Rajiyah v. Aboobakker
Rajiyah and another
v.Aboobakker & Others
COURT OF APPEAL.
SOZA, J. AND RODRICO, J.
c.a. (s.c.) no. 602/73 (f)—r.c. kanpy no. 4603/m.b.
OCTOBER 20, 1978.
Mortgage—Proceedings under Debt Conciliation Ordinance—Distinctionbetween novation and merger of debt—Does the mortgage subsist afterthe entering of a settlement—Whether creditor entitled, to a hypothecarydecree after settlement before Debt Conciliation Board,. . .
Res judicata—Withdrawal of action on mortgage bond—Settlement beforeDebt Conciliation Board—Institution of fresh action on settlement—Whether fresh cause of action.
Debt Conciliation Ordinance (Cap. 81), section 43—Conciliation BoardsAct, No. 10 of 1958, section 6—Is certificate from Conciliation Boardnecessary before institution of action after inquiry and settlement beforeDebt Conciliation Board—Applicability of maxim “ generalia specialibus
non derogant. ”
Where an action is filed on the basis of a settlement entered into atthe Debt Conciliation Board on a mortgage debt, the withdrawal of con-sent and' dismissal of an earlier action filed in the District Court on thesame mortgage bond does not operate as res judicata. The two causesof action are not identical.
The entering of the settlement before the Debt Conciliation Boardextinguishes the original debt by novation, the creditor being nowentitled to seek payment of the new debt due under the settlement, butit does not extinguish the mortgage which persists. The mortgagee isentitled in respect of the settlement to enforce his legal rights in ahypothecary suit under the provisions of Part II of the Mortgage Actor follow the procedure laid down in section 43 of the Debt ConciliationOrdinance.
Where a dispute regarding a debt has been inquired into by theDebt Conciliation Board, a further application or reference to the Con-ciliation Board established under Act, No. 19 of 1958 is unnecessary.The Debt Conciliation Ordinance deals specially with the settlement ofdebts and is unaffected by the Conciliation Boards Act .which dealswith the conciliation of disputes generally. The maxim generalia speciali-bus non derogant applies.
Cases referred to
Samarasinghe v. Balasuriya, (1966) 69 N.L.R. 205.
Ebbs v. Boulnois, (1875) 10 L.R. Ch. App. 479.
The Vera Cruz, (1884) 10 A.C. 59; (1881-85) All E.R. Rep. 216;
52 L.T. 474 ; 1 T.L.R. 111.
Arnolis v. Hendrick, (1972) 75 N.L.R. 532.
(51 Sawdoon Umma v. Fernando, (1968) 71 N.L.R. 217.
(6) Nona v. Engalthina Hamy, (1969 ) 72 N.L.R. 152.
Sri Lanka Law Reports (1978-79) 2 S.L.R.
APPEAL from the District Court, Kandy.
M. S. M. Nazeem, for tiie defendant-appellant.
C. Ranganathan, Q.C., with Dr. N. Tiruchelvam, for the 2nd plaintiff-respondent and substituted plaintiff-respondent.
Cur. adv. vult.
December 13, 1978.
In this case the original plaintiffs who were husband and wifesued the 1st, 3rd and 5th defendant-appellants and three othersfor the recovery of a sum of Rs. 215,000 as balance principal andRs. 11,108 as arrears of interest alleged to be due on bond No. 3310dated 3rd April, 1961, whereby the estate called Goorookelledescribed in the schedule to the plaint was hypothecated assecurity for the repayment of the debt. There were six debtorswho were made 1st to 6th defendants in the case. Althoughsummons was served on all, only the 1st, 3rd and 5th defendantsappeared and defended the action. The case went to trial ex parteas against the 2nd, 4th and 6th defendants.
Prior to the filing of the present, suit the plaintiffs had institu-ted action No. MB 4256 in the District Court of Kandy againstthe same defendants in respect of the same bond on 23rd January,1967. In the meantime an application appears to have been madebefore the Debt Conciliation Board and on 9.9.1968 a settlementwas entered into by the parties. On 12.12.1968 in terms of thissettlement acion No. 4256 was withdrawn. The proceedings of12.12.1968 read as follows :
“ Case called.
Both Proctors present.
In view of the settlement arrived at before the Debt Concilia-tion Board Mr. Balasingham moves to withdraw this action.
The plaintiffs’ action is dismissed without costs
Enter decree ”.
As the defendants failed to fulfil their obligations under thesettlement of 9.9.1968 the plaintiffs instituted the present suit.Three main questions were raised before us namely:
The decree in MB 4256 operates as res judicata to bar thepresent suit;
Rajiyah v. Aboobakker (Soza, J.)
As the plaintiffs had not obtained a certificate from the
Conciliation Board the present suit should not be
In any event the plaintiffs’ suit is badly constituted and
the plaintiff is not entitled to a hypothecary decree.
Preliminary to considering the questions that arise in thiscase it will be useful to have a clear notion of what the termmortgage means in law. The term ‘mortgage’ is sometimesemployed to denote a right, sometimes the property subject tothat right and frequently even the contract by which the rightis created—see Voet 20.1.1. and Wille : The Law of Mortgage andPledge in South Africa, 2nd ed., 1981, p. 1. In its comprehensivesense mortgage is a right over the property of another whichserves to secure an obligation—see Wille (ibid), p. 1. The mort-gage right is merely accessory to the principal obligation. Theprincipal obligation may arise from various causes but it oftentakes the shape of a debt arising from the lending of money.A mortgage may arise by agreement between the parties (expressmortgage) or by operation of law (legal or tacit mortgage) or byjudicial attachment (judicial mortgage). As the mortgage is onlyaccessory to the principal obligation, as a general rule unlessthere is an original or principal obligation there can be no mort-gage—Voet 20.1.18. Voet mentions certain exceptions to this rule(see 20.1.19) but these have no relevance so far as the presentsuit is concerned.
The right that a mortgagee obtains is a jus in re aliena or realright over the property secured. This real right of the mortgageeis to hold the property as security for his debt until his debt hasbeen paid or satisfied. For the purpose of enforcing his real rightthe mortgagee has an action known in the Roman and RomanDutch Law as the Actio Hypothecaria or quasi-Serviana or simplyas the Actio Serviana. The mortgagee is entitled to have theproperty sold when the mortgagor is in default of his obligationsunder the contract, e.g., failing to pay the debt when it is due orthe interest or breaking any other condition of the contract entitl-ing the mortgagee to foreclose or when the mortgagor becomesinsolvent.
There are thus three essential elements in a mortgage:
An obligation which has to be secured ;
The property of another to which the mortgage right
is to attach; and
The calling of the mortgage right into existence—See
Wille (ibid) pages 3, 82 and 83.
Sri Lanka Law Reports (1978-79) 2 S.LR.
On the principal obligation being extinguished generally themortgage too is extinguished. Voet lists payment, set oft, novation,foregoing and merger among the occasions when the principalobligation is wiped off (20.6.2). For the purposes of the instantcase only novation and merger need mention.
Uipian defines novation thus (D 46.2.1. pr) :
“Novation is the merging and transfer of a prior debtinto another obligation either civil or natural, that is, theconstitution of a new obligation in such a way as to destroya prior one ”
Pothier’s definition is simpler:
“A novation is a substitution of a new debt for an old.The old debt is extinguished by the new one contracted inits stead, for which reason a novation is included amongstthe different modes in which obligations are extinguished ”—see Pothier on Obligations, Evans Translation (1806), pp. 380,381 (P III C2 Art. 1 para 546).
From the principal that a novation extinguishes the “ ancientdebt” it follows also that it extinguishes the hypothecationswhich are accessory to it—novatione legitime facta liberanturhypothecae. But the creditor may by the very act which containsthe novation transfer to the second debt the hypothecations whichwere attached to the first—see Pothier (ibid), p. 391, (P. Ill C.2Art. V para 563). Therefore when there is novation of the originaldebt such novation destroys the mortgage unless at the timeof the novation it has been expressly agreed to keep the mortgagealive. The difference between novation of the debt and novationof the mortgage must be clearly borne in mind. Novation of amortgage takes place where the parties have clearly substitutedsome fresh right in place of the mortgage—see Wille (ibid), pp. 121and 129.
We will now turn to merger. Merger, as the term is knownto the Boman Dutch Law, takes place when the titles of theobligor and obligee in respect of the same obligation or of theowner of a ius in re aliena and of such res unite in the sameperson. When such merger takes place it extinguishes the obliga-tion or the ius as the case may be—see Lee: Introduction toRoman-Dutch Law, 5th ed. (1953), page 278, Voet: 46.3.18. Mergeris regarded by many as synonymous with confusio but the twoterms are not always co-extensive. When merger occurs thereis no substitution of a new obligation or of a new ius and in thisrespect the concept of merger differs from that of novation.When confusio or merger of the principal debt takes place it
Rajiyah v. Aboobakker (Soza, J.)
extinguishes the debt and with it the mortgage accessory to it—see Wille (ibid), p. 123. Merger of the titles of the mortgagor andmortgagee in the same person extinguishes the mortgage (Wille(ibid), p. 130) but not necessarily the debt.
The meaning and effect of the expression merger was explainedby Sansoni, C.J. in Smnarasinghe v. Balasuriya (1) at 208 :
“ The effect of merger has been described in various ways,and it has been likened at different times to annihilation,or sinking or drowning”.
We may now consider the application of the principles wehave discussed to the case in hand.
The decree in case No. MB 4256 is in respect of a cause ofaction arising on the old debt. The present suit is filed on acause of action arising on the basis of the new debt as envisagedin the settlement. Hence the two causes of action are not identicaland no question of res judicata arises. Further, one of the termsof the settlement itself was that action No. MB 4256 would bewithdrawn and the plaintiffs did no more than honour an obliga-tion under the settlement.
It must be observed that the novation of the old debt wouldextinguish also the ancillary mortgage but the proviso to subsec-tion (1) of section 40 of the Debt Conciliation Ordinance express-ly conserves the mortgage by a deeming provision. The mortgageis deemed to subsist under the settlement, that is, as a tacit orlegal mortgage. Moreover in the instant case the mortgage ispreserved in the terms of the settlement itself. Hence the mort-gage attaches itself to the new debt and subsists as an expressmortgage. I
I will now turn to the second ground of objection that thisaction should not be entertained as no certificate has been obtain-ed from the Chairman of the Conciliation Board as required bysection 14(1) of the Conciliation Boards Act, No. 10 of 3958.Under this Act the Conciliation Board set up for a particulararea has jurisdiction to inquire, with a view to conciliation andsettlement, into any dispute to any movable property kept, orany immovable property wholly or partly situate, or in respectof a cause of action arising, or contract made, within its area.Except with a certificate from the Chairman of that Board thatthe dispute in question has been inquired into by the Board andthat it has not been possible to effect a settlement of such disputeno suit can be instituted in or entertained by any court—see
Sri Lanka Law Reports (1978-79) 2 S.L.R.
sections 6 (a), (b) and (c) and 14(1) (a) of the ConciliationBoards Act. If a settlement is effected it will be made into adecree of Court—see section 13.
On the other hand under the Debt Conciliation Ordinance,No. 39 of 1941 (L.E.C. Cap. 81), statutory provision had alreadybeen made for the settlement of disputes pertaining to debts bythe Debt Conciliation Board. No civil action can be entertainedin any civil court in respect of any matter pending before theBoard—section 56 of the Debt Conciliation Ordinance. Thedecision of the Board in regard to the existence and amount ofthe debt or the assets of the debtor is binding on all parties inall proceedings before the Board—section 37. If the Board isunable to bring about a settlement a certificate will be issuedto the debtor the effect of which will be to deprive the creditorof his costs of suit and also limit the interest recoverable shouldthe creditor institute action in Court—sections 29, 32 and 39.If the dispute is settled the settlement is final between theparties—sections 30, 31 and 40(1). If the dispute is settled andthe debtor fails to comply with the terms of the settlement thenthe creditor can apply by summary procedure to a civil courthaving jurisdiction for a decree nisi in terms of the settlement andthen, if the debtor fails to show cause a decree absolute—seesection 43.
It will be seen that while the Conciliation Boards Act of 1958provides generally for the conciliation of all disputes the DebtConciliation Ordinance provides specially for the settlementof disputes relating to debts. As James, L. J. said in Ebbs v.Boulnois (2) at 484:
“ It is a cardinal principle in the interpretation of a statutethat if there are two inconsistent enactments, it must be seenif one cannot be read as a qualification of the other ”.
The maxim generalia specialibus non derogant applies. Thismaxim was thus formulated by the Earl of Selborne, L. C. in hisspeech from the Woolsack in the case of Mary Seward v. Theowner o/ the Vera Cruz—The Vera Cruz (3) at 68 :
“ Now if anything be certain it is this, that where there aregeneral words in a later Act capable of reasonable andsensible application without extending them to subjectsspecially dealt with by earlier legislation, you are not tohold that earlier and special legislation indirectly repealed,altered, or derogated from merely by force of such generalwords, without any indication of a particular intention todo so.”
Rajiyah v. Aboobakker (Soza, J.)
To insist on reference to a Conciliation Board of disputes per-taining to debts dealt with by the Debt Conciliation Board maylead to conflicting situations. The settlement by the ConciliationBoard may differ from that effected by the Debt ConciliationBoard. The Court will then be confronted with two competingsettlements both entitled to be embodied in decrees of Court. Thiswould lead to absurd results. Further, once a debt is settled orotherwise dealt with by the Debt Conciliation Board there is nolonger a dispute such as is contemplated in section 6 (a), (b) or
of the Conciliation Boards Act. Moreover the dispute contem-plated by the Legislature in section 6 of the Conciliation BoardsAct should be one capable in law of conciliation. The settlementeffected must be convertible into a legally effective decree. Thisis why reference to the Conciliation Board is not an essentialpreliminary to a divorce suit or a partition action—see the caseof Arnolis v. Hendrick (4) at 534 :
Where a dispute regarding a debt is inquired into and acertificate is issued under the provisions of the Debt ConciliationOrdinance, certain legal consequences follow. To require afurther reference to the Conciliation Board would place theselegal consequences in jeopardy of variation or even nullification.The Debt Conciliation Ordinance deals specially with the settle-ment of debts and is unaffected by the Conciliation Boards Actwhich deals with the conciliation of disputes generally. Hencewe hold that the failure to obtain a certificate from the Chairmanof the Conciliation Board is not a bar to the present suit.
The third question regarding the constitution of the actioncan be disposed of by reference to three recent cases. In thefirst of these Samarasinghe v. Balasuriya (supra) Sansoni, C. J.considered a case where after a settlement had been enteredunder the provisions of the Debt Conciliation Ordinance acreditor filed action on the original bonds. As the debt due onthese bonds had been extinguished and a new debt substitutedtherefor under the settlement His Lordship held that the suitcould not be maintained. Although the language of subsection(1) of section 40 is that the “contract in respect of any debtdealt with in the settlement shall become merged in the settle-ment ” the legal notion involved is one of novation rather thanone of merger in the strict sense. The settlement represents anovation of the old debt which is extinguished.
In the case of Sawdnnn Umma i Fernando (5), H. N. G.Fernando, C J. considered the effect of sections 40 (1) and sec-tion 43 (1) of the Debt Conciliation Ordinance and held that
once a settlement is entered in respect of a debt due on a
Sri Lanka Law Reports (1978-79) 2 S.L.R.
mortgage bond, and a suit is brought in accordance with section43 of the Debt Conciliation Ordinance, the Court cannot enter ahypothecary decree. His Lordship stated as follows at page 220:
“ If a debtor fails to comply with the terms of a settlement,section 43 entitles him to obtain a decree nisi in term of thesettlement, and s. 44 empowers the Court to make such adecree absolute. But the provisions of the settlement in thiscase do not in fact authorise a Court to enter a hypothecary'decree ”.
The decision was based on the fact that the settlement containedno provision for the entering of a hypothecary decree, and insuch an event neither will section 43 empower the entering ofa hypothecary decree. His Lordship H. N. G. Fernando, C.J.pointed out that the statement of Sansoni, C.J. in Samarasinghev. Balasuriya (supra) that the creditor’s right of mortgagebecomes merged in the settlement and is therefore extinguishedor wiped out has been made obiter. His Lordship H. N. G.Fernando, C.J. went on to say at p. 221 that the true position isthat according to the proviso :
“the creditors former right under the mortgage i.e. theright of hypothec as distinct from the right to receive pay-ment of the debt continues to subsist under the settlement,even though the settlement may not expressly so provide.The creditor thus retains his right over the property mort-gaged to him as security for payment of the debt due underthe settlement. A secured creditor cannot lose the benefitof his security, merely because in proceedings before theDebt Conciliation Board he agrees out of sympathy for hisdebtor to a settlement which only reduces the amount ofthe debt or the rate of interest payable upon the debt
His Lordship after considering the terms of the Debt ConciliationOrdinance expressed the following opinion at page 222 :
“ (a) Where the debt the payment of which is secured by amortgage bond is the subject of a settlement, the rightof the creditor to a hypothecary decree subsists underthe settlement, unless the settlement expresslyprovides otherwise.
(b) Where the debtor fails to carry out the terms of thesettlement, the creditor should apply to a competentCourt under s. 43 of Chapter 81 and he can thus obtaina decree absolute to compel the debtor to perform hisobligations, principally the obligation to pay the debtand interest, imposed by the settlement.
Rajiyah v. Aboobakker (Soza, J.)
Where in addition the creditor desires to obtain a
hypothecary decree over the property originallymortgaged to him, his right under the mortgage bondto such a decree is preserved by s. 40 (1) ; but he canobtain such a decree only in a hypothecary action,the procedure in which will be governed by theMortgage Act.
The hypothecary decree entered in such an action will
render the mortgaged property bound and executable,not for the amount of the original debt, but for theamount of the debt and interest payable in terms ofthe settlement”.
We would refer to another passage appearing in Samarasinghev. Balasuriya (supra) which appears to be obiter. At page 208it is stated as follows : —
“The entering of the settlement does not extinguish thedebt. Instead of being a debt due under the contracts, itbecomes a debt due under the settlement. The plaintiff’sremedy is no longer an action under the contracts containedin the bonds, for his cause of action now arises out of thesettlement ”.
With great respect, we would venture to say that correctly statedthe position is that the entering of the settlement extinguishesthe debt but not the mortgage. In place of the debt due underthe contract there is now a new debt due under the settlement.With the rest of that passage we would agree. The provisions ofthe Debt Conciliation Ordinance under discussion wereconsidered also in the case of Nona v. Engalthina Hamy (6).His Lordship Alles. J. who wrote the judgment in that case ap-proved the views expressed by H. N. G. Fernando, C.J. in SawdoonUmma v. Fernando (supra) and held that the use of the permis-sive word “ may ” in section 43 (1) confers on the creditor theright to elect whether he will proceed to exercise his rightsunder that section or seek satisfaction of his debt by havingrecourse to a hypothecary action. This case and the decision of
N. G. Fernando, C.J. are authority for the proposition thatwhere a settlement is entered before the Debt Conciliation Boardin respect of a debt secured by a mortgage of immovable pro-perty, the mortgagee is entitled in respect of the settlement toenforce his legal rights in a hypothecary suit under the provi-sions of Part II of the Mortgage Act or follow the procedure laiddown in section 43 of the Debt Conciliation Ordinance. Herewe should bear in mind that the debt in respect of which the
Sri Lanka Law Reports
(1978-79) 2 S.L.R.
creditor is entitled to seek payment is under the settlement.While the debt is novated the old mortgage persists. In theinstant case the plaintiff has filed his action seeking to recoverthe debt as set out in the settlement. He has in fact in paragraph5 of his plaint set out in full the terms of settlement whichwere entered into before the Debt Conciliation Board. The stepsthat were taken from the institution of the plaint are in accor-dance with the steps prescribed by the Mortgage Act. Hencethe objection that this action has been improperly constitutedis untenable. The plaintiff is entitled to a hypothecary decree inrespect of his debt as novated by the settlement. For the reasonsgiven we dismiss this appeal with costs.
RODRIGO, J.—I agreeAppeal dismissed.