Rajah and Nadarajah.
1943Present.: Howard C.J. and Keuneman J.
RAJAH, Appellant, and NADARAJAH et al., Respondents.
160—D. C. Kandy 141.
Deed of transfer—Transfer to evade creditors—No contract of sale—Want ofmutuality—Benami transaction.„
Where a person executed a deed in favour of his minor son in the formof a transfer merely "in. order to put his property beyond the reach of hiscreditors and where the transferor remained in possession of theproperty;—
Held, that the transaction did not operate as an instrument of saleso as to give the son title to the property, owing to want of mutuality.
Held, further, that if the instrument be regarded as a donation it wouldbe inoperative as there has been no acceptance on behalf of the minoror delivery of the property to him.
HE plaintiff a minor, ;by his next friend, instituted this action fordeclaration of title to one-third share of certain premises. He
claimed title on a transfer P 3 from his father, the original added-defendant. The 2nd defendant in his answer pleaded that the deed P 3 wasnull and void as it was executed in fraud of creditors and that, the addeddefendant had remained in possession of the property after the executionof P 3. The 2nd defendant claimed that he was entitled to'the property• i CC.L. Rcc. 99,* 1SN.L.R. 111.
Rajah and Nadarajah.
by virtue of a Fiscal’s transfer D 31 of 1929 in his favour, the property-having been sold in execution against the added-defendant. The DistrictJudge held that the 2nd defendant was entitled to have the deed P 3 setaside and that prescription did not run against him.
N. E. Weerasooria, K.C. (with him L. A. Rajapakse and C. Renganathan),for plaintiff, appellant.—In this case there is a competition between adeed of transfer (P 3), executed by one Ambalavanar in favour of plaintiff,and a Fiscal’s transfer in favour of 2nd defendant. The District Judgeheld that 2nd defendant was entitled to have P 3 set aside because it wasexecuted in fraud of creditor's and that prescription did not run againsthim. His view was that the right to have P 3 set aside arose only when2nd defendant’s rights were challenged by plaintiff inasmuch as 2nddefendant was in possession of the land in dispute. It is submitted thatthis view as regards prescription is incorrect. A Paulian action is pre-scribed in three years from the cause of action—Podisingho Appuhamy v.Lokusingho The cause of action is the alienation sought to be impeached.In case of concealed fraud the cause of action arises when party impugn-ing the deed becomes aware of the fraud, Fernando v. Peiris BonserC.J.’s dictum regarding “ cause of action ” in Podisingho Appuhamy v.[Lokusingho (supra) was explained by Garvin J. in Fernando v. Peiris(supra). In the present case the 2nd defendant was not merely aware ofthe fraud at the time of alienation but was in fact a party to it. There is. therefore no question of concealed fraud. As regards concealed fraudsee Dodwell & Co., Ltd., v. John*. It is further submitted that no reliefshould be given to 2nd defendant because he participated in the schemeto defraud creditors.
N. Nadarajah, K.C. (with him C. E. S. Perera and P. Navaratnarajah),for 2nd defendant, respondent.—It is submitted that P 3 is void for tworeasons: firstly, it was executed in fraud of creditors ; and, secondly,,it purports to be a transfer which, viewed as a donation, is void for wantof acceptance, and which, viewed as a sale, is void for want of mutuality..
On the first ground it is submitted that no cause of action arose; tillassertion of title- When , a party is in possession on what he thinks is, agood title and continues to possess the term “ cause of action ” must be con-sidered in that light. As regards the right of an execution-purchaser whois a creditor to bring a Paulian action see Suppiah Naidu v. MeeraSaibo*; Mohamedo v. Manupillai*; Vallipuram. v. Vallipuram*; andPunchi Appu v. Aralis Appuwhere the final view was stated. Voetsupports the view of Bohser C.J. in Podisingho Appuhamy v. Lokusingho(supra) that the cause of action arises not at the time of execution ofthe deed but when it becomes clear that 'the effect of the deed willbe to defraud creditors—Voet, XLII 8j 13 (De Vos’ Trans). See alsoFernando v. Fernando*; Muttiah Chetty v. Mohamed Hadjiar*. Thecause of action arose when plaintiff. filed action and therefore 2ncfdefendant’s claim for relief is not prescribed.
(1900) 4 N. L. B. 81.
(1931) 33 N. L. R. 1.
3 (1918) 20 N. L. R. 206.
(1907) 3 Bat. 129.
3 (1916) 3 C. W. B. 19.
• (1930) 7 Ceylon Times-99-
'3 * * * 7 (1934) 37 N. I,. R. 141. ‘
.8 (1924) 26 N. L. R. 292.
(1923) 25 N. L. R. 185-
KEUNEMAN J.—Rajah and Nadarajah.
On the second ground, it is submitted that absence of acceptancevitiates the contract of donation—Kanapathipillai v. Kasinather As towho can accept on behalf of a minor see Fernando v. Alwis'. Where areal transaction takes the form of a gift then in order to be valid it shouldhave the ingredients of a gift. The Court must inquire into the substanceof the transaction—de Silva v. de SilvaThe transaction here is not a sale
as there was neither consideration nor consensus—Wessels: Law ofContract, in South Africa, Vol. II., p. 1197. The transaction as disclosed byP 3 is therefore neither a valid sale nor a valid donation. P 3 is thusa nullity. See further 35 Indian Appeals 98 ; A. I. R. (1916) Privy Council27 at pp. 30, 31.
N. E. Weerasooria, K.C., in reply.—Acceptance need not appear onthe face of the deed—Walter Pereira (1913 ed.) p. 605. The principle ofnecessity of acceptance is not applicable where the form of the transactionis a transfer. See Jayawardana v. Amerasekera *.
Cur. adv. vult.
July 23, 1943. .Keuneman J.—
The plaintiff, a minor, by his next friend, instituted this action to bedeclared entitled to one-third of the premises described in the scheduleto the plaint. He claimed title on a transfer P 3 of 1927 from his father,the original added-defendant, and alleged that the 2nd defendant hadentered into possession in 1932, and that the 1st defendant was the lesseeof the 2nd defendant, and was in occupation of the premises. The actionwas instituted in. 1938, and the plaintiff claimed mesne profits for 3years before that date.- The 2nd defendant in his answer alleged thatthe deed P 3 was null and void as it was executed in order to defraudcreditors, and that the added-defendant had remained in possessionof the property after the execution of P 3. He added that P 3, althoughin form a deed of transfer, was in fact a donation, the plaintiff at the timebeing 7 or 8 years old—in fact he attained majority in 1939. He furtherstated that added-defendant in any case could not gift more than halfof this to the plaintiff, as the premises in question were part of thethediatetam property.
The 2nd defendant claimed that he was entitled to the property byvirtue of a Fiscal’s transfer D 31 of 1929 in his favour, the propertyhaving been sold in execution against the added-defendant.
A number of issues were framed, of which the following may bementioned : —
Did any consideration pass from plaintiff to Ambalavanar (added
defendant) on P 3 ?
Was P 3 executed by Ambalavanar with intent to defraud his
Did the said transfer render Ambalavanar unable to meet his
8.(a) If issues, 4, 5, and 6 or any of them is answered against the
plaintiff, is the 2nd defendant entitled to have the said deedset aside ?
8.(b)Does any title pass to the plaintiff on the said deed ?
’ (1937) 39 N. L. R. 544. ■3 (1937) 39 N. L. R. 69 at p. 11.
2 (1935) 37 N. L. R. 201.* (1912) 15 N. L. R. 280 at p. 282.
KEUNEMAN J.—Rajah and Nadarajah.473
If issue 4 is answered in the negative, is the said deed P 3 valid to
convey title inasmuch as it'- has not been accepted by the plaintiffor on plaintiff’s behalf ?
Is the 2nd defendant’s claim to have P 3 set aside barred by
Further issues were also framed with regard to the alleged estoppeloperating against the 2nd defendant.
The facts of the case, as held by the District Judge, are as follows : —
The added defendant, Ambalavanar, had carried on business for a verylong period. At first the business prospered, but eventually it failed,and his creditors began to sue about 1927. Adde'd-defendant desired toput his properties beyond the reach of his creditors, in order to defraudthem. He accordingly executed several deeds, transferring his lands inGampola to his sons, and his business there to his brother-in-law, andtransferring or mortgaging his lands in Jaffna to his daughters. Thesedeeds were executed at various times but were all part of one scheme offraud. It is clear that the whole of this fraud was carried through onthe advice and with the active co-operation of the 2nd defendant, whowas the son-in-law of added-defendant, and so the brother-in-law ofplaintiff. After the transfers added-defendant had no means whereby topay his creditors.
Apparently at this stage the 2nd defendant heartily approved of thefraud, but he later feared that the scheme might fail as against thecreditors. The added-defendant owed the 2nd defendant himself a sumof nearly Rs. 12,000, and a promissory note, which was probably ante-dated, was prepared for Rs. 12,000, and the 2nd defendant sued on it,obtained judgment and proceeded to execution. As a result thesepremises were sold and purchased by the 2nd defendant. All throughthis period, the added-defendant and the 2nd defendant acted together,in pursuance of an understanding, whereby added-defendant was to paythe amount due to 2nd defendant, and in fact payments were made inaccordance with this understanding. The 2nd defendant, however,appears to have gone into possession of these premises about the timeof the sale to him.
The District Judge held in these circumstances that the 2nd defendant,was entitled to have the deed P 3 set aside, and that prescription did notrun against him. He, however, deprived the 2nd defendant of his costs,because “ he was the most untrustworthy among a pack of untrustworthywitnesses ”./
There can be no doubt that the stricture passed by the Judge uponthe 2nd defendant and the added-defendant are thoroughly deserved,and there can be no question that they were both deeply involved in ascheme, intended to defraud other creditors. That scheme appears tohave succeeded.,
There is one matter decided by the District Judge which is open toserious question—and that is his finding on prescription. He held thatas long as the 2nd defendant was in possession of the land and appro-. priated the income from it, there was no reason for him to challenge the
4T4KEUNEMAN J.-—Rajah and Nadarajah.
deed in favour of the plaintiff. He added that the effect of the plaintiff’sdeed to defraud the 2nd defendant arose only when the plaintiff on thestrength of that deed challenged the defendant’s rights.
No authority has been cited by the District) Judge or by Counsel in.support of this finding. As far as the defendant’s possession is concerned,it was no doubt open to him to plead that possession had given rise to atitle by prescription in his favour. But in this case such a plea was notavailable because the possession did not extend to ten years and the plain-tiff was a minor even at the date of action. In this case, however, we are notdealing with prescription as a means of acquiring title, but in the senseof limitation of action and the question we have to consider is whetherthe action was brought within the time laid down. In Podisingho Appu-hamy v. Lokusingho et al. where the fraudulent transfer had comprisedthe whole of the debtor’s property, and where the plaintiff had knowledgeof the fact, it was held by Bonser C.J. and Moncrieff J. that prescriptionbegan to run from that date. Prescription was complete within 3 yearsfrom the date. In Fernando v. Peiris3 Garvin A.C.J. pointed out thata Paulian action is prescribed in 3 years from the cause of action. Thecause of action is the alienation which it is sought to impeach, as beingin fraud of creditors. In a case of concealed fraud, the cause of actionarises where the fraud came to the knowledge of the party impugning thedeed.
In this case not only was the 2nd defendant aware 'of the fraud, at.the time of the alienation, but he was the architect and builder of theedifice of fraud. Even if we take the date on which he became a puchaser,viz. : in 1929., he was then in full possession of all the facts. Concealedfraud could neither be proved nor alleged in this case. No act has beenat any time done by the plaintiff, which prevented the 2nd defendantfrom bringing an action to set aside deed P 3 earlier, and the principlelaid down in Muttiah Chetty v. Mohamood Hadjiar3, does not apply.The most that can be urged is that the 2nd defendant did not choose tobring this action earlier, because the plaintiff happened to be a minor,and did not disturb his possession. I do not think that can affect thequestion of the time limited for bringing the action.
I hold that the decision of the District Judge on the question of pre-scription cannot be supported. In view of my finding on this point?, it isunnecessary to consider the further argument addressed to us that inconsequence of the 2nd defendant’s participation in the fraud, no reliefshould be extended to him.
I find that the 2nd defendant’s claim to have the deed P 3 set asideis prescribed and must be dismissed. The ground on which the DistrictJudge gave judgment for the 2nd defendant therefore fails:
It was, however, argued for. the 2nd defendant that, the District Judgehas wrongly decided issue 12. The argument is as follows The deedP 3 cannot be regarded as a deed of sale, and can at most be regarded asa donation. But it must fail as a donation, because it has not beenaccepted by or on behalf of the- plaintiff. The District Judge answeredthis argument'as follows:—P 3' is not a deed of gift on the face of it.Therefore it is valid to convey title, though there is no acceptance of it
» 4 X. L. R. 81.2 33 X. L. R. J.3 25 X. L. R. 185.
KEUNEMAN J.—Rajah and Nadarajah.475
by the plaintiff. It was further argued before us that there has beendelivery of the deed to the minor, and that this constituted acceptanceby the minor. It is true that in re-examination the plaintiff said “ DeedP 3 was all along in the possession of my father till he handed it to me in1936 or 1935. I have lost the original deed. I told father about theloss and he obtained for me this certified copy P 3.” The District Judgehas not stated that he accepted this evidence, and it is not possible forus to accept it. The alleged loss of the original of P 3 is not fully explained,and it is doubtful that plaintiff ever had the deed. The failure toproduce the original deed tells against him. This evidence came at a pointwhen the plaintiff had begun to realize the pinch of the case, and was •not given in examination-in-chief. Further the whole course of thetransaction by the added-defendant showed that he never regarded hisson, the plaintiff, as the owner of the property, but had merely madefraudulent use of the plaintiff’s name, in order to defeat the creditors.Further the alleged date of the delivery of the deed was after the purchaseby the 2nd defendant.
I think the District Judge has failed to appreciate the real inwardnessof issue 12. What is contended is that P 3 cannot be regarded as a saleto the plaintiff, not only because the consideration has been shown to be .false, but also because there was no mutuality between the added defend-ant and the plaintiff. Plaintiff never existed as a party to the contract.“In a contract of sale there must be complete agreement as regards thenature of the transaction, the thing sold and the price _(consensus, res ormerx et pretium) (Voet XVIII. 1.1.).. The parties must mutually
agree that the one is to sell and the other is to buy . … It is not
enough that the parties call the transaction a sale ; the circumstances mustshow that the parties in reality entered into a true contract of sale ”.(Wessels : Law of Contract in South Africa, Vol. II., p, 1197.) Now it is'clear in the present case that there was no consensus between the plaintiffland the added-defendant. Tl^e whole transaction must fail as a )saleor a contract of sale for want of mutuality. Further the surroundingcircumstances show that it was never intended by the added-defendantthat the deed P 3 was to become operative. The deed was merely a ,device for putting his property beyond the reach of his creditors. Itwas something very closely akin to the bznami conveyance in Peter-permal Chetty v. Muniandy Servai' and as Lord Atkinson said, “ A behamitransaction is not intended to he an operative instrument.”
The only ground therefore on which plaintiff can hope to give, validityto the deed P 3, is by contending that it was a donation by the fatherto the son. But even regarded as a donation, the deed is inoperative asit has not been accepted by the plaintiff, and there has been no deliveryof the property to the plaintiff by the added-defendant.
I accordingly hold that the form given to the transaction will not biethe governing consideration. It is clear that as a sale, P 3 cannot beregarded as valid, for the reasons I have mentioned, and accordinglythe fact that P 3 was drafted in the form of a deed of sale, cannot give itany validity which it would not otherwise have. It ,is possible, however, ’for us to examine what the true nature of the transaction was. The
1 35 I. A. 98 ; 35 Gal. 551.
MAARTENSZ J.—Tikirikumarihamy and Niyarapola.
only contract which could validly have been intended was the contractof donation. But as a donation, P 3 must also fail for want of acceptance.I am therefore driven to the conclusion that P 3 was invalid, and did notconvey title to the plaintiff.
The order I make in this case is as follows : —I delete from the judgmentand decree of the District Judge the words “ the Deed, P 3 is hereby setaside”, but I affirm the order that the plaintiff’s action is dismissed.The order of the District Judge as regards costs in the Court below isaffirmed, and the 2nd defendant is not entitled to costs of the action.
A great deal of time was taken up in appeal in discussing the questionof the setting aside of deed P 3, and the question of prescription relatingto it. On this point the 2nd defendant has failed. Further the veryunscrupulous manner in which the 2nd defendant has acted throughoutshould, in my opinion, also be taken into consideration. I do not thinkthe 2nd defendant is entitled to the costs of appeal, and the appealwill therefore be dismissed without costs, subject to the variation I havementioned.
Howard C.J.—I agree.