PIYASENA v. DON VANSUE

032-SLLR-SLLR-1997-2-PIYASENA-v.-DON-VANSUE.pdf


CA
Environmental Foundation Ltd. v. Minister of Public Administration
and Six Others (Dr. Ranaraja, J.)
311
PIYASENA
v.
DON VANSUE
COURT OF APPEAL.
WIGNESWARAN, J.
A. 875/91 (F).
C.KULIYAPITIYA 9009/L.
JUNE 12. SEPTEMBER 24 AND DECEMBER 2. 1996.
Rei Vindicatio Action – Trust Ordinance, sections 83, 84, 97 – Beneficial interest -Constructive trust – Attendant circumstances – Evidence Ordinance, sections11 and 43.
The plaintiff-respondent instituted action for a declaration of title, damages andejectment, on a deed which was a conveyance by the defendant-appellant tohim.
The defendant-appellant took up the position that the transaction on the deedwas merely a loan transaction and that the beneficial interest in the land wasnever transferred to the plaintiff-respondent; he sought benefits under section 83of the Trust Ordinance and claimed a constructive trust. The District Court held infavour of the plaintiff-respondent. On appeal-
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[1997] 2 Sri LR.
Held:
Even though a transfer is in the form of an outright sale it is possible to leadparole evidence to show that facts exist from which it could be inferred that thereal transaction was either-
money lending, where the land is transferred as a security as in this case or;
a transfer in trust-in such cases section 83 would apply.
A trust is inferred from attendant circumstances. The trust is an obligationimposed by law on those who try to camouflage the actual nature of a transaction.When the attendant circumstances point to a loan transaction and not a genuinesale transaction the provisions of section 83 of the Trust Ordinance apply.
Per Wigneswaran, J.
The behaviour of the plaintiff-appellant with Samagi Mudalali in the backgroundand the defendant-appellant just before and after the signing of P2 and P3 andeven after the end of the period of lease, show them to be that of rapaciousinvestor/s and persecuted borrower respectively rather than a genuinepurchaser and a overholding tenant.
It cannot be reasonably be inferred consistently with the attendantcircumstances that the defendant-appellant intended to dispose of the beneficialinterest to the property in question.
APPEAL from the judgment of the District Court of Kuliyapitiya.
Cases referred to:
Premawathie v. Gunawathie Perera – BASL Journal Vol. V part 1-21.
Adaicappa Chetty v. Caruppan Chetty- 22 NLR 417,426 (PC)
Valliyammai Atchi v. Abdul Majeed – 48 NLR 289 (PC).
Thangavelauthan v. Saverimuttu – 54 NLR 28.
C. Seneviratne. P.C. with N. D. S. Jayasinghe for defendant-appellant.
Ranjan Guneratne for plaintiff-respondent.
Cur. adv. vult.
CA
Piyasena v. Don Vansue (C. V. Wigneswaran, J.)
313
March 31, 1997.
C. V. WIGNESWARAN, J.
Plaintiff-respondent instituted this action for declaration of title,damages and ejectment. He relied on deed of Transfer No. 424dated 09.09.1986 (P2) for his title, which was a conveyance by thedefendant-appellant himself to the plaintiff-respondent.
The defendant-appellant took up the position that the transactionon the deed was merely a loan transaction and that the beneficialinterest in the land was never transferred to the plaintiff-respondent.He sought benefits under section 83 of the Trust Ordinance andclaimed a constructive trust.
By judgment dated 04.10.1991 the District Judge of Kuliyapitiyaheld in favour of the plaintiff-respondent. This is an appeal from thesaid judgment.
Section 83 of the Trust Ordinance is as follows:-
"83. Where the owner of property transfers or bequeaths it, and itcannot reasonably be inferred consistently with the attendantcircumstances that he intended to dispose of the beneficialinterest therein, the transferee or legatee must hold such propertyfor the benefit of the owner or his legal representative.”
Thus to set up a constructive trust the defendant-appellant shouldhave proved that “it cannot reasonably be inferred consistently withthe attendant circumstances” that the defendant-appellant “intendedto dispose of the beneficial interest” in the property that is the subjectmatter of this action.
The learned President’s Counsel on behalf of the defendant-appellant has pointed out the following favourable attendantcircumstances from which he said it could reasonably be inferred thatthe defendant-appellant never intended to dispose of the beneficialinterest to the plaintiff-respondent by Deed No. 424 (P2). These
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circumstances were pinpointed from the evidence led by the plaintiff-respondent himself:
Consideration on P2 paid not by plaintiff but by plaintiff'sbrother-in-law Samagi Mudalali who was a pawn broker and aman of means. (Vide page 221 of the Brief).
Plaintiff himself was not a man of means (Vide pages 220 and221 of the Brief).
Plaintiff did not go to the land in dispute nor check itsboundaries, nor know of the existence of a coir mill on the landexcept on the date of signing the deed and thereafter (Videpages 224, 226 and 230 of the Brief).
Notary’s fees and stamp fees re- P2 and deed of lease No. 425(P3) were paid by the defendant-appellant. (Vide pages 255and 256).
Plaintiff did not check title prior to the signing of P2 and P3(Vide page 239 of the Brief).
The need for the plaintiff to inform the Grama Sevaka that hehad purchased the property in question seems unnatural.
Watcher Somaratne’s evidence confirms Samagi Mudalali'sinterest in the property. His evidence contradicts plaintiff’sevidence (Vide pages 260 and 282, 292, 296 of the Brief). Hereferred to plaintiff, intermediary Joseph Fernando and othersgoing to the Grama Sevaka’s office from the Notary’s office inSamagi Mudalali’s van No. 40 Sri 3515.
Contradiction re-consideration of Rs. 150,000/- in plaintiff’sevidence.
The payment of Rs. 10,000/- per month as lease rent was acover for interest.
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Piyasena v. Don Vansue (C. V. Wigneswaran, J.)
315
Continuance of defendant-appellant in possession of theproperty in question. The order of the Primary Court Judge in a“Section 66 action" confirmed that the defendant never handedover possession.
Countering the argument that attendant circumstances in this casegive rise to an inference of a constructive trust the learned Counselfor the plaintiff-respondent said that,
Neither the answer nor the issues raised in this case pleadedthat Deed No. 424 created a trust. Instead it was said that DeedNo. 424 was given as a security for the loan of Rs. 150,000/-(Vide Premawathie v. Gunawathie Pereram BASL Journal Vol. Vpart 1 page 21 in this connection).
Parole evidence cannot be led to establish that money wasgiven as security for a loan thus varying the terms of P2 (VideWeeramantry Vol II page 641 and Adaicappa Chetty v.Caruppen Chettym).
If P2 was security for repayment of loan the intention was thatsecurity should be forfeited on failure to repay loan or violateconditions. No attempt made to repay loan nor interest fromSeptember 1988. Thus breach forfeited security on the basis ofdefendant-appellant’s own argument and entailed beneficialinterests passing to the plaintiff-respondent.
Land given as security cannot create a trust – Valliyammai Atchiv. Abdul Majeed<3).
In any event attendant circumstances negate trust in that,
P3 (lease bond) was executed on the same day as P2 and itwas a duly executed lease bond-Thangavelauthan v.Saverimuttuw
Rs. 120,000/- as lease money was paid for the period09.08.86 and 08.09.87;
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The lease was an admission of the nature of transaction andacceptance of the premises by the defendant-appellant aftersuch admission of the beneficial interests passing to theplaintiff-respondent;
If Rs. 10,000/- was interest paid, it was never paid after08.09.87. Clearly therefore the sum of Rs. 120,000/- waslease rent;
Possession was handed over to the plaintiff-respondent on03.01.88 (Vide page 215 and page 540 of the Brief); and
Placing of Somaratne as watcher, surveying of land, fencingthe premises at a cost of Rs. 35,000/-, making an applicationto have his name entered as owner (P5 and P6) – all negatea trust.
Primary Court proceedings irrelevant under section 43 of theEvidence Ordinance.
Issue 9(b) is an admission by appellant that respondent was inpossession.
Respondent never acted as a constructive trustee (Vide section97 of Trust Ordinance).
What took place before signing of P1 is irrelevant.
If consideration was paid by Samagi Mudalali the respondentcould be held as having acted only as a trustee of SamagiMudalali and not the appellant. (Vide section 84 of the TrustsOrdinance).
Appellant did not give evidence.
All these submissions would now be examined.
Section 83 of the Trust Ordinance has already been incorporatedinto this judgment. Significantly the learned Counsel for the plaintiff-
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Piyasena v. Don Vansue (C. V. Wigneswaran, J.)
317
respondent has not referred to this section but only to section 84 and97 of the Trust Ordinance.
As between the plaintiff and Samagi Mudalali the provisions ofsection 84 might have some relevance. But as between the plaintiff-respondent and the defendant-appellant what is relevant are theprovisions of section 83. The simple question at issue therefore iswhether the provisions of section 83 applies to the facts of this case.
Let us first consider some of the attendant circumstances, referredto by the learned President's Counsel appearing for the defendant-appellant.
The plaintiff did not go to the land he purchased nor check itsboundaries except on the day of the signing of P2 and P3. The title tothe property was not checked prior to the signing of these deeds. Itwas the defendant-appellant who was called upon to pay theNotary's fees and stamp charges on both P2 and P3. When a manpurchases a property he would pay the Notary’s fees as well as thestamp charges because the deed is written in his favour and to hisbenefit. The charges in respect of a lease bond since it is beneficialto both sides is shared by both parties. Here, all charges in respectof both transactions were called upon to be paid by the defendant-appellant.
When the plaintiff-respondent did not even know; up to the date ofsigning P2 and P3 of the existence of a coir mill on the land indispute it is surprising that Rs. 10,000/- per month has been insertedas the lease money. Unless prior discussion with regard to thepayment of lease money took place, such a high amount asRs. 10,000/- per month could not have been fixed. Only basis onwhich such exorbitant amount such as*Rs. 10,000/- a month couldhave been fixed as lease money with regard to a property purchasedfor a mere Rs. 150,000/- would have been the income assessed inrelation to the coir mill. Yet the plaintiff said, as follows in his evidence:-
g: 6 s©o® ocraSewSS Seaaag?e: esogoSttosS SoSeDS)
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[1997] 2 Sri L.R.

Thus the lease money at the rate of Rs. 10,000/- per month hadbeen fixed and deeds written without even finding out the incomeparticulars of the coir mill. The plantations hardly brought in anyincome.
It is significant to note that the transaction took place with thedefendant-appellant going over to meet plaintiff-respondent and notvice versa. (Vide bottom of page 231 of the Brief) in a case ofpurchase the buyer would go over to the property, examine itssuitability for purchase, its price etc. and come to a decision. Notnecessarily so with regard to a mortgage or raising of a loan. It is theborrower who is dominant in such a transaction trying to persuadethe investor to part with his money. Here was a case of the“purchaser” not going to the property but the owner or “seller" goingover to Dankotuwa to see the plaintiff-respondent. Presumably theother person who accompanied the owner (defendant-appellant) wasan intermediary.
In any case after the deeds P2 and P3 were written the defendant-appellant was left severely alone. Even after the so called lease
CA
Piyasena v. Don Vansue (C. V. Wigneswaran, J.)
319

a0£ S^Sca e®©a)©oc35) 88.03.15 oSS gmO e@o0S ox3©0®6i SSefl oa5a>©oesgSoO «x®£0©©eJ ®0 qpiS ©0 oooes). 6® djJM)©g© osoousoOd o@® o£e@ @gejEiS Sei^ ©0 canoes) ax5 ovo. c£o@ ©go efSS ©0a5, o^o0S eB&BOfflOiOetoJ ©£®D©ca 87.10.9 Opened qdesa ©0e4 e@o0S ODtSQ©®0£ 6® egsai sx5 qaes. 88.01.03SO e©o0S O3tio0mc5j o®@ o£c@0@ cgffi6Sec5 SSa s©0eS. 88.03.15 ®g egsSSooedoeDC5g ©6055 <5© ei®^©3© ea^saS ea0 wo. o®@ ot®$©<3© q?Kg©G5 esdjsg 0§a5 ooSoaioai g£g0S o&sQoduxA ©g ®j©o 87.10.09 ^oeoa) <$0sa5 §0aS ©g £©0® cgriSedC5C^ S3 ©0 S®0 O©O0S oj&SQoCxJO Q0S3 Q ©00.
At the end of the order the learned Primary Court Judge held thatthe plaintiff-respondent in this case was never handed overpossession of the property by the defendant-appellant in this case.
The learned Counsel for the plaintiff-respondent referred to section43 of the Evidence Ordinance under which the Primary Courtproceedings were irrelevant. This is not so. Read inter alia withsection 11 of the Evidence Ordinance the provisions of section 43 arerelevant to this case. The finding of the learned Primary Court Judgereferred to the police statement made by the plaintiff-respondent on15.03.1988 (V2) where the fact of currently being in possession ofthe property in question was never referred to. This fact is relevant inthat the conduct of the plaintiff-respondent even after the leaseperiod was over is relevant in coming to a conclusion with regard tothe attendant circumstances.
Thus the behaviour of the plaintiff-appellant with Samagi Mudalaliin the background and the defendant-appellant, just before and afterthe signing of P2 and P3 and even after the end of the period oflease, show them to be that of rapacious investors and persecutedborrower respectively rather than a genuine purchaser and anoverholding lessee.
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Sri Lanka Law Reports
[1997] 2 Sri LR.
Rs. 10,000/- per month as lease rent seems to be an interestcovertly claimed. All evidence points to Samagi Mudalali as thepuppeteer and the plaintiff-respondent a mere marionette. Eveninforming the Grama Sevaka of a purchase sans possession gives apredatory dimension to the whole episode. (Vide items 1, 2, 6, 7, and8 above under submissions made by Counsel for defendant-appellant).
Thus when the attendant circumstances point to a loan transactionand not a genuine sale transaction does the provisions of section 83of the Trust Ordinance apply, seems to be the question to answer.
Most certainly the issues did centre around the nature of thetransaction. Issue 7 referred to a loan transaction though SamagiMudalali was not mentioned. Issue 8 referred to interest atRs. 10,000/- per month. Issue 9(a) referred to Deed 424 being a.security for a loan. Issue 9(b) referred to the behaviour of the plaintiffas a “constructive trustee". No doubt the wording of issue 9(b) inSinhala may not have been the best way to have put across the ideaof a constructive trust. But the transaction was adequately referred toin order to bring it under the provisions of section 83 of the TrustOrdinance. In fact the issue 9(b) raised in Sinhala relating to thebehaviour as a "constructive trustee” seems to owe its origin to thewording of section 83 which says “the transferee or legatee musthold such property for the benefit of the owner or his legalrepresentative". May be the Sinhala translation of section 83 (or theOriginal in Law?) would throw more light on this peculiar wording ofthe issue. Therefore there is no doubt that throughout the case thedefendant-appellant put in issue the question of a constructive trust.Thus even though a transfer is in the form of an outright sale, it ispossible to lead parole evidence to show that facts exist from which itcould be inferred that the real transaction was either, (i) moneylending where the land is transferred as a security as in this case, or(ii) a transfer in trust. In such cases section 83 would apply. (Vide 48NLR 357 and Weeramantry on Contracts Vol. 11 page 647).
The learned Counsel for the plaintiff-respondent seems to confuse atransfer in trust with a transfer as security for a loan. A security for
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Piyasena v. Don Vansue (C. V. Wigneswaran, J.)
321
repayment of a loan does not get forfeited on failure to repay loan orviolate conditions. It only gives rights to the investor to put the matterin suit and claim his dues. He cannot indulge in some form of parateexecution resorted to by Hire Purchase Companies.
A trust is inferred from attendant circumstances. The trust is anobligation imposed by law on those who try to camouflage the actualnature of a transaction. The facts of this case seem to confirm that P3(lease bond) was a cover for the loan transaction that took place.Firstly the investor seems to have wanted adequate security for hiscapital sum not in the form of a mortgage but a transfer. Next he hadwanted to ensure a high rate of interest which if it had been insertedin the documents of transaction would have appeared exorbitant andunreasonable. Thus the Lease Bond was innovated. It is apparentthat through this transaction Samagi Mudalali with the help of theplaintiff-respondent was also setting his sights on a long termsecurement. That was why a statement to the Grama Sevaka about asimple "purchase” had been made. Placing of Somaratne as watcherand wanting to get his name registered etc. were steps taken notqua owner but to assert ownership furtively where in fact it did notexist.
The answer to the question raised by the learned Counsel for theplaintiff-respondent as to how the plaintiff-respondent could becomea constructive trustee of the defendant-appellant if money wasinvested by Samagi Mudalali is simple.
If property passed to the plaintiff-respondent and he let downSamagi Mudalali the latter had a cause of action against the plaintiff-respondent. (Vide section 84 Trusts Ordinance). But so long asmoney was paid ostensibly by the plaintiff-respondent (though mostprobably helped by Samagi Mudalali) and paper title was shown tobe in his favour the cause of action lay for the defendant-appellantagainst the plaintiff-respondent. Though the action in this instancewas by the plaintiff-respondent, it was open to the defendant-appellant at the end of the period of lease to file an action to declarehim as the owner on payment of all dues to plaintiff-respondent.
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This Court has not the slightest doubt despite the defendant-appellant not giving evidence that the transaction between theplaintiff-respondent and Samagi Mudalali on the one hand and thedefendant-appellant on the other was one from which “it cannotreasonably be inferred consistently with the attendant circumstancesthat he (the defendant-appellant) intended to dispose of thebeneficial interest” to the property in question. This Court thereforeholds that such property was held for the benefit of the defendant-appellant subject to the payment of plaintiff-respondent's dues.
This Court therefore sets aside the judgment dated 04.10.91 anddeclares that the plaintiff-respondent holds the property in dispute intrust for the defendant-appellant subject to the payment ofRs. 150,000/- together with legal interest at 18% per annum from10.09..1987 until date of payment. On payment of this sum of moneywithin 6- months of the record reaching the District Court ofKuliyapitiya by the defendant-appellant, the plaintiff-respondent shallretransfer the property in suit to the defendant-appellant at theexpense of the defendant-appellant. If the plaintiff-respondentneglects or refuses to retransfer the property in suit the Registrar ofthe District Court of Kuliyapitiya is hereby authorised to do so.
If the defendant-appellant fails to pay the sum of money due to theplaintiff-respondent within 6 months as aforesaid the trust herebydeclared would come to an end and the plaintiff-respondent wouldthen be entitled to take out writ of possession as if he had beendeclared owner.
The appeal is allowed with taxed costs payable by the plaintiff-respondent to the defendant-appellant.