SANMUGAM AND ANOTHER v. THAMBAIYAH

015-SLLR-SLLR-1989-V-2-SANMUGAM-AND-ANOTHER-v.-THAMBAIYAH.pdf


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Sanmugam and Another v. Thambaiyah (Bandaranayake, J.)
151
SANMUGAM AND ANOTHER
v.THAMBAIYAH
SUPREME COURT
H. A. G. de SILVA, J. BANDARANAYAKE, J. AND KULATUNGA, J.
S.C. APPEAL NO. 18/87AUGUST 01, 02 AND 08, 1989.
Conditional transfer – Payment by promissory note as consideration for re-transfer -Validity of endorsement by holder of note purportedly to transferee – Failure ofconsideration – Constructive Trust – Trusts Ordinance, Section 93 – Notice.
By way of dowry, a land was transferred by V.S. to his sister and brother-in-lawsubject to the condition that the land would be re-transferred on payment of Rs. 5000/-within two years. Three days later a promissory note was given to his sister by V.S:This note given to V.S. by one R was endorsed to his sister by V.S. but the name onthe note was not V.S. but V.A. After the lapse of two years the transferees conveyedthe land to the present plaintiff who filed a vindicatory suit. Earlier a caveat had beenregistered in the Land Registry.
Held –
The promissory note is invalid because the endorsement by V.S. wasunsatisfactory and the note had not been accepted as payment.
No repayment of the consideration having been made within the two years, thetransferee (plaintiff) was the absolute owner.
There was no constructive trust as after the lapse of the two years there was no,contract to re-transfer.
The notice contemplated in S. 93- of the Trusts Ordinance is not only of mattersappearing on the face of the registers in the Land Registry. Knowledge gatheredfrom other sources is also relevant. Here however the plaintiff was entitled to buyand get good title as after the lapse of two years his vendors had become theabsolute owners.
Thiodoris Perera vs. Elisa Nona, (2)and Vaidhinathan vs. Idroos Mohideen (3)distinguished.
Cases referred to:
Fonseka vs. Appuhamy 1978-79 – 2 Sri L.R. 276
Thiodoris Perera vs. Elisa Nona 50 N.L.R. 176
Vaidhinathan vs. Idroos Mohideen 1988 2 Sri L.R. 55 (CA)
Sumangala Thero vs. Caledonian Tea and Rubber Estates Co. Ltd. 33 N.L.R. 49,
52.
Sandanam vs. Jamaldeen 74 N.L.R. 145, 146
Alikapachetty vs. Karuppan Chetty 22 N.L.R. 417
Saverimutty vs. Thangavelanathan (P.C.)55 N.L.R. 529, 533, 535
Saminathan Chetty vs. Vander Poorten 34 N.L.R. 287
Fernando vs. Cooray 59 N.L.R. 169, 174
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Maggie Silva vs. Sai Nona 78 N.L.R. 313
Fonseka vs. Candappa 1988 2 Sri L.R. 11.
APPEAL from judgment of Court of Appeal reported in 1987(1) Sri L.R. 357.
P.A.O. Samarasekera, P.C. with Mrs. Lafitha Seneviratne forDefendants-Petitioners-Appellants.
Dr. H.W. Jayewardene, O.C. with S. Mahenthiran, Harsha Amarasekera and HarshaCabraal, for Plaintiffs-Respondent-Respondent.
Cur. adv. vult.
October 09. 1989.
BANDARANAYAKE, J.
The plaintiff-respondent-respondent, K. Thambiaiyah sued the de-fendants-petitioners-appellants, V. Sanmugam and his wifeMaheswary for ejectment from the allotments of land described in theschedule to the plaint, for judgment and for further damage's. Theplaintiff averred that the defendants had by Deed No. 374 of 4thJanuary 1964 marked P1, sold and transferred their interests on thesaid allotments of land to K. Pirapathy and his wife Parameswarysubject to the condition that the purchasers shall retransfer the saidland to the defendants-petitioners-appellants on payment of a sum ofRs. 5,000/- within a period of 2 years.
The plaintiff further averred that the defendants failed andneglected to pay the said sum of Rs. 5,000/- within the said periodand that Pirapathy and Parameswary became entitled to the saidlands absolutely and that by Deed No. 24 dated 17 August 1970marked “P2” Pirapathy and Parameswary sold and conveyed theirinterests in the land to the plaintiff. The plaintiff also averred thatcontrary to the agreement in Deed No. 374 of 4.1.64 aforesaid thedefendants have failed and neglected to quit and deliver vacantpossession of the said lands to the plaintiff although so demanded.
Maheswary and Parameswary are sisters and Sanmugam isParameswary’s brother-in-law. This dispute is about a dowry questionthat arose when Parameswary the younger sister married in 1963.
It would be convenient at this point to set out the positions takenby the parties at the trial before the District Court. Parameswary wasthe only witness for the plaintiff whilst Sanmugam and two otherstestified for the defendants. It was Parameswary’s evidence that hermarriage to K. Pirapathy was registered on 10.11.63. Her father had
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died earlier and her mother and brother-in-law Sanmugam the 1stdefendant attended to her marriage.
According to her the dowry she was to get was:
an undivided half share of land belonging to her mother situatedat Uliyankulam. A deed was written on 10.11.63 transferring the saidland to her.
Cash Rs. 20,000/- made up as follows:
Cash Rs. 10,000/-
Half share of Aiyadurai Stores, premises situated at 161,Malay Street, Colombo 2, where' her father had run abusiness. Maheswary had not got a share from this businessas it was not in existence when she was dowried in 1948.Therefore Sanmugam offered her Rs. 10,000/- in lieu of thehalf share of Aiyadurai Stores to which she was entitled andshe agreed. Thus she was to get another Rs. 10,000/- in thisregard.
Consequent to this arrangement the defendants asked her and herhusband to sign document D1 which they did. By D1 Parameswaryand Pirapathy have acknowledged receipt of dowry:
jewellery to value of Rs. 3000/-;
cheque drawn for a sum of Rs. 7000/- by Mrs. Prasoody;
Promissory Note executed, by V. Sanmugam and Maheswary fora sum of Rs. 3000/- at 12% interest payable within 1 yeartotalling to Rs. 10,000/-
This document has been made in November 1963. The exact date isnot mentioned.
Parameswary states that the sums of money totalling Rs. 10,000/-mentioned in “D1” was in respect of the value of half share of theshop Aiyadurai Stores aforesaid. On 10.11.63 she was in fact onlygiven the cheque. Parameswary goes on to state that by Deed No.374 of 4.1.64 the defendants transferred their interests in the land toher and her husband and she agreed that if they pay her Rs. 5000/-within 2 years she would retransfer the land to them. There is next aPromissory Note for Rs. 5000/- given to her by Sanmugam on 7.1.64.This Note had been drawn on 26.12.63 by one G. Rajaratnam whoowed money to Sanmugam and Sanmugam says he endorsed and
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gave it to Parameswary. However Parameswary says it had nothingto do with the conditional transfer on Deed 374 dated 4.1.64 but waspart payment of the Rs. 20,000/- due to her. As the money due onthe Promissory Note as dowry was not paid by Sanmugam althoughdemanded, she and her husband filed action in this respect in D.C.Colombo Case No. 29203/S on 15.3.69 – vide – document marked“D10” and the affidavit filed by the 2nd defendant Sanmugam in thatcase “D4". This Promissory Note has not been produced andmarked in the instant case as it was production in Case No. 29203/Saforesaid. In that case the plaintiffs were Parameswary and Pirapathyand the defendants were C. Rajaratnam and V. Sanmugam. Duringthe proceedings in Case No. 29203/S on the application by the 1stdefendant for leave to appear and defend the action unconditionally itwas discovered that the endorsement on the back of the summonsread V. Arumugam and not V. Sanmugam. The Court then examinedboth documents (ie) the Promissory Note itself and the Summonsand the Court held – quote – “I have looked at the note and theendorsement is not clear as to whether it is Arumugam orSanmugam". "The endorsement on the back of the summons is byV. Arumugam”. The Court granted leave to appear and defend theaction unconditionally. In the circumstances Parameswary andPirapathy withdrew the action. Sanmugam the 2nd defendantadmitted the claim but Rajaratnam the 1st defendant contested theendorsement.
As against above, the position taken by Sanmugam was as follows:Parameswary's father died in November 1962. There was a proposalof marriage made to Parameswary by himself, Sabapathipillai, Dr. C.Rajaratnam and Mrs. Prasoody. Sanmugam states he wasresponsible for the dowry. The dowry was to be:
an undivided half share of land owned by her mother atUliyankulam;
jewellery worth Rs. 3000/-;
Rs. 10,000/- in cash, (not Rs. 20,000/- as stated byParameswary).
He further states he agreed at the start to give only Rs. 5000/- but asDr. Rajaratnam who is a relative who owed him Rs. 5000/- promisedto repay that sum, he agreed to give Rs. 10,000/- as dowry. Howeveras Rajaratnam did not attend the marriage registration on 10.11.63and did not give the money as promised, witness was compelled to
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make temporary arrangements. Hence he and his wife gave aPromissory Note for Rs. 3000/- and Mrs. Prasoody gave a cheque forRs. 7000/- vide – “D1" aforesaid. His mother-in-law transferred herinterests in an undivided half share of land Uliyankulam.
Sanmugam states that as Rajaratnam could not give cash he gaveSanmugam a Promissory Note dated 26.12.63 – for Rs. 5000/-Sanmugam tried his best to assign that note to Parameswary andPirapathy but the bridegroom's parents wanted more tangiblesecurity. Therefore Sanmugam and his wife Maheswary gave aconditional transfer on Deed No. '374 dated 4.1.64 for Rs. 5000/-(“P1”). Sanmugam says he endorsed Rajaratnam’s Promissory Notefor Rs. 5000/- three days later on 7.1.64 arid gave it to Parameswaryin satisfaction of the conditional transfer. In his affidavit in Case No.D.C. Colombo 29203/S he admitted liability for Rs. 5000/-. He alsotestified that he has over a period of time in instalments ‘ paid Rs.10,000/- in full to Parameswary. '
According to Counsel for the Appellants the first question to bedecided is whether the arrangement of the Promissory Note made on7.1.64 is for the discharge of the-conditional transfer on Deed No.374 or not. Counsel complained that the District Judge had failed toconsider the .evidence and decide the matter. The District Judge didnot come to a finding whether the Promissory Note was given in lieuof a shop share or a dowry deed. The District Judge dealNwith it onan assumption that it was for this deed P1, but that there was afailure of consideration. Prior to purchase a caveat had been entered.Parameswary and husband were living in plaintiff’s house at the timeof transfer deed “P2". The plaintiff thus bought the land after caveathad been entered. Counsel also complained that the District Courthad not discussed the evidence of the witnesses or given anyreaisons for its decision. It was submitted that if the Promissory Notewas indeed for the discharge of the conditional transfer then it isvaluable consideration in full settlement of the amount due on Deed374 and that Parameswary and Pirapathy were holding the propertyon "R1” in trust for the defendants and the transfer of the propertyon Deed ‘‘P2” was void and that specific performance to have theland retransferred to them was available to the defendants.
Regarding the Promissory Note for Rs. 5000/- aforesaid Appellant’sCounsel submitted that it was only on the back of the summonsissued in the application for leave to appear and defend – “D10" –
/
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that the endorsement reads as V. Arumugam (ie) a mistake on thesummons; but that on the note itself the endorsement has beencorrectly made by V. Sanmugam. (I have already referred to thewriting on the note itself as noted by the District Judge in that case.)
As for the Court of Appeal judgment Counsel made twosubmissions;
the Court of Appeal has not considered the evidence as towhether there was a valid discharge of the obligation created by“PI” on 4.1.64 by delivery of the Promissory Note on 7.1.64; itis a question of fact for what the Promissory Note was given;instead the Court of Appeal stuck upon a different point that wasnot argued in the appeal and ignoring all else came to a whollyuntenable and wrong view of the law adverse to the appellant. Ifthe tests laid down in Fonseka v. Appuhamy (1)were correctlyapplied the Court would have concluded that the fact that actionin D C. Colombo Case No. 29203/S was withdrawn and moneywas not recovered does not mean that in law there was a failureof consideration.
the judgment of the Court of Appeal centred around issues 7and 8. They can be conveniently telescoped thus. .. “If thedefendants have settled the sum of Rs. 5000/- referred to in“P1“ is the plaintiff holding the said undivided half share of theland in trust for the defendants?” The Court of Appeal dame tothe conclusion that there was no trust; its reasoning was:
that the search of registers would not have disclosed an existingcontract affecting the property (ie) because it took the view thatonce the period of two (2) years elapsed in 1966 there was anend to the contract.
It was submitted that the correct legal position (ie)of whether therewas an existing contract, is set out in the cases of Thidoris Perera v.Elisa Nona(2) followed in Vaidhinathan v. Idroos Mohideen(3).
that ‘notice’ contemplated in s.93 of the Trusts Ordinance wasonly notice of matters appearing on the face of the Registers -and that any other knowledge which the purchaser might havegathered is totally irrelevant and must be ignored. It wassubmitted that this view was far too narrow and completelywrong. The correct principle has been laid down by the SupremeCourt in the case of Sumangala Thero v. Caledonian Tea andRubber Estates Co., Ltd.(4).
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The Court of Appeal has also ignored the provisions of s.3(k) of theTrusts Ordinance.
It was submitted that by fact of possession by the defendants thepurchaser was put upon inquiry and inquiry would have revealed thefacts. In the instant case the people who gave the conditional transfer- P1 – were still in possession; they had also registered a caveat sothat the buyer was put on inquiry. Parameswary and Pirapathy hadlived in the house of the plaintiff. The case of Sandanam v.Jamaldeen(5) was also relied upon – Submission:- The Court ofAppeal was wrong on this single point of law. raised by itself whichdealt with the whole matter and ignored all the other matters.Counsel submitted that if this part of the Court of Appeal Judgmentwas set aside one is left with point (i) which related to questions offact. Counsel urged that once the Promissory Note was acceptedthere was a new debt; the old debt on the conditional transfer wasdischarged and Rajaratnam and Sanmugam became liable. It wascontended that by delivery of the Promissory Note there waspayment the law would recognise; the obligation to retransfer wasdischarged. As such the question of the failure of consideration wasnot relevant. Thus if the Promissory Note was given in fulfilment ofthe obligation and accepted can Parameswary go back on it? It wasa question of fact both lower Courts have ignored. It was submittedthat this matter came within s.93 of the Trusts Ordinance and thatthere was a substantial question of law to be determined as bothlower Courts had ignored essential facts. The case of Fonseka v.Candappa(6) was cited.
Learned Counsel for the respondent pointed out that the mistakenname ‘Arumugam’ is not only on the summons but also on the noteitself. If so the Note is void. Rajaratnam too was riot liableconsequently and in fact he had challenged the endorsement.Further, ‘P1 ’ contained a conditional transfer and therefore a party tothe transaction had no right and the law does not permit him to saythis was a case of trust – vide – Alikapachetty v. Karuppan Chetty
; Saverimutty v. Thangavelanathan (P.C.)(8); Saminathan Chetty. v.Vander Poorten (9),; Fernando v. Cooray (10); and Maggie Silva v.Sai Nona (11). There must be an existing contract for s.93 of theTrusts Ordinance to operate. There was-no such existing contract. Nodemand or action brought for retransfer of this property; thus the rightto obtain a retransfer had long lapsed and there was no binding
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agreement to retransfer when "P2” was executed. Counsel arguedthat in any event delivery of the Promissory Note on 7.1.64 was nota valid payment at all as the contract on “P1” was “whereas theVendors have agreed …. for the assignment to …. the purchaser ….the said land ….for the price of a sum of Rs. 5000/- of lawful moneyof Ceylon … within two years …." Money means cash and whatparties contemplated was money. For example, under s.73 of theBills of Exchange Ordinance, Cap. 82, a cheque is a Bill of Exchangedrawn on a banker payable on demand. A Promissory Note is anunconditional promise in writing ….engaging to pay on demand (etc)a sum certain in money…. The essential difference between them isthat in the one case it is an order to pay and in the other a promiseto pay. A Promissory Note is therefore no payment of money.Payment by a Promissory Note was never even contemplated by theparties. The Vinculum Juris or binding clause was a covenant toretransfer to the Vendors within two years. That time had longlapsed. There was never any valid tender of consideration. Counselsubmitted the case of Fonseka v. Appuhamy (Supra) cited forappellant had no application and could be distinguished as there hadbeen payment made by cheque by the Bank in that case. In theinstant case the Promissory Note had not been honoured and therehad been no payment of money and consequently conveyance wasnot given.
On .15.3.69 by “D4’’ his affidavit filed in D C. Colombo Case No.29203/S Sanmugam said he is only a salaried servant of Government- Assistant Assessor in the Income Tax Department – on a monthlysalary of Rs. 800/- and with a wife and 5 children to support he hadno money to settle the debt of Rs. 5000/- except by instalments ofRs. 100/- per month. That too was not done.
Respondent’s Counsel agreed that the Court of Appeal went intoanother area of law unnecessarily. Counsel submitted it wasunnecessary to consider the law of Trust here, as in a conditionaltransfer as in this instance there is no trust. The Court of AppealJudgment was a result of misconception and wrong application ofs.93 of the Trusts Ordinance and there was no* substantial questionof law to be decided by the Supreme Court. Even if there was, theappellant should have first asked for leave before the Court of Appealwhich he had failed to do. Nor was this a fit case for review. Counselsubmitted that there were concurrent findings of fact in his favour.
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An examination of the judgment of the District Court shows that thelearned Judge has distilled the question to be decided on the factsconfronting him as “the issue on facts is whether the endorsementon the Promissory Note was sufficient to discharge liability on theconditional transfer”, and proceeded to answer that question againstthe defendants. Indeed the question whether the Promissory Notegiven on 7.1.64 was for the discharge of the conditional transfer on“P1 ” does not arise if the endorsement on the Note made on 7.1.64was held to be unsatisfactory and therefore invalid. The Court foundupon the evidence that the endorsement which Sanmugam says hemade was not acceptable to Court as valid. The Judge referred to theproceedings in D.C. Colombo Case No. 29203/S – ‘D10' – wherethat Court had noted upon examination of the Promissory Note itselfthat the endorsement bore either the name of V. Arumugam or V.Sanmugam. It was not clear. Rajaratnam the maker of the Note hadchallenged the endorsement. Rajaratnam would not be liable on thenote if the endorsement was invalid. If endorsement is by“Arumugam” the holder has no legal title in this case. Indeed in thelight of this discrepancy the Promissory Note itself should have beenplaced in evidence for the scrutiny of this Court. This was not done.In the result Sanmugam’s mere acceptance of endorsing the note isnot enough. The Judge had rightly to consider the question of fraud.Sanmugam has not paid money and said he has no money. TheNote could be useless. The learned Judge held that the defendantshad not proved the Promissory Note as being validly assigned bySanmugam on 7.1.64. That finding of fact the Court could properlyhave reached upon the evidence before it and cannot be assailed.Once the trial Judge came to this conclusion (ie) invalid PromissoryNote and money not paid within time he considered it a failure ofconsideration. In the circumstances and facts of this case I amunable to fault that decision.
Coming now to the judgment of the Court of Appeal, in my opinionthe Court was mistaken in coming to the view that the notice'contemplated in s.93 of the Trusts Ordinance meant only notice ofmatters appearing on the face of the Registers and that knowledgegathered from other sources was irrelevant. Such a view is toorestrictive and not a proper view of the law.
In the light of the finding by the trial Judge that the PromissoryNote referred to in the evidence before him has not been proved as
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valid in spite of Sanmugam's acceptance of it and the view I take thatno question of trust arises in this case the question of whether on thefacts of this case there was an existing contract betweenParameswary and Pirapathy and the defendants arising out of ‘Prassuming consideration had been paid by reason of the acceptanceof a Promissory Note on 7.1.64 is academic. Argument was placed inthese proceedings on this aspect of the case by both sides. Counselfor the appellant relied on the decisions in Thidoris v. Elisa Nona (2)and Vaidhinathan v. Indroos Mohideen (3) to show there was a trustupon an existing contract. Both these cases can however bedistinguished on the facts and are inapplicable. The facts of thesecases clearly showed an existing contract. In Thidoris Perera’s casethe consideration on the transfer has been paid in full and thepurchaser had entered upon possession after Final Decree but thevendor made no conveyance within three (3) months as required to.In Vaidhinathan’s case the 1st defendant covenanted to retransferthe property to the 2nd defendant in 15 years from 18.1.47 but in themeantime, after the lapse of 10 years on 7.4.57 he conveyed theproperty to a third party. This was held to be invalid as there was anexisting contract as at 7.4.57. The facts of the instant case are quitedifferent. Here the binding clause to retransfer was 2 years from4.1.64. Upon the evidence placed before Court, this was not fulfilled,and the time for payment has long lapsed. There was thus noexisting contract when P2' was executed.
We have on “P1” a legal obligation on the purchaser to retransferupon fulfilment of the contract within 2 years. The terms of the deedshow it is an outright sale or transfer of interests in land subject to acondition to reconvey if the sum of Rs. 5000/- owned by the vendoris paid in full within the time stipulated. No question of trust arises insuch a context. Time is explicit. On the expiry of two years thepurchaser is relieved of the undertaking to retransfer the property.The true construction of Deed P1' is that property has been offeredas security for the payment of a sum of money within 2 years. It isnot a pledge or mortgage. It is well to remember the evidence ofSanmugam that the bridegroom's parents wanted tangible security.The two years for obtaining a retransfer lapsed on 4.1.66. It was heldby the Supreme Court in Maggie Silva v. Sai Nona (Supra) that -quote – "when the condition underlying the conditional transfer is notfulfilled the transferee becomes absolute owner in terms of theagreement of parties free from any obligation to retransfer”. After the
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two years lapsed the vendors remaining in possession of the propertywithout fulfilling the condition rendered themselves liable to beejected. On 4.1.66 the purchaser became absolute owner of theproperty and consequently the plaintiff got good title on “P2"executed in 1970. In the premises the District Judge was correct inentering judgment and decree for the plaintiff as prayed for withcosts. The appeal is dismissed with costs in this Court and in theCourt of Appeal.
H. A. G. de SILVA, J. – I agree.
KULATUNGA, J. – I agree.
N
Appeal dismissed