JONGA et al., Appellants, and NANDUWA et al. Respondents

040-NLR-NLR-V-45-JONGA-et-al.-Appellants-and-NANDUWA-et-al.-Respondents.pdf


128
.Jonga and Nandutoa.
1944Present: Hearne, Keuneman and Jayetileke JJ.
JONGA et al., Appellants, and NANDUWA et al., Respondents.
9—G. R. Gam-paha, 1,385.
Stale—Reservation of right to repurchase—Condition binding on the vendee—Trusts Ordinance (Cap. 72), ss. 88 and. 96.
Where a deed of sale reserves a . right of repurchase to the vendor,
within a certain period, the condition with regard to repurchase is
binding on the vendee, although he has not signed the deed.
T HIS ease was referred to a Bench of three Judges by SoertSz J.
The facts appear from the argument.
H. V. Perera, K.C. (with him H. A. Koattegoda and C. G. Rasa Ratnam),for the defendants, appellants.—The first plaintiff transferred, by P 2■ x»f July 15, 1935, a land to the defendants with the right reserved to•repurchase “ (or redeem) ” the property within 8 years on payment of-& certain sum of money. Thereafter the first plaintiff purported, by P 1of July 11, 1942, to- assign to the second plaintiff the right which wasreserved to him. The first and second plaintiffs now come to Courtwithin the 8 years and ask for the reconveyance, of the property. Thequestion is whether, having regard to the fact that P 2 was signed by theplaintiff alone and not by the defendants, the reservation of the rightto repurchase can be enforced in law, in view of the provisions ofnseetion 2of the Prevention of Frauds Ordinance (Cap. 57).*
In P 2 the entire dominium over the land was transferred to theidefendants, and no real right was retained. The first plaintiff reserve^only a personal right and not any real right. For the difference between'a real right and a personal right see Wille’s Principles of S. African Raw(1937 ed.). p. 47. In order to sue the defendants for a personal right•relating to immovable property it is necessary that P 2 should have beensigned by them. English principles of equity cannot help the plaintiffin view of the drastic nature of our section 2 of Cap. 57—Arsecularatne v.Perera1, a case which was taken to the Privy Council3. English principleswere not correctly applied in Sardiya v. Ranasinghe Hamine3 and BabunJSingho v. Semaneris Sing ho4.
[Keuneman J. referred to section 96, illustration (c) of the Trusts-Ordinance (Cap. 72)].
This is not a case where the transferee can be regarded as a trustee.Section 3 (a) of the Trusts Ordinance defines the term “ trust Noquestions of beneficial ownership and equitable rights arise in the present•ease.
[Keuneman J.-—Can you not read a mortgage into deed P 2 ?]
The language of the document negatives the existence of a mortgage.It cannot be said that there was any security furnished, because security'presupposes the continuing existence of a debt. Further, the dominium
an the property passed to the defendants.
(1926) 28 N. L.R. 1 at 13.
(1927) 29 N. L. R. 342 at 346
(1939) 41 N. L. R. 233.{1940) 16 C. h. TV. 83.
HE ARNE J.—Jong a and Nanduwa.
129
N. Nadarajah, K.C. (with him K. Herat), for the plaintiffs, respond-ents.—Where property is sold subject to a condition the conditioncan be enforced. The condition cannot be separated from the grant.Prevention of Frauds Ordinance cannot be used to cover what wouldamount to a fraud. The plaintiffs are entitled to claim a reconveyanceof their property. See Gould v. Innasitamby1; Issam. Appu v. Guraz;Guruhamy v. Subaseris et al.3; Nanayakkara et al. v. Andris et alA; In reDuke of Marlboroughs; Babun Singho v. Semaneris Singho (supra);Sardiya v. Ranasinglie Ha-mine (supra).
In P 2 full ownership was not granted. There was a diminutionimposed’ by the condition. The transaction imposed upon the defendantsduties and obligations in the nature of a trust—Saminathan Chetty v.Vander Poorten6. Sections 92 and 96 of the Trusts Ordinance areapplicable. It is the substance of the transaction which is material—De Silva v. De Silva7; Rajah v. Nadarajah et al.3; A. I. R. (1916)P. G. 27 at 30, 31.
H. A. Koattegoda replied.
Gur. adv. vult.
February 22, 1944. Heahse J.—
The first plaintiff and the second plaintiff, who claimed under theformer, sued the defendants to obtain a reconveyance of a parcel of landwhich the first plaintiff had transferred to them by a notarially executeddeed (P 2) reserving to himself “ the right to pay to the vendees or their
heirs Within eight years the sum of to redeem this
transfer ”. The defendants did not sign the document.
When a Court is confronted with a document similar to P 2 the trueintention of the parties is sometimes a matter of obscurity. For instance,although the right to repurchase is reserved (this implies a sale), if thevendor with no collateral agreement remains in possession, withoutthe payment of rent, and enjoys all the fruits of possession or, in otherwords, retains the beneficial interest in a very wide sense of that .ex-pression (these were the features of a case that once came to my notice)does the transaction amount to a contract of sale, with a pactum deretrovendendo attached to it, or was a transaction of a very differentnature contemplated by the parties ?
In the present ease no difficulty arises. The vendees went into posses-sion. On the face of it, P 2 is an outright deed of sale subject to thereservation of a right of repurchase within eight years. The question iswhether the defendants, notwithstanding the tender of the sum andwithin the time mentioned in the deed, are entitled to resist a demandfor resale by them. Is it enough for them to say that the reservationof a right of repurchase involves, as it does, an obligation on their partto sell at a future time, and that that obligation or contract is of noavail in law by reason of the provisions of section 2 of Ordinance No. 7of 1840 ?
1 (1904) 9 N. L. R. 177.
(1910) 13 N. L. R. 104.3 (1910) 13 N. L. R. 112.
(1921) 23 N. L. R. 193.-J. N. A 93349 <11/49)
L. R. (1894) 2 Ch. 133.
8 (1932) 34 N. L. R. 287 at 294 et seq.
(1937) 39 N. L. R. 169.
B (1943) 44 N. L. R. 470.
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HEARNE J.—Jong a and Nanduwa.
I do not propose to discuss the cases decided in England in whichabsolute transfers were expressly stated to have been made and in whichoral promises to reconvey were enforced and the statutory rule 'Similarto but not identical with section 2 of Ordinance Ko. 7 of 1840 wasevaded. Our own statutory rule would also be evaded if, for instance,the transaction between the first plaintiff and the defendants, viewedas a whole, can be said to fall within one or more sections of the TrustsOrdinance.
In Wijewardene v. Pejris1, Soertsz J. had occasion to refer to the caseof Saminathan Chetty v. Vander Poorten2 the facts of which are verydifferent from the facts in this case. In that case, however, as in thiscertain property had passed absolutely to the respondent. At pages184 and 185 the learned Judge, after quoting certain sections of theTrusts Ordinance including section 96, referred to the fact that the respond-ent, who was in receipt, it must be remembered, of an absolute transfer,could not “ sell lpelow a-certain price without the consent of the Syndi-cate ” by whom the transfer had been made, and if he did sell he hadto deal with the proceeds in a certain manner. “ In these circumstances ”the learned Judge said “ their Lordships held, without hesitation, thatan absolute interest in the land did not vest in the respondent. Thematters relied upon for this finding are just those matters which finda place in the sections of the Trusts Ordinance I have referred to.”
I have said, that the facts in Saminathan Chetty v. Vander Poorten(supra) are very different from the facts in this case. But does not thelearned Judge’s analysis of the judgment delivered by Lord Tomlinprovide the clue to the problem we are considering ?
According to the terms of the bargain set out in P 2 the defendantswere shut out from selling the property conveyed to them for eightyears and were bound, on demand, to reconvey it to the first plaintiffat any time within that period for a consideration stipulated by himin advance.
Is it not correct to say that the defendants although in possession hadnot the full beneficial interest therein and that they must hold and notpart with the property for eight years for the benefit of the first plaintiffwho alone, during those eight years, could have sold to a third partyat any price he chose to accept after obtaining a reconveyance ?Does not the defendants’ inability to sell at any time, to anybody andat any price, connote an absence of the full beneficial interest underour law ? Was there not some residue of the beneficial interestin the first plaintiff ? Were there not just demands within thecontemplation of section 96 of the Trusts Ordinance to be satisfied bythe defendants on the occasion arising to satisfy them ? The beneficialinterest of a beneficiary is “ his right against the trustee as owner of thetrust property ”. In Saminathan Chetty v. Vander Poorten (supra) theright of the Syndicate was in part at. least to say to the respondent “ Youcannot sell below a certain price without my permission ”. Here thefirst plaintiff had the right to say “ You cannot sell at all for eight years
except to me and the sale will be at my price ”.
I (1935) 37 N. L. R. 179.
2 34 N. L. R. 287.
KEUNEMAN J.—Jong a and Nanduwa.
131
Section 96 is taken from India and there it has been held that “ bene-ficial interest ” appearing in the section must not be given a restrictedmeaning. In my opinion the section is wide enough to cover the factsof this case.
To sum up: it may be that in certain cases what is alleged to be acontract of sale with a pactum, de retrovendendo annexed to it is capableof being regarded as a transaction of a very different nature. As Willesays at pages 75 and 76 “ No matter what name or designation theparties give to a contract or transaction, the Court will enquire into thesubstance of the transaction and give effect to what it finds its truesubstance or nature to be … Each case must depend uponits own facts, no general rule can be propounded. which can meet themall ”. Where, however, what is alleged to be a contract of sale with apactum de retrovendendo annexed to it is found to be what on the faceof a deed it appears to be, viz., a sale with a contract for repurchase, thevendees who are sued on their obligations cannot evade them by merelypointing to section 2 of Ordinance No. 7 of 1840.
In my opinion the appeal should be dismissed with costs.
Keunehaj* J.—
This case has been referred to a Divisional Bench by Soertsz J. Thefacts are as follows:—The first plaintiff by deed No. 980 dated July 15,1935 ( P 2), transferred the premises in question to the second and thirddefendants. The deed stated that the transfer was “ subject to thefollowing conditions, to wit: that I reserve to myself the right to payto the vendees or their heirs within eight years from the date hereofthe sum of Us. 177.50 in case the said mortgage bond ” (i.e., a subsistingmortgage bond D 2 for Rs. 62.50) “ is not paid off and settled, or in theevent of the said mortgage bond having been settled to redeem thistransfer by paying the sum of Rs. 240 within the said period ”. Anothertranslation of the material words is as follows:‘ * that there should be
the right for me the said vendor at any time desired to repurchase the saidproperty within the period of eight years by paying ….".
The first plaintiff thereafter by deed 47, dated July 11, 1942 (P 1),transferred to the second plaintiff “ the right to repurchase the premisescontained in deed P 2.
The second plaintiff on July 27, 1942, gave notice to the defendantscalling upon them to receive the sum of Rs. 240 and execute a retransfer.The plaintiffs have also brought the sum of Rs. 240 into Court in thiscase.
The defence of the defendants is that they are not liable on the contractto repurchase, on the ground that they have “ not signed the deed P 2 ”.They claim the benefit of section 2 of the Ordinance for the Preventionof Frauds, Cap. 57.
If the condition in deed P 2 is to be treated merely as a contract torepurchase, then it is clear that the deed is not “ of force or avail in lawagainst the defendants, because they have not signed the deed.
It is, however, contended that the condition in P 2 creates an obligationin the nature of a trust, which is binding on the defendants. Our Trusts
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KEUNEMAN J.—Jonga and Nanduwa.
Ordinance, Cap. 72, recognizes obligations in the nature of trusts, i.e.,constructive trusts (see Chapter IX.). A large number of constructivetrusts are defined.
In Nanayakkara v. Andris1, Bertram C.J. discussed the limits of therule that “ Courts of Equity will not permit the Statute (of Frauds)to be made an instrument of fraud ”. He set out two classes of eases: —
“ (a) Cases where the defendant has obtained possession of the plain-tiff’s property, subject to a trust or condition, and claims toto hold it free from such trust or condition;
Cases within the equitable doctrine of ‘ part performance ’ ”.
As regards class (b) the judgment of Bertram C.J. is undoubtedlyno longer binding, in view of our own later decision in Arsecularatne v.Perera2. This case went up in appeal to the Privy Council, and theirLordships held that in Ceylon the operation of the Ordinance of Fraudscould not be avoided under the equitable doctrine of part performance,and that section 2 of our Ordinance is “ more stringent ” than section 4of the English Statute of Frauds (see 29 N. L. R. 342.). To that extentthe authority of Nanayakkara v. Andris (supra) is weakened. On theother hand our Courts have consistently permitted the proof of certainforms of constructive trusts, although the requirements of section 2 of theOrdinance of Frauds were not observed. Section 98 of our TrustsOrdinance runs as follows: —
“ Nothing contained in this Chapter ” (i.e., Chapter IX. relatingto constructive trusts) “ shall …. create an obligation inevasion of any law for the time being in force ”.
I think the word “ evasion ” implies an intentional attempt to circum-vent the existing law, and does not touch a case which may merelyhappen to conflict with the strict law. Otherwise it would not be possibleto support the well-established decisions relating to certain recognizedforms of constructive trusts.
I am of opinion that where a constructive trust can be held to existunder our law, then the operation of section 2 of the Ordinance of Fraudshas no application. In other words, we are no longer dealing with amere contract for the sale and purchase of land, but with a trust properlyconstituted.
I think it is necessary for us to consider whether there is a constructivetrust created under our law. In this connection I shall first consider theeffect of section 96 of our Trusts Ordinance, which is as follows: —
“ In any case not coming within the scope of any of the precedingsections where there is no trust, but the person having possession ofproperty has not the whole beneficial interest therein, he must hold theproperty for the benefit of the persons having such interest, or theresidue thereof (as the case may be), to the extent necessary to satisfytheir just demands ”.
The first point of interest is that “ the preceding sections ” set outcertain well-recognized forms of constructive trusts, one or two of whichperhaps go beyond the English law of trusts. Section 96 is intended to1 23 N. L. R. 193.* ZS N. L. R. 1.
KEDNEMAIi J.—Jonga and Nanduwa.
133
catch up something which does not amount to a constructive trust underthe earlier sections. Emphasis should also ne placed on the words“ where there is no trust.” Section 96 is intended to cover a case whereno trust as previously recognized exists. The next point is that theperson in possession of the property has an obligation in the nature of atrust imposed upon him, i.e., “ to hold the property for the benefit ofcertain persons “ to the extent necessary to satisfy their just demandsAnd lastly, the obligation in the nature of a trust arises—
where the person having possession of property has not the whole
beneficial interest therein; and
some other person has such interest, or the residue thereof.
As regards the nature of (2), illustration (c) is of interest. This is thecase where a person parts by way of gift with the whole of his interest,reserving the right to revoke a part of the gift at a later date, and there-after exercises that right.
I think it is clear that a person cannot be held to be a constructivetrustee, unless his possession is such that he owes some duty to theother persons interested—see Re Biss, Biss v. Biss1. Can it be said inthe circumstances of the present case that the defendant owed a dutyto the 1st plaintifE ?
The very terms of the grant here set out the condition, and the defendantmust be regarded as having taken possession under the grant coupledwith the condition. I think the defendant, who entered into possessionunder these circumstances, owed this duty to the first plaintiff, viz.,to have the property available for the condition to be carried into effect.I do not regard this as a mere personal right vested in the first plaintiff,In fact the defendant did not receive the “ whole beneficial interest ”but only the beneficial interest burdened with the condition, and thisfractional portion deducted enured to the benefit of the first plaintiff.Although, in strict law, if this was treated merely as a contract, thecondition could be defeated under the Ordinance of Frauds, yet in equitythe obligation in the nature of a trust can be enforced- I hold that thepresent ease comes within the scope of section 96 of our Trusts Ordinancewhich is a section of wide application.
I may add that, on the wording of this document, I think that section88 of the Trusts Ordinance can also be held to apply. The materialportion of section 88 is as follows: —
" Where property is transferred in pursuance of a contract which isliable to rescission …. the transferee must, on receivingnotice to that effect, hold the property for the benefit of the transferor,subject to repayment by the latter of the consideration actually paid,and subject to any compensation or other relief to which the transfereemay be by law entitled ”.
In the translation put in by the plaintiffs, there was an express reservationof the right “ to redeem the transfer by paying ”. I am inclined to thinkthat this is equivalent to the reservation of the right of rescission of thecontract on the performance of the condition. Even if the actual
1 (1903) 2 Ch. 40.
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KRUNEMAN JWilbanda and Kuinarasamy S. I.
language employed was “ to repurchase the premises by paying ”,the substance of the transaction was the reservation of the right ofrescission by payment, and I do not think we should give too technicala meaning to the word ” repurchase ’ .
In the course of the argument we were referred to the cases of Sardiyav. Ranasinghe Hamine1 and Babun Singho v. Semaneris Singhoz. SoertszJ. was not in agreement with these decisions.
For the reasons I have given, I am of opinion that in the present easean obligation in the nature of a trust has been established.
The appeal is accordingly dismissed with costs.
Jayetit.eke J.—
I have had the advantage of reading the judgments prepared by mybrothers Hearne and Keuneman with which I agree.
Appeal dismissed.