102 Delivered by LORD THANKERTON.—Cartm & Co. v. Hulme-King.
[In the Privy Council.]
1938Present: Lord Thankerton, Lord Romer, and
Sir George Rankin.
CARSON & Co. v. HULME-KING.
Mortgage bond—Debt secured in terms of bond smaller than the real liability—Stamp duty paid on smaller sum—Revenue defrauded—Action for largeramount.
Where the stamp duty on a mortgage bond was paid on the footingthat the bond secured a certain-sum of money as an existing debt, it isnot open to the obligee to say that upon a diferent construction the realamount of the debt was larger, admitting thereby that the revenue wasdefrauded of the duty due on the excess.
^^PPEAL from a judgment of the Supreme Court.
H. Murphy, K.C. (with him L. M. D. de Silva and Clive Burt, K.C.),for plaintiff, appellant.
Stephen Chapman, for defendant, respondent.
May 27, 1938. Delivered by Lord Thankerton.—
The present suit was instituted by the appellant for recovery of a sumof Rs. 60,730.57 and interest as due under mortgage bond No. 189dated July 23, 1930, executed by the respondent in favour of the appellant.By decree dated June 25, 1935, the District Court of Colombo entereddecree awarding the appellant the said sum and interest. On appeal, thisdecree was amended by the decree of the Supreme Court of Ceylon datedFebruary 5, 1937, so as to award the sum of Rs. 10,504.79 with interestto the appellant, who now appeals against their decision, and asks thatthe decree of the District Court should be restored.
It is agreed that the difference between the sums awarded respectivelyby the District Court and the Supreme Court is represented by a sum ofRs. 43,278.52, which the appellant claims to'.be recoverable under themortgage bond, and which the respondent denies to be so recoverable.The determination of the dispute depends partly on the properconstruction of the bond, and partly on the true view of the somewhatunusual circumstances which surrounded its execution.
For some time prior to July, 1930, the respondent, who owned estatesin the Island, had employed the appellant to manage them. The appel-lant appears to have been in the habit of making remittances to her fromtime to time, in anticipation of the receipt of the income from the estates,which was mostly derived from the production and sale of rubber andcopra. These advances appear to have been so far financed by theappellant by an overdraft account with its bank in its own name.- The.serious depreciation in the prices of rubber and copra and the largeamount of the respondent’s indebtedness led the appellant in June, 1930,to ask the respondent to give it real security for the debt. At this timethe respondent was absent from the Island, and Mr. P. G. Cooke, aProctor, who held her power of attorney, represented her. ThroughMr. Cooke, the respondent agreed to grant a secondary open bond overher Dicklande estate, and on July 23, 1930, the mortgage bond here inquestion was signed by Mr. Cooke as her attorney, and it was registeredon July 26, 1930.
Delivered by LORD THANKERTON.—Carson & Co. v. Hulme-King. 103
It is an established fact that on July 22, 1930, prior to the transactionsabout to be referred to, the defendant was indebted to the appellant inthe sum of Rs. 53,783.31 of which Rs. 10,504.79 had been financed bymeans of the appellant’s overdraft from the bank. On the suggestion ofMr. Cooke, conceived doubtless in the respondent’s interest, an arrange-ment was made between him and the appellant, with the sole view ofreducing the amount of stamp duty to be paid on the mortgage bond.This arrangement is not stated in writing, but it was spoken to in theevidence of Mr. Matthews, the accountant of the plaintiff company, andby Mr. Cooke, and the carrying out of the arrangement is evidenced bycertain documents.
It will be convenient to state at once the contentions of the appellantbefore their Lordships; they were as follows:—
That by the carrying out of the arrangement the respondent’sdebt to the appellant was discharged to the extent of Rs. 43,278,52prior to the execution of the mortgage bond on July 23, 1930. Thatthe bond only covered the balance of Rs. 10,504.79, so far as the existingdebt was concerned. That, on July 25, 1930, a further advance ofRs. 43,278.52 was made by the appellant to the respondent, which wascovered by the bond as a future advance; and that it was rightlyincluded in arriving at the balance sued for.
Alternatively, if it were held that the appellant’s debt was notso discharged to the extent of Rs. 43,278.52 prior to the execution ofthe bond, that it was covered, as existing debt, by the terms of thebond, and was rightly included in arriving at the balance sued for.
That, apart from the foregoing contentions, the balance sued for,being signed and certified by the directors as provided in the bondwas sufficient at law and conclusive proof of the respondent’s liabilityunder the bond without any other document or voucher to supportthe same, as provided in the bond.
The material portions of the mortgage bond are as follows: —
And Whereas the said obligor is indebted unto Carson & Company,Limited, a company duly incorporated under the Ceylon Joint StockCompanies Ordinances and having its registered office at the AustraliaBuildings in the Fort, of Colombo aforesaid (hereinafter sometimescalled and referred to as the said company which term or expression asherein used shall where the context so requires or admits mean andinclude the said Carson &' Company, Limited, its. successors and assigns)in the sum of Rs. 10,504.79 of lawful money of Ceylon.
And Whereas the said obligor has requested the said company tolend and advance to her such, further sum and sums of money as thesaid company may in its absolute discretion think fit which the saidcompany has agreed to do on the said obligor entering into and executingthese presents and giving and granting the security hereinaftermentioned.
Now Know'Ye and these presents witness that the said obligor dothhereby for herself and her heirs, executors, and administrators covenantand agree with and bind and oblige herself, her heirs, executors, andadministrators to the said company that she the said obligor and heraforewritten shall and will on six calendar month’s notice in writing
104 Delivered by LORD THANKERTON.—Carson & Co. v. Hulme-King.
being given to her or her aforewritten well and truly pay or cause to bepaid in Colombo aforesaid to the said company all and every the sumsand sum of money now due owing and payable and which shall or may• at any time and from time to time and at all times hereafter be orbecome due owing and payable to the said company by the said obligorupon or in respect of any loans and advances or payments made or tobe made by the said company to or for the use or accommodation oron account of the said obligor or upon or in respect of any account ortransactions whatsoever between the said obligor and the said companyor upon or in respect of any overdraft obtained by the said companyfor and on behalf of the said obligor together with interest thereon atthe rate of eight per centum per annum from the date or respectivedates of such payments or advances and also any balance of accountwhich may be found due by the said obligor to the said company and ofwhich said balance a stated account in writing made out of the booksof the said company and signed and certified by the Directors for thetime being of the said company shall be sufficient at law and conclusiveproof without any other document or voucher to support the same.
The last contention of the appellant may be disposed of first, and it isenough to say that the stated account in writing bringing out the balancesued for, which is certified by seven directors of the appellant company,shows on the face of it that the indebtedness of Rs. 43,278.52, which is inquestion, is taken into computation, and, if that indebtedness is notcovered by the bond, such a clause cannot entitle the directors to' bringit within the bond. Accordingly the third contention fails.
The appellant’s main contention, however, was the first one, and it isnecessary to consider carefully the steps taken to secure reduction of thestamp duty, in order to see whether they effected at the same time thedischarge of the defendant’s indebtedness to the extent of Rs. 43,278.52.
The appellant’s case is that, under the arrangement made withMr. Cooke, the appellant advanced to Mr. Cooke personally the amountnecessary to discharge the respondent’s indebtedness to the appellant tothe extent of Rs. 43,278.52, and that Mr. Cooke did so discharge therespondent’s indebtedness by -a cheque drawn against the said advance;that this was done prior to the execution of the bond; that, on July 25,1930, after the execution of the bond, the appellant, on Mr. Cooke’sinstructions, made a fresh advance of Rs. 43,278.52 to the respondent,which was used to discharge Mr. Cooke’s indebtedness to the appellant.The evidence may now be examined to see what the reality of this trans-action, which admittedly resulted in stamp duty being paid on the footingthat the existing debt of the respondent was Rs. 10,504.79, was in aquestion between the appellant and the respondent.
, On July 22, 1930, the day before the execution of the bond, the appellantand Mr. Cooke exchanged cheques. In the first place, the appellantwrote Mr. Cooke a letter the material part of which is as follows: —
“ Dear Sir.
Mrs. Daisy. Hulme-King.
We have pleasure, as arranged, in handing you cheque in favour ofthe above for Rs. 45,278.52 and shall be glad to receive your chequefor a like amount in due course .
Delivered by LORD THANKERTON.—Carson & Co. v. Hulme-King. 105
The cheque was drawn on the National Bank "of India, Colombo, in■favour of “ Mrs. Daisy Hulme-King " or order, and it will be noted thatit was for an amount exceeding the indebtedness in question by Rs. 2,000.The cheque was evidently endorsed by Mr. Cooke, as the defendant’sattorney, with the addition of “Please credit my a/c P. G. Cooke” andpresented to the bank. From a riote “ Payees endorsement required22-7-30”, it may be inferred that the bank declined to accept theattorney’s endorsement in his own favour and returned the cheque.The original payee’s name was then deleted and replaced by “P. G.Cooke” as the payee, and the alteration initialled by the drawers, andthe original endorsement and its addition, and the bank’s memorandumwere all deleted. The cheque was then endorsed by Mr. Cooke in hisown name. It may be assumed from the word “ transfer ” marked onthe cheque that it was again presented to the bank, but there is noinformation as to the day on which it was presented.
On the same day, July 22, Mr. Cooke wrote to the appellant enclosinga cheque “ in your favour for Rs. 45,278.52 in settlement of the amountdue to you by Mrs. Daisy Hulme-King, the receipt of which kindlyacknowledge”. This cheque was also drawn on the National Bank ofIndia, Colombo, and was signed by Mr. Cooke personally. It wasendorsed to the Bank by the appellant, and is marked by the bank aspaid on July 25, two days after the execution of the bond. The appellant’sletter to Mr. Cooke acknowledging receipt of this cheque is dated July 24,the day after the execution of the bond. It will be noticed that it is alsoin excess of the indebtedness by Rs. 2,000. That completes the docu-mentary evidence as to the alleged discharge of the indebtednessin question. There remains the evidence of Mr. Matthews andMr. Cooke.
Mr. Mathews did not speak to this matter in his examination-in-chief,but in cross-examination he stated:
“ My accounts show payments to Mr. Cooke of Rs. 24,339.50 and18,939.02. In fact there was only one cheque. That sum of Rs. 45,000we paid to Mr. Cooke at his request on July 22. He requested us tosend that amount to him and he would before the signature to the bondsend us a cheque squaring off the. amount due to Carsons by the defend-ant. Mr. Cooke sent us cheque on July 22 itself. I presume theobject was to reduce the amount on the bond to evade stamp duty. Wereceived a cheque from Mr. Cooke which was credited to the defendant’saccount. Later the position of the. account of the defendant wassquared. Mr. Cooke wrote to us. His instructions were to transferRs. 43,000 to debit of the defendant and credit Mr. Cooke in Carsons ’books. ”
– To Court: “ I gave a cheque for Rs. 45,000 to Mr. Cooke as a loan tohim personally. He paid it back by instructing us to debit the defend-ant with these various amounts and credit him …. We
entered into this manipulation at defendant’s request: As a result ofour agreeing to it we took a bond for Rs. 10,504.79 and now seek tocharge the extra Rs. 43,278.52 after the execution of the bond. Weregard it as a future advance but we received instructions from
106 Delivered by LORD THANKERTON.—Carson & Co. v. H-ulme-King.
Mr. Cooke to credit his account and debit the defendant. It was arepayment of the amount that Mr. Cooke had borrowed on account ofthe defendant ”…
To Court: “ Rs. 45,000 is paid by Mr. Cooke as an advance on behalfof the defendant. We do not credit or debit defendant’s accountwith Rs. 45,000: This transaction did not pass through the cash’ book.She was temporarily credited with Rs. 43,000 but once the bond wasthere we restored the debit. We credited her with Rs. 45,000 in thebooks. After the bond was executed we restored the debit of Rs. 43,000.We made the entry on August 5 ”.
Re-examined:“The cheque which was acknowledged by P 27
(letter of August 24) was sent to the credit of our bank account andrealized on July 25. Mr. Cooke’s instructions to us were that thecheque was to be credited to Mrs. Hulme-Kings account. In pursuanceof the instructions of Mr. Cooke we credited Rs. 43,278.52 to defendant’s. account. I produce an abstract from the cash book p. 28, they creditedthat under the date, July 25, 1930. Subsequently we were told byMr. Cooke to credit his account with Rs. 43,278.52 and to debitMrs. Hulme-King. That resulted in Rs. 24,339.50 and 18,939.2 shownin p. 1 under the date, July 25, 1930. These instructions were given tome expressly by Mr. Cooke as attorney for the defendant. So far as Iknow Mr. Cooke’s object was to pay the stamp duty on a reducedbasis ”.
This evidence, loose as to both dates and amounts, seems to prove, sofar as it goes, that the appellant Company, though it received Mr. Cooke’scheque on July 22, took no steps to acknowledge it, or act on it, or to alterthe amount of the defendant’s indebtedness as standing in its books, untilJuly 24, after the execution of the bond.-' It. further makes clear that theappellant throughout accepted the instructions of Mr. Cooke as given inhis capacity as the defendant’s attorney.
It is enough to -cite two passages from the evidence of Mr. Cooke,-viz. : —
To Court: “Carsons gave a cheque for Rs. 45,000 as a personal loanto me. If they gave it to me on behalf of Mrs. Hulme-King herindebtedness would have increased. In their books I understand Iwas debited with that amount. I considered for the moment that Iwas indebted to Carsons in Rs. 45,000. I paid Carsons Rs. 43,000 odddue to them by the first defendant so that her indebtedness wasRs. 10,000 odd subject to my. drawing money later on, so that I couldget the bond drawn on the footing that Rs. 10,504.79 was the moneyto be lent. Afterwards when she was redebited with Rs. 43,278.52her account rose, on the understanding that the money was to beappropriated by Carsons in view of the money I had borrowed. I was,saving my own principal Rs. 600 or 700 ”.
Re-examined: “ It was never intended that the result of the arrange-ment was to wipe out Rs. 43,278.52 of the defendant’s liability ”.
To Mr. Perera: “I did not get the difference of Rs. 2,000. I do notknow -what happened to the difference of Rs. 2,000 or how it wasapplied
SabapothipilUii v. Vaithialingam.
3n their Lordships’ opinion, this evidence makes it dear that the onlyreality about the transaction was the reduction in stamp duty, that it wasnever intended that the appellant should have recourse against anyoneexcept the respondent for the Rs. 43,278.52, and that, in any event, theevidence does not sufficiently prove that the defendant was—even tem-porarily—discharged of that indebtedness. Accordingly the maincontention of the appellant fails.
The remaining contention of the appellant—the second one—is that,assuming that the indebtedness in question was not discharged, it wascovered by the terms of the bond. While, on construction, their Lord-ships are inclined to the view that the terms of the bond show that “ alland every the sums and sum of money now due owing and payable” isconfined to the sum of Rs. 10,504.79 referred to in the narrative of thebond, it is unnecessary to decide this question, for their Lordships areclearly of opinion that the appellant, having paid duty on the bond onthe footing that it was only for Rs. 10,504.79 of existing debt, cannot nowbe heard, by maintaining another construction, to say that the realamount was larger and to thereby admit that the revenue was defraudedof the duty due on the excess.
Their Lordships should add that the only question before them waswhether the Rs. 43,278.52 .was covered by the bond. In answer to aquestion by their Lordships, the appellant’s Counsel stated that he didnot raise any question of the defendant’s personal liability apart from thebond.
Their Lordships are therefore of opinion that the appeal fails, and theywill humbly advise His Majesty that it should be dismissed with costs,and that the judgment and decree of the Supreme Court dated February5, 1937, should be affirmed.
CARSON & CO. v. HULME-KING