant was a person qualified to bring a Paulian action andwhether at the time of his application the time had arrived when hecould bring it. Mr. Perera referred us to the judgment of Jayewardene J.where he considered the objection to the defendant’s application on theground of his claim being for unliquidated damages; he thought thatin that particular case a judgment was needed for the reason that thei (1900) 4 N. L. R. SI.2 (1924) 26 N. L. R. 292.
DRIEBERG J.—Strong v. Marikar,
claim was one for unliquidated damages and that until a definite debtwas adjudged to be due by a Court there could be no relationship ofcreditor and debtor. His judgment suggests that in the case of anascertained and definite claim a creditor who had not got a judgmentcould maintain the action. Bertram C.J., however, took the view that inany case a claim under an action is not a debt until it is reduced to judg-ment and that '* two fundamental conditions are essential, namely,concilium and eventus, that is to say, there must be the design to defraudthe creditor putting the remedy in suit, and the process of law musthave disclosed the fact that that creditor was in fact defrauded by theinsufficiency of the debtor’s assets ” (on page 295) and that “ the actionis only competent to a judgment creditor who can show that by reasonof the alienation complained of the judgment'debtor has no assets onwhich execution can be levied, or that assets on which it has already beenlevied are insufficient to satisfy the debt.” (on page 296). In BaronchiAppu v. Siyadoris Appu 1 it was stated by Pereira J. that it is not only ajudgment creditor who can bring the action. The ease is not fullyreported and it is not clear what the form of the action was and thealienating debtor was not a party to it. The action was dismissed withleave to institute a fresh action.
It is difficult to see how the decree of a Paulian action can be obtainedin a proceeding under section 32 (5) of the Ordinance ; what wouldhappen if the person affected by the caveat denies that he is indebted tothe caveator? Is the caveat to continue in force until the caveatorestablishes the fact that he is a creditor ? Further, if, as in this case,,the caveator shows the risk to himself of an alienation by the debtor by astatement of the debtor’s other liabilities and of his available assets, ifthe Court to enter on an inquiry regarding the value of the assets ifthe parties are not agreed on the point, and if the debtor denies theliabilities to others alleged by the caveator, is the Court to investigateand determine the extent of such indebtedness ? If so, the Court willhave to undertake a complete examination of the financial affairs of theperson concerned.
The relief allowed to a successful caveator under section 32 (5) doesnot suggest that it is one intended for an alienation in fraud of creditors.The deed has to be “ rectified or cancelled ”. There can be no questionof rectifying such a deed, nor should such a deed be cancelled; cancellationwould revest title in the transferor. A decree in a Paulian actiondeclares the transfer void as against a creditor or creditors only, it doesnot revest the transferor with title, (Punchi Banda, v. Perera) if the claimsof the creditors are thereafter satisfied by other means, the title of thetransferee would remain entirley unaffected by the decree. If it wasintended for such cases I would expect section 32 (5) to provide for anorder declaring the deed void as against the caveator. There are manycases where a resort to a caveat is allowable and necessary, but in myopinion it was not intended nor is it necessary in such a case as this.
The order cancelling it under the provisions of section 33 (2) is rightand the appeal is dismissed, with costs.
a (1928) SO N. L. R. 355.
' (1914) 4 C. A. C. 05.
STRONG v. MARIKAR