NADARAJAH v. GHANI

024-SLLR-SLLR-2001-V-1-NADARAJAH-v.-GHANI.pdf


NADARAJAH
v.GHANI
SUPREME COURTS.N. SILVA, C.J.
ER.P PERERA, J. ANDBANDARANAYAKE, J.
SC APPEAL NO. 25/98SC (SPL) LA NO. 138/97
A. NO. 509/92(F)
C. COLOMBO NO. 15045/L15th JANUARY, 2001
Vindicatory suit – Lex Commissorla and Pactum Commlssorlum -Conditional transfer or mortgage.
The plaintiff – respondent ("the plaintiff”) instituted action in the DistrictCourt for declaration of title and ejectment of the defendant-appellant(“The defendant") from the property in question. The District Judgedismissed the action. The Court of Appeal allowed the plaintiff’s appeal.
The original owner of the property, one Gamini Perera, transferred theproperty to Ghani, the plainitiff by Deed of Transfer No. 2087 dated17.08.1979 attested by M.Y.M. Nizar, Notary Public (PI), the plaintiff'sNotary, for the consideration of Rs. 300,000/- out of which only Rs.50,000-was paid. By Deed No. 2088 of 17.08.1979 attested by M.Y.M. Nizar,Notary Public (P2), it was stipulated that if the balance sum of Rs.250,000-was not paid to the vendor on or before 31.10.1979, title would revert tothe vendor, and the sum of Rs. 50,000/- paid on PI would be forfeited bythe vendor and the plaintiff shall not be entitled to claim the same.
The plaintiff also executed a Mortgage Bond No. 788 dated 17.8.1979 infavour of the vendor attested by D.J.B. Fernando, Notary Public (P3), thevendor's Notary, to secure payment of the balance consideration on PI.
The plaintiff failed to pay the balance sum of Rs. 250,000/- before31.10.1979. Thereafter the vendor transferred the property to one D.H.Rde Silva by Deed of Transfer No. 438 dated 7.12.1982, attested by S.Kumarasinghe, Notary Public (Dl). The said D.H.R. de Silva died. Hisestate was adminstered in D.C. Colombo case No. 30477T and the propertywas transferred to the defendant by the widow by Deed of Transfer No. 92dated 28.10.1987 attested by T. Kanagasabai, Notary Public (D2).
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It was argued for the plaintiff before the Supreme Court that P2 cannot beregarded as a lex commlssorta added to PI but It was the mortgageeunder P3 who could become the owner If the mortgagor (the plaintlfT)failed to pay the debt secured by P3.
Held :
PI and P2 should be read together; and the stipulations in P2 wouldoperate as to the payment of the balance consideration and the consequenceof the default be valid as lex commlssorla.
Per Bandaranayake, J.
“it appears that P3 was attested by the seller's notary out of an abundanceof caution to strengthen the position of the seller. It certainly cannot detractfrom the reversion of the title to the seller upon the failure to pay thebalance consideration as stated above.”
Cases referred to :
Dlngtrl Natde v. Klrlmentke (1955) 57 NLR 559
Monies v. Whlteley (1912) 1 Ch. 735
W.D. Balya v. K.D.A. Karunasekera (1954) 56 NLR 265
Macedo u. Strand (1922) AC 330 at 337
Thambtptllat v. Muthucumarasamy (1955) 58 NLR 387
APPEAL from the judgement of the Court of Appeal.
P.A.D. Samarasekera, PC with Dr. Jayantha de Almeida Gunaratne forappellant.
Fhlsz Musthapha, PC with G. Jayakody for respondent.
Cur. adv. vult.
Editor’s Note
Vide Weeramantry (1967) Vol. II p. 727 foot note 65 where the authordefines “pactum commissorium” as an agreement, annexed to a mortgage,for forfeiture in the event of non-payment.
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Nadarajah v. Ghent (Bemdaremayake, J.)
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May 24, 2001
SHIRAN1 A. BANDARANAYAKE, J.The Plaintiff-Appellant-Respondent (hereinafter referred toas respondent) instituted action in the District Court, Colombofor a declaration of title and to eject the Defendant-Respondent-Appellant (hereinafter referred to as the appellant) from theproperty In question. The Additional District Judge, Colomboby his order dated 12.10.1992 dismissed the respondent'saction. The respondent appealed to the Court of Appeal and byjudgment dated 14.03.1997, the Court of Appeal allowed therespondent’s appeal. The appellant appealed to this Court andSpecial Leave to Appeal was granted on the question “whetherthe Court of Appeal erred in holding that the agreement *P2’was illegal.”
The facts of this case are briefly as follows:
The original owner of the property, one Gamini PereraAbeywardene, transferred the property to the respondent byDeed of Transfer No. 2087 dated 17.08.1979. attested byM.Y.M.N. Nizar, Notary Public, for the consideration of Rs.300,000/- (PI). The respondent paid a sum of Rs. 50,000/-and executed a Mortgage Bond No. 788 dated 17.08.1979attested by D.J.B. Ffemando, Notary Public (P3). The partiesalso entered into a notarial agreement No. 2088 dated17.08.1979 attested N.S.M. Nizar, Notary Public whichcontained the following stipulations (P2) :
if the respondent fails to pay the said balance sum ofRs. 250,000/- due to the vendor on PI on or before31.10.1979, the said transfer effected by PI would beinvalidated and title would revert to the vendor ;
11. the sum of Rs. 50,000/- paid by the respondent to the vendorwould be forfeited by the vendor and the purchaser shallnot be entitled to claim and recover same.
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The respondent failed to pay the said sum of Rs.250,000/-before 31.10.1979 as stipulated In P2. Thereafter the vendortransferred the property to one D.H.R. de Silva by Deed ofTransfer No. 438 dated 07.12.1982 attested by S.Kumarasinghe, Notary Public (Dl). The said D.H.R de Silva diedthereafter. His Estate was administered in the District Court,Colombo (Testamentary Case No. 3047) and the property wastransferred to the appellant by the widow, by Deed of TransferNo. 92 dated 28.10.1987 attested by T. Kanagasabai, NotaryPublic (D2).
The only question that arises in this matter is whether theCourt of Appeal erred in law in not considering or failing toconsider, the principle of lex commlssoria, when it applied theprinciple of pactum commlsorlum.
Learned President’s Counsel for the respondent contendedthat the Deed of Transfer marked PI is an absolute and anunconditional sale which transferred the title of the property bythe seller to the buyer. He took up the position that PI wasattested by the buyer’s Notary whereas P3 was attested by theseller’s Notary. In these circumstances, learned President'sCounsel contended that the agreement P2 cannot in law beregarded as a lex commissorla, as the pact was not added to orincluded in the contract of sale (PI). His position is that PIdoes not make any reference to P2 or any intention of enteringinto an agreement in the nature of P2. Further, learnedPresident’s Counsel submitted that the attestation clause of PIrefers to P3 by which the balance purchase price was securedand the stipulations in P2 provide that the mortgagee couldbecome the owner of the mortgaged property if the mortgagorfails to pay the debt mentioned in P3. Therefore the position ofthe respondent is that, P2 is a separate agreement which hasno status in law as it is illegal and the principle of lexcommissorla does not apply in this situation. LearnedPresident's Counsel for the respondent relied on Sir J. W. Wessels,(The Law of Contract in South Africa, Edited by A.A. Roberts,
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Nadarajah v. Ghani (Bandaranayake, J.)
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2nd edition, Butterworth (Africa) pp. 432-433) who had statedthat,
“The lex commissoria Is a pact added to a contract of sale,to the effect that unless the price is paid within a certaintime, it is to be considered as If there had been no sale.”
He also cited Wille in Principles oj South African Law, (5thedition, p. 377) where it was stated that,
“Where the time for performance has been fixed in thecontract, the debtor in mora if he fails to perform hisobligation by such time, but the creditor is not entitled tocancellation of the contract unless-
i. there was an express agreement between the parties thatdefault of performance by the day fixed would entitle theother party to cancel the contract. Such an agreement whenannexed to a contract of sale or of lease is known as the lexcommissoria.”
Based on the above authorities, learned President’s Counselfor the respondent contended that the essence of the principlelex commissoria is that the 'commissary pact should be a termin the agreement of sale or annexed thereto.’ His position is thatdeed No. 2088 (P2) is a separate agreement which has no statusin law as it is illegal and therefore the principle of lexcommissoria does not apply.
Learned President’s Counsel for the appellant submittedthat PI, P2 and P3 must be regarded as one transaction inorder to ascertain its true nature. According to him all three (3)deeds were executed with the full knowledge of parties and interms of the requirements of law. He cited Dingiri Naide v.Kirimenike(" where it was held, quoting Fletcher-Moulton, L.J.in Manks v. Whiteley121 that.
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“Where several deeds form part of one transaction and arecontemporaneously executed they have the same effect forall purposes such as are relevant to this case as if they wereone deed. Each Is executed on the faith of all others beingexecuted also and Is Intended to speak only as part of theone transaction and if one is seeking to make equities applyto the parties, they must be equities arising out of thetransaction as a whole.”
Lex commtssoria is ‘a pact annexed to a purchase at thetime it is contracted to the effect that, unless the price be paidat a certain time, the thing shall be considered as unbought….[It] is valid even though it provides that the seller may keep anyportion of the purchase price received as a penalty for the buyer 'sdefault’ (C.G. Weeramantry, The Law oj Contracts, Volume 11,1967, p. 918).
Deeds No. 2087 (PI) and No. 2088 (P2) were attested byM.Y.M. Nizar, Notary Public on 17.08.1979. The Mortgage BondNo. 788 (P3) was also executed on the same day, but by M.D.J.EFernando, Notary Public. Deed No. 2087 (PI) contains elementsof a sale, but it cannot be contended that title was absolutelyand unconditionally transferred thereby from the seller to thebuyer, since only Rs. 50,000/- of the total consideration ofRs. 300,000/- was paid at the time of its execution.Consideration is the vital element in the sale and the omissionin PI to provide for the terms and conditions for the payment ofthe balance consideration is supplied by Deed P2, executed onthe same day. Hence, Deeds PI and P2 should be read together.Stipulations (i) and (ii) contained in P2, set out above, wouldbe operative as to the payment of the balance considerationand the consequence of default be valid as lex commtssoria.The mortgage P3 only creates a security for the discharge of theobligation to pay the balance consideration. It has no bearingon the title to the property. When PI becomes invalidated interms of P2, upon the failure to pay the balance consideration,title would revert to the vendor and the mortgage P3 would ipso
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Nadarajah v. Ghani (Hector Yapa, J.)
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facto cease to be operative as security. It appears that P3 wasattested by the seller’s Notary out of an abundance of cautionto strengthen the position of the seller. It certainly cannot detractfrom the reversion of the title to the seller upon the failure topay the balance consideration as stated above.
In W.D. Baiya v. K.D.A. Karunasekera131 it was held, quotingMacedo v. Strand141 that,
“A deed may be delivered on a condition that it is not to beoperative until some event happens or some condition isperformed. In such a case it is until then an escrow only.”
In Thambipillai v. Muthucumarasamy151 referring to a salesubject to conditions, it was stated that,
“Neither of these conditions is In any way inconsistent withthe incidence of a contract of sale (as opposed to a contractof mortgage). The first condition constituted a ‘pactum deretrovendendo’ which is well recognised in Roman-DutchLaw. Voet 18-3-7. The second condition represents anagreed and perfectly permissible departure from the normalright of a purchaser to obtain immediate possession of theproperty sold to him.”
Explaining the meaning of ‘lex commissoria Wille statedthat,
”… the creditor may cancel the contract if ‘time was of theessence of the contract’, or was made so by a notice ofrescission. Time is of the essence when the parties expresslyor impliedly agreed that default of performance by the dayfixed would entitle the other party to cancel the contract.An express clause to this effect is known as a lexcommissoria.” (Principles of South African Law, 8th edition,p. 506)
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When the respondent failed to pay the balance purchasesum of Rs. 250,000/- on or before 31.10.1979 as stipulated inPI, the transfer became invalid and the title reverted to thevendor. The vendor sold it to D.H.R. de Silva (D1} and upon hisdeath his Estate was administered and the property In question,was transferred to the appellant by D.H.R. de Silva's widow (D2).who is now vested with title..
The deed marked P2 stipulated that the sum of Rs.50,000-paid by the respondent to the vendor would be forfeited by thevendor In the event the respondent failed to pay the balancepurchase price of Rs. 250,000/- on or before 31.10.1979. Asmentioned earlier the respondent failed to pay the balancepurchase price as stipulated. In this kind of a situation, Willehas pointed out that,
“A lex commlssorla Is valid even though It provides that theseller may keep any portion of the purchase price that hehas received as a penalty for the purchaser's default, inwhich case, however, the latter may retain the fruits of theproperty In the intervening period. The fact that a forfeitureclause contains penal claims in addition to a lexcommissoria does not prevent the seller from enforcing theclaims under the lex only.” (Principles ojSouth African Law,5th edition, 316)
In the circumstances, the respondent is not entitled torecover the said sum of Rs. 50,000/- and the clause regardingthe forfeiture of the money is Veil id. The appeal is accordinglyallowed, the Judgment of the Court of Appeal dated 14.03.1997is set aside and the judgment of the District Court, Colombodated 12.10.1992 is affirmed. There will be no costs.
S.N. SILVA, C.J.I agree.
PERERA, J.I agree.
Appeal allowed.