B. M.G. SETUWA et al , Appellant, and B. T. UKKU et al , Respondents

080-NLR-NLR-V-56-B.-M.G.-SETUWA-et-al-Appellant-and-B.-T.-UKKU-et-al-Respondents.pdf

SANSONI J.-r-Setuwa v. Ukhti
337
1955Present: Gratiaen J. and Sansonl J.il.M.U. HETLJWA(<«/., Appellants,and B.T. UKKU etal., Respondents
. .S. V, i04 ~X>; O. Kandy, 3,210
Sale of immovable property—Contract of re-purchase—Parol evidence of a mortgage—■Admissibility—“ Moratuwamortgage ”—Evidence Ordinance, s.02—
Trusts Ordinance, a. 6 (3).
It id never open to a party who executes u conveyance which is unambi-guously a deed of sale to lead parol evidence to show that in reality it is a deedof mortgage and not of Bale. This rule equally applies where there is aitugroomont in the deed itself whereby the vendee undertakes to retranufor theproperty for consideration within a specified period and also where there is aseparate agreement to the same effect, whether notarial or not.
Per iJnATiAKs J — “ Thorespondent did not rely on any proviso to section 02of the Evidence Ordinance. Nor did he allege a trust of the kind which section5 (3) of the Trusts Ordinance permits to be established by oral evidence. In theresult, the teamed trial Judge should not have admitted evidence for thepurpose of contradicting, yaryilig, adding to or subtracting from the terms oftwo notarial instruments each of which unambiguously purported to record atransaction between a vendor and his purchaser (not between a mortgagor andhis mortgagee). ”
/^PPEAL from a judgment of the District Court, Kandy.
N. E. Weerasooriu, Q.C., with O. T. Samarawickreme and N. D. M,Samarakoon, for the plaintiffs appellants.
II. V. Perera, Q.C., with H. W. Jayeivurdene, Q.C., D. R. P. Goonetillekeand V. P. Ranasinghe, for the defendants respondents.
Cur. adv. vult.
February 22, 1955. Sansoni J.—'
The question of law which arises for decision in this appeal has beenbefore this Court on many occasions. It is this:—Where X by deed pur-ports to sell a land for valuable consideration to Y who in turn by-deedagrees to re-transfer the land to X, on payment of an agreed amountwithin a specified period, is it open to Y to show by parol evidence thattim transaction was not a sale but a mortgage ? One would normallyexjieot that this question would have been decisively answered by nowand so it has, oxcept that there are a few judgments which have createddoubts where it seems to me there should have been no room for doubt.
Ju tliis cuso the 1st defendant had borrowod a sum of Rs. 700 in 1029from the 1st plaintiff and executed a mortgage bond as security. In 1097the. 1st defendant sold the land in disputo and another land to the 1stplaintiff for a sum of Rs. 1,410 of which Rs. 1,350 was set off against theprincipal and interest due on the mortgage and the balance was paid incash. By a contemporaneous deed the 1st plaintiff agreed to retransferthe lands to the 1st defendant if she paid a sum ofRs. 1,410 withina periodof 5 3'ears. The 1st defendant failed to comply with the terms of this15Lvr
2J. N H 44452-i,fl-lB (5/55)
338
SANSON! J.—Setuwa v. Vkkti
agreement, and the 1st plaintiff in 1949, gifted the land in dispute to thu2nd plaintiff. The two plaintiffs brought this action against tho 1stdefendant and 4 others asking for a declaration of title, ejectment anddamages. The defendants in their answer pleaded that the deed ofsale though in form a transfer was in fact a mortgage for repayment ofthe sum of Rs. 1,410 and that the 2nd plaintiff therefore had no title totho land. Tho loarnod District Judge admitted evidence, both oral anddocumentary of the circumstances surrounding the transaction of 1937and the subsequent conduct of the parties. Such evidence was led bytho defendants with a view to proving that the deeds of 1937 wereexecuted as security for a loan and were not a pure contract of sale withan agreement to retransfer.
In my opinion such evidence, being non*notarial, should not have beenadmitted. The purpose of leading it was solely to contradict the two deedswhich were clear and unambiguous, and section 92 of the Evidonce Ordi-nance forbids tho reception of such evidence for such a purpose. We werereferred to the South African case of Zandberg v. Van Zyl 1 „wheroit was held that the Court should have regard to the substance of thotransaction and not to the form which it assumes, and that it shouldconsider what was the intention of the parties judged by the surroundingcircumstances and not by the label which they affixed to the documents.But thero is no roferenco in the judgments delivered in that case to anyprovisions equivalent to the Prevention of Frauds Ordinance or to section92 of the Evidence Ordinance. I think a proper comment on tho argu-ment that a Court should ascertain the true nature of the transactionis tho remark of de Kretser, J., in Sobana v. Meeralebbe 2 that “ to dosubstantial justico tho Court must have evidence, and that evidence mustcome before it in a form recognized by law ”. There was no plea in thiscase that any of the provisos to section 92 were applicable. The onlyadmissible evidence of the transaction was, therefore, the deeds themselves.Hutchinson, C. J., and Wood Renton, J., in Somasunderam Chelty v. Todddecided a very similar case to the present one. Thore, as here, a deed ofsale of land was accompanied by a deed of agreement to retransfer theland within a specified period. The period elapsed without such retrans-fer being obtained. It was sought to lead evidence to prove that the trans-action set out in the deeds was not the real agreement but that in reality itwas one of mortgage. It was held that no such evidence was admissiblein view of section 92 of the Evidence Ordinance.
Tho next case I should refer to is Perera v. Fernando 4 which has l>oenreferred to over and over again with approval in subsequent judgments ofthis Court. There, a person who transferred lands to another by a deedof sale for consideration sought to show that the transferee orally ugroedto reconvoy the lands on the latter being repaid the full consideration, andthat the transfer was really a mortgage. It was held by Ennis, J., and deSampayo, A. J., that the admission of oral evidence to prove the allegodagreement would bo to contradict or vary the deed of salo and this wasprohibited by section 92 of the Evidence Ordinance. It is true that inthat case, unlike the present one, there was no deed of agreement to
1 (1910) A. D. 302.3 (1910) 13 N. L. R. 361.
* 6 Ceylon Law Journal 46.* (1914) 17 N. L. R. 486.
SANSOm J.—Setutoa v. Ukkit
9.1ft
retransfer the land, but the alleged oral agreement to retransfer wasnot provable because it waa a pure contract for the purchase and sale ofimmovable property whioh is void, under the Prevention of Frauds Ordi-nance, in the absence of a notarial instrument. The judgment of deSampayo, A. J., which set out these rules has recently been approved bythe Privy Council in Saverimuttu v. Thangavelauthan 1 and I think it pro-vides a sufficient answer to the proposition founded on Zanberg v. VanZyl to which I have refenred. It can hardly be suggested that whenthere is such a notarial instrument embodying an agreement to retransferthe door is in some mysterious way opened for the reception of oral evi-dence to prove that the deedB are hot what they purport to be, for that isprecisely what section 02 of the Evidence Ordinance forbids. If I mayput it in another way,can It be seriously argued that although a deedofsalocannot be shown by oral evidence to be in fact a deed of mortgage yet adeed of sale which is accompanied by a deed of agreement to retransferthe property sold can be shown by oral evidence to be a deed of mortgage?Tt seems to me that if one deed of sale cannot be contradicted by oral evi-dence tho execution of two deeds based on a contract of sale should hedoubly effective to shut out oral evidence which would have tho effect ofcontradicting or varying them.
In the case of Don v. Don 2 Dalton, J., and Drieberg, J., again heldthnt one cannot lead evidence to show that a deed by which tho ownerpurported to transfer a land to another was in reality a deed of mortgago,liecuuse section 92 of the Evidence Ordinance prohibits the admissionof such evidence. Nor does it make a difference if any money is paidon the footing that it was treated as a mortgage, for such payment cannotbe referred to an agreement which cannot be proved. I refer to thisbecause it has been proved that such payments were made by the 1stdefendant in this case and the learned District Judge has used such evi-dence to support his finding that the transfer was a mortgage. I wouldalso say that the continuance in possession of the land sold by the 1st de-fendant is irrelevant on Buch an issue. In Wijewardene v. Peiria 3 theplaintiff against whom a mortgage decree had been entered conveyed themortgaged property to the defendants (the mortgagees) who agreed toreconvey the property to the plaintiff on the latter paying a certain pricoby a certain date. It was argued for the plaintiff that the transactionconstituted a mortgage while the defendants contended that it was a salewith a contract of repurchase. Koch, J., and Soertsz, A. J., held thatthe latter was the only possible construction of the transaction, and fol-lowing tho ruling in Fernando v. Perera 4 they held that tender of thoju ice was a condition precedent to obtaining a reconveyance and thattimowas the essence of the contract,
In de Silva v. de Silva 5 Hearne, J., and Fernando, A. J., had to considerwhether a conveyance of property.for consideration, with a provision for aretransfor within one year if the vendor repaid the'consideration with in-terest, was a sale with a contract for a repurchase or a security of moneyadvancod. Hearne, J., referred to the principle of law that no matter whatname tho parties give to a transaction, the Court will inquire into tho
1 (1954) 55 N. L. R. 529.3 (1935) 37 N. L. R. 179.
a (1929) 31 N. L. R. 73.‘ (1920) 28 N. L. R. 183.
* (1937) 39 N. L. R. 169.
—fj7VNHum: j.—Setuaa v: Ukku
substance of tlio transaction anil give effect to wliat it finds its trno sub-stance or nature to be. He clearly had in mind the decision in Zandberg r.Van Zyl >. He did not consider the bearing which section 92 of the Evi-dence Ordinance has on this principle but after referring to SaminathnnChetty V. Vanderpoorten 2, IVijewardene v. Peiris 3 and Fernando r.Perera 4 lie affirmed the finding of the District Judge that it was a salewith a right to repurchase within a certain time, that time being of theessence of the contract. Tho judgment of Hearne, J., would appear tohave gone contrary to the rule which had by then been established that adeed of sale cannot be shown by parol evidence to be in reality a deed ofmortgage. A similar case where a deed of transfer contained a reservat ionof the right to pay the vendee the amount of the consideration and obtain aretransfer was considered in Jonga v. Nandaraea 5 and it was held by aBench of three Judges that such a deed did not convey the whole Ikmui-ficial interest in the property to the vendee. But this is very differentfrom saying that such a deed was a deed of mortgage. The vendor isbound even in such a case to pay the agreed amount within the specifiedperiod, which he need not do if it hod been a mortgage. Canekeratne, J.,in Uduma Lebbe v. Kiri Banda 6 had a similar deed to deal with and he soheld. Whether a transfer can he said to have been executed in trust ornot is an entirely different matter to which entirely different considera-tions apply. We arc not considering that question on this appeal and Ttherefore do not intend to refer to decisions which have a bearing on it.Neither section 92 of the Evidence Ordinance nor the Prevention of FraudsOrdinance necessarily applies to cases of trusts. See VaUiamma Alchi v.Abdul Majeed 7.
In Sobana v. Meera Lebbe8 de Kreater, J., and Wijeyewardene, J., alsodecided that a party cannot be permitted to prove by oral evidence that adeed which purports to be a sale %vas in reality a mortgage. In 1'hangn-velavthan v. Saverimvllu 9 Gratiaen, J., and Gunasekara, J., again de-cided that an instrument which is in termB a sale cannot bo construed as ahypothecation of immovable property. Gratiaen, J., followed the judg-ments of Ennis, J., and de Sampayo, J., in Perera v. Fernando (supra) towhich I have already referred and explained the limited effect of thedecision in Saminathan Chetty v. Vanderpoorten.4 His judgment wasaffirmed by the Privy Council which is reported as Saverimutlu v. Thanga-velauthan ,0. Mr. L. M. D. dc Silva in delivering the judgment of thoBoard said, “ In the case of Perera v. Fernando it was held that: ‘ Wherea person transferred a land to another by a notarial deed, purporting onthe face of it to sell the land, it is not open to the transferor to prove hvoral evidence that the transaction was in reality a mortgage and thatthe transferee agreed to reconvey the property on payment of tho moneyadvanced.’ It was further held that the agreement relied on amountednot to a trust but to‘ apure contract for the purchase and sale of immovableproperty’. Their Lordships are of opinion that Perera v. Fernando eelsout correctly the law of Ceylon. In the case before their Lordships it wasn writing (established by secondary oral evidence) that was invoked hy the
1 (1910) A. D. 302.•(1947)48 N. L. li.220.
(1932) 34 N. L. R. 287.'(1947)48 N. L. R.289.
9 (1935) 37 N. L. R. 179.8 5 Ceylon Law Journal, 46.
(1926) 28 N.L.R. 183.9(1951)54 N. L. li.28.
» (1944) 45 N. L. R. 128-l«(1954)55 N. L. R.529.
SANS ONI J.—Setitua v. Ukku
341
appellant but that makes no difference because the statute law referredto earlier excludes for the purposes mentioned in it not only oral evidencebut evidence contained in a writing which is not notarially attested. ’’
In Palingu Menika v. Mudianae 1 Basnayako, J., had to consider theeffect of a transfer of a land in the form of a deed of sale wherein the trans-ferors reserved the right to repurchase the land within a period of 3 years-on payment of a particular sum with interest. The disputed question waswhether the transaction evidenced by the deed was a mortgage or atransfer with an undertaking to resell within a specified time. Tnolearned Judge held that “in order to determine the nature of the trans-action the circumstances leading up to and surrounding the execution ofthe document under consideration and the language employed thereinmay all be taken into account ”. He cited in support the decision of thePrivy Council in Saminathan Chetty v. V underpoorlen With respect,1 would say that the facts in that case were peculiar and the decisionturned on those facts. The 2 deeds which had to bo construed thereshowed that an absolute interest did not pass on what purported to be anout anil out conveyance because a contemporaneous deed disproved sucha theory, and when both deeds were read together their effect was to create" a security for money advanced which, in certain events, imposed upointhe creditor duties and obligations in the nature of trusts ”. I respectfullydisagree with the view that oral evidence of a stipulation for payment ofinterest and the retention of possession by the vendor can be consideredas negat iving the conclusion that the transaction was clearly (on the faceof the written instrument) a sale with an agreement for repurchase. Oralevidence as to what happened after the execution of the deed should not. in-my opinion, have been admitted in order to interpret the deed in thatcase. Noert-sz, A. J., was of the opinion in Wijewardene v. Peiris 3 thatthese are not matters which can effect the construction of a deed of saleand I respectfully agree with that opinion. Tn Ehiya Lebbe. u. Majettl *Dias, J., was dealing with a plea that a deed of transfer was executed in>trust but tho learned Judge in the course of his judgment said:— “ If itappears from the facts that, although the transfer is in form an out amiout sale, there exist facts from w’hich it can be inferred that the real trans-actiou was either a motley lending transaction when the land was trans-ferred to the creditor as security or that it was a transfer in trust, aCourt of Equity would grant relief in such a case ”. He cites Fernandov. Thiuntl 5 in support of this proposition but that was a case in whicha trust was pleaded and not that the transfer was security for a loan. If thelatter pica had been advanced I think it would have had to bo rejectedin view of the many decisions I have referred to. To this extent T thinkthe dictum of Dias, J., requires modification.
It T may sum up the result of the authorities T have referred to f wouldsay that it- is never open to a party who executes a conveyance which isunambiguously a deed of sale to lead parol evidence to show that it is a deedof mortgage. This rule equally applies where there is nil agreement in thedeed itself whereby the vendee undertakes to retransfer the propertylor consideration within a specified period and also where there is a separate
1 (tots) 50 .V. L. It. 566.3 (/sjj) 37 x. L. It. 179.
'J (1932) 31 .V. L. li. ‘2X7.* (1917) 4X F. L. 11. 357.
'* 11946) 47 N. L. 11. 297.
842
8ANSONT J.—Selutaa v. Vhku
agreement to the same effect, -whether notarial or not. Tho questionposed at the beginning of this judgment must therefore be answered inthe negative. I would allow this appeal with costs in both Courts ; thoplaintiffs are entitled to a decree as prayed for save that damages will l eRs. 100 up to date of action brought and at Rs. 150 per annum thereafteruntil the plaintiffs are restored to possession.
CIratiaen J.—I agree entirely with my brother Sanroni. In Saveri-invttu v. Thangavelavthan 1 the Judicial Committee of the Privy Councilexpressly approved the ruling in Perera v. Fernando 2 so that any earlierpronouncements of this Court which are in conflict with the ratio deci-dendi of Perera v. Fernando must now be regarded as having beenoverruled by implication.
Tho respondent did not rely on any proviso to section 92 of tho EvidenceOrdinance. Nor did ho allege a trust of the kind which section 5 (3) of theTrusts Ordinance permits to be established by oral evidence. In theresult, the learned trial Judge should not have admitted evidence for thepurpose of contradicting, varying, adding to or subtracting from theterms of two notarial instruments each of which unambiguously purportedto record a transaction between a vendor andhis purchaser (not betweon amortgagor and his mortgagee). A rule of evidence which disentitles atransferor to contradict one such written instrument a fortiori dis-entitles him to contradict two of them, and it makes no difference whetherthe documents are severable or should be interpreted together as recordingthe unambiguous terms of a single transaction. Perera v. Fernando (supra)has laid down two separate and distinct propositions, namely, thatwhere a person transfers a land to another by a notarial deed, purportingon tho face of it to sell the land,
it is not open to the transferor to prove by oral evidence that the
transaction was in reality a mortgage ;
it is also not open to the transferor to prove by oral evidence
that the transferee agreed to reconvey the property.
In the case now under consideration, tho first of those propositions preventsthe respondents from establishing by oral evidence that the appellant’srights and obligations (under either instrument) were in reality those of amortgage. In addition, section 92 of the Evidence Ordinance preventshim from varying t he unambiguous terms and conditions of the appellant’sobligation to reconvey which are contained in the second instrument.Under our law, there must be some ambiguity in the language of a writteninstrument before evidence of the “ surrounding circumstances” can beadmitted as a guide to its interpretation. If it is felt that a relaxation ofthese rigid rules should be permitted in the case of what is commonlydescribed as a “ Moratuwa mortgage ”, the remedy lies with the legis-lature and not with us. In the meantime, the draftsman of a conveyancegranted only “ as security for a debt” must take special care to employlanguage which on the face of the instrument negatives an outright sale.
Appeal allowed.
’ {1954) 55 N. L. R. 529.
1 (1914) 17 X. L. R. 416.