CEYLON ESTATE AGENY AND WAREHOUSING CO., LTD., Appellant, and N. ST. C. H. DE AL

011-NLR-NLR-V-70-CEYLON-ESTATE-AGENY-AND-WAREHOUSING-CO.-LTD.-Appellant-and-N.-ST.-C.-H.-DE-AL.pdf


Ceylon Estate Agency and Warehousing Co. Ltd. v. de Alvis
31
Present :L. B. de Silva, J., and G. P. A. Silva, J.CEYLON ESTATE AGENCY AND WAREHOUSING CO., LTD.,Appellant, and N. ST. C. H. DE ALVIS and another, RespondentsS. C. 515jl962—D. C. Colombo, 20896fS
(i) Contracts—Contract of guarantee—Elements necessary—Interpretation—Separatedocuments relating to same obligation—Effect on issue relating to misjoinderof parties and causes of action—“ Cause of action ”—Civil Procedure Code,s. 5.
{ii) Bills of Exchange Ordinance—Section 89 (1)—Promissory note payable “ atColombo ”—Requirement of presentment for payment—Effect of failure topresent for payment when such presentment is necessary.
(i) Plaintiff lent and advanced to the 1st defendant on 10th August 1956a sum of Rs. 40,000 on a promissory note of which the 1st defendant was maker,the 2nd defendant was payee and the plaintiff was indorsee. A few days later,on 13th August 1956, the 1st defendant mortgaged to the plaintiff, as security,the crops of Oakfield Estate. On the same day, the 2nd defendant guaranteedto the plaintiff in writing P5 the repayment by the 1st defendant of the saidsum of Rs. 40,000 and interest, renouncing all benefits of suretyship and makinghimself jointly and severally liable with the 1st defendant. This agreement,although it was described in the deed P5 as a guarantee and referred to therights and benefits to which sureties were entitled, was in reality a contractunder which the 2nd defendant became a principal debtor.
In the present action the plaintiff sued the 1st and 2nd defendants for therecovery of a restricted claim of Rs. 25,000. He based his claim against bothof them on the promissory note as the first cause of action and, alternatively,on the crop bond and P5 as the second cause of action. It was contended onbehalf of the defendants that, in regard to the 2nd cause of action, there wasa misjoinder of parties and causes of action inasmuch as the writing P5 givenby the 2nd defendant was not a guarantee but was a separate and principalobligation undertaken by the 2nd defendant to pay the debt due from the1st defendant to the plaintiff upon the crop bond.
Held, (a) that a contract cannot be regarded as a contract of guarantee ifit is such a contract only by description but is not so in reality. The mere useof a descriptive term cannot affect the reality of a transaction. Deed P5,when read as a whole, was not a guarantee of the 1st defendant’s debt to theplaintiff but was, in reality, a contract whereby the 2nd defendant became aprincipal debtor of the plaintiff for consideration. 6
(6) that the term “ cause of action ” has been given a broad meaning insection 5 of the Civil Procedure Code. The obligation sought to be enforcedfrom the 1st defendant on the crop bond and from the 2nd defendant on thewriting P5 was one and the same. Though there were two separate documents,they were in fact one and referred to the same obligation. The promissorynote, the crop bond and the writing P5 were entered into by all the partiesas parts of a single transaction agd with the consensus of all. In thecircumstances, although 1J5 was not a contract of guarantee, there was nomisjoinder of parties and causes of action in regard to the alternative secondcause of action.
32
L. B. DE SILVA, J.—Ceylon Estate Agency and Warehousing£o. Ltd.
v. de Alois
(ii) As for the first cause of action, the promissory note was drawn by the1st defendant in favour of the 2nd defendant, who indorsed it to the plaintiff.In the body of the noto it was made payable “ at Colombo ” to the 2nd defend-ant or his order. The 1st defendant lived at Hendala and the 2nd defendantat Pamunuwa. The 2nd defendant was only an accommodating party whoimmediately indorsed it and gave it over to the plaintiff, who then paidIts. 25,000 out of the consideration to the 1st defendant. It was only theplaintiff who had a place of business in Colombo. It was thus clearlyunderstood by all parties to the promissory note that payment was to be madeto the plaintiff.
Held, that the court can look into the surrounding circumstances to ascertainif the place of payment designated in a promissory note is a “ particular place ”within the meaning of section 89 (1) of the Bills of Exchange Ordinance. Inthe present case a particular place of payment was mentioned in the body ofthe promissory note and, therefore, presentment for payment was necessarybefore the plaintiff could sue the defendants on the promissory note. In anaction on a promissory note where presentment for payment is necessary,it is necessary to aver in the plaint filed against the maker and the indorsersthat the note was duly presented for payment and was dishonoured. If therewas any excuse for not presenting the promissory note for payment, suchexcuse should be pleaded. As against the indorsers, the plaint must furtheraver that notice of dishonour was given to them, unless there was an excusefor not giving such notice, when such excuse should be pleaded. Even if thecourt is to take a liberal view of the pleadings, the defoet should at least becured by raising the appropriate issues on these matters unless these facteare admitted by the defendants. As the plaintiff in the present case failedto make these necessary averments in the plaint and also failed to cure thedefect in the plaint by raising the relevant issues at the trial, the plaint failedto disclose a cause of action against the defendants on the 1st cause of action.
.A.PPEAL from a judgment of the District Court, Colombo.
H. P. GoonetilleJce, with D. S. Wijewardene, for the plaintiff-appellant.
W. Jayawardene, Q.C., with N. S. A. GoonetilleJce and C. A. Amara-singhe, for the 1st defendant-respondent.
N.S. A. GoonetilleJce, for the 2nd defendant-respondent.
Cur. adv. tmli.
March 30, 1966. L. B. de Selva, J.—
The Ceylon Estate Agency and Warehousing Company, Ltd. (herein-after called the plaintiff) sued Norvin St. Clair Hilarion de Alvis andGamamedaliyanage John Paris Perera (hereinafter called the 1st and2nd defendants respectively) for the recovery of the restricted claim ofRs. 25,000 on two alternate causes of action. The 1st cause of actionis on a promissory note marked A and P2 dated 10.8.1956, executed bythe 1st defendant in favour of the 2nd defendant and endorsed by himto the plaintiff, for Rs. 40,000.
33
L. B. life SILVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alvis
On the 2nd cause of action, the plaintiff alleged that on or about 13thAugust, 1956 he lent and advanced to the 1st defendant a sum ofRs. 40,000 and as security for the repayment of the said sum and interestat 7% per annum the 1st defendant, by deed No. 943 (102) dated 13thAugust, 1956, mortgaged and hypothecated with the plaintiff the cropsof Oakfield Estate.
The 2nd defendant by a writing (P5) dated 13th August, 1956guaranteed the repayment by the 1st defendant of the said sum ofRs. 40,000 and interest, renouncing all the benefits of the suretyshipand making himself jointly and severally liable with the 1st defendant.
The defendants denied the plaintiff’s claim. The 1st defendantclaimed from the plaintiff in reconvention Rs. 88,000 on grounds ofmisappropriation of funds due to the estate and management ofOakfield Estate, the management of which was entrusted to the plaintiffunder the Agreement No. 944 dated 13th August, 1956.(1D1).
The 1st defendant had purchased Oakfield Estate for Rs. 500,000in November, 1954. It was 1,074 acres in extent, comprising of 714acres in rubber, 159 acres interplanted in tea and rubber, 32 acres incocoa and rubber, 16 acres in paddy and 153 acres in jungle. He hadtaken a loan of Rs. 60,000 from C. W. Mackie & Company for thispurpose.
The estate was managed for the 1st defendant by de Soysa & Co. from
12.1954 till September, 1955. During this period, a sum of Rs. 45,000had been paid to Mackie & Co. in reduction of their loan. The averageprofit during this period was said to have been Rs. 3,000 a month.
From September, 1955 till 14th August, 1956, Vedamanicam, thechief clerk of the estate, managed the estate. In June, 1956, Mackie& Co. had filed action in the District Court of Colombo against the 1stdefendant to recover the balance sum of Rs. 15,156*48 due to them.The 1st defendant, who was a renter, was in urgent need of Rs. 25,000at this time, to deposit towards his toddy rents.
The 1st and 2nd defendants entered into the present transaction withthe plaintiff, to enable the 1st defendant to obtain the necessary financialaccommodation. The 2nd defendant was merely an accommodating partyto enable the 1st defendant to raise the necessary funds. The partiesare agreed that the promissory note sued upon, the crop bond and thewriting by the 2nd defendant were all executed for this purpose andformed part of a single transaction.
At the execution of the promissory note, the plaintiff paid the 1stdefendant Rs. 25,000 by cheque. He also undertook to settle the claimof Rs. 15,000 odd of C. W.•Mackie & Co., which was then in suit. Theplaintiff had thereafter settled the claim of Mackie & Co. by an arrange-ment with them to pay that sum by instalments. That was a private
34
L. B. DE SILVA, J.—Ceylon Estate Agency and Warehousing*Co. Ltd.
v. de Alvis
transaction between them. Mackie & Co. thereupon moved that theiraction against the 1st defendant be dismissed stating that their claimand costs had been settled. The action was accordingly dismissedwithout costs. (Vide 1 D 3 (6). Marginal page 1173.)
It is quite clear that the 1st defendant obtained the full considerationof Rs. 40,000 on the promissory note in suit. The fact that the plaintiffhad made a separate arrangement with Mackie & Co. to pay the amountdue from 1st defendant to them by instalments, does not mean that theplaintiff had failed to settle in full the liability of 1st defendant to Mackie& Co. Once the action of Mackie & Co. against the 1st defendant wasdismissed on the ground that their claim and costs had been settled, theliability of 1st defendant to Mackie and Co. was fully extinguished. Thesubmission made on behalf of 1st defendant in this appeal, that thepromissory note is fictitious on the ground that the plaintiff did not paythe money due to Mackie & Co. is without any substance.
The plaintiff’s action was dismissed with costs by the learnedDistrict Judge on certain legal objections and judgment was given infavour of 1st defendant on his claim in reconvention in a sum ofRs. 5,000. The plaintiff has appealed from that decision and the 1stdefendant has filed cross objections against the amount awarded tohim in reconvention.
For the purposes of this appeal, we propose to consider first theobjection raised by the defendants that the plaint discloses a misjoinderof parties and causes of action. They conceded that there was nomisjoinder so far as the 1st cause of action on the promissory note wasconcerned. With regard to the alternate cause of action, they concededthat if the writing given by the 2nd defendant was a guarantee of theamount due from the 1st defendant to the plaintiff on the crop bond,there was no misjoinder of parties and causes of action and the actionwas duly constituted. They argued, however, that the writing givenby the 2nd defendant was not a guarantee but was a separate andprincipal obligation undertaken by the 2nd defendant, to pay the debtdue from the 1st defendant to the plaintiff upon the crop bond.
The learned District Judge upheld this contention and we are in entireagreement with his finding on this question. In construing a deedvery similar in terms with P5, the Privy Council held in Wijewardena v.Jayawardena 1 —
“the question to be decided is whether on a proper construction
of the deed, the defendant has bound himself to the plaintiff as principaldebtor or has made himself liable o^ly as a surety. This question must beanswered by consideration of the deed as t» whole.”
1 (1924) 26 N. L. R. 193 at p. 197.
L. B. JpE SILVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alins
35
They also stated, “ It was, however, alleged that the statement in clause3 ‘ that this guarantee shall be a continuing guarantee ’ changed thecharacter of the obligation created by paragraph 1 into one of suretyshiponly. Their Lordships cannot agree with this contention and do notthink that such a description of the document can alter the real natureof the contract as appearing in the express terms in paragraph 1. It is-settled law that the mere use of a descriptive term cannot affect thereality of a transaction. ”
The contract of guarantee is defined in the “ South African Law ofObligations ” by Lee & Honore, page 138, section 541, as follows
“ The contract of Suretyship or Guarantee is a contract whereby oneperson (surety or guarantor) promises another person (creditor) to beanswerable in the event of a third party (the principal debtor) makingdefault in the performance of a duty owed by such third party to thecreditor. ”
The deed P5 (marginal page 116) has the heading “ Guarantee”. The1st paragraph of P5 is as follows. “ In consideration of the CeylonEstate Agency & Warehousing Co., Ltd., at my request agreeing not torequire immediate payment of the sum of rupees forty thousand(Rs. 40,000) lent and advanced by the Company to Mr. Norvin St. ClairHilarion de Alvis, I, the undersigned G. John Paris Perera. .. .do herebyagree to pay to the Company in Colombo the said sum of Rs. 40,000with interest thereon at 7% per annum from 10th August, 1956. ”
Paragraph 2 states, “This guarantee shall not be considered as satisfiedby any intermediate payment or satisfaction of the whole or any partof the moneys herein mentioned but shall be a continuing security….”
Paragraph 8 states, “I agree that the Company shall be at libertyeither in one action to sue the debtor and me jointly and severally or toproceed in the first instance against me. ” The next portion of this para-graph in not intelligible. There is a reference in it to, “ and all otherrights and benefits to which sureties are or may be by law entitled.”It further states, “ it being agreed that I am liable in all respects hereunderas principal debtor jointly and severally to the extent aforesaid includingthe liability to be sued before recourse is had against the debtor ”.
Though this contract is referred to in the deed as a guarantee and thedeed refers to the rights and benefits to which sureties are entitled to andprovision is made in the deed that the contracting party (i. e., the 2nddefendant) may be sued before recourse to the debtor (i. e. the 1st,defendant), we are satisfied on reading the deed as a whole, that thisdeed P5 is not a guarantee of the 1st defendant’s debt to the plaintiffbut that the 2nd defendant has become a principal debtor of the plaintifffor the consideration set out in paragraph 1 of the deed. The concluding;portion of paragraph 8 also confirms that view.
36 L. B. DE SILVA, J.—Ceylon Estate Agency and Warehousing C§. Ltd.
v. de Alvis
We shall now consider if there is a misjoinder of parties and causesof action on the plaintiff’s alternate cause of action. Section 5 of theCivil Procedure Code defines the expression “ Cause of action ” as a wrongfor the prevention or redress of which an action may be brought. Itincludes a refusal to fulfil an obligation. In Croos v. GunewardenaHamine 1 and Arulananthan v. The Attorney General. 2 the expression,“ Cause of action” has been given a broad meaning. In the earlier case,Wendt J. said, “ I think that the word ‘ obligation ’ in this definition isto be understood not in the narrow sense in which a parol promise to pay,a promissory note and a mortgage, although given for the same debt,may be described as three different obligations, but in the more generallyunderstood sense of a liability to pay that sum of money. Reading thedefinition in this case the cause of action was the same in both cases,namely the failure to pay one and the same debt.”
That decision was approved and followed by Dias S.P.J. and Guna-sekara J. in Arulanantham v. the Attorney-General. In that case, therewere two separate agreements. In one, the 1st defendant alone was liablefor all damages and in the other the 2nd and 3rd defendants were onlyliable to pay up to Rs. 2,000 of the damages. It was submitted thatthese were contracts of suretyship. But the principle of law enunciatedin both these cases is that the expression “ cause of action ” must be givena broad and liberal meaning.
Applying that principle to the present case, we are satisfied that theobligation sought to be enforced on the crop bond from the 1st defendant,and the writing (P5) from the 2nd defendant is one and the same, thatis the obligation to repay the loan of Rs. 40,000 given to the 1stdefendant by the plaintiff or the balance outstanding on that account.Though there were two separate documents, they were in fact one andreferred to the same obligation. It may be noted that in P5, the 2nddefendant agreed that the plaintiff may sue him and the 1st defendantin one action jointly and severally. The fact that 1st defendant was noparty to that agreement is immaterial as the loan was only given to him.The fact that the 2nd defendant undertook to be jointly and severallyliable with 1st defendant for that debt, did not, in any sense, increase1st defendant’s liability. It only relieved him of his liability to someextent. The promissory note, the crop bond and the writing (P5) wereentered into by all the parties as parts of a single transaction and withthe consensus of all.
We hold there is no misjoinder of parties and causes of action in this
ease.
The plaintiff’s action on the first cause of action on the promissorynote was dismissed by the learned District Judge on the ground that he
* (1902) 5 N. L. R. 259.
* (1950) 53 N. L. R. 364.
L. B. QE SELVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alvis
37
failed to aver in the plaint that the promissory note was duly presentedfor payment but it was dishonoured by the 1st defendant and thatnotice of dishonour was given to the 2nd defendant.
The plaintiff failed to make such averments in his plaint and he alsofailed to raise any issues on these points and offer any evidence in proofthereof. It is necessary to consider if the plaintiff was required by lawto present this promissory note for payment. Section 89 of the Billsof Exchange Act (Chapter 82, Legislative Enactments of Ceylon, RevisedEdition) provides as follows
“ Section 89 (1). Where a promissory note is in the body of it madepayable at a particular place, it must be presented for payment at thatplace in order to render the maker liable. In any other case, presentmentfor payment is not necessary in order to render the maker liable. ’ ’
“ Section 89 (2). Presentment for payment is necessary in order torender the indorser of the note liable. ”
The promissory note P2 is in favour of the 2nd defendant and is madepayable at Colombo to him or his order. The 1st defendant lives atHendala and the 2nd defendant at Pamunuwa. The 2nd defendantwas only an accommodating party and the promissory note wasimmediately endorsed by 2nd defendant and given over to the plaintiff.Rs. 25,000 out of the consideration was paid by the plaintiff direct tothe 1st defendant. It was thus clearly understood by all partiesto the promissory note that payment was to be made to the plaintiff.
The question arises for decision if Colombo, which is the place of pay-ment designated in the promissory note, is a particular place of paymentwithin the meaning of section 89 (1) of the Bills of Exchange Act. Twolocal cases have considered the question whether a note payable at aparticular town, was a note payable at a particular place.
In Storer v. Sinthamany Chettiar1 the promissory note was madepayable at Negombo. The maker was resident at Chilaw and hadno business or interests in Negombo. Maartensz J. held in thatcase, “ Thus, if a note payable at Negombo is made by a personwho lives or has a place of business in Negombo or it can be gatheredfrom the course of business carried on by the maker and the payee,where presentment for payment should be made, Negombo would, inmy opinion, be a sufficiently specific description of the place wherethe note is payable, to render presentment for payment imperative.It was held in that case that a particular place of payment was notmentioned in the note and presentment for payment was not necessaryto render the maker liable..
I
{1938) 40 N. L. B. 109.
38Li. B. DE SIXiVA, J.—Ceylon Estate Agency and WarehonsingtCo. Ltd.
v. de Alms
In de Silva v. Gunaioardena 1 the promissory note was made payable atTalawakele. The maker and payee were both residents of Talawakeleand had their places of business there. Keuneman J. stated in that casethat as both the maker and the payee had their places of business atTalawakele, “ This may at first sight appear to create an ambiguity as towhich place at Talawakele is to be the place of presentment but I thinkon consideration, that as we are dealing with presentment for payment,it may prima facie be taken that presentment should be made at theaddress of the maker of the note, who is responsible for the payment.”It was held in that case that a particular place of payment was designatedin the promissory note.
Keuneman J. further stated, “ It is, I think, clear firom the Englishcases cited to us, that where a note has to be presented for payment at aparticular place, an allegation to that effect that presentment has beenmade at that place, is a necessary ingredient in the plaint and thatplaintiff’s cause of action is not complete without such an allegation.”
These cases indicate that the court can look into the surroundingcircumstances to ascertain if the place of payment designated in thepromissory note is a particular place of payment or not. In the presentcase, it is only the plaintiff who has a place of business in Colombo. Boththe defendants have their residences outside the town of Colombo andhave no places of business in Colombo.
In the crop bond No. 943 (1D2), the 1st defendant engaged and boundhimself to pay the sum of Rs. 40,000 and interest or the balance out-standing to the said obligee in Colombo on demand. By the WritingP5, (page 116), the 2nd defendant too promised to pay the said sum ofRs. 40,000 lent and advanced to the 1st defendant, and interest tothe plaintiff in Colombo.
As the deed (1D2), the writing P5 and the promissory note P2 weredocuments executed in connection with this loan of Rs. 40,000 to the1st defendant by the plaintiff, it is clear that the parties agreed thatthe balance outstanding on this loan should be paid to the plaintiff inColombo, meaning thereby at plaintiff’s place of business in Colombo.We, therefore, hold that a particular p7ace of payment was mentionedin the body of the promissory note and that presentation for paymentwas necessary before the plaintiff could sue the defendants on thepromissory note.
In the case of de Silva v. Gunav;ardena cited earlier, Keuneman J.held that the plaintiff pleaded in the plaint that the promissory notewas marked for non-payment clearly meaning thereby that it was notedfor non-payment. He said, tc I am inclined to think that the allegationwith regard to the noting, carries with it the implied allegation that thenote was duly presented for payment. ”
1 (1941) 42 N. L. R. 433
L. B*DE SILVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alois
39
We hold that in an action on a promissory note where presentmentfor payment is necessary, to make the maker and indorsers liable, it isa necessary averment in the plaint that the promissory note was dulypresented for payment and was dishonoured. If there was any excusefor not presenting the promissory note for payment, such excuse shouldhe pleaded. As against the indorsers, the plaint mast further aver thatnotice of dishonour was given to them, unless there was an excuse fornot giving such notice, when such excuse should be pleaded. Even ifthe court is to take a liberal new of the pleadings, the defect should atleast be cured by raising the appropriate issues on these matters unlessthese facts are admitted by the defendants.
As the plaintiff has foiled to make these necessary averments in theplaint and ha3 also failed to cure the defect in the plaint by raising therelevant issues at the trial, we hold that the plaint in this case fails to*disclose a cause of action against the defendants on the 1st cause ofaction on the promissory note (P2). The learned District Judge hasrightly dismissed the plaintiff’s 1st cause of action on this ground.
With regard to the 2nd cause of action, the estate in question wassubject to several mortgages executed prior to the crop bond (1D2).
A mortgage action D. C. Colombo No. 5332/M.3. (lD195-page 1397)was filed on tertiary mortgage bond No. 74 dated 3rd June, 1955 bythe mortgagees, against the mortgagors, one of whom was the present1st defendant. The plaintiff was made the 5th defendant in that caseas a puisne encumbrancer, for the purpose of obtaining a mortgagedecree binding on his interests. Order was made to enter judgment in •that case against 1 to 3 defendants. (See lD19&-page 1412.)
It has been argued in this case that the decree in the mortgage actionhas wiped out the rights of the plaintiff as against the 1st defendant asthe plaintiff did not assert his rights against him. The relevant issueson this question are issues 20 to 22 (6). A short answer to this questionis that no decree has been entered nor has any order been made to entera decree against the 5th defendant in that case, (i.e., against the presentplaintiff). The plea of Res Judicata must, for this reason alone, fail.
As this point has been overlooked in the argument of the case bothin the trial court and in appeal, we shall refer to another point raisedin the case before both the courts. Does the crop bond 1D2 affect anyinterest in land ? The relevant portion of this bond mortgages andhypothecates as a first and primary mortgage free from any encum-brances “ all the crops and produce described in the 1st schedule hereto(hereinafter called ‘ mortgaged property ’) of the estate plantationsand premises called and know n .as Oakfield Estate in the 2nd and 3rdschedules hereto more* particularly described and all the right, titleinterest property claim and demand whatsoever of the obligor in toout of or upon the same. ”
40 L. B. DE SILVA, J.—Ceylon Estate Agency and Warehousing Co?Ltd.
v. de Alvis
The 1st schedule reads as follows ….
“ All and singular the crops and produce consisting of latex, allrubber manufactures or otherwise including rubber sheet smokedor otherwise and crepe rubber of all grades scrap crepe, Teasincluding green leaf and tea manufactured or in process of manufacturea ad all other crops or produce harvested or manufactured or otherwiseof every sort and description now lying and which may hereafter atany time and from time to time and at all times be harvested,manufactured, brought in or lie upon the premises in the 2nd and 3rdschedules hereto or any factory or building thereon and in or upon anyfactories or godowns, stores, buildings, warehouses and premises atwhich the said crops and produce now are and may at any time here-after and from time to time and at all times be stored and kept. ”
i
We have no doubt at all that this mortgage refers only to the severedcrops of the estate and has no reference whatsoever to the standingcrops of the estate. As such this is not a mortgage that affects anyland. The fact that this bond has been registered in the Land Registry,does not affect the interpretation of this bond.
The learned District Judge has erred in holding that this crop bond(1D2) affects immovable property. He has also erred in holding thatthe decree in the mortgage action D. C. Colombo No. 5332/M.B. is abar to the plaintiff filing this action.
It is not necessary in this case to express our views on this plea ofRes Judicata assuming that the bond (1D2) referred to immovableproperty and a proper decree had been entered in the mortgage action,binding on the plaintiff’s interests in this land, as they would be obiter.
The balance due to the plaintiff from the 1st defendant on this loanhas to be ascertained after taking into account the income from andexpenditure on Oakfield Estate, which was managed by the plaintifffor the 1st defendant. A monthly statement of the detailed expenditureof the estate as per documents P43 to P51 and a monthly statement ofthe account between the plaintiff and the 1st defendant as per documents1D7, 1D11 to 1D18 were sent to the 1st defendant.
In this connection, the correspondence between the plaintiff and the1st defendant during March, 1957 shortly before the Agency Agreementwas terminated is revealing. By P6 dated 8th March, 1957, 1st defendantinformed the plaintiff that he had made arrangements to sell the estateand hoped to finalise the transaction on or before 30th April, 1957. Hesaid that the intending purchaser had applied to C. W. Mackie & Co., Ltd.requesting them to take over the 1st defendant’# liability to the plaintiff.He also stated that his debt to the plaintiff has been decreased by aboutRs. 10,000 during the past two months.
L. B.JDE SILVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alvis
41
The plaintiff promptly replied by letter P7 dated 8th March, 1957,that they could not understand his statement that the debt was decreasedby Us. 10,000. Plaintiff pointed out that the original loan wasRs. 40,000 and that it now stands at Rs. 43,473.84 and Rs. 1,211.93on account of the Superintendent remain unpaid.
The 1st defendant replied to this letter by his letter P8 of 9th March,1957, stating that he is making every endeavour to discharge his obliga-tions to the plaintiff. He did not challenge the correctness of his liabilityto the plaintiff as stated in P7.
In challenging the claim of the plaintiff in this action, the 1st defendantalleged that he had been debited twice over with the estate expenses forAugust and September 1956. According to the Ledger 1DB, page 345,the 1st defendant’s account with the plaintiff appears under the nameOakfield Estate. On 29.9.56 the 1st defendant is debited withRs. 14,270 60 being the amount transferred from the account of theSuperintendent of this estate, at pages 193, 196 and 84 in this ledger.A corresponding credit item is entered in the Superintendent’s accountat page 194. This sum represents the balance due to the plaintiff fromthe Superintendent of this estate on 29th September, 1956. On 30thOctober, 1956 the 1st defendant is debited with the followingitems :—
At a superficial examination, it would appear that the 1st defendanthas been double debited with the item of Rs. 14,270-60. The actual stateexpenditure for these two months were Rs. 5,63145 and Rs. 11,170 68as shown in the detailed monthly statements P43 and P44.The actual estate expenditure incurred by the Superintendent for aparticular month is generally more than the amount sent to him by theplaintiff during that month. According to 1D8, in August 1956, thebalance due from the Superintendent was only Rs. 2,812-98, but theactual estate expenditure incurred by the Superintendent for that monthwas Rs. 5,631-45.
The 1st defendant’s account in the ledger 1D8 at page 245 shows thathe was credited with “ The Superintendent’s A/C October Credit balancetransferred ” Rs. 3,068-77. Thereafter the 1st defendant was debitedwith the actual estate expenditure for the preceding month and wascredited with the credit balance transferred from the Superintendent’s
Rs. c.
Estate Expenditure for AugustEstate Expenditure for September
..5,631 45
. . 11,170 68
Total .. 16,802 13
account.
42
L. B. DE SILVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alois
On 29th November, 1956, the 1st defendant was debited with theestate expenditure for October Rs. 14,143-74 and was credited on 30.10.56with a sum of Rs. 1,880-33 being transfer of balance from Oakfield EstateA/C. (This should be from Oakfield Estate Superintendent’s A/C.) Thecorresponding entries appear in the Superintendent’s A/C.
Sometimes there is no such credit balance transferred, as the amountsent to the Superintendent during that month is more than what wasspent by him that month. In that event, a debit balance will be debitedto the 1st defendant’s A/C as in December, 1956. On 20.12.56 plaintiffwas debited with the Oakfield Estate expenditure A/C NovemberRs. 13,778-72 and again on 31.12.56 he was debited with Balancetransferred from Oakfield Superintendent Rs. 749-87.
• In the statement of A/Cs for the months of April and May, 1957 sentto the plaintiff (1D18. page 1, 190), he is credited on 30.4.57
“ By balance A/C Superintendent, Oakfield Estate, Rs. c.
transferred… .10,981 16
and on 31.5.57
“ By Superintendent, Oakfield, balance transferred . .1,168 19
We are satisfied that the 1st defendant has not been debited twiceover with the sum of Rs. 14,270*60 nor has he been over-charged on thataccount. The 1st defendant is a toddy and arrack renter. He receivedmonthly statements of the estate expenditure and his account with theplaintiff. If there was such a large over-charge or double debit, hecould not have failed to detect it. It was suggested in the course of thisappeal that the plaintiff restricted his claim of Rs. 41,620-32 to Rs. 25,000because there was a large overcharge in the account. We are unableto speculate on the reason for which the plaintiff restricted his claim.
It was also urged in this appeal that the plaintiff paid C. W. Mackie &Co. the sum of Rs. 15,000 odd by instalments from the proceeds of saleof the produce of 1st defendant’s estate. There is nothing in the accountsto bear out this suggestion. There are certain payments to Mackie & Co.charged to the 1st defendant’s A/C. These will be dealt with later.
We shall now deal with 1st defendant’s claim in reconvention. Thelearned District Judge has awarded Rs. 5,000 as damages against theplaintiff for mismanagement of the estate. Under the Agreement No. 944dated 13th August, 1956 the 1st defendant appointed the plaintiff tomanage and control Oakfield Estate for remuneration.
Under paragraph 3, the management was to be under the unfetteredcontrol of the plaintiff, subject to the general policy as may be agreed tobetween the parties.
L. B. Iffi SLLVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alois
43
Under paragraph 4, the plaintiff undertook to manage and work theestate to the best interest of the owner and to maintain it in a good andproper state of management and cultivation. The plaintiff also under-took to exercise and perform all such powers, duties, functions andresponsibilities as are commonly undertaken by estate agents andsecretaries.
The 1st defendant was entitled to appoint a visiting agent for theestate and the agricultural policy shall be agreed on by the owner, thevisiting agent and the plaintiff. The 1st defendant did not appoint avisiting agent but he himself visited the estate fairly regularly andover-looked the estate, though he had no special knowledge or experienceas a planter.
It is clear on the evidence that this estate was in a rather neglectedcondition and the rubber including the budded rubber had beenslaughter-tapped for some years prior to the Agreement. It is commonknowledge in estate circles that old rubber is slaughter-tapped for a shortperiod before the rubber is felled for replanting. Sometimes when theold rubber is uneconomic for ordinary tapping, it is slaughter-tapped for ashort period before it is abandoned. But it is unheard of to slaughter-tap budded rubber trees under proper agricultural supervision of anestate.
As the plaintiff had allowed this pernicious practice to continue afterthe plaintiff took over the management of the estate, without an expressdirective from the owner to do so, the plaintiff has undoubtedlycommitted a breach of the agreement. The 1st defendant was fullyaware of the prevailing practice and condoned it. Even a tyro wouldhave been awrare that this practice will be very harmful to the buddedrubber trees and will greatly diminish the value of the estate, thoughhe would temporarily get a higher yield from the rubber.
The least that the plaintiff could have done in these circumstances,was to have warned the owner of the ill-effects of continuing this badpractice. There is no evidence of the extent in budded rubber in thisestate. The amount awarded by the learned District Judge as damagesincluded the damages for the bad manufacture of rubber. The evidenceshows that the smoked sheet rubber manufactured in this estate was of avery poor quality.
Mr. Warusavitame, a Visiting Agent and an experienced planter, whovisited the estate, has given evidence, which has been accepted by bothparties. He has stated that about 90 to 95% of the out-turn of sheetrubber should be of grade# 1, in a normal estate. Only about 40% ofsheet rubber in this estate came up to grade 1. There was a differenceof 3 to 4 cents in the prices of grades 1 and 2 of sheet rubber.
44 L. B. DE SILVA, J.—Ceylon Estate Agency and Warehousing Ob. Ltd.
v. de Alvis
It is not necessary to go into any detail about the loss caused to thisestate by the bad manufacture of rubber. The damages for mismanage-ment have been claimed by the 1st defendant in his 2nd claim inreconvention, in a sum of Rs. 50,000.
But this claim is limited to the reduction in the value of the estate.The value of the estate has not been diminished by the bad manufactureof rubber. The 1st defendant would have had a separate cause of actionfor the loss caused by such bad manufacture. As he has made no suchclaim, it iB not necessary to consider this claim any farther.
This estate had been abandoned shortly after the plaintiff’s manage-ment was terminated. About 1-|- years later, this estate which had beenpurchased by the Agricultural and Industrial Credit Corporation undera primary mortgage, was sold to Mr. D. L. W. Rajapakse for Rs. 75,000.This estate has been valued by Mr. Warusavitame in June, 1956 atRs. 456,000. (See Valuation Report P88.)
We are unable to take into consideration the low price of this sale, inconsidering the damage caused to the estate by the plaintiff’s mis-management. Several other factors have contributed to the low pricerealised. Even as an abandoned estate, the price realised is ridiculouslylow.
Considering all the circumstances, we award the 1st defendant Rs. 5,000as damages on his 2nd claim in reconvention. The learned District Judgehas awarded the same sum but for both mismanagement and badmanufacture of rubber.
On the 1st claim in reconvention, the 1st defendant claimed Rs. 38,000for alleged misappropriation of income, on the grounds of double debitsand improper accounting. On this claim, the learned District Judgehas awarded Rs. 5,682*57. We have already dealt with the allegeddouble debits. This item has been disallowed by the learned DistrictJudge and we, too, have come to the same conclusion.
The learned District Judge allowed the 1st defendant three paymentsmade to Mackie & Co. :—
Rs. 2,890 paid by him in terms of an abortive settlement.
(See P17 dated 7. 8. 57 and P18 dated 10. 8. 57.)
Rs. 74*82 as a liability undertaken by plaintiff.
Rs. 1,500 another payment to Mackie & Co. which should have
been paid by plaintiff.
He also allowed the 1st defendant Rs. 334*93 being a sum paid by himto plaintiff under the abortive settlement.
L. B. DE SILVA, J.—Ceylon Estate Agency and Warehousing Co. Ltd.
v. de Alvis
45
On these items, the 1st defendant would be entitled to Rs. 4,799 75.
He has disallowed the plaintiff the sum of Rs. 882-72 charged asinterest on Rs. 15,000. The plaintiff has settled the liability of 1stdefendant to Maokie & Co. and there is no reason wh3T the plaintiif isnot entitled to charge the interest on the full Rs. 40,000.
The 1st defendant also claimed Rs. 15,156-48. This was the sum forwhich Mackie & Co. sued the 1st defendant. The plaintiff settled thatclaim with Mackie & Co. and the action was accordingly dismissed.This sum and the Rs. 25,000 paid direct to 1st defendant by the plaintiffwere duly charged to 1st defendant’s A/C. There was no double chargeof the item of Rs. 15,156 -48.
The learned District Judge excluded this item because the plaintiffhad restricted his claim to Its. 25.000. We see no valid ground on whichthe 1st defendant can claim this sum. We disallow this claim ofRs. 15,156-48.
We find that the 1st defendant has been wrongly charged with thefour items referred to earlier, totalling Rs. 4,799 75. This sum mustbe set off from the amount due to the piaintiff on the Crop Bond (1D2).Even after giving credit to 1st defendant for these items, there is a sumin excess of Rs. 25,000 due to the plaintiff on liis alternate cause of action.
The 1st defendant cannot claim this sum of Rs. 4,799-75 as moneymisappropriated by the plaintiff, as these items must be and have beentaken in account, in considering the liability of 1st defendant on theplaintiff's alternate cause of action. For these reasons, we dismissdefendant’s first claim in reconvention.
We set aside the judgment and decree of the learned District Judgeand direct that judgment and decree be entered for plaintiff for Rs. 25,000as prayed for with costs on his alternate cause of action. The plaintiff’s1st cause of action is dismissed without costs.
The 1st defendant’s 1st claim in reconvention is dismissed withoutcosts. We direct ^hat judgment and decree be entered on 1st defendant’s2nd claim in reconvention for Rs. 5,000 with costs in that class.
Subject to the above directions, the plaintiff’s appeal is allowed andthe cross objections of the defendants are dismissed. The plaintiff isallowed his costs of appeal.
G. P. A. Silva, J.—I agree.
Appeal allowed.