HEW LAW REPORTS OF CEYLONVOLUME XXXIII.1931Pretent: Maodonell C.J. and Garvin S.P.J.FERNANDO v. PEIRIS.
241—D. C. Colombo, 33,512.
Pat*(fa» action—Action by assignee to set aside deed by insolvent—Fraud ofcreditors—Prescription—Concealed fraud—Cause of action—Ordinance No. 7 of 1868,s, 61.
Whereanassignee of aninsolventsuedthe defendanttoset aside
a conveyanceoflandmade by the insolventto thedefendant on the
giound thatitwasa voluntary conveyance^withinthe meaning of
section 51 of the InsolvencyOrdinance oralternately thatitwas made
in fraud of creditors—
Held,that there must be' proof thatthe transferormade himself
insolventbydepriving himselfof theassets conveyed bytheimpngned
Per Garvin J.—A Paulian action is prescribed in three years fromthe cause of action.
In such a case the cause of action is the alienation which, it is sought to impeach,as being in fraud of creditors.
In a case of concealed . fraud, the cause of action arises when – the fraudcomes to the knowledge of the party impugning the deed.
RES was an action instituted by the assignee of an insolvent estate
to set aside two conveyances of land made by the insolvent on theground that. they were voluntary conveyances within section 51 of theInsolvency Ordinance or alternately that they were made in fraud ofcreditors. The learned District Judge dismissed the action on theground that consideration passed for the conveyances.
Hayley, K.G. (with him M. G. Abeywardena), for plaintiff, appellant.—contended on the facts that the finding of the District Judge 'that therewas no evidence of fraud was not justified.
F. Perero (with him B. St. L. P. Demniyagala), for defendant,respondent.—After dealing with the question of fact-^
It is further submitted that this action is prescribed. A Paulianaction falls under section 11 of the Prescription Ordinance, No.- 22 of 1871.It cannot be said that here there was concealed fraud. The mere
IJ. N. A 99910 (8/50)
MACDONELL C'.J.—Fernando c. Peirit
perpetration of a fraud which gives rise to n cause of action is not sufficient,even though that fraud is unknown to the person injured. There mustbe a further and distinct act of concealment (Dodwell & Co. v. .John').
From the facts in this case it is clear, that plaintiff was aware of thetransfer sought to be set aside more than three years before the plaint•was filed.
This action is not maintainable. The assignee's rights are limitedto those possessed by the insolvent and vested in the assignee on hisappointment, and. those conferred on an assignee by our InsolvencyOrdinance. It is clear law that our Insolvency Ordinance is exhaustiveof the law applicable to insolvencies. There is no provision in "theOrdinance for an action such as this,
Hayley, K.C., in reply.—The argument that to constitute concealedfraud a fresh and distinct act is necessary after the fraud was dealt withby Jayewardene J. in Punchi Hamine v. Ukku Monika.2
The cause of action arises when it becomes clear that the effect of thedeed will be to. defraud creditors.
July 17, 1931. Macdonell C.J.—
In this case the plaintiff As assignee of the insolvent Peter Ouneratnesues to set aside certain two conveyances of land made by that insolventto the defendant on the ground that they were voluntary conveyancesby an insolvent within section 51 of the Insolvency Ordinance, 1853,alternatively that they were made in fraud of creditors and liable on theprinciples of a Paulian action to be set aside; see also section .7 ofOrdinance No. 17 of 1853. The learned District -Judge dismissed the actionholding that adequate consideration had passed for the land conveyedand that there was no evidence of fraud. From tj*dt decree plaintiffappeals.
The facts are complicated^1 but'the following outline may serve to makeclear the relation between^ the parties and the points at issue. Theinsolvent, being possessed-Jof several landed properties in the Island,had by March, 1921, grabbed mortgages over a considerable number ofthem for a total sum of 1^4. 220,000. He had also agreed to hand overcertain of the produce of olher properties, that is, of portions of an estatecalled Lizziedale, to one of these mortgagees, a business firm in Colombo,to be sold on certain terms in reduction of their mortgage debt. Theinsolvent’s position by March, 1921, was that he had mortgaged all hisproperties of -any size, save the Lizziedale estate, in extent some 214acres. On September 3, 1921, he mortgaged Lizziedale estate of thisextent to Mr. vander Poorten and certain others for Rs. 100,000, subjectto the right of the firm above mentioned to take certain of the produce.The insolvent says he received very little of this Rs. 100,000, as nearlyall of it went to pay certain Chetty creditors who were pressing him.At any rate by September, 1921, the insolvent had mortgaged nearlyall the landed property he possessed. On September 15, 1921, theinsolvent by deed 944 conveyed to the defendant for the sum of Rs. 5,000some 238 acres, all or nearly all of which had been already mortgaged aconsiderable while before this; this conveyance was duly registered,1 20 N. L. R. 206.* 28 N. h. R. 97, at p. 108,
MAGDOXELIi C.-J.—Fernanda ©. Petris.
and fa the first of the two that the plaintiff in this action seeks to setaside. There is evidence, which the learned District Judge accepts,that the consideration Bs.5,000 waspaid.OnOctober 6, 1921, the
insolvent made a notarialagreementwiththedefendant giving the
former, or if he were dead his wife, the right within five yearsto repurchase for Bs. 5,000 .the properties conveyed by the deedof September 15. Thisdeed No.445wasnot registered until
some time after insolventhad gonebankrupt.At this time, 1921.
the insolvent was confessedly in embarrassed circumstances, thoughhe affirms that he was solvent. In 1922 certain money decrees wereobtained against him, and under one of t^ese the judgment creditor,a Ohefcty, sold Lizziedale, which it will be remembered had been mortgagedto Mr. vander Poorten and others the previous September. On Sept-ember 18, 1922, Mr. vander Poorten and his fellow-mortgagees broughtan action against the insolvent on their mortgage bond. While thismortgage action was pending, the insolvent on October 29, 1922, con-veyed by deed No. 140 to the defendant for Bs. 3,000 two more of hisalready mortgaged properties in extent some 358 acres; this conveyancealso was duly registered and is the second of th6 two that plaintiff seeksto set aside. If I apprehend the matter coirectly, there was onlyevidence of a small part of this Bs. 3,000 having passed. Next day,October 30, 1922, Mr. vander Poorten and his fellow-mortgagees obtainedtheir decree, and in May, 1923, he bought in Lizziedale under the mortgagedecree for Bs. 76,000. On September 27, 1923, the insolvent declaredhimself unable to pay his creditors, and his'estate was sequestrated onOctober 9.
The insolvent had had a business known as Peterson & Co., which hehad sold in 1920 to one Perera. who in turn sold it either in 1921 or 1922to the defendant. The date when it was sold to defendant is the lessmaterial because, whoever nominally owned the business, the insolventcontinued to manage it down to his insolvency and later. As managingthat business, he also managed the estates that he had conveyed todefendant in September. 1921. and October, 1922. The produce of someof them had to go to the mortgagee firm mentioned above which, afterdeducting its mortgage interests and certain commission, had to return' thebalance. It did so, to the insolvent, and the evidence is strongly to theeffect that it had no notion that insolvent's position with regard to theseproperties had changed, that not he any longer but defendant was theowner. The defendant took no part in the Management of the propertieshe Hod acquired under deeds 944 and 140—there is a very naif letterfrom him disclaiming ability to manage them—and for all the outsideworld knew, the insolvent was exactly in the same relation to theseproperties after conveyance to the defendant as he "had been before.This condition of things, taken with the deed 445 giving insolvent theright to repurchase the properties conveyed on deed 944 and the smallamount of the consideration for the sale of each lot of properties, makesboth and each of the transactions suspicious in the highest degree.
If one came to the conclusion on the Evidence, which being mainlydocumentary is nearly as much open to this <2ourt as it was to the learnedtrial Judge, that it had been proved that Ajke insolvent, the grantor ofdeeds' 944 and 140, was insolvent at the tmle when he made either the
MACDO.XELIj C..T.—Fernando v. Pei fit.
one or the other of them, then it would be necessary to analyze thatevidence at greater length. But I am not satisfied that this has beenproved in either case. To prove this should not have been difficult.It is known what landed properties the insolvent possessed when heexecuted deed 944 and again when he executed deed 140, and the in-cumbrances thereon, and it was not suggested, here or below, that theinsolvent had any other assets of appreciable value. It should not havebeen impossible for the plaintiff to have produced a witness whosebusiness it was to deal in properties of this description in the years 1921and 1922 and who could say from what he had done in those years, theproperties he had bought and sold or been agent or broker for the purchaseand sale of, that such and such was the value of land of that characterin that district during each of 'those years. Deducting the mortgageamounts, the Court would then have had clear evidence before it of thevalue of the insolvent’s assets in either of those years and at the datesin those years when the conveyances impugned were executed. But theinsolvent also owed monies to unsecured creditors who duly provedin hi3 insolvency and a list of these creditors with the amount owing toeach was before the Court. Unfortunately there was no evidence of thedate. when each of these debts was incurred and the insolvent, givingevidence in this case, was astute enough to minimize the portion ofthem owing at the crucial dates, namely, September 15, 1921, when heexecuted deed 944, and October 29, 1922, when he executed deed 140,and no evidence was before the Court adequately to contradict him. Hewas cross-examined rigorously on these statements and his evidencebadly shaken. Still, it seems to me impossible to conclude. with anycertainty from his admissions what precisely was bis position as regardshis solvency or the reverse on either of the crucial dates. Yet this wasof the very essence of the plaintiff’s case, to show affirmatively the factof insolvency at the time of one or both of the transfers, for short ofshowing this he could not succeed. The fact, if it were one, could surelyhave been shown, and without much difficulty. If the proctors forthe plaintiff had sent a competent clerk to inspect the proofs filedby the unsecured creditors and to prepare from them a statement-showing how much the insolvent owed to unsecured creditors on eachof the two crucial dates, then it would have been possible to say definitelywhat his position was. Put in concrete terms:—The evidence of thesupposed witness whose business it was to deal in properties of thatnature in the years 1921 and 1922 would have enabled the Court toconclude that the insolvent’s assets were worth, at either of the crucialdates, Bupees X and that they were mortgaged for Rupees Y. then thevalue of the insolvent’s assets on either of the crucial dates would havebeen Bupees X minus Y. The evidence of the clerk who had gonethrough the schedule of unsecured debts with the date when each wasincurred, would have enabled the Court to conclude that on either ofthe crucial dates the insolvent owed unsecured debts to the value ofBupees Z. If Z was a larger amount than X minus Y, then the insolventwould have been in an insolvent position on that date; if it was a smalleramount, then he would not. It could thus have been seen in a momentwhether he made himself insolvent on September 15, 1921, by deprivinghimself of the assets conveyed by deed 944. and whether he did the same
GARVINFernando v. Petris.
thing on October *29, 1922, by depriving himself of the assets conveyedby deed 140, But wanting this evidence, or evidence to a like effect,I do not find it possible to say that either of these deeds was a voluntaryconveyance within section 51 or that it was executed in fraud of creditors.I therefore come to the some conclusion as the learned trial Judge andalso on the facts, but the reasoning on them by which he concludes thatthe plaintiff—here appellant—must fail does not convince me. and Imust not be understood as associating myself with that reasoning inany way. *
Being of opinion that this appeal can be determined on the facts, anypronouncement on the various important points of'law raised and mostably argued before us, inter alia, the precise scope of a Paulian actionat the present day, as contrasted with its scope as defined by Voet andother authorities on Roman-Dutch law, the question of whether it isavailable under our Insolvency Statute to an assignee in insolvency,as also the date when it accrues' and from which prescription beginsto run, would be obiter. But the points raised before us may well needa considered judgment of the full Court some day for their satisfactorydecision.
For the foregoing reasons I am of opinion that this appeal must bedismissed with costs.
This is an appeal by a plaintiff whose action was dismissed by thelearned District Judge. The purpose of the action was to obtain a decreesetting aside two deeds by which one Peter Guneratne conveyed to thedefendant the various allotments of land specified therein. The trans-action was impeached—
as being an alienation in fraud of creditors;
(&)as a fraudulent conveyance within the meaning of section 7 of theInsolvency Ordinance, No. 17 of 1853;
as a voluntary settlement and as such obnoxious to section 51of the said Ordinance.
At the hearing of the appeal the case was presented as a proceeding toset aside these deeds as alienations in fraud of creditors.
The action was instituted on July 4, 1929, and the impeached deedsare (1) No. 944 dated September 15, 1921, attested by B. 0. Pullen&yagam,Notary Public, and (2) No. 140 dated October 29. 1922, attested by N.Ramachandra, Notary Public. The transferor Peter Guneratne wasadjudicated insolvent on September 27. 1923. The plaintiff is hisassignee in insolvency and was so appointed in January, 1924. The•evidence did not satisfy the learned District Judge that these deeds wereexecuted by Peter Guneratne when he was in insolvent circumstances orthat they were executed with intent to defraud his creditors and heaccordingly dismissed the plaintiff's action. He did not, however,make any reference to two points submitted as matters of defence—first, that the action was barred by lapse of time, and secondly, that theaction is not one which is maintainable by an assignee in insolvency.
The case of an action to set aside an alienation as being in fraud ofcreditors is not specially provided for in Ordinance No. 22 of 1871; it
OARVIX S.P.J.—Fernando v. Peiris.
therefore falls within the general section 11 and is barred in 3 years fromthe date when the cause of action arises. When does the cause of actionarise? It' was urged that in such n case the cause of action arises at thedate when the alienation which it is sought to impeach was made orwhen it came to the knowledge of the creditor that his debtor hadexecuted the deed by which he made the alienation which it is sought toimpeach. There appears to be but one case in which this question wasconsidered (Podisingho Appuhamy v. Lokusingho et al.1) where a bench oftwo Judges held that the cause of action in such a case arises “ when itbecomes clear that the effect of the' deed will be to defraud creditors. ”
Bonset C.'J. who delivered the judgment of the Court relies on Voet,XLI1. 6', 13 :—
“ These two actions—the Paulian and recissory actions—have manypoints of resemblnnee …. the first is that they are bothpraetorian and should be instituted within a year from the time theright of action first arises; the year to be reckoned not from the time,of effecting the alienation but of the sale of the whole estate; as it isthen that the right of action first arises; for, before that, it cannot beascertained whether the creditors cannot be satisfied out of the rest ofthe property which has remained in the patrimony of the insolvent andthus whether or not creditors have been defrauded by the alienation.”
In basing himself on this passage, that learned Judge has taken nonote of the change which has taken place in the character of the actionus it obtains to-day, as compared with the Actio pauliana of the time atwhich Voet wrote and out of which it has grown. The Actio paulianato which Voet refers is a cumulative action given to the creditors to whoseprejudice things have been fraudulently alienated and to a curatorappointed to the estate, !ind is only available after missio in possessionem—that is after the creditors have entered into possession of their debtor’sestate.
The law relating to mimic in possessionem is now obsolete. TheActio pauliana, as it obtains in Ceylon, has ceased to be a cumulative-action and may be instituted without any obligation to await the adjudi-cation of the debtor or even a declaration by him of insolvency; nor isthere any obligation to wait till after the remainder of the property ofthe debtor has been exhausted by execution. In short, its only resem-blance to the Actio pauliana out of which it has grown is in the factaprobanda which remains the same, viz., that the alienation impeachedwas intended to defeat the claim of creditors, that it left the alienorwithout sufficient property to meet the claims of his creditors, and thate. creditor had been prevented by the alienation from recovering what wasdue. Whenever a creditor is in a position to establish these facts anaction may successfully be maintained and is, in fact, most frequentlymet with where a creditor who has obtained a judgment and in executionseizes property as that of a debtor, is opposed by a persou who claimsthe property by virtue of a conveyance from the debtor.
If the rule in Voet. XLII. 8, 13 is the correct test of when the cause ofaction arises, then many, if not most, of the Paulian actions prosecutedin these Courts must have been instituted and entertained before the
GABVIN S.P..T.—Fernando c. Priris.7
cause of action arose for the basis upon which such actions proceed isthat .the act of the debtor by which an alienation of property in fraud ofcreditors is effected gives a creditor a cause of action to have the alienationset aside. The practice is in accordance with the ordinary rule that acause of action arises at the date when the wrong was committed inrespect of which the remedy is sought and it is no longer possible todetermine the time at which the cause of action arise® bv a rule which hasuo relation to and is inappropriate to .the changes which the action hasundergone. In the case of a Paulian action as it obtains to-day, the wrongis ihe alienation which it is sought to impeach as a fraud upon creditors,and this action which was instituted on July 4, 1929, to have the alienationsmade ir September 15, 1921, and October 29, 1922, respectively, wouldlie. barred by section 11 of Ordinance No. 22 of 1871. It was urged that thisaction being based on fraud was not affected by the Prescription Ordinanceso long as the plaintiff remained in ignorance of the fraud. Now the. lawon the point with special reference to Ceylon is stated by Lord Haldanein Dodw.ell <C Go., Ltd. v. John et alA thus: —
'■ In the present case there is a statute of limitation, and in order toescape from its application it is necessary to show that there is a subse-quent and independent cause of action, which arises from the concealmentof .the fraud. Such a separate cause of action arises, as their Lordshipshave already said, only out of the conduct of a person who is held to havebeen responsible for the fraud, and has in breach of his duty concealed it.”
By this test the plaintiff’s action is barred unless he can show thatsuch a fresh cause of action accrued to him subsequently and within threeyears of the date of institution of this action.
The defence that the plaintiff’s action was barred was expressly takenin the answer, but neither in the plaint nor in any further pleading hasthe plaintiff pleaded concealed fraud or stated when he discovered thatthe alienation alleged to be fraudulent was made or that be had noreasonable means of discovering it earlier. Moreover, the evidenceestablishes a series of facts of which the plaintiff had knowledge fromwhich it may be inferred that the ” discovery ” by him of the fraud,if any, took place at a.date over three years from the date of action.
The Mercantile Bank who held a mortgage over the land conveyedto the defendant instituted an action joining as defendants, the mortgagor,his assignee in insolvency, the present plaintiff, and the present defendantas the then owner ,of the premises subject to the mortgage. The twodeeds which it is now sought to impeach are expressly referred to in theplaint and the various allotments of land' described fully in the schedule.Judgment was entered of consent and the present plaintiff signed theminute of consent in person on February 3, 1925. He, therefore, hadthe fullest knowledge of the fact that the present defendant .held, &conveyance from Peter Gunaratne who had been declared insolventand whose assignee he was. He had been told of this previously by theinsolvent, and he was present, during the examination of the insolvent onApril 30, 1925', and June 4, 1925, when the insolvent spoke at length ofthe sale of these lands, the mortgages to which they were subject andthe consideration paid.
(1918) 20 N. L. R. 206.
Ahamat t>. 8ariffa Umma.
He was again present with his proctor at the Certificate Meeting onDecember 15, 1925, when a creditor, Mr. vander Poor ten, opposed thegrant of a certificate to the insolvent on the ground that the transfers infavour of the defendants were in fraud of creditors, and when evidencewas given to establish this ground of opposition. Therefore by the endof 1925 the present plaintiff knew that Peter Guneratne was insolventand that his remaining assets were utterly insufficient to pay the creditorsmore than a small fraction of the debts due to them; he knew that in1921 and 1922 the insolvent had conveyed valuable landed propertyto the present defendant for what on the face of the deeds appeared to beinsufficient consideration he knew also that a creditor opposed the grantof a -certificate to the insolvent on the ground that these alienationswere fraudulent and led evidence to show that the lands, even whenallowance was made for the mortgages with which they were burdened,were worth more than was paid in consideration. In this state of hisknowlege of the transactions which he now seeks to impeach he cannotbe heard to say that the fraud, if any, was concealed from him and thathe only “ discovered ” it at some date subsequent thereto. Even if itbe assumed that the plea of concealed fraud is available in the case of anaction to set aside a deed as being an alienation in fraud of creditors and thatthis is a case of concealed fraud, the evidence shows that by the end of theyear 1925 the plaintiff had knowledge of the alienation and of such facts andcircumstances as gave him the means of discovering the fraud, if any.
Since I am clearly of the opinion that this action is barred by timeit is hardly necessary to consider whether the action is one which it iscompetent for the assignee in insolvency to maintain; nor is it- necessaryto consider whether the learned District Judge was wrong in holdingthat the plaintiff has failed to establish a case for the relief he claims.It is sufficient to say that, although I cannot feel the same measure ofconfidence in the testimony of Peter Guneratne, I agree with the District-Judge that the plaintiff has failed to show that this conveyance wasmade at a time when Peter Guneratne was in insolvent- circumstancesand with intent to defraud his creditors..
The appeal is accordingly dismissed with costs.