NEW LAW REPORTS OF CEYLON,VOLUME XLV.
1953Present: Howard C.J. and Kenneman J.BODIGA et al, Appellants, and NAGOOR, Respondent.
217—D. G. Kandy, 738.
Mortgage—Sale of property to mortgagor set aside on ground of laesio enormia-—Buyer consents to decree setting aside sale—Mortgage unaffected byannulment of sale.
Where a sale of property is set aside by the seller on the ground oflaesio enormis and where the buyer consented to the decree setting asidethe sale,—
Held, that a mortgage of the property granted in the meantime by the-buyer would not be affected by the annulment of the sale.
PPEAL from a judgment of the District Judge of Kandy. The factsappear from the argument.
V. Perera, K.O. (with him H. W. Jayewardene), for the 2nd and 3rddefendants, appellants.—The question for decision is whether whena mortgagor’s title to the mortgaged property is extinguished on theground of laesio enormis the mortgage still attaches to the property.It is submitted that the consent decree in action No. 357 wiped out themortgage of which the plaintiff is the assignee. That decree set aside.,on account of laesio enormis, the deed of sale which conferred title on themortgagor. The mortgage bond, therefore, cannot thereafter be suedupon. See Wille on Mortgages (1920 ed.) p. 295; Voeti XX. 6, 9; Burgeon Colonial Law, Vol. 3, p. 241. The person who moved to have the saleset aside in action No. 357 was the seller and not the purchaser. Thefact that the decree was entered of consent does not affect the positionas long as there was no collusion; it must be presumed that the purchaser(the mortgagor and 1st defendant in the present ease) gave his consentto that decree because the case against him was irresistible.
The District Judge refers to Silva v. Wijeginghe 1, but his attentionwas not drawn to the statement of the law in Voet and Burge. Silva v.Wijesinghe deals with the inteipretation of a statutory provision. Thedoctrine of laesio enormis is part of the law of Ceylon—Walter Pereira’sLaws of Ceylon (1913) p. 657.
N. Nadarajah, K.C. (with him H. W. Thambiah), for the plaintiff,respondent.—There is a simple answer to the question in this case,namely, that the decree in an action binds no one- except the parties andtheir privies. In action No. 357 neither the present plaintiff nor themortgagee were parties, Gooneratne v. Ebrahim and another 3 isapplicable.
1 (1917) 20 N. L. R. 147.2 (1910) 2 Cur. Law Rep. 222 at 224.
1J. N. A 93349-500 (11/491)
HOWARD C.J.—Bodiga and Nagoor.
The jurist is doubtful of his opinion in Voet XX. 6, 9. Nor is it certainwhether in that passage he does not contemplate the mortgagee as beinga party to the suit. Voet XX. 4, 2 is referred to in Vol. 2, Maasdorp’sInstitutes (5th ed.) p. 330.
H. V Perera, K.C., in reply.—The mortgagee could easily have been■made a party in action No. 357. The question is whether even if he had•been a party the decree in that case wiped out his interests as mortgagee.
Cur. adv. vult.
November 11, 1943. Howard C.J.—
In this case the plaintiff claimed a hypothecary decree by virtue of amortgage bond dated November 23,1939, made by the 1st defendant
in favour of one Nagarajah. This bond was assigned to the plaintiff byNagarajah on June 16, 1941. The land which was the subject of thismortgage bond was transferred by the 3rd defendant to the 1st defendantby deed dated May 29, 1939. On March 1, 1940, the 1st defendantcommenced action No. 357 in the District Court of Kandy against the2nd defendant claiming a declaration that he was entitled to the saidland. Subsequently the 3rd defendant and others were added as defend-ants to the said action. On December 3,1941, by consent it was
ordered that the deed of May 29, 1939, be set aside on the ground oflaesio enormis on the 2nd defendant in this action depositing in Court thesum of Rs. 175 to the credit of the 1st defendant as representing the sumadvanced by the 1st defendant to the 3rd defendant as consideration forthe said deed. The 1st defendant took no part in the present action,.but on behalf of the 2nd and 3rd defendants it was contended that theconsent decree in action D. 357 wiped out the mortgage that had beenassigned to the plaintiff. The learned Judge did not aqcept this con-tention and entered judgment for the plaintiff as claimed together withcosts. In coming to this conclusion the learned Judge conceded that thedeed in favour of the 1st defendant was set aside on the ground of laesioenormis but held in favour of the plaintiff on the ground that at the timeof the mortgage the 1st defendant had title. In so holding he was guidedby the decision in Gooneratne v. Ebrahim and another1.
The- question as to the effect on the mortgage of the setting aside of theconveyance by the 3rd defendant to the' 1st defendant by reason oflaesio enormis is not easy to answer. The mortgagee was not a party tothis action. His assignee, the plaintiff, cannot be in any worse position.In Gooneratne v. Ebrahim (supra) a husband on March 25. 1905, transferredto his wife property which, on April 9, 1905, and July 31, 1906, wasmortgaged by both husband and wife. On August 25, 1908, action wasbrought by the plaintiff against the husband and wife on this bond.On August 19, 1908, the deed of March 25, 1905, was cancelled and setaside in an action by the defendant on a promissory note. The plaintiffwas not a party to this action. Hutchinson C J. in his judgment statedthat the decree cancelling the conveyance to the wife was not binding.on the plaintiff; it was only effectual as between the husband and wifeand the defendant. The 'mortgages to the plaintiff by the wife were1 (1910) 2 Cur. Law Rep. 222 at 224.
HOWAJRD C.J.—Bodiga and Nagoor. .
valid and were duly registered and nothing that the wife might do orsuffer afterwards could deprive him of his rights under them. Thefollowing passage from the judgment of van Uangenberg J. on page 224,is also of interest:—>
“ I think that there is no justification for departing from the ordinaryprinciple that a judgment in an action binds only the parties to it,and their privies, and that plaintiff's rights having accrued before theinstitution of case No. 8,385 his rights as mortgagee remain untouched.”
The case of Gooneratne v. Ebrahim. (supra) was distinguished in Silva v.Wijesmghe1 to which our attention has been invited by Mr. Perera onbehalf of the appellant. The head-note of this case was as follows:
“ A co-owner who had mortgaged his share of a' land was not allotted:any share of the land in a partition action, but was only given a planter’sinterest and a house. Under the partition decree the land was orderedto be sold.
Held, that the mortgagee, who was not a party to the partition action,was entitled to draw only the share of the money due to the mortgagorunder the decree out of the amount realized by sale of the land. Apurchaser of the share under a mortgage decree will be in the positionof the mortgagee.
‘ A mortgage security is no higher or more extensive than the mort-gagor’s title to the property, and if the title is by any legally effectivemeans extinguished, and not merely transmitted to another by contractor descent, the mortgagee is affected equally with the mortgagor. Theeffect of the partition decree is to wipe out the fifth defendant’s (mort-gagor’s) title as if he never had any, and I think the mortgage mustbe taken to have gone with it. It is different if the mortgagor suffersdefeai in an ordinary action for title to which the mortgagee is noparty.’
The main provision of section 12 of the Partition Ordinance dealswith a mortgage of the whole land which is the subject of action.The proviso to the section does not touch the case of a mortgage of anundivided share in the event of a sale in the partition action, andin such a case the right of a mortgagee is confined to the proceeds ofthe sale.”
The following passage occurs at page 152 in the judgment ofde Sampayo J. : —
“ The effect of the partition decree is to wipe out the fifth defendant’stitle as if he never had any, and I think the mortgage must be takento have gone with it so far as the respondents are concerned. It is,of course, different if the mortgagor suffers defeat in an ordinary actionfor title to which the mortgagee is no party, and the present case is,therefore, distinguishable from Gooneratne v. Ebrahim, which was>cited on behalf of the appellant. It may be that, the result is to defeatthe just claim of the appellant, who purchased on the strength of themortgage decree; but the appellant is bound to yield to the effectof an imperative statutory provision.”
1 (1917) 20 N. L. R. 147.
HOWARD C.J.—Bodiga and Nagoor.
This decision turned on the interpretation to be given to section 12 of thePartition Ordinance and, in my opinion, does not affect the questionthat arises for decision in the present case.
It is claimed by Mr. Perera that the decree of December 3, 1941, settingaside the deed of May 29, 1939, on the ground of laesio enormis wiped outthe mortgage although the mortgagor consented to such decree and the< decree was made in an action in which the mortgagee was not a party.It is contended that the mortgagee’s title could not be greater than thatof his mortgagor which was a defeasible one. In this connection we havebeen referred to such authorities as exist on the doctrine of laesio enormis.’This doctrine must be accepted as applicable in Ceylon as part of theRoman-Dutch law even though the tendency in South Africa is to restrictits operation and in Cape Colonyit has beenabolished.Thesubject
receives only cursory treatment in Walter Pereira’s Laws of Ceylon.At page 657 of the second edition the learned author seems to think thata contract which is afterwards set aside on the ground of laesio enormisis voidable, but not void. The following passages at page 298 of Wille'sMortgage and Pledge in South Africa are of interest: —
“ Mortgage of Property bought subject to a Title defeasible by theSeller.—If apurchaser mortgages propertywhich hehasbought
subject to thelex commissoria,e g., that the sale shallbe annulled
if the vendorreceives a moreadvantageousoffer, andthesale is
subsequently annulled by the seller for this reason, the mortgage isextinguished (TJlpian, Dig. XX, 6, 3; Voet, XX. 6, 3). The same is thecase if the sale is annulled by the seller on account of laesio enormis(Voet XX. 6, 9, Burge, Pol. 111., p. 242).
Laesio enormis has been abolished in the Cape Province (Act S of 1879,sec. 8), but is still recognised in the Transvaal-—Kingsley v. AfricanLand Corporation (1914) T. P. D. 666.
If the termination of the mortgagor’s title or interest depends onhis own act, the mortgage is not extinguished (Voet XX, 6, 9; B-urge,Vol. III., p. 241; Pothier, Hyp. 3, 3).
This rule may be illustrated by the mortgages of property boughtin the following circumstances: —
Where the purchaser buys property on the condition that he mayre-turr it if he does not approve of it, and he mortgages it before heexpresses his disapproval; in such a case the mortgage is not extin-guished (Ulpian-, Dig. XX. 6, 3; Voet, XX. 6, 8; Burge, Vol. Ill, p. 241).
Where the purchaser of property mortgages it and thereafter setsthe sale aside on the ground of laesio enortnis (Voet XX. 6, 9; Burge,Vol. Ill, p. 241).”
In the present case the seller took action to annul the sale, but on theother hand the buyer by his own act consented to such annulment. InVolume III. of Burge’s Comments on Colonial Law at pp. 241-242 theauthor states as follows : —-
“If a sale of property should be set aside at the instance of thepurchaser ob enormem laesionem, who had in the meantime grantedr. mortgage of it, the property will not, it seems, be discharged of themortgage. But if the vendor had been the person on whose suit ithad been set aside, it would not continue subject to the mortgage.”
HOWABD C.J.—Bodiga and Nagoor.
The authority for this proposition is given by Burge as Voet, lib. XX.,tit, 6, n. 9. On reference to Berwick’s Voet’s Commentaries, we findat page 462 the following passage: —
“ But whether when a sale has been rescinded on the ground ofenormous lesion the thing sold and meanwhile mortgaged by thepurchaser returns to the vendor freed ipso jure from the burden ofthe pledge, or whether it remains bound even after it has reverted tothe power of the vendor, until, by payment of the debt or otherwise,it has been freed by the purchaser, is doubtful. Bartolus denied,and Baldus asserted, that it returns free of the incumbrance, and eachhad notable followers who are enumerated by Pinellus ad 1. 2. Cod.de rescind, vend, part 2, cap. 3, num. 11 et seq.; Fachineus controv.lib. 2, cap. 23; Vinnius select, quaest, lib. 2, cap. 5. But adopting,on the footing of what has been said above, a middle course in thedetermination of this question, I think we ought to distinguish whetherthe vendor proceeds by the remedy provided by the lex. 2, of the Cod.de rescind, vend. (4.44), he having sold the thing for much less thanits true value; or whether the purchaser does so when he has pur-chased it for much more than it was worth and therefore complainsthat he has been prejudiced beyond a half. For if an injured vendorsues, the rule is rather that on the dissolution of the sale the thingreturns to the vendor free (from the burden); because the dissolutionof the contract proceeded not from the purchaser, but from the vendorwho by the suit has compelled the purchaser to recede from the saleif he will not make up what is wanting to complete the just price.For one is considered to recede from the contract not of his own freewill, but under compulsion, who can be compelled by the decree of thejudge to restore the thing purchased unless he adds more than asmuch again to the price he has already paid. Big. 13.5, fr. 25, S 1(ide constit. pecttnia). Nor is it, as you might object, that the owner-ship had from the first been immediately transferred from the vendorto the purchaser in the most full and irrevocable right. For, as it isrequisite inter alia to (the validity of a) purchase, that the price shouldbe just and correspondent with the thing sold, the full and irrevocableownership of the thing cannot be considered as transferred to thepurchaser so long as a just price, or at least one tolerably equitable,has not been paifl. If, on the other hand, the purchaser, being theinjured party, sues by this remedy of the lex. 2, you will very properlysay that the jus pignoris is not ipso jure resolved, but rather the sameis to be approved in this case that has been stated above of a purchaserreturning a thing on account of disease or vice; for the dissolution ofthe sale here proceeds from the free will of the purchaser, since it wascompetent to him not to have prosecuted that remedy.”
It is obvious from the passages I have cited that the various authoritieswere in considerable doubt as to the position of a mortgage in the cir-cumstances that arise in this case. These authorities do not supplythe answer having regard to the fact (a) that the plaintiff is an assignee,
that neither he nor the mortgagee were parties to the action in whichdecree was made setting aside the sale, and (c) that the purchaser consented
Value v. Commissioner of Income Tax.
to the decree. The question does not previously seem to have receivedconsideration in the Courts of Ceylon. If mortgageesi had to makeinquiry as to the reality of .the consideration on a previous transfer ofproperty, it seems to me that the raising of money by mortgage would bevery severely restricted. Any extension of the doctrine of laesio enormisin this direction would hamper the legitimate raising of money by mort-gage and hence contrary to public policy. I think that the 1st defendanthaving consented to the* decree annulling the sale was not compelled torecede therefrom. Hence the mortgage is valid. Moreover neither theassignee nor mortgagee were parties and their rights under the mortgageeare therefore unimpaired by such annulment. Moreover the title of the1st defendant not being void but merely voidable gave a good title to themortgagee which passed by assignment to the plaintiff. In this connec-tion I would invite attention to the distinction ’drawn between contractsthat are void and those that are voidable in the 18th edition of Anson’sLaw of Contract, pp. 4 & 5. As the transaction between the 1st and3rd defendants was not void, but merely voidable, Nagarajah obtaineda good title. So also did the plaintiff by the assignment of June 16,1941. Both the mortgage and its assignment were prior in date to thedecree of December 3, 1941, setting aside.the sale.
For the reasons I have given the appeal is dismissed with costs.
Ketoeman J.—rl agree.
BODIGA et al, Appellants, and NAGOOR, Respondent