003-SLLR-SLLR-2002-V-2-SAPARAMADU-AND-ANOTHER-v.-PEOPLES-BANK.pdf
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Saparamadu and Another v. People's Bank
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SAPARAMADU AND ANOTHER
v.PEOPLE’S BANK
COURT OF APPEALWIGNESWARAN, J., ANDTILAKAWARDANE, J.
CA NO. 661/94 (F)
DC COLOMBO NO. 11313/MR
JAN. 29. 1999
MARCH 09, 1999
MAY 10. 1999
MARCH 30. 2000
Trust Receipts Ordinance No. 12 of 1947 – S. 4- Failure to register Trust Receipt
Consequences – Prescription Ordinance s. 4, s. 5 – Payment of interest -Interruption of running of prescription – Account stated – Continuing guarantee
Renouncing of common law privileges by guarantor.
The plaintiff-respondent had advanced facilities upon two Trust Receipts, the loansbeing payable within 90 days. As collateral the 1st defendant-respondent gavetwo Promissory Notes, a Guarantee Bond also secured the loan.
The 1st defendant company being in default after the said 90 days the plaintiff-respondent seized goods of the 1st defendant company and sold same by publicauction to recover part of the sums due, thereafter the plaintiff-respondent filedaction against the 1st defendant company and the 3rd and 4th defendant-appellants the guarantors to recover the said loan.
The District Court entered judgment in favour of the plaintiff-respondent.
On appeal it was contended that –
failure to register the Trust Receipt makes it an invalid instrument andthat consequentially no action or claim can be based on it.
that the action is prescribed in law.
that there was a duty on the plaintiff-respondent to first recover the sumsowing from the 1st defendant-respondent, the principal debtor.
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Held :
Unlike Bills of Exchange there is no mandatory provision that necessitatesthe registration of a Trust Receipt in order to prefer any claim upon it.Furthermore, even prior to the institution of any action the 1st defendantadmitted its liability and conceded that recovery could be effected in termsof s. 4, thereby waiving any rights of challenge to recovery in terms ofthe Trust Receipt Ordinance.
There had been a recovery of a portion of the amount due by the auctioningof the goods and the sums so recovered had been credited to the aforesaidaccounts. There had been no dispute that these sums had been dulycredited. In an account stated, the silence of parties is regarded as anadmission that the entries are correct.
Even where the period of prescription has expired a part payment or anacceptance of the sum which was due would take the case out of theprescriptive period. Part payment into the account of the Bank on whichthe monies are transacted is a renunciation of the benefit of prescription.
A payment 'on account' where there is necessarily an acknowledgmentof the debt and implies a promise to pay the balance, prevents prescriptionfrom running against the debt.
Where a plaintiff relies on a payment as having the effect of preventingapplication of a statutory bar, a part payment made on account of thedebt sued must be reflected on the account stated. In this case, the plaintiffrespondent was entitled to plead an exemption from the provisions of thePrescription Ordinance, on the basis that part payment was made whenthe goods were sold and the dues realised were credited to the account.
Clause 1 (viii) of the Guarantee Bond, makes the Guarantee a continuingone, and prescription as for as the monies owing under the GuaranteeBond was concerned began when the ultimate balance was demandedfrom the guarantors.
Clause 14 of the Guarantee Bond, relate to the renunciation by the suretyof the beneficum ordinis seu excussionid when a surety renounces thisbenefit the Bank is entitled to recover from him without proceeding againstthe principal debtor.
APPEAL from the judgment of the District Court of Colombo.
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Saparamadu and Another v. People's Bank
(Shiranee Tilakawardane, J.)
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Cases referred to:
Re David Allester – 1922 2 Ch. 211.
Devaynes v. Noble – 1816 1 Mer 529 at 535 (Clayton’s case).
Moorthiapillat v. Sivakaminathapillai – 14 NLR 30.
Sathappa Chetty v. Raman Chetty – 5 SCC 62.
Dharmawardane v. Abeywardena – 41 NLR 182.
Arunasalam v. Ramasamy – 17 NLR 156.
National Bank of Australia v. United Hand in Hand Bank of Hope Co. – 18794 App. case 391 at 410 PC.
S. A. Parathalingam, PC with N. N. Ranasinghe for 3rd and 4th defendant-appellants.
Ms. M. B. Fernando, SSC for plaintiff-respondent.
Cur. adv. vult.
June 05, 2000
SHIRANEE TILAKAWARDANE, J.
The plaintiff-respondent Bank had advanced a sum of Rs. 98,218 tothelst defendant company upon a Trust Receipt dated 13. 08. 1983(P1), and a further sum of Rs. 1,327,612 upon another Trust Receiptdated 20.10.1983 (P4). The loan was repayable within 90 days ofthe granting of same. As collateral for the monies borrowed on theaforesaid Trust Receipts the 1st defendant company gave twoPromissory Notes (P5) and (P6). A Guarantee Bond also secured theloan (P7). This Guarantee Bond (P7) was between the plaintiff Bankand the 2nd to 4th defendants and liability thereon was limited to asum which would not exceed Rs. 2 million.
The 1 st defendant company being in default after the said 90 days,the plaintiff Bank seized goods of the 1st defendant company andsold same by public auction to recover part of the sums due on P1and P4. Thereafter, the plaintiff Bank filed this action against the 1stdefendant company and the guarantors to recover an aggregate sumof Rs. 2,640,000 plus interest and costs.
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The action proceeded ex parte against the 2nd defendant. Theplaintiff did not take out summons on the 1st defendant company.
The 3rd and 4th defendants filed answer denying the claims of theplaintiff Bank stating inter alia that the plaintiff's action was prescribed 20in law.
After trial the Additional District Judge, Colombo, entered judgmenton 25. 08. 1994 in favour of the plaintiff Bank. This is an appeal againstthe said judgment.
The 3rd & 4th defendant-respondents in their oral submissionsurged that the judgment of the Additional District Judge was wrongin that he failed to consider the fact that failure to register the TrustReceipt (P4) makes it an invalid instrument and that consequentiallyno subsequent action or claim can be based upon it.
In this context the effect of the provisions of the Trusts Receipts 30Ordinance No. 12 of 1947 is relevant. This Ordinance prescribes thatTrust Receipts for goods imported and exported must be in theprescribed form. Section 4 of the said Ordinance gives the legal effectof Trust Receipts to which the Ordinance applies.
According to this section registration of Trusts Receipts has theconsequent legal effect of facilitating recovery of the dues in termsof the procedure prescribed therein.
In this case no objection was taken by the 1st defendant companyregarding the failure to register the Trust Receipt. The validity ofrecovery under this procedure was not challenged at any stage. Even 40prior to the institution of any action the 1st defendant companyadmitted its liability and conceded that recovery could be effected interms of section 4 aforesaid, by P9, thereby waiving any rights ofchallenge to recovery in terms of the Trust Receipts Ordinance, onthe amounts due on both Trust Receipts. It is also relevant that unlikein Bills of Exchange there is no mandatory provision that necessitates
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Saparamadu and Another v. People's Bank
(Shiranee Tilakawardane, J.)
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the Registration of a Trust Receipt, in order to prefer any claim uponit. [Re David Allester^'K Therefore, Counsel's contention that the TrustReceipt (P4) is void due to non-registration is untenable.
The next matter which was strenuously urged by the Counsel for sothe 3rd and 4th defendant-appellants was that the plaintiff's actionwas prescribed in law. It is to be noted that the 1st defendant companyhad not claimed prescripion but acceded that the goods were entitledto be seized and sold in order to settle its loan (P9). Also admittedly,the 1st defendant was in default on the shortfall in the amount thatwas due upon Trust Receipts P1 and P4 on 11. 11. 1983 and18. 01. 1984, respectively. Action was instituted on 27. 08. 1991to recover the balance amounts due on the Trust Receipts. Theamount so due was claimed by the plaintiff-respondent on the soGuarantee Bond (P7).
According to paragraph 24 of the plaint, the Bank pleaded anexemption from the provisions of the Prescription Ordinance. This wasin view of the account stated in P12 and P13, as there had beena recovery of a portion of the amount due by the auctioning of thegoods and the sums so recovered had been credited to the aforesaidaccounts on 07. 09. 1990 and 19. 10. 1990 since this was the 'lastpayment of interest thereon', according to section 5 of the PrescriptionOrdinance. There had also been no dispute that these sums had beenduly credited on the aforesaid dates. In an account stated, the silenceof parties is regarded as an admission that the entries are correct 70- Devaynes v. Noble.™ (Also called Clayton's case). Prescriptionwould, therefore, commence from 1990 and the action must thereforebe deemed to have been instituted within the prescriptive period.
Even where the period of prescription has expired a part paymentor an acceptance of the sum which was due would take the caseout of the operation of the enactment which prescribes the time withinwhich an action ought to be brought. Part payment into the accountof the Bank on which the monies were transacted is a renunciation
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of the benefit of prescription. (Moorthiapillai v. SivakaminathapillaP*).
Our Courts have held that a part payment of the debt sued for prevents sothe statutoty bar from attaching (Sathappa Chetty v. Ramen Chettyt*').
Similarly, a payment "on account” where there is necessarily anacknowledgment of the debt and implies a promise to pay the balance,especially in the absence of any special circumstances, preventsprescription from running against the debt. (Dharmawardene v.Abeywardane<s>; Arunasalam v. Ramasam/®).
Where a plaintiff relies on a payment as having the effect ofpreventing application of a statutory bar, a part payment made onaccount of the debt sued for, must be reflected on the account stated.
The monies in this instances had been credited to the respective 90accounts in a sum of Rs. 23,394/76 and Rs. 316,480/64 in 1990 afterthe sales by auction of the goods that had been seized.
Clearly, these sums have been paid into the account. In this case,the plaintiff-respondent had proved that the monies were credited to'an account stated' by producing P12, P13 and P9 which conclusivelyproved that the debt was owing and goods were sold and moniescredited as part payment in pursuance of recoveries of the outstandingdues to the Bank. The 3rd and 4th defendant-appellants did not pleadany special circumstances attending the aforesaid part payment inorder to rebut the implication that a part payment vitiated the 1QPPrescription Ordinance. The 3rd and 4th defendant-appellants did notgive evidence nor mark documents at the trial. No challenge was madeto P9. The only position taken during the trial was that had the goodsbeen sold earlier a higher price could have been fetched. Counterclaim was not made in the pleadings nor was there a claim inreconvention. In these circumstances, the plaintiff-respondent Bankwas entitled to plead an exemption from the provisions of the PrescriptionOrdinance on the basis that part payment was made when the goodswere sold and the dues realized were credited to the accounts heldby the Bank.no
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Saparamadu and Another v. People's Bank
(Shiranee Tilakawardane, J.)
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When considering the Prescription Ordinance it is also relevant to notethat the 3rd and 4th defendant-appellants were sued on the GuaranteeBond P7. The Guarantee Bond given was a security given by the2nd to 4th respondent-appellants for the debt of the 1st defendantcompany. Their liability was limited to a sum of Rs. 2,000,000 Thepurpose of the debt was clarified in clause 1 (ii) as follows:. . and
take effect so as to give the Bank hereunder a guarantee, for themonies herein mentioned owing by such firm and every memberthereof or by such limited liability Company . . The term "moniesherein mentioned" has been further defined in clause 1 fviiil to be 120"… every sum or sums of money which shall, from time to time, becomedue or owing and remain unpaid to the Bank . .
Clause 1 (viii) makes the guarantee a continuing one, and providesfor its determination, as without determining a guarantee a guarantoris not entitled to call upon the principal debtor to release or indemnifyhim. (National Bank of Australasia v. United Hand in Hand Band ofHope Co.(7>). The determination of the ultimate balance was given byletters marked P14, P15 and P16 dated 31.01.1990. It is on this datethat the Guarantee Bond was put in suit and was put in peril ofrecovery. Hence, prescription as far as the monies owing under the 130Guarantee Bond was concerned began only on this date and actionwas instituted within the prescriptive period set out in the PrescriptiveOrdinance. This was all the more so, as the quantum for which thebond was to be put in suit was only determined after the sale of thegoods and the monies had been credited to the respective accountsin a sum of Rs. 23,394/76 and Rs. 316,480/64 in 1990. Clearly, thesesums have been paid into the account only after the sale of the seizedgoods by the auctions adverted to in P10 and P11.
Counsel in this case also argued that there was a duty on theBank to first recover the sums owing from the 1st defendant-respondent. 140In this context clause 14 of the Guarantee Bond P7 bears muchrelevance. This clause renounces the common Law privileges andstates that: “l/we and each of us specially agree that the Bank shall
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be at liberty, either in one action to sue the debtor and me/us andeach or anv of us jointly, and severally, as to proceed in the firstinstance against me/us and each or anv of us only, and further thatIMe and each of us hereby renounce the right to claim that the debtorshould be excused or proceeded against bv action in the first instance.,including the liability to be sued before recourse is had against thedebtorThis important clause which is common to all guarantee forms isoof a Bank relates to the renunciation by the surety of the beneficiumordinis seu execussionis. When a surety renounces this benefit, theBank is entitled to recover from him first without proceeding againstthe principal debtor.
We, accordingly, see no reason to interfere with the judgment dated25. 08. 1994 of the Additional District Judge, Colombo. The Appealis dismissed. We order taxed costs be paid by the 3rd and 4thdefendant-appellants to the plaintiff-respondent.
WIGNESWARAN, J. – I agree.
Appeal dismissed.