L. A. MENDIS SILVA , Appellant, and THE CEYLON STATE MORTGAGE BANK , Respondent

094-NLR-NLR-V-61-L.-A.-MENDIS-SILVA-Appellant-and-THE-CEYLON-STATE-MORTGAGE-BANK-Respondent.pdf


Mendis Silva v. The Ceylon State Mortgage Bank
385
1959Present: Basnayake, C.J., and Pulle,A. MENDIS SILVA, Appellant, and THE CEYLON STATEMORTGAGE BANE, RespondentS. C. 43—D. C. Colombo, 36721
Ceylon State Mortgage Bank Ordinance, as amended by Ordinance No. 10 of 1947—Mortgage of property to Bank—Default of borrower in payment of instalments—Borate execution—Berm issibility—Liability of Bank for loss suffered byborrower—Sections 53 (1) (cc), 63 {!), 63 (3) (a) (6), 66 (1).
Unless it has exercised, its powers negligently, the Ceylon State MortgageBank is not liable to pay damages suffered by a debtor in consequence of parateexecution levied by it, under section 63 of the Ceylon State Mortgage BankOrdinance, against the property mortgaged to it by the debtor.
On 17th September 1953 the plaintiff borrowed from the Ceylon State Mort-gage Bank a sum of Rs. 150,000 repayable in 25 years by equal half-yearlypayments of Es. 5,027 *75. He mortgaged as security a land and eight new housesbuilt on it in two rows of four separated by a roadway. The mortgage bond wasin a form prescribed by Schedule A of the Ceylon State Mortgage BankOrdinance. The proviso to clause 3 (i) of the bond reads as follows :—
“ Provided, however, and it is hereby expressly agreed that the Bank mayin exercising the said power of sale and incidental powers as aforesaid (and byspecial resolution of its Board of Birectors to that effect published in theGazette) sell any land mortgaged to it as security either in its entirety or intwo or more separate blocks or in both such ways, at any public sale or salesheld under the said Ordinance. ”
When the plaintiff defaulted in the payment in full of the first two instalments,a special resolution was passed by the Board of Birectors under Section 63 (1)authorising an auctioneer to sell the xnortaged property “ in his office, Ho. 227,Hultsdorp Street, Colombo At the auction sale held on 23rd July 1955 themortgaged property, which was worth Rs. 342,000, was knocked down to a solebidder for Rs. 165,000 (only Rs. 500 more than the upset price).
Held, (i) that the words “ at his office, Ho. 227, Hultsdorp Street, Colombo ”in the special resolution of the Board of Birectors could hear the meaning“ at 227 Hultsdorp Street where the auctioneer conducts his business of sellingproperty
(ii) that the Bank did not commit a breach of any legal duty by selling theeight houses as a single unit and not separately.
(in') that in the absence of any negligence in the conduct of the sale the Bankwas not liable for the loss suffered by the plaintiff.
Observations that a legislative measure intended to benefit the subject hasin its operation in the present case produced a result which, though not illegal,is revolting to one’s sense of justice and fair play.
17—I*30t
2—J. ar. B 21258-1,995 (2/60)
S86 BASNAYAKE, C.J.—Mendis Silva v. The Ceylon Stale Mortgage Bank
.ApPF.AT, from a judgment of the District Court, CJolomho.
Sir Lalita Bajapalese, Q.G., with E. S. Amarasinghe, NormanAbeyesinghe and D. B. P. Gfoonetillehe, for the Plaintiff’-Appellant.
W. Jayeiwardene, Q.G., with Waiter Jayawardene and L. 0.Seneviratne, for the Defendant-Respondent.
Cur. adv. vulf.
December 11, 1969. Baseayase, C.J.—■
I have had the advantage of reading the Judgment prepared by mybrother Pulle. I am in entire agreement with him both on the law andthe facts. I share his views on the cruel fate that the plaintiff hassuffered at the hands of the State lending institution whose aid hesought. No private money lender would have been permitted by theCourts to act in the way the defendant has done. This case should serveas a warning to the Legislature against entrusting vast powers to Stateagencies without adequate safeguards. The State Mortgage Bank andother State agencies should in wielding the wide powers entrusted tothem bear in mind the words of Shakespeare
“ O, it is excellent
To have a giant’s strength ; but it is tyrannousTo use it like a giant. ”
Pulle, J.—■
The plaintiff who is the appellant was the owner of a land at Ratmalana.Its extent is one acre and he had built on it eight houses in two rows offour separated by a 30 ft. roadway. There was a difficulty in procuringa supply of electricity to these houses with the result that the localauthority could not issue a certificate of conformity for their occupationat the times material to this case.
On 17th September, 1953, the plaintiff borrowed from the State Mort-gage Bank a sum of Rs. 150,000 repayable in 25 years by equal half-yearlypayments of Rs. 5,027 ’75, to include principal and interest, and mort-gaged as security the land and the houses by a bond of the same day.The plaintiff’s plan was to. get quickly a supply of electricity and there-after to sell each honse with vacant possession. Had this plan succeededthe events which have brought disaster on him might not have occurred.Hnfbrtdnately the plan miscarried. ‘ He attributed the.' failure to’sinisterforces conspiring to buy up the houses at prices much below their marketvalue. Probably there was an element of truth in it judging by news
PULLE, J.—Mendis Silva v. The Ceylon Stale Mortgage Bank
387
items in the press that the houses would be acquired by the Crown in theprocess of extending the limits of the aerodrome. Early in 1954 he triedto sell the houses by public auction. There was not a single bidder.Earlier advertisements in some Indian newspapers brought no responseand on 17th March, 1954, the date on which the first instalment ofBs. 5,027.75 was due, he had no money to pay it. In July 1954 headvertised for offers to purchase the houses on easy terms of payment.This, too, proved unsuccessful. The second instalment due on 17thSeptember, 1954, was unpaid. There was now due with penalty interestBs. 12,313*42 to pay which he was given time till 23rd December, 1954.He paid only Bs. 6,160*67. Time was given till 14th March, 1955, topay the balance. Again he defaulted and the Bank in the exercise of itsstatutory powers had the property sold by auction on 23rd July, 1955.The properly was knocked down to a sole bidder on behalf of a syndicatefor Bs. 165,500, only Bs. 500 more than the upset price. The certificateof sale under section 66 (1) of the Ceylon State Mortgage Bank Ordinancewas signed on 31st August, 1955.
On 3rd August, 1955, the plaintiff commenced proceedings in case No.626/Z of the District Court of Colombo praying, inter alia, for an injunc-tion restraining the Bank from signing any certificate of sale and for adeclaration that the sale held on 23rd July, 1955, was null and voidand ineffective in law. While case No. 626/Z was pending the Bank wasthreatened with legal proceedings by the purchaser. It had no alternativebut to sign the certificate. The plaintiff was apparently advised thatafter the certificate of sale was signed there was no purpose in proceedingwith case No. 626/Z and that action was accordingly withdrawn andformally dismissed on 20th October, 1955. On the following day hecommenced the present action claiming damages against the Bank inthe sum of Bs.360,000 on grounds of irand, negligence, illegality and breachof trust. The learned trial Judge rejecting all these grounds held againstthe plaintiff and dismissed the action with costs. At the argument inappeal reliance was placed only on two grounds, first, that the sale wasnot conducted by the auctioneer strictly in terms of the resolution of theBank and, secondly, that the Bank had exercised its powers negligentlyand that the plaintiff had in consequence suffered damages.
Before the loan was given the Bank caused three valuations of theproperty to be made. One of them was by the Chief Valuer of Govern-ment in whose opinion the land and the houses were worth Bs. 342,000(D 100). It becomes immediately apparent that when the propertywas sold at the auction held on 23rd July, 1955, the plaintiff suffereda loss exceeding Bs. 150,000. He wants to make the Bank answerablefor this loss and the question we have to determine is whether on thefacts found by the learned trial Judge the Bank incurred a liability inlaw to compensate him.
I think it is not out of place to mention at this stage that in his dealingswith the Bank the plaintiff was wanting in tact and ultimately damaged
388
PT7LL3D, J.—Mendis Silva v. The Oeylon State Mortgage Bank
his own cause. The more he elaborated in his correspondence the diffi-culties in the way of selling the houses by private treaty, the more heran the risk of creating the impression, erroneous though it might be,that the security given for the loan'had depreciated in value. Luredapparently by a comparatively low rate of interest and payments spreadout over a number of years he bartered away the precious right that amortgage debtor has that his creditor must seek his remedy in a courtof law. Evidently he did not appreciate at the time he signed the bondthat the Bank was entitled to levy parate execution against the propertyin the event of any default in making the stipulated payments. He haslaid himself open to severe criticism of some of the methods he employedto prevent the sale from going through. Two days before the sale,namely, on 21st July, 1955, he granted a lease D53 to one Peeris Dias ofthe eight houses for a term of 10 years. It was perhaps thought that ifthe lessee took possession of the houses intending bidders might have beenscared away and that in those circumstances the Bank would have beenforced to stay execution. At the sale a notice was distributed, purportingto be under the hand of the lessee, that if any one purchased a house forless than Rs. 45,000 or all the houses for less than Us. 360,000 the pur-chaser or purchasers would not get possession. We were told that thiswas the reaction of a debtor driven to desperation by the harsh attitudeadopted by the Bank. Be that as it may, his conduct was fraught withdanger mostly to himself. The Bank heavily fortified by the Ordinancewhich created it and a succession of amendments to it was in an impreg-nable position. It was in vain to kick against the goad.
The special resolution of the Board of Directors of the Bank authorisingthe sale of the property mortgaged was passed on 25th March, 1955. Thelegality of the resolution is not in question but only its implementation,except on one point which I shall mention later. Paragraph (&) of theresolution (Vide D 40A) was as follows :
“ That in terms of section 63 (1) of the Ceylon State Mortgage BankOrdinance, Mr. P. H. Wijesinghe, Licensed Auctioneer of Colombo, beauthorised and empowered to sell in his office, No. 227, HultsdorpStreet, Colombo, all that allotment of land comprising two contiguouslots marked C6 and 07 .together with eight new bungalows
etc. ”
It is not in dispute that the notice of the resolution and the notiee ofthe date, time and place of the sale were given in strict conformity withthe requirements of sub-section 3 (a) and (6) of section 63 of the Ordinance,as amended. A submission was made that the advertisements, havingregard to the value of the property, were insufficient. It was based onthe evidence of the auctioneer who stated that he would have spentabout Rs. 1,000 on advertising whereas the amount expended by theBank was Rs. 500. There is hardly any substance in this argument.The efficacy of an advertisement does not depend solely on the moneyspent thereon. One sees in this case itself that the plaintiff after spending
PTTjLLE, J.—JSdendis Silva v. The Ceylon State Mortgage Bank
389
a substantial sum in advertising, both here and in India, the sale of thehouses by private treaty and public auction failed to conclude a bargainwith any purchaser. In advertising the sale the Bank went even beyondthe requirements of the Ordinance. There were three advertisementsin the. " Times of Ceylon ” and a like number in the ,r Ceylon DailyNews
It was contended both in the trial court and here that the sale wasnot in compliance with the resolution of 25th March, 1955. The argu-ment is that the sale was not held at the “ office ” of the auctioneer. Thatthe auctioneer had an office at No. 227, Hultsdorp Street, is commonground but it was argued that the hall within the premises No. 227, inwhich the property was auctioned was not the auctioneer’s “ office ”.The auctioneer’s evidence is that he had a table and some furniture in asnma.ll room at the back of the premises. To go to that room one has toenter by the Twain door of the verandah which leads immediately to theball where the sale was held. Several Proctors had their offices in therooms of the house and one Proctor Aheyegoonewardene had his officein the hall. According to the auctioneer he used to hold auction saleson Saturdays in that hall with the consent of his landlord and apparentlywithout objection from any one. It would appear that since 1943 everysale advertised to take place in bis “ office ” had been conducted in thehall. TTis name board was exhibited conspicuously at the entrance tothe premises and on the 23rd July, 1955, he had arranged a table in theball on which he had placed a plastic board with his name on it. Therewere about 25 chairs to accommodate bidders. Any one entering thehall could see that the advertised sale was about to be conducted in thehall. The learned trial Judge’s finding is that there was no tf irregularityor illegality in the conduct of the sale in the hall at No. 227, HultsdorpStreet. ” I do not find it possible to dissent from this finding. In myopinion the words, “ at his office, No. 227, Hultsdorp Street ” can bearthe meaning “ at 227, Hultsdorp Street, where the auctioneer conductshis business of selling property ”. In that view no illegality can. beattached to the sale.
Before dealing with the rest of the submissions I ought to mention thatin the court below there were allegations of fraud, collusion and corruptionwhich, if established, would have had serious consequences for the Bank.They have been rejected by the District Judge and not pressed before us.The only other ground urged was that the Bank was in breach of dutywhich it owed to the plaintiff to so conduct the sale as to obtain a fairvalue for the land and houses. Before I deal with the items of allegednegligence a few observations are called for.
The mortgage bond executed by the plaintiff is in a form prescribedby the Ordinance. (Vide section 53 (1) (cc) as amended by the Ceylon StateMortgage Bank Amendment Ordinance No. 10 of 1947). That form is
in Schedule A to the principal Ordinance,
of the Bond reads,
2*J. 2s, 3 21253 (2/60)
'T^-“+.rs .nsj-jse 3
['he proviso to cla.
390
tBTJLLE, J.—Mendis Silva v. The Ceylon State Mortgage Bank
“ Provided, however, and it is hereby expressly agreed that the Bankmay in exercising the said power of sale and incidental powers as afore-said (and by speeial resolution of its Board of Directors to that effectpublished in the Gazette-) sell any land mortgaged to it as security eitherin its entirety or in two or more separate blocks or in both such ways,at any public sale or sales held under the said Ordinance. ”
Basing himself on the evidence of the auctioneer that if he had beenemployed by the owner to sell the houses he would have auctioned themseparately, learned Counsel submitted that the Bank acted in mannerprejudicial to the interests of the plaintiff by selling the houses as a singleentity and was, therefore, in breach of a duty owing to the plaintiff.
learned Counsel for the plaintiff cited passages from text books andreports of cases to show that a statutory body in the purported exerciseof its powers may be guilty of negligence and answerable in damages tothe person damnified. The correctness of this proposition, within wellknown limits, cannot be doubted but the question is how far that propo-sition is applicable to the facts of this case. (Vide Salmond on Torts1953 ed. pp. 50 et seq.) Then it was argued that an obligation to exercisethe standard of care of a diligenspaterfamilias may arise out of a contractthe breach of which would give rise to an action for damages {Gape TownMunicipality v. Paine x). This proposition too is unexceptionable. Thisis well exemplified in the case of a usufructuary mortgagee who is requiredto exercise his right of possession without causing loss to the mortgagor.It seems to me that from the bare fact that it would have been moreprofitable for the plaintiff, as owner, to have instructed an auctioneerto sell the houses separately it does not follow that the Bank was inbreach of any duty in selling the land and houses as a single unit. Inter sethese houses did not enjoy any easements because they belonged toone owner. On a reading of section 66 of the statutory form of thecertificate of sale I do not see how the Bank could have given to a singlepurchaser of any one house the easements which axe vital to the beneficialenjoyment of a house especially in an urban area. Under section 66what becomes vested in a purchaser is the r< right, title and interest ofthe debtor to and in" the property sold. Over and above the easementsenjoyed by the property as a whole, none could be created by the Bankfor the benefit of an individual purchaser. If only the portions enclosedby the walls of each house had been sold, how could the Bank dispose ofthe area constituting the roadway ?
There are, however, in my opinion weightier reasons for holding thatthe Bank was not in breach of any legal duty by not selling the eighthouses separately. The contract, or, what comes to the same, the statute,clearly conferred a discretion cm the Bank either to sell the land in its
1 {1923) A. D. 207.
PI7XJJE, J.—Hlendis Silva v. The Ceylon State, JS'forfgage Bank
391
entirety or in two or more blocks. No mala fides is imputed to thosewho, on behalf of the Bank, took the decision to sell the land in itsentirety. The case of Geddes v. Proprietors of Bann Reservoir1 was reliedon by learned Counsel for the plaintiff. As X ventured to remark in thecourse of the argument that case is clearly distinguishable. There thestatutory authority had two ways of performing one single act of takingwater from a reservoir to the River Bann along a silted stream. It was intheir power to remove the silt and thus avoid flooding. They did notand were held liable in damages for flooding the plaintiff’s land. Theapplication of the principle in the Bann Reservoir case is dealt with byIiord Atkinson in Ragan Navigation Company v. Lambeg Bleaching,Dyeing and Finishing Company, Limited 2 and by the Court of Appealin F. Robins da Son, Limited v. Minister of Health s. In the presentcase the statute conferred expressly two powers in the alternative and,in the absence of bad faith, it is not competent for a court of law to saythat the Bank in carrying on its business should have exercised onepower rather than another.
There remain only two other matters which call for comment. Itwas said that the resolution of the Board of Directors to sell the propertyat Hultsdorp and not at the spot was evidence of negligence. Thelearned trial Judge has dealt with this matter and I agree with the reasonsgiven by him for holding in favour of the Bank. The plaintiff’s effortto sell the houses at the spot on 4th February, 1954, proved abortiveand could hardly encourage his creditor to repeat the experiment.
The last point is that the Bank was remiss in not publishing that itwas not the intention of Government to acquire the land in the process-of enlarging the aerodrome. In reply to a letter by the plaintiff to theMinistry of Transport and Works he was informed by Pll of 11th April,1955, “ that it is not at present the intention of Government to acquirethe land on which your buildings stand for purposes of Airport Develop-ment. It is regretted, however, that it is not possible to make a publicannouncement of this in the press ”. By a letter of 22nd April, 1955,PI 2, the plaintiff was informed by the Ministry that he was free to makeuse of its letter of 11th April, 1955. P 16 of 1st July, 1955, shews thatthe plaintiff distributed a printed notice which carried a copy of Pll.
I do not see why the Bank should have involved itself in some corres-pondence between the plaintiff and the Ministry of Transport and Works.Suppose the Bank had published Pll as part of its advertisements, itwould have been helpless if an intending purchaser asked for moredetailed information concerning the " present ” intention of Governmentnot to acquire the property. Some official communications are
1 3 App. Cases 430.*(1$27) A. G. 226.
3 {1939) 1 K. B. 520.
392
PTJLLE, J—Mendia Silva v. The Ceylon State Mortgage Bank
misleading not on account of what is said hut on account of what is not-said. It would not have been wise for the Sank on its own responsibilityto have published-Pll -witheut-underatanding-fully- its implications. Itis, in my view, the proper attitude of any party to a transaction not to-.make or publish any statement which might thereafter be challenged-even as an innocent misrepresentation. Advertising the sale was in thehands of the iBank and having conformed to the express requirements ofthe statute it was perfectly free to decide for itself what further informa-tion it ought to give. An omission to give any further information isnot an act of negligence.
In my opinion the appeal fails on all the points urged on behalf of theplaintiff and should be dismissed with costs.
It is distressing to contemplate that the State Mortgage Bank Ordi-nance intended presumably to provide credit facilities on good landed'security to Ceylonese in need of capital has been an instrument of ruinto the plaintiff. It is not the function of the courts to indulge in criticismof the policy underlying any legislative measure, hut it is plainly theirduty to point out that a piece of legislation intended to benefit the subjecthas in its operation produced a result revolting to one’s sense of justiceand fair play. The plaintiff could not have suffered as great a loss even,if his creditor had been a rapacious money lender. As I have said earlier,the property mortgaged valued at Rs. 342,000 was sold for Rs. 165,500.The Bank had at no time any reason to believe that the property bad-depreciated in value. The contrary was established by the evidencecalled for the Bank. As an investment the Bank enjoyed a large marginof safety, even if interest calculated at a penal rate and the premia oninsurance had been unpaid for a few years or, at least, until such time as.the plaintiff was in a position to surmount the difficulties which besethim. The basic cause of the plaintiff’s undoing is the most unusual powerconferred by the Ordinance on the Bank to levy execution even if a singleinstalment was unpaid on the due date. It would have been wiser hadsome provision been made for the debtor to obtain a moratorium from anappellate tribunal, be it judicial or even administrative, if the tribunalwas satisfied that the Bank was adequately protected against any loseof capital or interest. In the absence of such a provision the machineryof the Ordinance has moved blindly like a Juggernaut and crushed theplaintiff. The Bank can derive satisfaction that its debts have beenpaid to the last farthing. The purchasers at the auction sale can derivefeven greater satisfaction in that they were able to buy eight newly builthouses in an urban, area at a time of acute housing shortage for less thanhalf the value at which they were estimated on behalf of the Bank, butthe object of the supposed bounty of the legislature is left to rue the dayhe yielded to the temptation of applying to the State Mortgage Bankfor a loan.
Appeal dismissed.