039-NLR-NLR-V-49-NADARAJAH-et-al.-Appellants-and-KANAPATHY-et-al.-Respondents.pdf
HOWARD C.J.—Nadarajah v. Kanapathy.
121
1948Present: Howard C.J. and Nagalingam J.
NADARAJAH et al., Appellants, and KANAPATHY et at…
Respondents,
S. G. 298—D. C. Jaffna, 66.
Trust—Notariat conveyance of land—Transferee to pay off mortgage debt on land—Oral agreement to hold land in trust till debt was repaid—Is agreement en-forceable t—Statute of Frauds—Trusts Ordinance, section 5 (3).
By deed P 1, notarially attested, plaintiff’s mother- since dead and the co-plaintiffs transferred certain lands to the first defendant. These lands weresubject to mortgage decrees in favour of the second and third defendant*.The consideration for the transfer was the amount due on the decrees. Therewas an oral agreement between the parties that the first defendant was tore-transfer the lands on payment to him within a reasonbale time of the amountdue on the mortgage decrees which he had undertaken to settle and that heshould hold the land in trust till then
Held, that the agreement was enforceable et law although it was not notariallyattested. To hold otherwise would allow the Statute of Frauds to be usedus a protection or vehicle for frauds.
Valliyammai Atchi v. Abdul Majeed (1947) 48 N. L. H. 289, followed
Appeal from a judgment of the District Judge, Jaffna.
C. Thiagalingam with V. Arulatnbalaui and C. Chellappah, for plaintiffs,appellants.
A. Hayley, K.C., with T. B. Dissanayake, for first, second and thirddefendants, respondents.
S. J. V. Chelvanayakam, K.C., with P. Navaratnarajdh, for fourthdefendant, respondent.
Cur. adv. wit.
January 29, 1948. Howard C. J.-—.
This is an appeal by the plaintiff and co-plaintiffs from a decision of theDistrict Court of Jaffna dismissing their action with costs. The actionwas instituted by the plaintiff against the defendants praying that thedefendants should on the plaintiff depositing Rs. 650 in Court reconvey acertain plot of land called Veeramanpalaiyamuttan on the ground thathis mother Nagamma, since dead, had transferred this land and twoother lands to the first defendant on trust with an undertaking by himto retransfer the lands to her or her heirs on the payment of Rs. 850 andinterest. The plaint farther alleged that the first defendant had there-after transferred the said lands to his daughter the third defendant and
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HOWAJRJD C.J.—Nadarajah v. Kanapathy.
the first and third defendants had in turn fraudulently and collusivelyand for no consideration transferred them to the fourth defendant inorder to deprive the plaintiff of his right to obtain a retransfer. In thealternative the plaintiff asked for judgment against the defendants in thesum of Rs. 1,750 being the difference between the value of the landand the amount due to the first defendant, that being the amount bywhich the first defendant is alleged to have enriched himself by hisfraudulent conduct with the connivance of the second, third and fourthdefendants. The second defendant is the husband of the third defendant.The first, second and third defendants by their anwser denied that theland was conveyed to the first defendant in trust. They further stated.that a half share of the land belonged to one S. Arulampalam and hiswife Maheswari and that Arulampalam, Maheswari and Nagamma (whoowned the other half) had transferred the land in suit and another landto the first defendant in consideration of the latter undertaking to settletwo mortgage decrees which had been entered against Arulampalam andMaheswari. Nagamma joined in the transfer as the first defendantrefused to purchase the lands unless Nagamma’s half share was alsoconveyed to him. The fourth defendant filed a separate answer denyingall knowledge of any trust or agreement to retransfer. The fourthdefendant further maintained that he was a bona fide purchaser for valuehaving purchased the land on July 18, 1942, from the first, second andthird defendants for Rs. 1,300 paid in the presence of the Notary, thatbeing the sum that the land was reasonably worth. On February 4,1943, the plaintiff with the consent of the defendants moved to add S.Arulampalam and his daughter as parties (Maheswari having died) asthey were entitled to a half share of this property. S. Arulampalamconsented to be added as co-plaintiff and was also appointed guardianad litem of his minor daughter Saraswathy. An amended plaint wasfiled on March 11, 1943, in which S. Arulampalam and Saraswathy aredescribed as the first and second co-plaintiff.
The District Judge in coming to a conclusion in favour of the defendantshas decided the issues material for the purpose of this appeal as follows :—
The deed No. 380 of April 16, 1936, P 1, was not executed in turst,
but there was an informal agreement between the parties for areconveyance in the terms specified by Notary Ragunathan inhis evidence.
The land referred to in the plaint was conveyed to the first defendant
in consideration of the first defendant paying a sum ofRs. 1,397.25 in full satisfaction of the decrees referred to inparagraph 4 of his answer.
The first defendant had not paid the said amounts.
The agreement referred to in paragraph 3 of the plaint is not
enforceable at law inasmuch as the sum is not notariallyattested.
The plaint dees not disclose a trust valid in law in favour of
Nagamma or the plaintiffs inasmuch as the alleged trust hasnot been declared in a notarially attested instrument of trust.
HOWARD C.J.—Nadarajah v. Kanapaihy.
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The fourth defendant was a bona fide purchaser for value of the
land described in the schedule to the plaint.
The fourth defendant was not aware of the trust as alleged in
paragraph 3 of the plaint at the time of the execution of the
transfer in his favour.
The learned District Judge in arriving at these findings states that hesees no reason for not accepting the facts as stated by Notary Ragu-nathan, a witness called by the plaintiffs. By the deed P 1 attested byRagunathan Nagamma, S. Arulampalam and his wife Maheswari trans-ferred to the first defendant two lands, the first of which is the subjectmatter of this action. The two lands were subject to mortgage decrees.The decree holders were the second and third defendants, one Visuva-lingam and his wife Rasammah. The consideration for P 1 was Rs. 850,the amount due on both the decrees. According to Ragunathan’sevidence there was an oral agreement between the parties to P 1 that onthe payment to the first defendant of the money paid by him to themortgage creditors within a reasonably short period Arulampalam,Maheswari and Nagamma were to be entitled to a reconveyance of thetwo lands within a reasonably short period, that is to say, within a periodof one or two years. The first defendant was to hold the lands until thedebt was settled. The parties to P 1 were aware that the lands trans-ferred by P 1 were worth much more than Rs. 850. With regard tosubsequent events Ragunathan states for a period of about 3 monthsprior to July, 1942, the first defendant and Arulampalam (the 1st co-plaintiff) had seen him from time to time with regard to the amount tobe paid on account of the mortgage debts which the first defendant hadundertaken to settle so that a reconveyance in favour of Nagamma andthe first co-plaintiff could be executed. A dispute arose as to the amounteach had paid towards the liquidation of those debts and as costs in thecases. They were unable to agree on the amount and on a date betweenJuly 11 and 18, 1942, the discussion in his office became so heated thatthe parties were about to exchange blows. The first co-plaintiff and thesecond defendant had prior to that day given Ragunathan instructionsto draft a transfer of the land in dispute to one Nallathamby, a nomineeof the first co-plaintiff for a sum of Rs. 1,000. The first co-plaintiff haddeposited Rs. 750 with him on the day the instructions were given, thebalance to be paid when the deed was signed. Th negotiations forthe reconveyance of the land to Nagamma and the first co-plaintiffhaving fallen through Ragunathan proceeded to find another purchaser.On July 18, 1942, the four defendants came to his office and the first,second and third told him that they wanted to transfer the land indispute, a portion of which had been dowered by the first defendant tothe third defendant, his daughter, by deed (4D7) dated June 5, 1938, tothe fourth defendant. Ragunathan told them that the money had beendeposited by the first co-plaintiff and that if they did not want to transferthe land to him but to someone else, he had no objection. The fourthdefendant was willing to pay Rs. 1,300 for the land. The full amountwas paid in the presence of Ragunathan and the deed (4D5) was executed.Ragunathan explains the advice he gave in regard to the execution of this
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deed by the fact that a long time had elapsed since the execution of P 1and by the failure of the first co-plaintiff to come to an agreement withthe first defendant as to the amount to be paid to the latter.
The first question that requires consideration is whether the learnedJudge was right in holding that the deed P 1 was not executed in trust.At an early stage in the trial applying the decision in the case of Vatti-yanunai Atchi v. Abdul Majeed1 the learned Judge allowed the plaintiff tolead oral evidence in order to establish that the lands were being heldin trust by the first defendant pending the settlement of the mortgagedebts. When allowing this evidence to be led, the learned Judge saidthat the question whether the plaintiff has succeeded in establishing atrust or not will have to be decided later after the evidence has been led.As I have already stated the learned Judge has accepted the evidence ofRagunathan the Notary. I see no reason to canvas this decision. Thereis nothing in the case to suggest that Ragunathan was anything but anhonest and impartial witness acting as a notary in the interests of all theparties. No one was better qualified to testify as to the real agreementbetween the parties to PI. Having regard to the evidence of Ragunathanwas the learned Judge right in law on the principles formulated inVaUiyammai Atchi v. Abdul Majeed in holding that PI was not executedin trust ? The decision of this Court in VaMiyamtnai Atchi v. AbdulMajeed was affirmed by the Privy Council {vide 48 N. L. It. 289).
The facts in the case were as follows :—
“ M who was entitled inter alia to certain immovable property of thevalue of over Rs. 460,000 executed an unconditional notarial transferof these properties to N for a consideration of Rs. 203,256. It wasalleged by M that this transfer was in pursuance of a verbal agreementthat N was inter alia to hold the properties in trust for him ; to payout of the income certain specified debts and interest to himself at12 per cent, on the said sum of Rs. 203,256 and to reconvey the pro-perties to M on the liquidation of the said sum of Rs. 203,256 andinterest. N died and his widow claimed to hold the properties freeof the trust. In an 'action by M for a declaration of trust andconsequential relief—
Held, that oral evidence was admissible to establish the trust.
Held, further, that the formalities required to constitute a validtrust relating to land are to be found in section 5 of the Trusts Ordinanceand not in section 2 of the Prevention of Frauds Ordinance ; that theact of the widow in seeking to ignore the trust and to retain the propertyfor the estate was to effectuate a fraud; that, therefore, under section5 (3) of the Trusts Ordinance even a writing was unnecessary andsections 91 and 92 of the Evidence Ordinance had no application.”
Is it possible that having regard to the evidence of Ragunathan todistinguish the facts of the present case from those in ValliyammaiAtchi v. Abdul Majeed ? In the latter case the transfer was in pursuanceof a notarial agreement to hold the properties in trust, to pay out of theincome specified debts and interest to the transferee at 12 per cent, and
1 {1944) 45 N. L. R. 169.
HOWARD C.J.—Nadarajah v. Kanapathy.
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to reconvey the properties on the liquidation of the said sum and interest.In the present case Ragunathan states that the first defendant was tohold the lands in trust till the mortgage debts were liquidated and thata reconveyance should be executed within a reasonable time. Ragu-nathan also states that both parties were aware that the lands transferredby P 1 were worth much more than Rs. 850. As in VaUiyammai Atchi v.Abdul Majeed the transferors remained in possession. The learnedJudge whilst holding that there was an informal agreement between theparties in the terms stated by Ragunathan then states that no attemptwas made either by the plaintiff or co-plaintiff thereafter to pay thefirst defendant the balance due to him. The first defendant wastherefore morally free to sell the two lands. He sold the second landfirst and when after negotiations for obtaining a reconveyance of the firstin favour of the first co-plaintiff’s nominee had broken down he cannotbe blamed for selling the land in dispute too, quite apart from the legalposition regarding the oral agreement. I find it difficult to understandhow the learned Judge has arrived at this conclusion after satisfyinghimself that the oral agreement between the parties in the terms statedby the Notary existed. Moreover in the deed dated September 16, 1936,P 7 Nagamma, the first co-plaintiff and his wife Maheswari of the firstpart and the first defendant of the second part leased to one Kandiahthe land in dispute. In this lease to which the first defendant was aparty P 1 was recited as a deed by which Nagamma, and Maheswaritransferred the lands in dispute in trust to the first defendant. Thelatter agreed to set off the rent paid by the lessee in part liquidation of theamount due on the mortgage decrees. The first defendant has given tothe lessee a receipt for rent P 8 for a sum of Rs. 125. This receipt is alsodated September 16, 1936. There is also a receipt P9 dated September16, 1936, from the first defendant acknowledging a sum of Rs. 35.40as interest on the principal sum of Rs. 850 due to him by Nagamma, thefirst co-plaintiff and his wife. In regard to the liquidation of the mortgagedecrees by the first defendant it would appear from 4D2 and 4D3 that hepaid Rs. 346 and liquidated the amount due in respect of action No. 3142/Aof Court of Requests, Kayts, on July 18, 1942. From 4D4 it seems thatthe first defendant paid on the same day, that is to say, July 18,1942, thesum of Rs. 851.25 in liquidation of the decree in case No. 7,796 of theDistrict Court of Jaffna. So it would appear that the mortgage decreeswere liquidated by the first defendant only, on the day when the transfer41)5 was made to the fourth defendant. Moreover the transfer wasmade when negotiations were still proceeding between the first co-plaintiff and the first defendant for a reconveyance to the nominee of theformer and when Ragunathan was holding a sum of Rs. 750 from thefirst co-plaintiff as part consideration for such reconveyance. In thesecircumstances I do not understand how the learned Judge could holdthat the first defendant could not be blamed for selling the land indispute to a person other than the plaintiff.
In my opinion the learned Judge in view of his acceptance of thetestimony of Ragunathan should have found that P 1 was executed intrust. The agreement referred to in paragraph 3 of the plaint was havingregard to the decision in VaUiyamtnai Atchi v. Abdul Majeed enforceable
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at law even though it was notarially attested. To hold otherwise wouldallow the Statute of Frauds to be used as a protection or vehicle forfrauds. In this connection I would refer to Lincoln v. Wright1.
The only remaining question for consideration relates to the positionof the fourth defendant and whether the learned Judge was right inholding (a) that he was a bona fide purchaser for value and (b) that hewas riot aware of the trust at the time of the execution of the transferin his favour. In regard to (a) there is no doubt if Ragunathan’s evidenceis accepted that the fourth defendant purchased the land for Rs. 1,300.I agree with the learned Judge that there was no reliable evidence toestablish the fact that this figure did not represent the approximatevalue. The learned Judge in holding that the fourth defendant had noknowledge of the trust makes the point that he is not related to the firstdefendant and is of a different caste. He is satisfied that it was Rama-lingam who arranged the sale to him and that even if the evidence of thefirst co-plaintiff and Notary Vinasithamby as to what they say they toldthe fourth defendant is accepted in its entirety, it is insufficient to fixhim with notice of a trust valid in law as the trust that they referred towas the informal agreement to reconvey which failed to materialise.Notary Vinasithamby’s evidence is explicit. He states that the firstco-plaintiff and the first defendant came to him to settle their differences.To his knowledge the first co-plaintiff had the money to pay the firstdefendant in order that the first defendant might reconvey the lands andoffered to give the money to Notary Ragunathan. The first defendantrefused to reconvey the lands. Vinasithamby then goes on to say thathe knew the fourth defendant who lived close to his house. The fourthdefendant questioned him as to whether it was proper for outsiders topurchase the land in suit. He also says that he told the fourth defendantthat the first co-plaintiff had transferred the lands to the first defendantfor a sum of Rs. 850 in trust and also that the lands were worth Rs. 4,000to Rs. 5,000 and it was not proper for others to get into that transaction.The evidence of Vinasithamby who has not been in any way discreditedproves that the fourth defendant had notice of the trust. It is notinconsistent with the testimony of Ragunathan. In fact from the historyof the negotiations that led up to the execution of 4D5 it is difficult fromthe latter’s evidence to resist the inference that the fourth defendant wasfully aware of the trust. In this connection according to Ragunathanhe told the first, second, third and fourth defendants about the transactionbetween the first co-plaintiff and the first, second and third defendantscollapsing. Surely this must have put the fourth defendant on hisguard. In my opinion the fourth defendant had notice of the trust.
For the reasons I have given the judgment of the District Court isset aside and judgment is entered in favour of the plaintiffs as prayedin paragraph 9 of the plaint together with costs in this court and the Courtbelow.
Nagalengam J.—I agree.
Appeal allowed.
1 (1859) 45 E. R. 6.