ABRAHAMS CJ.—Sathasivam v. Athariya.383
1936Present: Abrahams CJ. and Fernando A.J.
SATHASIVAM v. ATHARIYA87—D. C. Colombo, 48,002.
Agreement—Settlement between debtor and creditors—Agreement by thirdparty to pay the deficit—Decision as to amount of deficit—Binding onobligor.
O. L. M. was indebted to several creditors and a settlement wasarrived at by which it was agreed that the plaintiff respondent shouldreceive his assets and realize the proceeds for the benefit of his creditors.The first defendant gave a mortgage bond to cover any deficit betweenthe sum realized and O. L. M’s debts, the liability on the bond not toexceed Rs. 15,000. It was inter alia agreed under the terms of the bondthat the statement rendered to the defendant by the plaintiff as receiveraforesaid of the amounts realized by the conversion of the assets andbook debts of O. L. M. shall be final, binding, and conclusive on the-defendant.
Heldy that the agreement was valid.
An agreement to submit to the decision of one party to a contractany dispute arising out of that contract' is an exception to the doctrinethat a party ought not to be judge in his own cause.
^^PPEAL from a judgment of the District Judge of Colombo.
Chelvanayagam (with him Muttucumaru), for defendants, appellants.N. Nadarajah (with him J. R. Jayawardana), for plaintiff, respondent.September 4, 1936. Abrahams C.J.—
The facts which led to this appeal are as follows. One O. L. M. Majeed,a hardware merchant, was indebted to various creditors, and a settlementwas arrived at by which it was agreed that his stock-in-trade should behanded over to the plaintiff-respondent who should receive it, sell it,and realize the proceeds for the benefit of the creditors. The firstdefendant-appellant gave a mortgage bond to the plaintiff-respondentto cover any deficit between the sum realized and Majeed’s specifieddebts, but her liability was limited to Rs. 15,000. The plaintiff-respondentwas the obligee of this mortgage bond. It is material to this appealthat the final clause of the bond ran as follows : —
“ And I hereby expressly agree that I do hereby expressly waiveall privileges and exceptions to which sureties are by law entitled andthat the statement rendered to me by the said obligee as receiveras aforesaid of the amounts realized by the calling and conversion ofthe said assets and book debts of the said Oduma Lebbe MarikarAbdul Majeed shall be final, binding, and conclusive on me and shallnot be open to question by me on any ground whatsoever.”
Subsequently, the proctors for the plaintiff-respondent wrote thefirst defendant-appellant to the effect that the total gross receiptsrealized by the sale of the aforesaid assets, and from recoveries made,totalled Rs. 134,972.89. The latter added that, in addition to thissum, the receiver “ has one lot of steam flanges of the value of
ABRAHAMS C.J.—Sathasivam v. Athariya.
Rs. 2,000 which are practically unsaleable A demand for Rs. 15,000due on the bond was made in the letter, to which apparently no replywas received. Judgment was given against the first defendant-appellantfor the amount claimed.
It is argued in this appeal that the final clause of the mortgage bondis not binding on the first defendant-appellarit. Counsel, so far as Ican understand the submissions, contended that the obligor of the bondhad to all intents and purposes agreed to consent to judgment on whatmight be mere assertions of the obligee, and that she thereby, boundherself not to raise any defence that might be open to her. Counselwas unable to give any authority for the proposition that such a clausein an agreement does not bind. He appeared to think that it oughtnot to be binding, and therefore was not binding. Counsel for theplaintiff-respondent, on the other hand, submitted that this clause wastantamount to a submission to the arbitration of one party to an agree-ment by the other party, and he cited a passage from Hudson on BuildingContracts, 6th ed., p. 238, and Russell on Arbitration, 1906 ed., p. 95,both of which, on the authority of the ancient case of Matthew v.Ollerton', state that if there is an agreement to that effect the sub-mission to the decision of one party to a contract of any dispute arisingout of that contract is an exception to the doctrine that a party oughtnot to be a judge in his own cause. There is also direct authority for theproposition that an agreement to the effect that in case of a disputebetween the parties to a contract the decision of one of them shall beaccepted by the other, is good. In Ranger v. The Great WesternRailway Co.2, a contract between a railway company and a buildingcontractor stipulated that payments should from time to time duringthe progress of the works, be made by the company to the contractor,such payments to be made on certificates granted by the PrincipalEngineer of the company or his Assistant Resident Engineer. In caseof dispute between the contractor and the Assistant Resident Engineerthe decision of the Principal Engineer of the company was to be final.After differences had so arisen between the contractor and the company,it was discovered by the former that the Principal Engineer was a share-holder in the company. In giving judgment, the Lord Chancellor said,“ A judge ought to be, and is supposed to be, indifferent between theparties. He has, or is supposed to have, no bias inducing him to leanto the one side rather than to the other. In ordinary cases it is a justground of exception to a judge that he is not indifferent, and the factthat he is himself a party, or interested as a party, affords the strongestproof that he cannot be indifferent. But here the whole tenor of thecontract shows it was never intended that the engineer should beindifferent between the parties.
“ When it is stipulated that certain questions shall be decided by theengineer appointed by the company, this is, in fact, a stipulation thatthey shall be decided by the company. It is obvious that there neverwas any intention of leaving to third persons the decision of questionsarising during the progress of the works. The company reserved thedecision to itself, acting however, as from the nature of things it must
» 4 Mad. 226.
« 5 H. L. C. 72.
ABRAHAMS C.J.—Kumarihamy v. Punehi Menika.
act, by an agent, and that agent was, for this purpose, the engineer.His decisions were, in fact, those of the company
It might, I think, be argued that the respondent in this appeal wasmerely a nominal party to the agreement between himself and thefirst appellant, and therefore could have had no interest in the agreementitself. However, in view of the case just cited, it is not necessary totry to make stronger what is already strong enough.
It has also been argued for the first appellant that the respondentought to have proved that he had failed to find a market for the steamflanges referred to in his letter of demand, and that even if the firstappellant was bound to accept the statement as to the amounts realizedby the sale, her obligation to do this did not extend to accepting thestatement on his part that it was not possible to dispose of certain otheritems of stock. I think this is interpreting the obligation too narrowly,and that that obligation extended as much to his declarations regardingimpracticability of sale as to declarations regarding the amounts realizedby the sale of his stock, since if that were not so, the first appellantwould have been bound to accept the statement that he was only ableto obtain a most trivial price for the whole of the stock but would havebeen entitled to dispute the fact that he found it impossible to sell a fewarticles. Moreover, the first appellant has not disputed at any time,and in fact does not dispute now, that these steam flanges were unsale-able. She merely says that she is agnostic about the matter, so thateven if the agreement permitted her to dispute any declaration as to theimpracticability of sale, she has not availed herself of that right.
I would dismiss the appeal, with costs in both Courts.
Fernando A.J.—I agree.Appeal dismissed.
SATHASIVAM v. ATHARIYA