AMMAL et al. v. IBRAHIM et al

036-NLR-NLR-V-39-AMMAL-et-al.-v.-IBRAHIM-et-al.pdf


Ammal v. Ibrahim.
105
1937Present: Moseley J. and Fernando A.J.
AMMAL et al. v. IBRAHIM et al.
287—D. C. Nuwara Eliya, 1,589.
Partnership—Immovable property purchased by seven partners—Death of onePartner—Devolution of property—Assets of partnership—Beneficialinterest—Ordinance No. 22 of 1866.
Where immovable property was purchased by seven persons, who weretrading in partnership, the legal' title to the property vested in thegrantees and, on the death of one of them, the title to his share passedto his heirs.
Held further, that under the conveyance no beneficial t'tle vestedin the partnership as such so as to enable the surviving partners to dealwith the entire property.
Madar Saibo v. Sirajudeen ( 17 N. L. R. 97) referred to.
T
HIS was an action for the partition of a land and buildings in thetown of Nuwara Eliya. The land in question was purchased
by seven persons, who were trading in partnership, one of whom was
106
Ammal v. Ibrahim.
P. Thraliim Saibo. Ibrahim Saibo having died intestate, his interestin the property devolved on the first plaintiff his widow and his childrenthe second and third plaintiffs. The defendants contended that thebeneficial interest in the property vested in the various partnershipsthat from time to time carried on the business of K_ Abraham Saibo& Co. The learned District Judge held that the property formed partof the assets of the partnership and, that, after the death of IbrahimSaibo, the contesting defendants had acquired a good title from thesurviving partners.
Rajapakse (with him M. J. Molligoda and M. Mahrooj), for plaintiff,appellants.—Legal title is admittedly in the plaintiffs. The questionis in whom was the beneficial title ? Contestants say it was in thepartnership and it devolved on another partnership without any con-veyance. But a partnership in our law, as in the English law, is not alegal persona, and has no legal existence outside the individual membersconstituting it, and therefore it cannot possess rights such as a beneficialtitle. See Letchemanan v. Sanmugam1; Suppiah v. Paliahpillai ‘; Landley(1924 ed.), pp. 4, 5, 150, 151, 153, 165. Legal rights can be acquiredonly by a person who is known to the law.
Ordinance No. 22 of 1866 introduced the English law of partnershipinto Ceylon, but this is subject to the proviso that the English law oftenure or conveyance or succession to immovable property is notintroduced. Under the English law if one partner buys property withpartnership assets, it enures to the benefit of the other partners, but inCeylon it can give rise to an implied trust only. In Ceylon OrdinanceNo. 7 of 1840 is applicable. See Madar Saibo v. Sirajudeen* ; Silva v.Silva *, sections 20, 22, 38 of the Partnership Act; Bindley p. 973.
The conduct also of the parties indicates that the legal and equit-able title vested in the grantees, e.g., administration of estates, sharesinventoried and conveyances effected.
The asset, viz., the land cannot pass from one partnership to anotherwithout a conveyance. The second partnership was different from thefirst, and the third from the second, because the partners in each werenot the same. Until the land was conveyed by a deed to the secondpartnership, it remained the property of the partners of the first partner-ship. Adamaly v. Asiya Umma0 relied on by the District Judge onlydecided that the death of a partner terminates the partnership. Theother portion is obiter.
First plaintiff is an illiterate widow still in India, the other plaintiffswere minors, and prescription has not run against any of them. Thepremises were sold fraudulently by the last surviving partners to four ofthemselves.
In the earlier case the eighth defendant said there were no books ofaccount. The present books should be rejected. They are fabricatedad hoc.
H. V. Perera (with him C. Nagalingam, N. E. Weerasooria, and
B. Wickramanayake), for the seventh to sixteenth defendants,
« 17 N. L. R. 97.
• SC. W. R. 13.
• 2 Times of Ceylon L. R. 223.
» 8 N.L. R. 121 at p. 124.» 14 N. L. R. 392.
Animal v. Ibrahim.
107
respondents.—We must ascertain what is partnership property and whatare the rights of a partner. A partner is not entitled to a share ofeach and every article of the partnership property. He is entitled to theassets after the debts are paid. Property can be held by a partner in trustfor others. (Lindley p. 409.) The land was conveyed to the partnersqua partners. The form of the conveyance indicates that it is for thefirm. Section 21 of the Partnership Act will apply. The vendees do notbecome owners till all the debts are paid and the money is divided.
If the appellant's argument is right, then it follows that if two peopletrade in partnership and they buy anything, each becomes entitledto a half.
No one denies that a partnership is not a .legal persona. From thatone cannot draw the inference that a firm is not a legal entity. It is awell established entity in law.
It is wrong to contend that there is no partnership property. Whateach partner throws into the common fund is partnership property.Third parties are not interested whether it is partnership property orprivate property, but as between the partners it is of vital importance.
In England the law of partnership was .developed in the Courts ofEquity. No partner is entitled to any portion of the partnership property.His right is to ask for an accounting at a dissolution. There is a funda-mental difference between a co-ownership and a partnership. There isno co-ownership here.
That title to land cannot be acquired without a notarial deed is truere legal title only. (Ordinance No. 7 of 1840.) But a deed is hot neces-sary for acquisition of beneficial interests. (Narayanan Chetty v. JamesFinlay ) Counsel referred to Lindley p. 27 and p. 409.
Under the Thesawalamai property acquired by a husband becomesthe property of both spouses. The wife gets an equitable interest in theproperty by operation of law. The beneficial title was in the sevenpartners as partners. Upon the dissolution of the first partnership,the bare legal title devolved on the heirs of the vendees but in trust forthe partnership.
[Fernando A.J.—How will it go to the second partnership ?]
Upon the dissolution of the first partnership, the parties or theirheirs can only ask for an accounting and get their share paid. (Lindley,p. 723 ; Adamaly v. Asiya Umma (supra).) Upon that being done theirinterest is over and they cease to have any beneficial interest. A notarialinstrument is not necessary ; it goes by operation of law.
Rajapakse, in reply.—Narayanan Chetty v. James Finlay decided a caseof a surrender of an equitable interest to the legal title holder (trustee).The language used in the judgment which indicates that equitableinterests can be transferred from the beneficiary to a third party withouta notarial deed is obiter and should not be followed. Ordinance No. 7of 1840 does not deal with a surrender. A mortgage bond must benotarially executed ; so is the transfer of the mortgagee’s rights to athird party, but the surrender of his rights to the mortgagor requiresno deed.
» 29 N. It. R. 65 at 69
108
FERNANDO AJv—Animal ». Ibrahim.
Contrast the English law with the Ceylon law. See Lindley, p. 153,and Wray v. Wr'ay
A partnership is not a legal persona, but a legal concept, just as aservitude, or a mortgage. There must be a legal persona. See Dooby v.Watson ~ and In re -Barney *.
Anything bought with partnership money will not be partnershipproperty unless it is within the scope of the partnership business. Buyingand selling was never within the partnership business here.
Cur. adv. vult.
March 17, 1937. Fernando A.J.—
The plaintiffs filed this action for the partition of the land and buildingscalled “ Fountain House ”, in the town of Nuwara Eliya in extent2 acres 1 rood '22 perches. Their case was, that by deed P 3 of 1902,the land in question was purchased by seven persons, one of whom wasP. Ibrahim Saibo, the husband of the first plaintiff and the father ofthe second and third plaintiffs, and that the said P. Ibrahim Saibobecame entitled to a further 2/63 . shares on deed of conveyance 361 ofMay 14, 1912 (P 6), and that Ibrahim Saibo having died intestate in 1915,those shares haye devolved on the three plaintiffs.
The claim of the plaintiff was contested by the seventh to sixteenthdefendants, who^e case was that the beneficial interest in the land wasin the various partnerships that from time to time carried on the businessknown as K. Abraham Saibo & Co. The legal title was admittedlyin the seven grantees, but the contesting defendants plead that thebeneficial title was in the seven partners, as such, those seven partnersbeing regarded as a firm or a partnership.
The principal questions that arise between the parties are: (1) Didthe deed of conveyance P 3 vest the land and premises in the seven gran-tees in such a way, that each of them acquired absolute title to one-seventh. or did that deed vest merely the legal title in them so that thebeneficial interest vested in the partnership composed of the same sevenpersons. (2) Whether the interest that vested in P. Ibrahim Saibo(the father of the plaintiffs) have now 'devolved on the plaintiffs, or whetherthat deed conveyed only the legal title to the grantees, whereas, thebeneficial title vested in the partnership in such a manner as to allowthe principal partners even after the death of P. Ibrahim Saibo to conveythe beneficial interest of the partners to the contesting defendants.
Ordinance No. 22 of 1866 enacts that in all questions which mayhereafter arise .with respect to the iaw of partnership, the law to beadministered shall be the same as would be administered in England,unless in. any case other provision is, or shall be made by any Ordinanceno.w in force in this. Colony, or hereafter to be enacted. But this is subjectto the provision that nothing herein contained shall be taken to introduceinto this Colony any part of the law of England relating to the tenure.or conveyance, or assurance, of, or succession to any land, or otherimmovable property, or any estate, right, or interest therein. It washeld by this Court, in Modal Saibe v, Sirajudeen *, that “ it is clear fromOrdinance Nc.. 22 ol 1866, that the . law as to conveyance of land and
* (1905) 2 Ch. 349.1 11392) 2 Ch. 265 at 272.
» (1883) 3i Ch. 178, at 18’ 1S2, r .* 17 AT. L. R. 97.
FERNANDO A.J.—Animal v. Ibrahim.
109
rights in land is still the law of the country, and not the English law.It may be that where any land is bought by one of two partners of a firmin his name, out of assets of thejiartnership, the other partner has theright to claim a conveyance from the first, of the land in favour of thefirm, but such a conveyance should be claimed and obtained beforethe firm can appear in Court, and seek any redress on the footing thatit is the owner of the land ”. It will be noted that Perera J. regardedthe partnership, or the firm, as being the owner of the land in certaincircumstances, and it is clear that he contemplated the case of all thepartners of the firm suing together in respect of a land which had beenconveyed to them all. Without such a conveyance in favour of allpartners, the firm or partnership cannot seek redress on the footingthat it is the owner of the land..
Counsel for the respondents argued that although the legal title wasin the grantees, the beneficial title was in the partners, but this assumes,that the partners as such, could acquire a right or interest in the landwithout a conveyance in their favour. Such a position to my mindwould be inconsistent with Ordinance No. 22 of 1866 which providesthat the law with regard to the tenure or conveyance of land or anyestate right or interest therein should be the law of Ceylon, and OrdinanceNo. 7 of 1840 provides that no sale of land, and no contract or agreementfor effecting any such object or for establishing any interest or incum-brance affecting land or immovable property shall be of force or availin law, unless the same shall be in writing and signed by the party makingthe same in the presence of a licensed Notary Public, and two or morewitnesses. The case of Madar Saibo v. Sirajudeen (supra) is of particularimportance, inasmuch as it sets out the law as it stood in 191fs, and beforethe introduction of the Trust Ordinance of 1917, which has perhapsaltered the position in Ceylon. The question here is whether in 1912,the date of P 6, the beneficial interest in land could vest in a firm or apartnership as such without a conveyance expressly in favour of the firmor partnership.
Now the case for the defendants is that the land in question vested inthe seven grantees under P 3, in trust for the partnership which consistedof the same seven persons, and, as Counsel for the appellant argued, thequestion arises whether it is possible for two or more persons to hold theland in trust for themselves. A partnership as such is not a legalpersona, and it is clear law that if an^gction has to be instituted by oragainst a partnership all the partners must sue, or be sued in the action.In other words, whatever rights are said to belong to a partnership,must vest in the partners as individuals in proportion, no doubt, to theshare to which each of them is entitled. It may of course happen thata person who is not himself a partner, may hold property in trust for thepartners, in which case the beneficial interest will be in the partners,while the legal title is in the grantee, but it is difficult to see how such aposition can arise as the result of a deed which ex facie transfers theproperty to the partners themselves.
Counsel for the respondent referred to the case of Narayanan Chetty v.James Finlay & Co.1 The question before the Court in that case as
1 29 N. L. R. 65.
no
FERNANDO A.J.—Ammal v. Ibrahim.
Garvin J. states, was “ whether the extinction or termination of theinterests of the cestui que trust or the waiver, or assignment of his interestmay not be proved otherwise than by a notariaUy attested writing wherethe trust relates to immovable property. Garvin J. held that therewas nothing in section 2 of Ordinance No. 7 of 1840 which would excludeevidence of the assignment by a cestui que trust of his equitable interest,otherwise than by a notarial document. The question before the Courtwas whether the grantee of land subject to a trust could acquire theinterests of the cestui que trust without a notarial instrument, and asCounsel for the appellant argued the decision was to the effect that such asurrender or transfer of equitable interest by a cestui que trust to the holderof the legal title did not require a notarial instrument. It seems there-fore, that this judgment is no authority for the proposition that thecestui que trust can transfer his interest to a total stranger without anywriting whether notarial or otherwise. It seems inconvenient, to saythe least, that the interests of a cestui que trust can pass by mere consentof parties and quite unknown to the trustee himself, because it wouldbe difficult for the trustee at any particular time to ascertain who wasthe cestui que trust in whom the beneficial interest vested.
In the case before us, however, the conduct of the parties themselvesappears to indicate that each of the seven original grantees was regardedas the full owner of his one-seventh share, and on the death of two of theoriginal grantees, the shares that belonged to them were purchasedby the other partners from their heirs on deeds of transfer for valuableconsideration. The rights of P. Ibrahim Saibo under the original grantremained vested in him, and he also obtained a share in the interestsof the two partners who died and whose heirs transferred after his death.With regard to him, the case for the defendants is that after his deaththi principal partners under the powers vested in them by the partnershipagreement, sold the land for the purpose of winding up the partnership,and that the share due to the heirs of P. Ibrahim Saibo was paid to themafter an accounting with them. There is no evidence whatsoever thatany one of the plaintiffs was present at such an accounting, nor does themoney appear to have been paid to anybody on behalf of P. IbrahimSaibo ; the allegation merely is that the money was deposited in anotherbranch of the defendants’ firm at Katugastota and stands in the booksof that firm to the credit of the plaintiffs, and it has not been proved byany member or official of that firm, that they in fact held any moneyfor the plaintiffs.
The learned District Judge held that the deed of partnership P 27provided that the partnership should continue for a term of thirty-sixmonths, commencing February 23, 1902, and ending on February 22,
or for a longer or shorter period as the principal partners maydesire. He states that the partnership did continue till September 17,
when agreement P 28 was executed, and he adds that the propertyin dispute was treated as part of the assets of the new partnership.There is nothing, however, in P 28 which refers to the property in question,and no accounts or record has been produced which shows that theproperty in question was dealt with in any way at or about the time when
FERNANDO A.J.—Animal v. Ibrahim.
Ill
P 28 was executed. He again held that in 1912, "when after the partner-ship created by P 28 expired, a new partnership was created by P 29,the premises were again treated as part of the new partnership. There isno reference to the premises in question in the partnership agreement,but the document D 1 is headed Balance Sheet for 1911, and it wouldappear that the total value of the lands at Nuwara Eliya fixed atRs. 96,200 had been included as the assets of the partnership. The profitsof the business are calculated on this footing, and those profits are dividedamong the partners and the servants of the business according tocertain shares set out in D 1. There is nothing, however, to showwhat was done with the premises in question, nor do the details of thepartnership beginning from November 19, 1911, contain any referenceto the premises. I can find nothing, therefore,-in the documents to provethat the premises in question were at any time treated as part of the assetsof the partnership created by the agreement P 29. It is true that P 29did provide that on the dissolution of that partnership, the partnersshould convey their respective shares and interests in the land andproperty and buildings to the principal partners, their heirs, executors,&c., if the principal partners should desire to take over the said partner-ship business, but the contention for the defence is that in pursuanceof the power vested in them by P 29, the principal partners had theright to sell and dispose of any property belonging to the partnershipmovable and immovable, and that deed P 9 conveying the premises tothe contesting defendants was executed in pursuance of that power;but in order to establish that this deed conveyed the land to them,they had to prove* first of all that the premises in question did form partof the assets of the partnership created by the document P 29, andthat the principal partners found it necessary to sell and dispose of thepremises in the winding up of the business. I have already referredto the documents P 4 and P 5, the former being the inventory filed afterthe death of K. A. Ibrahim Rawther, and P 5, the conveyance by theadministrators of his interests to the surviving partners, and to P 6,by which the heirs of A. M. Kanni Saibo similarly conveyed their rightsin the premises to the surviving partners. These documents make itclear that the surviving partners did not treat these premises as formingpart of the partnership assets, and therefore belonging to the partnership,in spite of the death of two of the partners. On the other hand theytreated the heirs of the deceased partners as being entitled to the sharesthat stood in the name of their intestates, and obtained conveyancesfrom them on that footing.
The learned Judge also says that in terms of the various partnershipdeeds, each of the partners in the three partnerships or their heirs wereeither paid off their share of the capital and profits, and thus lost anyclaim to the property, or signed deed 888 of 1912, P 9. He then dealswith each of the persons who from time to time were partners in thefirm. The three sons of K. C. Ibrahim Rawther signed the deed 888,P 6 ; A. M. Kanni Saibo died in 1906, and his heirs are said to have beenpaid off but as a matter of fact, the heirs also signed P 6. K. KaderIbrahim Saibo signed deed P 6, as a grantor. 'P. Sheik Adam Saibo diedin 1914 leaving a will by which he left his share to E. Kader Batch a
112
FERNANDO A.J.—Animal v. Ibrahim.
Saibo, and this Kader Batcha Saibo himself joined in deed P 6. EnaEsubu Saibu retired, and the learned Judge says was paid off, but he alsosigned P 6. K. Ahamed Saibo died in 1909 and the learned Judge sayshis heirs were paid his share, but they have also signed a deed conveyingthe share of the property to the grantees on P 6. Kader MohideenSaibo signed P 6. Abdulla Saibo’s heirs executed deed 1941 in favourof the grantees on P 6. This leaves as the learned District Judge saysonly P. Ibrahim Saibo through whom the plaintiffs claim, so that all theother persons who were partners at any time either by themselves orby their legal representatives conveyed their interests by deed, and thereis no other occasion on which the defendants can say that the in-terests in the deceased partners or their representatives passed otherwisethan by a deed of transfer. The only case in which such a divesting oftheir interest beneficial or otherwise is pleaded is the case of P. IbrahimSaibo, and the question arises whether the conduct of the partners hasbeen such as to justify them in pleading that the interest of P. IbrahimSaibo passed to them in a manner different to the interests of all theother partners.
On a previous occasion, an action was filed against the defendantsfor an accounting, and they were called upon to produce accounts of thepartnership. It was then stated that the account books were not to befound, but in this case two books are produced, viz., the book D 1 and theledger D 7, and these books are produced by Emma Sheik Davood whosays he was employed under the partners since 1902. “ In 1902 I wasa salesman. Later I was supply clerk. Thereafter I was kanakapulle.The partners signed the Balance Sheet of 1911. I was present. I knowP. Ibrahim Saibo. I signed this Balance Sheet. I cannot rememberif P. Ibrahim Saibo signed it in my presence. I know the signatureof P. Ibrahim Saibo. X on page 384 is his signature.” In cross-examination he stated, “ each branch kept their books at the branchshop. Books were preserved when the old firm dissolved. The partnersremoved the books to Katugastota about 10 years ago, I can’t say whendefinitely. I can’t say if it was 10 years ago, I didn’t see the booksremoved. I have heard it from the other employees in the shop. InMay, 1934, Mohamadu Meera, son of the principal partner K. IbrahimSaibo, handed me D 1 and D 7, and asked me to keep them safe untilhis return. I didn’t ask him where the other books were. MohamaduMeera has not come back yet. K. Ibrahim Saibo took charge of the oldbooks when the business was sold in 1917. Mohammadu Meera is his son ”.In view of this evidence, I do not think the defendants were entitledto produce the books D 1 and D 7, or to ask the Court to accept themas books regularly kept in the ordinary course of the business. It isclear from the evidence of Emma Sheik Davood which I have quotedabove, that there were regular books kept at Nuwara Eliya as well asin the other shops carried on by the partnership, and all these booksappear'to have been taken over by Mohamadu Meera who for reasonsof his own.has chosen to keep away from the witness box. He apparentlyselected these two books as being suitable for production from his ownpoint of view, and gave instructions to the witness to produce these,and these only. The other books have been deliberately kept away
Shorter & Co. v. Mohamed.
113
from Court, and it is obviously unfair to the plaintiffs that the Courtshould accept these as being proper books of the firm without givingplaintiffs an opportunity to examine all the books.
On the issues framed, I would hold on the first issue that the grantees,of the deed 4,963 became beneficially entitled to the land in questioninasmuch as they were the grantees to whom the land was conveyed,and they were also partners of the business.
On the second issue, I would hold that the heirs of K. C. IbrahimRawther became entitled to the share of the deceased, and that this titlehas been recognized by the other partners of the firm.
Issue 3 must also be answered in the same way, in view of the factthat conveyances were obtained from all the heirs of the intestatesreferred to.*
With regard to issue 4, I would hold that it has not been shown thatthe property in question was the property of the four partners or thatthe grantors on deed P 9 had the right to transfer the property as part ofthe partnership assets.
On the eighth issue, I would hold that there is no evidence to provethat the value of the land and premises was included in the capitalaccount of the several partnerships, and I would similarly hold thatthere is no evidence with regard to issue 9.
With regard to issues 12A and 12B, I would hold that the heirs ofP. Ibrahim Saibo did not become liable to convey their shares to theprincipal partners, or to the seventh to sixteenth defendants.
On issue 13 the onus was clearly on the defendants, and I think thelearned District Judge was wrong in accepting the evidence which hehimself states was very meagre.
For these reasons, I would set aside the judgment of the learnedDistrict Judge and send the case back for an order of partition to beentered on the footing that the plaintiffs as heirs of P. Ibrahim Saiboare entitled to the shares conveyed to him as one of the grantees on deeds,P 3, P 4, P 5, and P 6. The contesting defendants will pay to theplaintiffs their costs of this appeal, and of the contest in the Court below.All other costs will be costs in the cause.
Moseley J.—I agree.
Appeal allowed.