Ghani v. Nadaraja
COURT OF APPEAL.
C. COLOMBO 15045/L.
■ MARCH 03.1997.
Rei Vmdicatio Action – Pactum Commissorium – Roman Dutch Law – Legality ofsuch an Agreement.
One 'A' had sold and conveyed the land in dispute by P1, to the plaintiff-appellantfor a sum of Rs. 300,000/-. According to the attestation clause Rs. 50,000/- hadbeen paid to the Vendor and the balance was secured by a Mortgage Bond, (P3).On the same day the appellant and ‘A’ entered into an agreement (P2) by which itwas agreed that if the balance consideration was not paid on or before a certaindate the Deed shall be null and void, and it was further agreed that the premiseswhich was sold to the appellant by P1 shall revest in the vendor ‘A’ absolutely.
The balance consideration was not paid. ‘A’ conveyed (D1) the land to ‘S’, onwhose death it devolved on his wife and children, and they by D2 conveyed thepremises to the respondent. The learned District Judge held in favour of therespondent and dismissed the plaintiff-appellant’s action on the ground that P1,P2, P3 formed one transaction and that the plaintiff appellant did not have title tothe land. On appeal,
Pactum Commissorium is an Agreement that if the debt be not paid within acertain time the creditor can retain as his own the thing pledged for the debt.Under the Roman Dutch Law an agreement for forfeiture in the event of non-payment is not permitted. Therefore the agreement P2 is illegal and of no force oravail in law.
Although P2 is illegal, the Mortgage Bond P3 has still not been discharged.Therefore Deeds D1, D2 do not operate as sales but as assignments of theMortgagee’s rights under P3 firstly to ’S’ by D1 which also refers to the illegalAgreement P2 and then to the defendant respondent and the plaintiff-appellant isentitled to redeem the premises on the payment of the balance sum (withoutinterest).
APPEAL from the Judgment of the District Court of Colombo.
Cases referred to:
Saminathan Chetty v. Vander Poorten
John v. Trimble I.T.H. (Witwaters, and H.C.) 146.
3- Siribohamy v. Rattaranhamy 1 Ceylon L. R. 36.
Sri Lanka Law Reports
 2 Sri LR.
Faiz Musthapha, P.C. with Amarasiri Panditharatne for the plaintiff-appellant.Bimal Rajapakse for defendant-respondent.
Cur. adv. vult.
This is an appeal from the judgment of the learned AdditionalDistrict Judge of Colombo in an action instituted by the plaintiff-appellant (appellant) for a declaration of title to the land described inthe schedule to the plaint, ejectment of the defendant-respondent(respondent) therefrom and damages.
One Gamini Perera Abeywardena had sold and conveyed the landin dispute to the appellant by deed No. 2087 of 17th August, 1979(P1) for a sum of Rs. 300,000/-. According to the attestation clauseon 'P1 ’, a sum of Rs. 50,000/- had been paid to the vendor at theexecution of *P1 ’ and the balance sum of Rs. 250,000/- was securedby Mortgage Bond No. 788 of 17th August, 1979 (P3) by which saidBond the appellant mortgaged the land in dispute to Gamini PereraAbeywardena.
On the same date the appellant and the said Gamini PereraAbeywardena entered into Agreement No. 2088 (P2) by which it wasagreed that if the balance consideration of a sum of Rs. 250,000/- ondeed 'P1' was not paid on or before 31st October, 1979, the deedshall be null and void. It was also agreed that the land, building andpremises in dispute which was sold and conveyed to the appellanton deed *P1' shall revest in the vendor (Gamini Perera Abeywardena)absolutely.
It is conceded that the balance consideration of Rs. 250,000/- wasnot paid as agreed. It is the respondent’s case that Gamini PereraAbeywardena conveyed the land and premises in dispute to oneReckmond de Silva by deed No. 438 of 07th December, 1982 (D1)and that said Reckmond de Silva died leaving an Estate which wasadministrated in the District Court of Colombo/Testamentary CaseNo. 3047 and that thereafter his widow and his five childrenconveyed the land and premises in dispute to him (respondent) bydeed No. 92 of 28th October, 1982 (D2). At the trial the documentsP1 and P3 and D1 and D2, were marked in evidence and thereafterissues 1 to 12 were raised by the parties. Counsel informed Court
Ghani v, Nadaraja (Edussuriya, J.)
that they were not leading oral evidence, and tendered writtensubmissions to enable the court to answer the issues.
The learned District Judge in his judgment held in favour of therespondent and dismissed the plaintiff-appellant's action, on theground that the documents P1, P2 and P3 formed one transactionand that therefore the plaintiff-appellant did not have title to the landin dispute.
At the hearing of this appeal it was contended on behalf of theplaintiff-appellant that the agreement ‘P2’ was a PactumCommissorium which is illegal and as such it is of no force or avail inlaw. In support of this contention Counsel for the appellant referredthis Court to the following authorities. Roman Dutch Law by Lee, 5thEdition, page 200 (3rd Edition page 210) where it sets out that anagreement for forfeiture in the event of non-payment is not permitted,Wille on Principles of South African Law 7th Edition page 243,where it sets out "an agreement that on the mortgagor's default themortgagee keeps the mortgaged property known as the PactumCommissorium, is absolutely illegal, as being harsh and replete withinjustice, but there is no objection to an agreement that mortgageesmay take over the property at a fair valuation”, Maasdorp’s Instituteson South African Law – Law of Things Volume II, 8th Edition,page 185 which stated the Pactum Commissorium is an agreementthat if the debt be not paid within a certain time the creditor can retainas his own the thing pledged for the debt and that such anagreement has been held to be illegal.
In the Privy Council decision of Saminathan Chetty v. VanderPoorten(”, their Lordships observed that the “policy of the RomanDutch Law being the law which governs in Ceylon, so far at any rateas this case is concerned appears to be against allowing themortgaged property to become the property of the creditor if themortgage debt is not paid off within the specified time”, and so sayingTheir Lordships referred to the case of John v. Trimble12’ decided in theTransvaal High Court, where Innes C.J. in his judgment accepted theview that the policy of the law was against allowing an agreementbetween debtor and creditor to the effect that if the debt be not paidat the proper time the property was to become the property of thecreditor and held that the transfer by the creditor to the defendant inthat case could not operate as a sale so as to defeat the debtor'srights to redeem the property.
Sri Lanka Law Reports
 2 Sri LR.
In that case the debtor agreed with the creditor that the mortgagedproperty should be re-conveyed if the debt was paid off within twoyears, but that otherwise the creditor to be free to sell and payhimself. More than two years after the agreement the debtor soughtto redeem, but the creditor nevertheless sold to the defendant.
The Privy Council also observed that "So far as Ceylon isconcerned the case of Siribohamy v. Rattaranhamy seems to TheirLordships to indicate that the benevolence of the Roman Dutch Lawtowards the mortgagor is not less in Ceylon than it is in South Africa".Therefore I hold that the agreement ‘P2’ is illegal and of no force oravail in law.
In the case of John v. Trimble (supra) Innes C.J. held that thedebtor’s (mortgagor’s) agreement with the creditor that he was free tosell and pay himself if the debt was not paid within two years doesnot operate as a sale to the creditor but that the stands (mortgagedproperty) are still pledged to him for the amount of the debt due tohim by the plaintiff (debtor), that the defendants in that case whopurchased the stands from the creditor as cessionaries of thecreditor, cannot get any greater rights than the creditor had, and thatthe plaintiff (debtor) is entitled to the stands, together with thetransfers and title deeds thereof, and all other documentsappertaining thereto, upon payment to the defendants, ascessionaries of the creditor, of the moneys due by the plaintiff(debtor) to the creditor.
In the present case, although the agreement ’P2’ is illegal and is ofno force or avail in Jaw, the Mortgage Bond ‘P3’ has still not beendischarged.
Therefore the deeds 'D1' and ’D2’ do not operate as sales but asassignments of the mortgagee’s rights under ‘P3’ firstly, to Reckmondde Silva by ’D1’ which also refers to the illegal agreement ’P2’ andthen to the respondent (defendant) and the appellant (plaintiff) isentitled to redeem the land and premises in suit on payment of thesum of Rs. 250,000/- because the mortgagee Gamini PereraAbeywardena and the assignees were in possession of themortgaged property and hence no interest is due on the Bond ’P3’.
Ghani v. Nadaraja (Edussuriya, J.)
Besides, since ‘D1‘ referred to 'P2' Reckmond de Silva was awareof the title which Gamini Perera Abeywardena claimed he had.Similarly, the defendant too, would have been aware of that titleclaimed by Gamini Perera Abeywardena if he had examined the titledeeds.
For the abovementioned reasons the appeal is allowed and thejudgment of the District Court is set aside and the appellant isdeclared entitled to the land and premises in suit subject to themortgage. However the appellant will be entitled to possession of theland and premises in suit only on the amount on the Mortgage Bond(P3) being paid to the defendant and Bond ‘P3’ cancelled.
Parties will bear their costs.
GHANI v. NADARAJA