Sri Lanka Law Reports (1978-79) 2 S. L. R.
Fonseka and Another v. Anthony Appuhamy
COURT OP APPEAL.
SOZA, J. AND FANASTNGHE. J.
C. A. (S.C.) 47/71 (F)—D.C. NEGOMBO 1421/lDECEMBER 6, 1978.
Contract-Mode of payment—Tender by cheque—Deed of transfer soughtto be set aside for failure of consideration—Whether payment by chequevalid.
The respondent executed deed of transfer in favour of the appellants inrespect of immovable property and the present action was brought byhim to set aside the said deed of transfer on the ground of failure ofconsideration. Part of the consideration for this deed was to have beenfurnished by the State Mortgage Bank, to which the appellants hadapplied for a loan. When the Bank wrote to the respondent forwardinga cheque in respect of the sum due from the Bank with a covering letter
Fonseka v. Appuhamy
(D5) for the respondent’s acceptance and confirmation “that the fullamount due ” had been paid, the respondent returned the cheque throughhis lawyer informing the Bank that he had filed action in the DistrictCourt of Negombo for rectification of this deed. Subsequently theBank wrote that it was no longer prepared to lend this sum of money orany amount to the appellants and the sum remained unpaid. Thequestion then was as to whether there had been such payment as thelaw would recognize, of the agreed consideration so as to conclude thecontract of sale contemplated in this deed.
As a general rule payment means payment by money which is legaltender in Sri Lanka and a creditor cannot be compelled to accept paymentby cheque. Yet payment by cheque in a particular mode may expresslyor impliedly be authorised by the contract or a creditor may waive hisright to insist on legal tender as in a case where he agrees to receivepayment by cheque or receives payment by cheque without objection.In such event there will be absolute satisfaction of the original deed andthe creditor’s right of action on the deed will be extinguished, he beingleft with no remedy except upon the cheque. It is a question of factwhether the cheque has been so accepted as absolute payment or not.
In this case the respondent had agreed to receive payment by chequeissued by the State Mortgage Bank which cheque was to be deliverednot at the execution of the deed but only when the time was ripe forissue accordingly to the Bank rules. The Bank duly forwarded thecheque as agreed but the respondent returned it stating that he wastaking action to rectify the deed of transfer, although he was under noobligation to so return the cheque. The State Mortgage Bank was theagent of the appellants in the matter of payment and if the considerationwas thwarted, it was the result of the respondent’s own action in doingwhat he was legally not bound to do. In the eyes of the law thereforethere was payment and the respondent’s action must fail.
Cases referred to
Cubitt v. Gamble, (1919) 35 T.L.R. 223.
Norman v. Ricketts. (1836) 3 T.L.R. 182.
Warwicke v. Noakes, (1791) Peake 98.
Smith v. Fenand, (1827) 7 B. & C. 29 ; 9 Dow. & Ry. K.B. 803.
Seneviratne v. Tisseverasinghe, (1956) 57 N.L.R. 557.
Caldera v. Perera, (1965) 68 N.L.R. 375.
Schneider and London v. Chapman, (1917) T.P.D. 497.
Thangadorai Nadar v■ Esmailjee, (1954) 56 N.L.R. 343.
Subbiahpillai v. Sheriff & Co., Ltd., (1955) 56 N.L.R. 553-
A/S Tankexpress v. Compagnie Financiere Beige Des Petroles S.A.,(1948) 2 All E.R. 939; (1949) A.C. 76.
Palaniappa Chetty v. Saminathan Chetty, (1912) 15 N.L.R. 161;
affd. P.C. (1915) 17 N.L.R. 56.
Cohen v. Hale, (1878) 3 Q.B.D. 371; 39 L.T. 35; 47 L.J.Q.B. 496.
Caine v. Coultes, (1863) 1 H & C 764.
Palmer v. Rhodes, (1888) 5 H.C.G. 61.
Thairwall v. The Great Northern Railway Company, (1910) 2 K.B509.
Startup v■ Macdonald, (1843) 6 Man. & G. 593; 12 L.J. (Ex.) 477 ;
1 L.T. (O.S.) 172.
APPEAL from the District Court, Negombo.
C. Ranganathan, Q.C., with Apt Tillekewardane, tor the defendant-appellant.
A. C. Gooneratne, Q-C., with Tilak Gooneratne and Mrs. S. Jayalalh, forthe j; iainl iff-respondent.
Cur. adv. vult
276Sri Lanka Law Reports (1978-79) 2 S.L.R.
January 19, 1979.
The two defendant-appellants in this case who are husband andwife (and will hereafter be referred to as appellants) became in1946 the owners of the land called Talgahawela and Talgahawattebearing assessment No. 1 San Nicholativu Road and situated atMunnakare within the Municipal limits of Negombo—see particu-lars given in D 13. This land was in extent 3A. OR 6.75P. andaccording to plan No. 2221 dated 4th February. 1946, made by
G. S- Gunaratrie, Licensed Surveyor, was bounded as follows ;
East: Crown land,
South : T. P. Nos. 138780 and 182690,
West: Crown lanu, T. P. No. 132342 and road.
This plan has been produced marked D 30. At the time the planD 30 was prepared there had been no buildings on the land but aroad is shown as dividing it into an eastern portion and a westernportion—the eastern portion made up of two parcels of land,one in extent 0A. 3R. 5P. depicted in T.P. No. 182689 and theother in extent 0A. 2K. 29.75P. depicted in T.P. No. 182686.and the western portion an extent of 1A. 2R. 12P. depicted inT.P. No. 182688.
About the year 1950 the plaintiff-respondent (hereafterreferred to as the respondent) took on rent from the secondappellant bare land depicted in plan D 30 and put up buildingson the eastern portion for the purpose of carrying on a timberbusiness there. The premises with the buildings were givenassessment numbers 1, 3/1, 3 and 5, San Nicholativu Road. By1958 however differences appear to have cropped up between theparties and on 6th November, 1958, the 2nd appellant filed plaintP4 («) in case No. 49761 of the Court of Requests of Negombo tohave the respondent ejected. The respondent in his answerP4 (b) filed on 7.1.1959 though not foregoing his right to compensa-tion for the buildings erected by him, claimed a contract of tenancyin respect of the land and buildings under the 2nd appellant. Thiswas a piece of tightrope walking by the respondent who warnedthe privileges of the rent laws while not relinquishing his claimsto buildings. At the trial the respondent abandoned the issuesrelating to compensation and pursued only those relating to hisclaim to be a tenant of the buildings under the 2nd appellant—seethe issues dated 11.3.1959 marked D27 and the answers to themmarked D28. The Court holding that the respondent was thetenant of buildings and premises bearing assessment Nos. 1, l/l(apparently a mistake for 3/1), 3 and 5 and not in arrears of rent.
Fonseka v. Appuhamy (Soza, J.)
dismissed the action—see decree P4(c) of 246.1959. The 2ndappellant lodged an appeal to the Supreme Court. Thereafter nodoubt under the inspiration of the appellants plaint was filedagainst the respondent on 12.10.1959 in case No. 10773 in theMagistrate’s Court of Negombo charging him with erectingunauthorised buildings (bearing assesments numbers 1, 3 and 5)on this land and the case ended with a plea acknowledging guiltby the respondent and seemingly with the demolition of thosebuildings—see D14, especially proceedings of 28.11.59. Therespondent however has denied all knowledge of theseproceedings. The buildings in question were in fact notdemolished for the Supreme Court as late as 28.3.1960 upheld thedecision of the Commissioner of Requests in case No. 49761 thatrespondent had a right, to occupy them as tenant of the 2ndappellant—see P-i(d). Further the appellants have beendescribed as their owners from 1954 to 1968 in the MunicipalRegisters—see D20 to D23. The 1st appellant paid the taxes dueon the premises in the years 1969 and 1970 —see D15 to D19. Theassessment No. 1 had been given for the garden, No. 3 for a G.I.timber shed, No. 3/1 for a eadjan tenement and land and No. 5 fora G.I. roofed boutique and land. Of these the buildings bearingassessment Nos. 3 and 5 were the most substantial. The extractsD9 to D12 of the Municipal Registers describe the appellants asthe owners of these premises in. 1963 and 1964.
Armed with his Supreme Court decree P4(d) the respondentapparently continued to remain in possession of the entirepremises as tenant under the second appellant.
The next move was by the respondent. On the 17th December,1963, the appellants by their deed No. 9754 attested by D. C. E. V.Karunaratne, Notary Public executed a conditional transfer ofthe premises describing them as depicted in plan D30 in favourof Madurawelage Don Felix Appuhamy alias Don Felix Madura-wela, a cousin of the respondent’s. The condition embodied inthis deed which has been marked D1 is that the transferee wouldtransfer back the premises to the appellants if they paid backthe consideration of Rs. 7,500 with interest thereon at 12% withinfour years of the date of the deed- On the same day, that is, on17th December, 1963, Felix Madurawela by deed No. 9755 markedD2 attested by the same Notary, parted with his rights to therespondent. This was obviously a ruse adopted by the respondentto secure a stranglehold on the land especially as the appellantswere hostile to him and would have no truck with him Butneither the respondent nor his cousin Felix Madurawela whoclearly was his catspaw in this transaction got the buildingsNos. 3 and 5 excluded from the subject matter of the conveyances
Sri Lanka Law Reports (1978-79) 2 S. L. R.
D1 and D2. When the apppellants realised that the respondenthad obtained the rights described in D2 and that time wasrunning out, they applied for relief to the Debt ConciliationBoard on 25.1.1965. There settlement D24 was arived at on 28.5.66by which the appellants were to pay up the respondent the fullsum of Rs. 7,500 with interest thereon at 8% from 17.12.1963 onor before 31.12.1966 whereupon the respondent would transferthe land back to the appellants. In the settlement it was notedthat the appellants had made an application to the State Mort-gage Bank for a loan of Rs. 9,500 wherewith they hoped to settlethe respondent. In this application to the State Mortgage Bankdated 25.1.1965 (marked D13 in the case) it must be observed thesecurity offered is the premises bearing assessment Nos. 1, 3, 3/1and 5 San Nicholativu Road, Negombo of an extent 3A. OR. 6.75P.In pursuance of the settlement D24 entered into before the DebtConciliation Board and the order marked D25 of the Board, theimpugned deed No. 888 marked X was drawn up and executedby (he respondent on 29.8.1966- This deed described the propertytransferred as follows :
“ All that allotment of land called Talgahawela andTalgahawatte with the buildings and everything thereonbearing assessment numbers 1, 3, 3/1 and 5 St. NicholativuRoad and Regina Road …. bounded on the North bySt, Nicholativu Road, East by Regina Road, South by landbearing T.P. 182690 and on the West by St. Nicholativu Roadand containing in extent one acre and sixteen decimal sixperches (1A. OR. 16.6) as depicted in survey plan No. 1297dated 10th October 1965 made by Michael D. Fernando,Licensed Surveyor”.
The plan of Surveyor Fernando referred to in this Schedule hasbeen marked in the case as D8. The extent of the land as shownin this plan D8 is 0A. 3R. 35P. after excluding lot X (on theNorih-West) and Lot Y (on the East) reserved for roads andbuilding lines. Inclusive of Lots X and Y the extent is 1A. OR.16.6P. The schedule of deed X goes on to describe the premisesfurther as a divided and defined portion of the land depicted inplan D30. The premises depicted in D8 were mortgaged by deedNo. 889 dated 29.8.66 (PI) to the State Mortgage Bank.
The attestation of the Notary Public to the deed X states theconsideration (Rs. 9,100) was not paid in his presence but thebody of the deed contains the usual declaration admitting andacknowledging receipt of the money. The attestation of theMortgage Bond PI in favour of the State Mortgage Bank statesthat the consideration (Rs. 9,500) was retained by the MortgageBank in accordance with the rules of the Bank to be paid to the
Fonseka v. Appuhamy (Soza, J.)279
vendor on deed X, that is, to the respondent, in full settlement ofthe consideration due on the deed X and the balance, if any, tothe mortgagors, that is, the appellants after the “effectualregistration ” of the deeds X, PI and the mortgagee’s address andproduction of the extended extracts of encumbrances- On theday the deeds were executed, that is, 29.8.1966 the respondentwrote letter D3 to the Manager of the State Mortgage Bankreferring to deed X and stating that by it he had transferred theland to the appellants for Rs. 9,100. In this letter he proceeded toinstruct the Bank as follows : —
“ A sum of Rs. 9,100 an account of the consideration on thisDeed of Transfer is still due to me from the applicants. Pleasepay the same to me when the loan becomes available forpayment under the rules of the Bank. I confirm that onpayment to me of this sum, I will have no further claim asrespects the consideration on this deed.
Please cross the cheque ‘ Payee’s Account only ’ ”.
On 29.8.1966 the appellants for their part wrote letter D29 to theState Mortgage Bank confirming the execution of deed X andauthorising the payment of the Rs. 9,100 to the respondent. On27th February, 1967, the State Mortgage. Bank wrote letter D5forwarding cheque for Rs. 9,100. (copy marked D4) for respon-dent’s acceptance and confirmation that “ the full amount due ”had been paid. The respondent through his lawyer by letter D7of 4.3.1967 wrote to the Bank saying he was returning the chequeas he had filed suit No. 1153/L in the District Court of Negombofor rectification of the deed X. By an omission however thecheque had not been enclosed with D7 and when the Bankbrought this to the respondent’s notice, his lawyer by letter D6of 21.4.1967 returned the cheque. The plaint filed in case No.1153/L has not been produced but from the answer D26 which theappellants filed in that case it appears that some contention wasraised in regard to buildings bearing assessment Nos. 3 and 5.Yet the decree P2 that was entered in the case is silent in regardto these buildings. It does not exclude them. On the contraryall the buildings are included and in any event would pass withthe soil. The rectification ordered merely brings the scheduleinto line with that given in both deed D1 and deed D2 and Icannot see what advantage this conferred on the respondent. Ifthe question of the buildings No. 3 and 5 was agitated in this caseand was not specifically dealt with in the decree so much theworse for the respondent. In fact I rather think that it is theappellants who should have sought such a rectification so as tobring the deed of re-transfer into line with the deeds D1 and D2and with the application D13 to the State Mortgage Bank. A
Sri Lanka Law Reports(1978- 79) 2 S.L.R.
comparison of the plan D8 (according to which the scheduleof deed X was prepared) with plan D30 (according to which theschedule in deeds D1 and D2 was drawn up) shows, especiallywhen regard is had to the title plan references, that the Scheduleas rectified included the land described in the Schedule of deedX. The land depicted in D8 is roughly the eastern portion of theland depicted in D30 conveyed on D1 and D2. Therefore theletter P3 written by the Manager of the State Mortgage Bank tothe Secretary of the District Court of Negombo on 12.10.1958 thatthe Bank cannot lend Rs. 9,500 to the appellants as the respondent“ has established his rights to the buildings bearing Nos. 3 and5” proceeds on a misapprehension of the facts. The mortgagebond PI was not cancelled and has been described in the evidenceof Mr- H. B. Kapuwatte, the Manager of the Bank as being inabeyance. The State Mortgage Bank was no longer prepared tolend the sum of Rs. 9,100 or any amount and the money due onthe deed X remains unpaid.
With so much notice of the facts I can now turn to the mainquestion in the case—should the deed X be set aside for failureof consideration ? Has there been payment such as the lawwould recognise of the agreed consideration so as to concludethe contract of sale contemplated in the deed X. As Wesselssays in his Law of Contract in South Africa, 2nd Ed. (1951) Vol 2pages 606 and 607, paragraph 2128 :
“ Payment is the prestation of that which forms the objectof the contract. The debtor is the person who undertakesthe prestation, and therefore he is the person who ought toperform the contract. He may promise either to give or todo something, or else to omit to do something, and he per-forms the contract by fulfilling his promise to his creditor.The debtor may specially appoint someone to make thepayment for him. ”
As a general rule payment means payment in money whichis legal tender in Sri Lanka, that is payment in rupees andcents in the legal currency of Sri Lanka—see The Monetary LawAct, No. 58 of 1949, s. 4 and s. 52. A creditor is entitled to insiston payment in cash as distinct from payment in any other form.
It is well settled, that, apart from express or implied agreementto that effect, he cannot be compelled to accept payment bycheque however good the drawer’s credit and Iwvever largehis bank balance. Yet payment by cheque in a particular modemay expressly or impliedly be authorised by the contract. Acreditor may waive his right to insist on legal tender as wherehe agrees to receive payment or requests payment by cheque(Cubitt v. Gamble (1), Norman v. Ricketts (2), Warwiche v.
Fonseka v. Appuhamy (Soza, J.)281
Noakes (3), Smith v. Fernand (4) and Seneviratne v. Tissevera-singhe (5) ) or receives payment by cheque without objection(Caldera v. Perera (6).) It may be shown that parties con-templated in their contract that payment should be made bycheque or that the course of dealing between the parties warrantspayment in this term—(Schneider and London v. Chapman (17),Thangadorai Nadar v. Esmailjee (8), Subbiapillai v.Sheriff & Co. Ltd. (9) and A/S Tankexpress v. CompagnieFinanciere Beige Des Petroles SA. (10) ). The creditor mayagree to receive payment by cheque and treat such payment asan absolute discharge of the debt. In such event there will beabsolute satisfaction of the original debt and the creditor’s rightof action on it will be extinguished. He will then be left withno remedy except upon the cheque. It is a question of factwhether the cheque was accepted as absolute payment or not—see Seneviratne v. Tisseverasinghe (supra), Smith v. Fernand(supra), Chitty on Contracts, 22nd ed. (1961), Vol. 1, page 477,paragraph 1077, Wessels (ibid), Vol. 2, page 622, paragraph 2228,and Weeramantry’s ‘The Law of Contracts’ (1967), Vol. 2, page665, paragraph 689. It is however more usual for the creditorto accept the cheque as a conditional discharge or without anyspecial agreement at all. In the latter case the law presumesthat the cheque was accepted as a conditional discharge. Wherea cheque has been accepted as a conditional discharge and it isdishonoured the creditor can sue upon the original cause ofaction (Wessels (ibid) page 622, paragraph 2229, PalaniappaChetty v. Saminathan Chetty (11) ). Here the cause of actionon the original debt is not extinguished but only suspended andrevives when the cheque is not honoured. As Cockburn, C.J.Said in Cohen v. Hale (12) :
“ It is very true that a man who takes a cheque may beestopped from proceeding to enforce payment of the debtuntil presentment of the cheque, and if the cheque is ulti-mately paid the debt is extinguished. All that happens inthe meantime is that the right of action is suspended. Butwhen the cheque is presented and dishonoured, the debt,the remedy for which was suspended until presentment ofthe cheque, may be treated as a debt subsisting ail along,just as if the cheque had never been given. The giving ofthe cheque only suspends the remedy, it does not extinguishthe debt ”.
The law on the question has been succinctly stated by WoodKenton, J. (as he then was) in Palaniappa Chetty v. SaminathanChetty (supra) at p. 166:
Sri Lanka Law Reports (1978-79) 2 S. L. R.
“A cheque or promissory note given and received inrespect of a debt may be so given and received either asconditional or as an absolute satisfaction of the debt. Inthe former case, when the cheque or note is actually orpractically dishonoured, and satisfaction of the claim onthe written instrument cannot be obtained, the originalclaim on the debt revives, and may be enforced. In thelatter the original claim on the debt is extinguished by thegiving or acceptance of the cheque or note as an absolutepayment of the debt. The law presumes conditional pay-ment. But this presumption may be rebutted by evidencethat absolute payment was intended by the parties ”.
In the instant case what was the agreement between theparties in regard to payment ? The respondent agreed toreceive payment by cheque issued by the State Mortgage Bank.The cheque was not to be delivered at the execution of the deedbut only when ripe for issue according to the Bank rules. Onthe basis of this agreement the respondent executed the deedof transfer and by D3 so informed the Bank. The transfer wasexecuted on the promise of payment by the Bank at some futuredate. The Bank duly forwarded the cheque as agreed to therespondent who however returned it saying he was takingaction to rectify the deed of transfer. It is significant that therespondent at no time took up the position that he was insistingon cash instead of a cheque or that there was anything wrongwith the cheque. There was no legal obligation to return thecheque to the State Mortgage Bank as far as the respondent wasconcerned. The rectification of the deed did not entail therevision of the consideration as between the appellants and therespondent. In the matter of the payment the State MortgageBank was the agent of the appellants and any question relatingto payment arising from the rectification would have been theconcern of the appellants and the Bank. If the considerationwas thwarted it was the result of the respondent’s own actionin doing what he was legally not bound to do. In the eyes ofthe law therefore there was payment. Thus in Caine v. Coulton(13) the attorney of the plaintiff in the case v/rote to thedefendant requesting him to remit the balance due to theplaintiff with an additional amount described as the costs dueto the attorney. The defendant sent a bank bill for the amountof the balance only but did not include the costs. The plaintiff’sattorney wrote in answer that he would not receive the bankbill unless the costs were paid, nor did he return the bill. Itwas held that the objection to the remittance not being in moneywas waived and the bank bill was refused only because it didnot include the costs. Martin, B. pointed out that all that was
Fonseka v. Appuhamy (Soza, J.)
due was the balance of the debt. The claim for costs was aseparate matter. This was one of the grounds for His, Lordship’sconclusion that there was payment in law. In the case ofSchneider and London v. Chapman (supra) decided by DeVilliers, J.P., Wessels and Bristowe, JJ. the question was whe-ther payment for certain stacks by cheque was a good paymentor not in the circumstances of the case. The respondent in thecase had forwarded a cheque in payment of the amount due tothe appellants who however returned the cheque. One of thecontentions of the appellants was, that the tendering of a chequewas not payment within the meaning of their agreement. Yetin a number of prior transactions between the same partiespayment had been made by cheque. Considering this fact andthe mercantile usages of the day the Court held that the contractitself contemplated that a cheque should be received. Wessels, J.pointed out that the real reason for the refusal of the chequewas that the appellants found they had made a bad bargain.They had underestimated the height of the stacks and sold toocheaply. The Court held there was good payment. In thecourse of their judgments De Villiers, J.P. and Wessels, J.referred to the case of Palmer v. Rhodes (14). Here paymentdue on a contract for the sales of shares had been made bycheque but was refused. The reason for the refusal to acceptthe cheque was not due to the fact that it was not in cash. Infact even if payment had been made in casjh it would not havebeen accepted because the shares had already been sold.Laumee, J. held that payment by cheque under the circums-tances was good. In the case of Thairwall v. The Great NorthernRailway Company (15) both Bray, J. and Coleridge, J. held thatwhere the creditors could be taken to have agreed to receivepayment by cheque sent by post, the posting of the cheque wasequivalent to payment even though the cheque was los,t in thepost. This principle had been laid down in earlier cases likeNorman v. Ricketts (supra) and Warwicke v. Noakes (supra).
In the instant case had the State Mortgage Bank paid therespondents Rs. 9,100 in casjh on account of the appellants at theexecution of the deed X and thereafter if the respondent return-ed the money owing to the institution of proceedings for recti-fication of the deed, could it have been said there was1 a failureof consideration ? Obviously not. The fact that payment wasmade later and by cheque does not make the position anydifferent because this, was the mode of payment agreed upon.The appellants fulfilled their promise when their agents theState Mortgage Bank forwarded the cheque D4 to the respondent.The usual presumption that payment by cheque is only aconditional discharge of the debt is rebutted by the respondent’s
Sri Lanka Law Reports (1978-79) 2 S.L.R.
own letter D3. In this letter D3 the respondent, it is reasonableto infer, wants payment by cheque according to the Bank ruleswhereupon he would have “ no further claim as respects the con-sideration on this deed Quite understandably the respondentthought there was no hazard in relying on the credit of the StateMortgage Bank and accepting their cheque. In these mattersthe law leaves; the parties to their bargain. The cheque was tobe in absolute satisfaction. There is here a legal and validcontract of sale. There is no failure of consideration for it isthe respondent who chose not to present the cheque for encash-ment. Any frustration in the matter of realisation of the moneyon the cheque wa? due to the respondent’s own misguided actionin returning the cheque. He is in the same position as he wouldhave been had he received cash and later returned it. At thevery least there has been a good tender of performance. In lawthis is equivalent to performance and payment—see Startup v.Macdonald (16). This action is clearly misconceived and mustfail. The appeal is allowed. Let decree be entered dismissingrespondent’s action. The respondent will pay the appellantsthe costs of this, suit both here and in the court below.
RANASINGHE, J.—I agree.Appeal allowed.