Consequently, learned counsel for the defendant contended that theplaintiff came to court to recover the money which the defendant had failedand neglected to pay in terms of the conditions of the Mortgage Bond.Therefore.it was submitted that it would be erroneous and misleading forthe plaintiff to state that the action was not based on the Mortgage Bond.
It is not in dispute that the defendant entered into a Mortgage BondNo. 5584 dated 23.12.1986 as security for the repayment of the sum dueto the plaintiff. Issue No. 6 refers to the said Bond and is in the followingterms;
“As security for the repayment of the said sum did the defendantenter into Bond No. 5584 dated 23.12.1986 attested by S. C.Abeysuriya, Notary Public?”
This issue was answered in the affirmative. However, it is commonground that the said Mortgage Bond was not registered as required withinthe stipulated time period.
Sri Lanka Law Reports
(2005) 1 Sri L. R.
Be that as it may, it is pertinent to note that it was common groundthat the defendant obtained from the plaintiff a loan and that the defendantdid not repay the loan to the plaintiff. It is also quite evident on aconsideration of the plaint and the averments made thereof that the actionagainst the defendant was filed to recover the loan which was granted tothe defendant by the plaintiff. It appears that the High Court has solelybased its decision on the fact that the transaction between the defendantand the plaintiff rested on the Mortgage Bond which lacked validity due toits non registration during the required time period. In fact after answeringthe issue No. 6 raised by the plaintiff in the affirmative which was to theeffect that “Did the defendant promise and /or undertake to pay to BCCIon demand all monies outstanding on the said banking facilities togetherwith interest and charges”, the High Court has erred in failing to take intoaccount the nature of the obligation of the defendant in respect of whichthe action has been filed. Consequently the High Court has not given anyconsideration and had totally ignored the course of action as pleaded inthe plaint.
The Civil Procedure Code has defined the cause of action. According .to Section 5 of the Code,
“Cause of action is the wrong for the prevention or redress of which anaction may be brought, and includes the denial of a right, the refusalto fulfil an obligation the neglect to perform a duty, and the inflictionof an affirmative injury.”
The plaintiff in the present appeal instituted action based on a ‘wrong’relating to a refusal to fulfil an obligation. On a request of the defendant,the plaintiff had granted loan facilities, as pointed out earlier which was notpaid by the defendant at the time the plaintiff made a demand for therepayment. Discussing the description of 'cause of action’ in Pless PolVLady de Soysa<1) Lascells, A. C. J. said that,
Seylan Bank Limited8 5
l/s Intertrade Garments (Private) Limited (Bandaranayake, J.)
“An action is simply the right or power to enforce an obligation.It springs from the obligation which is simply the cause of action
The words ‘the wrong or prevention or redress which an action
may be brought’ state generally what is connoted by term ‘causeof action’
In Amerasekera and Co. v Duckworth<2) the Court, referring to thedefinition of the cause of action, stated that,
“On the other hand, it implies not only the wrong for the prevention orredress of which action may be brought, but connotes the groundsupon which such wrong arises.”
Discussing the specific issue or refusal to fulfil an obligation, Wendt,J. in Croosew Goonawardene Hamine(3) said that,
“the word ‘obligation’ in this definition is to be understood not in
the narrower sense in which a parol promise to pay a promissorynote and a mortgage, although given for the same debt, may bedescribed as three different ‘obligations’, but in the more generallyunderstood sense of a liability to pay that sum of money.
The High Court has not considered the cause of action of the plantiffin the light of its definition given in Section 5 of the Civil Procedure Codeand the interpretation given to that in the aforementioned decisions. Instead,it has erroneously taken into consideration the period of time when facilitieswere granted to the defendant and the date the plaintiff commencedproceedings against the defendant. The High Court had erroneously takeninto consideration the time periods when loan facilities of different kindswere granted to the defendant and came to the conclusion that whenproceedings commenced for the recovery of the money on 06.10.1993 itwas 6 years after the last date of the facilities given on 05.01.1987 . Thecourt had considered the question of prescription in terms of Section 6 ofthe Prescription Ordinance and held that the term of 3 years ended on
and by the time the action was instituted by the plaintiff on06.10.1993, it was well beyond the period of prescription.
However, it is to be noted.that the undertaking given by the defendantat the time the facilties were obtained.was that all the monies outstandingwould be paid on demand. The plaintiff had stated that at the request ofthe defendant, the BCCI had granted the respondent packing credit loans
Sri Lanka Law Reports
(2005) I Sri L. R.
and/or banking facilities subject to the promise of the defendant torepay to BCCI on demand together with the interest and chargesoutstanding.
In fact the question whether the money was to be paid on demandwas raised in issue No. 5 which was in the following terms:
“Did the defendant promise or undertake to repay to the BCCI ondemand all monies outstanding on the said banking facilities togetherwith interest and charges.”
The High Court had answered this issue in the affirmative. •
It is not in dispute that the letter of demand by the plaintiff to thedefendant was dated 01.03.1993. The High Court, after evaluation ofevidence has also held that the defendant had undertaken to pay theplaintiff on demand. Therefore there cannot be any dispute that this wasan action concerning a loan repayable on demand. In such circumstancesthere cannot be any doubt that the cause of action in the present casewould arise only at the time when demand was made on 01.03.1993.
Section 7 of the Prescription Ordinance deals with the time frame incases of action to recover money lent without written security. This sectionreads as follows:
“No action shall be maintainable for the recovery of anymovable property, rent or…. profit, or for any money lent withoutwritten security, or for any money paid or expended by theplaintiff on account of the defendant, or for money received bydefendant for the use of the plaintiff, or for money due upon anaccount stated, or upon any unwritten promise, contract,bargain or agreement, unless such action shall be commencedwithin three years from the time after the cause of action shallhave arisen.”
Accordingly the question that should be inquired into is as to whendid the cause of action arise in this instance.
Learned Counsel for the defendant contended that loans to thedefendant were granted by the plaintiff on 03.05.1984, 24.08.1984,05.09.1984,12.09.1984 and on 05.01.1987. He took up the position that
Seylan Bank Limited
Vs Intertrade Garments (Private) Limited (Bandaranayake, J.)
since the amounts so granted were not covered by any agreement, as theMortgage was invalid, the transction would be governed by law applicablefor ordinary lending. He accordingly contended that it is a well establishedprinciple that in an action for money lent if it is not specified that it isrepayable on demand, the term of prescription is taken into account fromthe date of such loan. Learned Counsel for the respondent drew our attentionto Halsbury’s Laws of England ([4th Edition] Vol. 28, pg,299) where it isstated that,
“if no time is specified, the statute runs from the date of the
He further contended that, the Prescription Ordinance of Ceylon (asit was then), is based upon the Statute of Limitations in England at thattime. His position is that the appellant cannot be heard to say that Laws ofEngland have no application in this case.
I am however not inclined to agree with the submissions made bylearned Counsel for the respondent for two main reasons. Firstly, it is tobe noted that, as pointed out earlier the transaction between the appellantand the respondent had been on the basis for the repayment to be madeon demand.
Secondly, it would, not be correct to say that the applicable law inthis country for repayment, where it has been agreed that the moneyshould be paid on demand runs from the date of the loan. This questionwas discussed in detail in Sivasubramaniam v Alagamuthi(4) whereNagalingam , J. stated that, ^
“Even in the case of a simple loan, where no time hasbeen fixed for repayment, it is not immediately claimable, butafter the lapse of a reasonable time; so that it would be seenthat under our common law a demand is essential before itcould be said that a cause of action accrues to a creditor to suethe debtor.”
The necessity for a demand to be made for the purpose of statingthat a cause of action has accrued to the creditor was reiterated by Chitty.(Chittyon Contracts, 28th Edition Vol. I, pg. 1412) According to Chitty,
“At common law, where no time for repayment wasspecified in a contract of loan, or where the loan was expressedsimply to be repayable 'on demand’, the lender’s cause of action
SSSri Lanka Law Reports(2005) 1 Sri L. R.
in general accrued when the loan was made and time began torun from that moment. As a result, once the loan was outstanding
for more then six yearsthe lender’s right to recover the
money lent became barred notwithstanding that no demand forrepayment had been made. But by Section 6 of the LimitationAct, 1980, if (a) a contract of loan does not provide for repaymentof the debt on or before a fixed or determinable date, and (b)does not effectively make the obligation to repay the debtconditional on demand for repayment made by or on behalf ofthe creditor or any other matter, then the right of action on thecontract of loan is not barred after six years from the date ofthe loan. Instead, the six year period does not start to rununless and until a demand in writing for repayment ofthe debt is made by or bn behalf of the creditor (emphasisadded).”
In fact, as correctly referred to by the learned President’s Counselfor the plaintiff this position has been accepted by our Courts. For instancein Merchant Bank of Sri Lanka Ltd. v P. L. Buddhadasa and another** anaction was instituted based on an agreement to make payment on the Billof Exchange by discounting them, dated 29.01.1990 against the principaldebtor and the guarantor. The High Court dismissed the action on thebasis that the cause of action was prescribed in terms of Section 6 of thePrescription Ordinance, The Supreme Court held that the cause of actionarose when the 1 st defendant failed to honour the Bill of Exchange and thedemand made thereafter.
According to Section 7 of the Prescription Ordinance,as referred toearlier, action for the recovery of money lent without written security, mustbe commenced within three years from the time after the cause of actionhad arisen.
It is not disputed that the plaintiff by letter dated 01.03.1993 demandedthat the defendant takes steps to repay the monies borrowed from theplaintiff Bank.
It is also not in dispute that the plaintiff instituted action to recoverthe loans on 06.10.1993. The cause of action thus arose on 01.03.1993and the plaintiff has taken action for the recovery of the monies lent, withina period of 7 months of such demand being made.
CACredit information Bureau Of Sri Lanka Vs89
Messrs Jafferiee & Jafferjee (Pvt) Ltd
For the aforementioned reasons the appeal is allowed with costsand the judgement of the High Court dated 20.03.1998 is set aside. Weenter judgement in favour of the plaintiff as prayed for and the High Court isdirected to enter decree and take steps according to law.
YAPA, J.— I agree.
JAYASINGHE, J. — I agree
Appeal allowed.