COOMARASWAMY, Appellant, and VINAYAGAMOORTHY et al., Respondents

083-NLR-NLR-V-46-COOMARASWAMY-Appellant-and-VINAYAGAMOORTHY-et-al.-Respondents.pdf


Coomaraswamy and Vinagagamoorthy.
246
1945Present: Howard C.J. and Keuneman J.COOMARASWAMY, Appellant, and VINAYAGAMOORTHY et al..
Respondents.
191—D. G. Point Pedro, 15,691.
Fraudulent alienation—Saleofschooner bytrustee—Elementsof fraudulent
intent—Breach of trust—No notice of equitable title—Legal estate—Prescription—Trusts Ordinance (Cap. 72) s. Ill (1) and (5).
Plaintiff claimed titletoa schooner byvirtue of a Bill ofSale, P 2, of
August 25, 1937, giveninhis favour bythe 8th defendant.It was estab-
lished that the 1st, 2nd, 3rd and 4th defendants were the purchasers ofthe schooner in 1925, and that it was registered in the name of the 5thdefendant. The 5th defendant sold the schooner in breach of trust byBill of Sale, P 5, dated 1928 to 6th defendant who in turn sold it to 7thdefendant, from whom the 8th defendant became the purchaser. The1st and 2nd defendants denied that the plaintiff was the owner andpleaded that the BillofSale in hisfavour was executed fraudulently
and collusively with intent to deprive them of a claim due to them inrespect of the schooner arising from an action instituted by them againstthe 3rd and 4th defendants. They claim that the 5th defendant was notthe owner and that he was holding the schooner in trust for the 3rd and
HOWARD C.3.—Ceomaratteamy and Vmayagamoorthy.
247
4th defendants and that the latter fraudulently and collusive] y obtained-the execution of the various bills of. sale and that by reason of the?alienation they rendered themselves insolvent.
Held, {hat the defendants had failed to prove that the Bill of Sale.P 2, was a fraudulent alienation.
The evidence from which a fraudulent intent can be gathered is usuallysome or afi of the following circumstances : —
that there was no consideration,
that the transfer was Bee ret.
(8) that the transferor had continued in possession notwithstandingthe transfer,
that the transfer left him without any other property, and/or
without enough to pay the debts which he owed at the time-
or was about to incur.
Held, further, that the claim of the defendants was prescribed and thatthe case did not come within the ambit of section 111 (1) or (S) of theTrusts Ordinance which excluded the operation of the PrescriptionOrdinance.
Held, also, that the plaintiS was not bound by the trust in breach ofwhich the 5th defendant transferred to the 6th defendant for the followingreasons: —
He has obtained the legal title.
He was a bona fide purchaser for valuable consideration.
(8) He received no notice that the transaction was a breach of trustbefore the transfer was complete.
A
PPEAL from a judgment of the Additional District Judge ofJaffna.
H. V. Perera, K.G. (with him N. Kumarasingham), for plaintiff, appellant.
N. NaJarajak, K.C. (with him P. Navaratnarajah), for 2nd, 9th»and11th defendants, respondents.
S. Mahadeva for 6th defendant, respondent.
A. C. Nadarajah (with him C. J. Ranatunga), for 8th defendant,respondent.
Cur. adv. vult.
June 13, 1945. Howard C-.J.—
This is an appeal from a judgment of the Additional District Judge ofJaffna upholding the claim of the 1st and 2nd defendants, respondents,and dismissing the claim of the plaintiff with costs.
The action was concerned with the rights in a schooner named“ Kadiresan ” which were claimed by the plaintiff by virtue of a Billof Sale P 2 dated August 25, 1937, in his favour made by the! 8th de-fendant. The schooner had been transferred to the 8th defendant by Billof Sale P 3 dated September 19, 1936, made in his favour by the 7thdefendant who in his turn had obtained title in the same by virtue ofBill of Sale P 4 dated October 22, 1931, made in his favour by the 6thdefendant. The 6th defendant was the holder of a Bill of Sale P 5,dated August 11, 1928, made by the 5th defendant in his favour. 16
948
HOWARD C.J.—Coomawwamy and Vinayagameorthy.
was established that the 1st, 2nd, 3rd and 4th defendants were thepurchasers of the schooner in 1925. The vessel' was registered and thedocuments were executed in the name of the 5th defendant. In 1926disputes arose between the partners in this seafaring adventure. Thematter was settled by the 1st and 2nd defendants agreeing to renouncetheir shares in the schooner on payment of Bs. 1,800 and a share in theprofits for six months. This money not being paid the 1st and 2nddefendants instituted D. C. No 23,897 on January 20, 1928, againstdefendants 3, 4, and 5 for the recovery of Es. 4,882.92 due to them onaccount of the schooner. The 5th defendant was made a party to thisaction as the legal ownership of the schooner was vested in him. Judge-ment in favour of the 1st and 2nd defendants was entered by defaulton February 3, 1933, and the decree was made absolute on May 12, 1933.From the record of the proceedings (2 D 6) in D.C. No. 23,897 it is clearthat from the time of the decree absolute in .favour of the 1st and 2nddefendants the latter made attempts to enforce their claim. On May 28,1940, they claimed the schooner which was seized by the Fiscal undera Writ, sale being fixed for July 29, 1940. On July 11, 1940, the appellantin this action who had moved for summons on June 25, 1940, prayedunder section 247 of the Civil Procedure Code that the sale of the schoonerfixed for July 29, 1940, be stayed until the final determination of theaction. On July 23, 1940, it was ordered that the sale be stayed unlessthe judgment creditor was prepared to give security. The present actiontherefore proceeded. On October 19, 1943, the 3rd defendant in thecourse of proceedings under D.C. 23,897 was examined for means undersection 219 of the Civil Procedure Code. At this examination which isrecorded in 2 D 7 the 3rd defendant stated that he was the tindal of theschooner and that neither he nor his wife, the 4th defendant, had been• in possession of any property for the last 10 years. Since the institutionof these proceedings by the appellant the 1st defendant has died andthe 9th, 10th and 11th defendants as his heirs have been substituted inhis place.
The plaintiff’s claim was based on the title alleged to be vested in himunder ,the various bills of sale referred to in this judgment and culminatingin P 2 made in his favour by the 8th defendant. The plaintiff maintainedthat he had been in possession and charge of the’ vessel since August 25,1937, the date of P 2. In these circumstances the seizure of the schoonerby the Fiscal in May, 1940, was bad in law. The 1st and 2nd defendantsin their answer deny that the plaintiff ever became the owner of theschooner and maintained that the bill of sale was effected secretly andfraudulently and collusively with the intent to defraud them of the moneydue to them. The 1st and 2nd defendant also contend that the vesselhas always been in possession of the 3rd defendant and that the 5thdefendant was never its owner and that he was holding it in trust for the3rd and 4th defendants. The 1st and 2nd defendants also aver that the3rd and 4th defendants fraudulently and collusively obtained theexecution of the various bills of sale and by reason of the alienation bythe said Bills rendered themselves insolvent. The 3rd defendant in hisanswer denied the allegations of fraud and collusion made by the iBt and2nd defendants.
HOWARD C.J.—Coomaraneamy and Vmayogamoorthy.249
The District Judge in dismissing the plaintiff’s claim has held as-follows:—
The plaintiff was not the owner of the vessel by virtue of P 2.
The vessel was liable to seizure by the 1st and 2nd defendants in-
execution of the decree obtained by them in D. C. 23,897.
(8) The 5th defendant was holding the vessel in trust for the 8rd and
4th defendants at the time of the institution of case No. 23,897.
The Bills of Sale were executed fraudulently and collusively in
order to hinder the 1st and 2nd defendants in the execution?
of their decree.
The alienation in favour of the 6th defendant rendered 3rd and 4th-
'defendants insolvent. -■
The claim of the 1st and 2nd defendants was not prescribed.
Mr. Perera, on behalf of the appellant, has contended that the defenceof the 1st and 2nd defendants is based on the allegation of the fraudulentexecution of the various bills of sale culminating in P 2 in favour of theappellant. That it has been established the plaintiff gave considerationfor the transfer of the schooner. That no evidence has been adducedto prove affirmatively not only the fraud of the plaintiff but also theparticipation of the 3rd and 4th defendants in these transactions. With-out such proof the defence must fail.
Mr. Perera also contends that the claim of the 1st and 2nd defendantsis prescribed. In this connection it would appear from 2 D 8 that actionNo. 14,025 was instituted on May 5, 1927, in the District Court of Kalu-tara, claiming a sum of Its. 500 against the 1st defendant as owner and’the 3rd defendant as Master of the schooner. On September 13, 1929,the vessel was claimed by the 6th defendant vide P 7. This claim wasupheld on October 28, 1929 (vide P 8) by virtue of Bill of Sale of August11, 1928 (P 5.) Neither the 1st nor 3rd defendants appear to have beenpresent when this claim was upheld. Mr. Perera contends, however,that from this date the 1st and 2nd defendant’s had notice of the fraudu-lent alienation by means of which the 3rd defendant had rendered himselfinsolvent. The cause of action of the 1st and 2nd defendants therefore'arose on October 28, 1929, and was prescribed in three years from thatdate.
The 1st and 2nd defendants in their answer have prayed that the billsof sale be set aside. In his judgment the District Judge dismisses theplaintiff’s action with costs in terms of the prayer of thd 1st and 2nddefendants. The judgment must, therefore, be taken to have set asidethe bills of sale. The first question that arises for consideration is whetherthe learned Judge was right in holding that those bills were executedfraudulently and collusively by the 5th -defendant at the instigation ofthe 3rd and 4th defendants with the various assignees so as to put theproperty in the schooner beyond the reach of the 1st and 2nd defendants-In Narayanan Chettyar v. Official Assignee, High Court, Rangoon A.l.R-rit was held by the Privy Council that fraud must be established beyondall reasonable doubt and cannot be based on suspicion and conjecture.Again in Muttiah Chetty v. Mohamood Hadjiar2 Ennis J. at page 186 saysthat there is no presumption of fraud and when it is alleged it must b»1 {1941) P. C. 93.* 25 N. L. R. 185.
260HOWARD C.J.—Coomararwamf and Vtnayagamaorthy.
fully proved. He then cites with approval a dictum of Hutchinson -C.J.in the case of Saravanai Amvugam v. Kanthar Ponnambalam, 1 withregard to the question as to what was sufficient in a Paulian action-to establish fraud. Hutchinson C.J. laid down that the evidence fromwhich a fraudulent intention can be inferred is usually some or all of thefollowing circumstances: —
That there was no consideration.
That the transfer was secret,
That the transferor ha cl continued in possession notwithstanding
the transfer,
That the transfer left him without any other property, and/or
without enough to pay the debts which he owed at the time or
was about to incur.
'The plaintiff claims the schooner as a bona fide purchaser for value fromthe 8th defendant by virtue of Bill of Sale P 2. The 1st and 2nd de-fendants have not proved (1), (2) and (3). The plaintiff’s attorneyhas proved that the plaintiff bought the schooner for Rs. 1,000, that isto say the same price that was paid for it in 1925. The transfer wasnot secret being registered (vide P 6). The plaintiff’s attorney stated inevidence that the plaintiff was in possession after his purchase and usedthe schooner to carry cargo to and fro and that the 3rd defendant at thetime of the seizure of the schooner was the tindal in charge. Subse-quently and before the date of the seizure the 7th defendant was thetindal. I do not think it can be said to be established that the 3rd•defendant remained in possession. Moreover it was the 5th defendantwho transferred the schooner and not the 3rd defendant. It has notbeen proved that the 3rd and 4th defendants were left without anyproperty when the schooner was transferred to the sixth defendant in1928. At his examination on October 19, 1943, the 3rd defendantstated he and his wife had alienated no property in the last 10 years.This evidence does not prove what property he had in 1928 when P 5was executed. Moreover, it was not these defendants who gave the bill■of sale, but the 5th defendant. The learned Judge has found that theplaintiff has himself assisted defendants 7 and 8 in furtherance of the•scheme to defraud 1st and 2nd defendants and therefore the fact thathe gave consideration does not afford him a complete defence. Theonly evidence to prove that the plaintiff had participated in the fraudwas the fact that he took a bill of sale from the 8th defendant. In view•of the fact that he gave consideration I am of opinion that although thetransactions being made for the most part by persons who were relatedto each other may give rise to suspicion, fraud has not been established-against the plaintiff. In this connection it must be borne m mind thatthe latter according to the 2nd defendant was not a relation. 1
1 am also of opinion that even if fraud had been established the claim•of the 1st and 2nd defendants was prescribed. Since the decision in
1 3 Leader L. R. 11
HOWARD C.J.—Coomaraneamy and Vtnayagamoerthy.
251
DodtoeU A Co. v. E. John & Co. The Trusts Ordinance (Cap. 72) has comeinto operation. Section 2 of this Ordinance is worded as followB:—
“ All matters with reference to any trust, or with reference to anyobligation in the nature of a trust arising or resulting by the implication;or construction of law, for which no specific provision is made in this,or any other Ordinance, shall be determined by the principles ofequity for the time being in force in the High Court of Justice in.England.”
The 1st and 2nd defendants base their claim on the ground that the billsof sale being induced by fraud an obligation in the nature of a trust wascreated arising by implication or construction of law and the person who-has obtained the property or persons claiming from him as volunteers mustHold it on trust for the person defrauded. Section 111 of the TrustsOrdinance deals with the law of prescription in relation to trusts and itexcludes from the operation of the Prescription Ordinance certain classesof cases. This case does not come within the ambit, of sub-section (1)nor in my opinion for the reasons given by Jayawardene A.J. in hisjudgment in Punchi Hamine v. Ukku Menika 1 can the plaintiff be said to.be holding the property under a constructive trust which by the law ofEngland is treated as an express trust. The plaintiff is therefore entitledto rely on the Prescription Ordinance. The 1st defendant was a de-fendant in the action taken by F. H. Perera in the Distriot Court ofKalutara on May 5, 1927. On October 28, 1929, the claim of the 6thdefendant was upheld, Bill of Sale P 5 in his favour by the 5th defendanthaving been produced in Court. The 1st defendant, therefore, hadnotice of P 5 from October 28, 1929. In her evidence the 2nd defendantstated that there was seizure of the schooner and that after such seizureshe came to know of the transfer P 5 from the 1st defendant. The cause-of action arose when the fradulent transfer was made on August 11, 1928.The 1st and 2nd defendants had knowledge of this fraud on or aboutOctober 28, 1929. Their claim was therefore barred in three years fromthis date—vide Fernando v. Peiris 2 and Muttidh Chetty v. MohamoodHadjiar
It has also been contended by Counsel for the 1st and 2nd defendantsthat even if the allegations of fraud on the part of the plaintiff have notbeen established, the plaintiff did not become the owner of the vessel byvirtue of P 2 because the title of the 8th defendant was derived from the5th defendant who fraudulently and in breach of trust transferred the-schooner to the 6th defendant in 1928. The 5th defendant being onlya trustee for the 3rd and 4th defendants could not transfer the beneficialinterest in the schooner ,snd hence the 6th defendant, 7th defendant,8th defendant and the plaintiff in turn held the schooner in trust for the3rd and 4th defendants. In Dodwell & Co. -o. E. John & Co* Ennis J.applied the equitable principle laid down by the English Courts withoutqualification, and Pereira J. said “ This Court has often pointed out that
» 28 N. L. B. at p. 97.* 33 N. L. B. 1.
25 N. L. B. 185. ■
20 N. L. B. 206.
SS9HOWARD C.J.—Coomaratwamy and Vinayagamoorthy.
iour Courts (in Ceylon) are Courts of Law and Equity, and it wouldbe quite in order to give here the same relief as given in England in casesof fraud The judgment of Lord Haldane when DodweU & Co. v.E. John & Co. came in appeal to the Privy Council (1918) A. C. 563 showedthat the Privy Council upheld the applicability of the equitable principlereferred to in the judgment of Pereira J. but held that the matter wassubject to the Prescription Ordinance of Ceylon. The limitations on theright of a beneficiary to follow trust property with which the trusteehas parted in breach of trust is referred to by James L.J. in Pilcher v.Rawlins (1872) 7 Chancery Appeals at pages 268-269 in the followingpassage : —
“I propose simply to apply myself to the case of a purchaser forvaluable consideration, without notice, obtaining, upon the occasion ofhis purchase, and by means of his purchase deed, some legal estate,some legal right, some legal advantage; and, according to my viewof the established law of this Court, such a purihaser’s plea of a purchasefor valuable consideration without notice is an absolute, unqualified,unanswerable defence, and an unanswerable plea to the jurisdictionof this Court. Such a purchaser, when he has once put in that plea,may be interrogated and tested to any extent as to the valuableconsideration which he has given in order to show the bona fides ormalafides of his purchase, and also the presence or the absence ofnotice ; but when once he has gone through that ordeal, and hassatisfied the terms of the plea of purchase for valuable considerationwithout notice, then, according to my judgment, this Court has nojurisdiction whatever to do anything more than to let him depart inpossession of that legal estate, that legal right, that legal advantagewhich he has obtained, whatever it may be. In such a case a purchaseris entitled to hold that which without breach of duty, he has hadconveyed to him.”
In the present case the 5th defendant was a trustee of the schooner andin breach of trust transferred it to the 6th defendant in 1928. Theplaintiff who by a series of transactions has become the recipient of the■ schooner will be bound by the trust unless he can show (1) that he hasobtained the legal title, (2) that he was a bona fide purchaser for valuableconsidertion, and (3) that he received no notice that the transaction wasa breach of trust before the transfer was complete. In my opinion theplaintiff has obtained the legal estate. By virtue of rule 1 of section 19of the Sale of Goods Ordinance the property in the schooner passed to theplaintiff when the Bill of Sale P 2 was executed. Moreover their is evi-dence that the plaintiff took possession. The plaintiff has thereforesatisfied (1).(2) has also been satisfied. With regard to (3), it is true
that the plaintiff failed to give evidence at the trial. It was, however,held in Joseph v. Lyons 1 that corporal chattels are outside the realm ofconstructive notice. In his judgment Lindley L.J. said that as the plain-tiff claimed the goods in order to succeed, either he must have a legal title,or if he had only an equitable title he must show that the defendant had
1 15 Q. B. D. 280.
HOWARD C.J.—CeomaranBamjr and Vinayagamoorthy.
1259
notice of that title. The judgment of Cotton L.J. was to the same effect.as will be seen from the following passage at page 286: —
“ Then reliance was placed upon a contract that the after-acquiredproperty should belong to the plaintiff: it was the rule at common lawthat the property in future-acquired goods should not pass, except,perhaps, where there was a contract that the property in them shouldpass: that rule still remains in force; and it follows that the legaltitle remains fis it stood at law; only an interest in equity passed to theplaintiff. Then the defendant had the legal title: he had no notice ofthe equitable title existing in the plaintiff: at least nothing has beenproved showing that he had notice: here the defendant was a pawn-broker, and he was not bound to search the register of bills of sale:he was not bound to inquire as to goods pledged with him in the courseof his business. Of course, if he had been informed of the existence. of the bill of sale, he would have been bound to search the'register inorder to inform himself of its contents; but I think that the doctrineas. to constructive notice has gone too far, and I shall not extend it.
.Again in Lord Strathcona Steamship Company v. Dominion. Coal Co. 1'the following dictum from the judgment of Knight Bruce L.J, inDe Mattos v. Gibson 2 was cited with approval at page 117 in the judgmentof Lord Shaw: —
“ Reason and justice seem to prescribe that, at least as a generalrule, where a man, by gift or purchase, acquires property from another,with knowledge of a previous contract, lawfully and for valuable con-sideration made by him with a third person, to use and employ theproperty for a particular purpose in a specified manner, the acquirer-shall not to the material damage of the third person, in opposition tothe contract and inconsistently with it, use and employ the propertyin a manner not allowable to “the giver or seller.”
in the present case neither the 1st and 2nd defendants nor the 3rd and 4th-defendants have the legal title in the schooner. The 1st and 2nd de-fendants must prove that the plaintiff when he purchased by P 2 hadnotice of the 3rd and 4th defendants’ equitable title. This they havemot done and in the circumstances I am of opinion that the plaintiff,as expressed by James L.J. in Pilcher v. Rawlins, is entitled to depart inpossession of the legal estate.
For the reasons I have given the judgment of the District Judge is.-set aside and judgment must be entered for the plaintiff as claimedtogether with costs in this Court and the Court below.
JLeunkman J.—I agree.
Appeal allowed.
(1926) A. C. 10!.
* ID*Q. A J. 276.