SINNATHURAY v. ATTIKEN

015-SLLR-SLLR-1987-1-SINNATHURAY-v.-ATTIKEN.pdf


SINNATHURAY
v.
ATTIKEN
SUPREME COURT.
SHARVANANDA, C.J., TAMBIAH, J. AND L. H. DE ALWIS, J.
S.C. No 33/85. C.A. No. 923/75 (F).
D.C. COLOMBO No. 2780/ZL.
MAY 29, 1986, JULY 1, 1986, AUGUST 5, 1986 AND OCTOBER 21, 1986.
Last Will – Settled agreement in testamentary proceedings for probate – Is suchagreement a lawful compromise which can be enforced? – Co-executors – Trust -Trust Ordinance, s. 54 – Purchase by trustee of trust property – Purchase by executorof property of estate – Trust for sale – Residuary estate – Duties of an executor.
In testamentary proceedings instituted by one of two executors named in a Last Will toprove the Last Will the dispute was settled and an agreement was entered into to sign aconveyance in favour of the other co-executor in respect of premises No. 3. Mile PostAvenue, Colombo 3.
When this agreement was sought to be enforced in a separate suit the co-executor whohad agreed to sign the conveyance refused to do so alleging that by reason of fraud,mistake and misrepresentation, the agreement was invalid and the executor being in theposition of a trustee could not purchase property belonging to the estate by anagreement with a co-executor. This was sought to be met by contending that theagreement was one between co-heirs acting in the capacity of residuary legatees andnot between two co-executors.
Held-
Our law as regards executors and administrators is the English law The rule of Englishlaw is that a trustee is absolutely disabled from purchasing trust property and this isembodied in s. 54 of our Trusts Ordinance.
Under our law a trustee and other persons w:-i' occupy fiduciary positions areabsolutely prohibited from purchasing the trust property. This is an inflexible rule and isnot founded on fraud on the part of the trustee It is a logical consequence of theposition which he occupies. This rule is independent of any questions of adequacy ofprice or unfairness or undue advantage. This disability derives from his status andposition and not from his conduct in a particular case.
An executor occupies a fiduciary position. No executor can purchase propertybelonging to the estate that he is administering. He cannot be vendor and purchaserand there cannot be a conflict of duty and interest.
Purchase of trust property by a trustee from himself must be distinguished frompurchase by a trustee of his beneficiary's interest which is voidable but liable to be setaside if there is any hint of an abuse of the trustee's position or of undue influenceexercised by him over the cestui que trust.
The duties of an executor consist in (1) the recovery and collection of the assets of thedeceased (2) payment of debts, estate duty and other testamentary expenses andfinally (3) payment and distribution of the legacies in terms of the will.
'Residuary estate' means the assets which ultimately remain out of the estate afterpayment of the testator's debts, funeral and testamentary expenses and costs of theadministration of the estate, the costs of the administration suit and after payment ofthe legacies.
In the instant case the plaintiff, while still retaining the character of executor andtrustee, entered into the agreement to purchase the trust property; he did not purportto purchase the half share of the other residuary legatee.
The court will not exercise its extraordinary powers to compel specific performancewhere to do so would involve a breach of trust. The sale agreement which is sought tobe enforced in this case infringes the rule that an executor cannot purchase propertyentrusted to him for sale. The plaintiff is not capable of contracting with his co-executorfor the purchase of the property in suit and a court of equity cannot lend its aid toenforce such a contract.
Cases referred to;
In Re Boles v. British Land Companies Contract — [1902] 1 Ch. 244.
Thomas v. Allen – [1930] 1 Ch. 203.
Wright v. Morgan – [1926] AC 788.
Ex parte James -11803) 8 Ves 337.
Mariam Beeviv. Ruqqiah Umma – (1955) 53 NLR 15. 17.
Malliya v. Ariyaratne – (1962) 65 NLR 145.
Bennyfieldv. Baxter – (1886) 12 AC 167.
Holder v. Holder – [1968] 1 All ER 665. 677.
Rei Harvey v. Lambert – (1888) 58 LT 449.
Coles v. Trecothick- (1804) 9 Ves 234. 244.
Ex parte Lacey — (1802) 6 Ves 625.
William v. Scott – [1900] AC 499. 508,
Parke v. Makenna – (1874) LR 10 Ch. 96.
APPEAL from judgment of the Court of Appeal.
H. L. de Silva, P.C. with Mahes Kanagasunderam, Chula de Silva, and S. Mahenthiranfor the plaintiff-appellant.
Dr. H. W. Jayewardene. Q.C. with J. V. C. Nathanielsz and Miss T. Keenawinna forrespondent.
Cur. adv. vult.
November 26, 1986.
SHARVANANDA, C.J,
By her Last Will dated 24.1.1964 the mother of the plaintiff-appellantand the defendant-respondent (hereinafter referred to as plaintiff anddefendant respectively) appointed the plaintiff and defendantco-executors of her Last Will. The testator died on 18.3.1964. Thedefendant applied for probate. The plaintiff opposed the applicationand challenged the Last Will on the ground that it was not the act anddeed of his deceased mother. On 19.5.66, the plaintiff and defendantsettled their differences and entered into Agreement 'D1 Thisdocument was tendered to court and the terms of settlement wererecorded by court on 19.5.66 and the record was signed by both theplaintiff and the defendant. The terms of settlement are as follows
The respondent withdraws the objections to the petitioner'sapplication for probate of the Last Will No. 1 284 dated24.1.64 of which probate is filed in court marked 'A' ;
Probate of Will No. 1284 be granted to the executorsmentioned in the Will namely to Mrs. Agnes MargaretSinnathuray Attiken and Edward Navaratnarajah Sinnathuraywho are the petitioner and respondent respectively;
The petitioner admits that the business known as theCommercial Tutory carried on at No. 46, Dematagoda Road,Colombo 9, does not form part of the estate of the deceased;
It is further agreed that the respondent should purchasepremises bearing assessment No. 3, Mile Post Avenue,Colombo 3, for Rs. 51,000 (Rupees Fifty One Thousand only)only and which said sum of Rs. 51,000 is to be utilised inpaying off the debts due to the State Mortgage Bank on thisproperty and the balance, if any, left to be applied in payment ofEstate Duty and the legacies referred to in clause 5 of the LastWill;
The petitioner further undertakes and agrees to sign thenecessary conveyance in favour of the respondent in respect ofthe said premises No. 3, Mile Post Avenue, Colombo 3.
The respondent agrees and undertakes to pay to the petitionerduring her lifetime a sum of Rs. 100 per mensem from datehereof;
All moneys brought into court on account of rents of thepremises mentioned in the Will, subject to any claims by theCommissioner of Inland Revenue and Estate Duty, will bedivided among the devisees of the said Will.
(The defendant and the plaintiff respectively are the petitionerand respondent referred to above).
The said Last Will, in terms of which the defendant and plaintiff wereappointed joint co-executors, was admitted to probate.
The said Last Will provided inter alia for three specific devises,namely-
Premises No. 3 1/1, Mile Post Avenue, Colpetty-to theplaintiff;
Premises No. 3A, Mile Post Avenue-to Manoharan PrinsSinnathuray, a son of the defendant.
Premises 3/1, Mile Post Avenue-to Manoharan RajkumarSinnathuray, another son of the defendant.
Clauses 5, 6 and 7 of the Last Will provided as follows:
Clause 5.-I direct and empower my executors if necessary to selland convert into money No. 3, Mile Post Avenue, Colpettydepicted as lot Bx in plan No. 2647 dated 17th June 1963 madeby S. Rajendra, Licensed Surveyor and out of the amount sorealised pay the estate duty, the existing mortgage loans and allthe other liabilities of my estate and thereafter pay by the salemoney or alternative arrangement a sum of rupees five thousand(Rs. 5,000) to my brother Emmanuel Joseph Peiries Pulle a sumof rupees three thousand (Rs. 3,000) to my sister Mrs. V. T.Chellatamby a sum of rupees two thousand (Rs. 2,000) to mybrother Anthony Philip Joachim Pulle a sum of rupees threethousand (Rs. 3,000) to George Attiken and remainder to beequally shared by Edward Navaratnarajah Sinnathuray and AgnesMargaret Sinnathuray Attiken.
Clause 6.-I devise and bequeath my entire business known as theCommercial Tutory carried on at No. 46, Dematagoda Road,Maradana together with the entire equipment consisting oftypewriters, furniture fittings and other effects to EdwardNavaratnarajah Sinnathuray my brother Emmanuel Joseph PeiriesPulle and George Attiken equally provided that the said EmmanuelJoseph Peiries Pulle shall not sell or assign his share to any oneother than the co-owners Edward Navaratnarajah Sinnathurayand Georgfe Attiken and on his death his share shall devolve on thesaid co-owners equally.
Clause 7.-I devise and bequeath my residuary estate both movableand immovable to Edward Navaratnarajah Sinnathuray and AgnesMargaret Sinnathuray Attiken in equal shares.
The plaintiff instituted this' action on 13.03.1973 complaining thatthough he had complied with all the terms and conditions of thesettlement dated 19.05.1966 marked "D1" and had requested thedefendant to execute a conveyance of premises No. 3, Mile PostAvenue, Colpetty, for the agreed consideration, in terms of the saidAgreement, the defendant had wrongfully and unlawfully failed andneglected to do so. He prayed inter alia, that the defendant be orderedand directed to execute a conveyance of the premises No. 3, MilePost Avenue, Colombo 3.
By her answer dated 27.02.1974 the defendant challenged thevalidity of the said Agreement that was sought to be enforced andstated that no valid or enforceable contract was entered into betweenthe parties. She said that the Agreement was invalid because she wasinduced to sign the record of the said date-
by a fraud practised on her by the plaintiff;
by mistake on her part, as to the nature and contents of thedocument she was signing ;
by a misrepresentation made to her by the plaintiff and others inregard to the terms of the said alleged Agreement.
The principal question which arose for determination in the trial waswhether the aforesaid Agreement was a lawful compromise which iscapable of being enforced. The trial judge held in the negative and heldthat the plaintiff being an executor of the Last Will of the deceasedwas in the same position as a trustee and could not therefore
purchase any property belonging to the estate, by an agreement witha co-executor. He dismissed the plaintiff's action. On appeal to theCourt of Appeal the judgment of the District Judge was affirmed. Theplaintiff has now preferred this appeal to this court.
Counsel for the plaintiff-appellant has submitted that upon a properconstruction of the Last Will it is beyond dispute that the plaintiff anddefendant as joint executors were not obliged to sell the premises No.3, Mile Post Avenue, Colpetty and could agree to make otherarrangements for the payment of estate duty, the mortgage loan andthe legacies referred to in clause 5 of the Last Will, instead of sellingthe property. In that event both plaintiff and defendant were entitled tohalf share of the property as the only persons entitled to the residuaryestate, in terms of clause 7 of the Last Will and were free to disposetheir interest in the property in any manner they chose as the legalowners and as heirs. It was also urged that under the Agreement theplaintiff undertook to pay Rs. 51,000 which sum was to be utilised forthe payment of the estate duty, mortgage loan and the legacies andthe discharge of the other liabilities of the estate and had alsoundertaken to make a payment of Rs. 100 per month to the defendantduring her lifetime.
The basic contention of the senior counsel for the plaintiff is that thesaid agreement 'D1' was an agreement between two co-heirs, andnot between two co-executors and that it was in the capacity ofresiduary legatees that the parties entered into the said agreement, forthe sale of premises No. 3, Mile Post Avenue, Colpetty. Reliance wasplaced on the case of In Re Boles v. British Land Companies Contract(1) where it was held that apart from any circumstance of doubt orsuspicion, there is no rule of court that a person, who has ceased for12 years to be a trustee of an instrument which contains a trust forsale cannot become a purchaser of property that was subject to thetrust. In that case Buckley, J., stated that-
"The principle that lies at the root of this matter is that a trusteefor sale owes a duty to his cestuis que trust to do everything in hispower for their benefit and it is therefore absolutely precluded frombuying a trust property, irrespective of questions of undervalue orotherwise, because he may be thus induced to neglect his duty.Beyond that if he retires with a view to becoming a purchaser so asto put himself in a position to do what otherwise would be breach oftrust, that would not do. But if he has retired and there is nothing to
show that at the time of the retirement there was any idea of a sale,and in fact there is no sale for 12 years after his retirement, is thereanything to prevent him from becoming a purchaser? I think not."
The rule of English Law that a trustee is absolutely disabled frompurchasing trust property is embodied in section 54 of our TrustOrdinance (Chap. 87). It provides that-
"No trustee whose duty it is to sell trust property, and no agentemployed by such trustee for the purpose of the sale may, directlyor indirectly, buy the same or any interest therein on his ownaccount or as agent for a third person."
Thus under our law a trustee and other persons who occupyfiduciary positions are absolutely prohibited from purchasing the trustproperty. This is an inflexible rule and is not founded upon anyquestion of fraud on the part of the trustee. It is a logical consequenceof the position which he occupies. This rule is independent of anyquestions of inadequacy of price or unfairness or undue advantage.This disability derives from his status and position and not from hisconduct in a particular case.
Clauson, J., in Thomas ir Allen (2) 3t 215 states the principle thus-"The rule of universal application is that an executor and trusteehaving duties to discharge of a fiduciary nature towards the
beneficiaries under the willshall not be allowed to enter into
any engagement in which he has or can have personal interestconflicting, or which possibly may conflict with the interest ofthose whom he is bound to protect."
"Equity will not allow a person who is in a position of trust, tocarry out a transaction where there is a conflict between his dutyand his interest." Wright v. Morgan (3).
An executor occupies a fiduciary position. No executor cantherefore purchase property belonging to the estate that he isadministering. He is bound to do everything in his power, for thebenefit of the estate and therefore is absolutely precluded from buyingassets of the estate which he is administering by himself or withco-executor, irrespective of undervalue or otherwise.
The rule is a rule of general policy, to prevent the possibility of fraudand abuse.
In Ex parte James (4) Lord Eldon observed –
“This doctrine as to purchase by trustees, assignees, and personshaving a confidential character, stands much more upon generalprinciple than upon the circumstances of any individual case. It restsupon this, that the purchaser is not permitted in any case, howeverhonest the circumstances; the general interest of justice requiring itto be destroyed in every instance; as no court is equal to theexamination and ascertainment of the truth in much the greaternumber of cases."
The strictness with which the rule is applied is well illustrated by thedecision of the Privy Council in Wright v. Morgan (supra) (3). Atestator left the residue of the estate comprising land and stock on it,on trust to sell and divide the proceeds amongst the widow, his sonsand daughters. He appointed his widow and his sons 'H' & 'D' to behis executors in trust. There was a clause in the will postponing publicsale until the property had been offered at valuation to 'H' and refusedby him. After the testator's death 'D' purchased 'H's share in theestate together with the option to purchase the trust estate.Thereafter 'D' resigned his trusteeship after agreeing to purchase thetrust estate, but before completion of the sale. The Privy Councilrefused to allow this transction to stand, as it violated the ruleinvalidating purchase of the trust property by a trustee.
Counsel for the appellant submitted that purchase of an estate by anexecutor is not absolutely void but it is only voidable, according toRoman Dutch Law. Our Law as regards executors and administrators,however is the English Law. The English concept of Executorship andAdministratorship has been adopted into our law and it is too late inthe day to go back to the Executor under the Roman Dutch Law. VideMariam Beevi v. Ruqqiah Umma (5) and Malliya v. Ariyaratne (6).
It was further submitted by President's Counsel that the principlethat an executor cannot purchase an asset of the estate from anotherexecutor without the permission of court does not apply where boththe executors are heirs of the deceased, and one executor sells theasset bequeathed to him to the other executor; there he sells quaowner of the asset. He further urged that clause 5 of the will does notcontain a direction or mandate to sell but that it imposes only a charge
and that it need not be sold when in the judgment of the executors itwas not necessary to sell as funds could be found otherwise. Counselfor the defendant on the other hand submitted that clause 5 imposedon the executors a trust for sale and that legal title had been vested byclause 5 on the executors to enable them to carry out the trust forsale; the plaintiff and the defendant were trustees for sale and it wasin discharge of that duty that they entered into the agreement to sell(P1): the plaintiff was purchasing trust property and not any part of theresiduary estate that was free of the trust.
The principle underlying the law against purchase of trust propertyby a trustee is that a man who undertakes to act for another in anymatter, cannot in the same matter act for himself. This rule applies in astrict form not only to trustees strictly so called; it applies to all whothough differing in name are invested with the like fiduciary character,such as executors or administrators Bennyfield v. Baxter (7).
The principle of equity that a trustee may not purchase a part of thetrust estate rests on two reasons-first that a man may not be bothvendor and purchaser, secondly there must not be conflict of dutiesand interest. A purchase by a trustee of the trust property is voidableat the instance of any beneficiary under the trust-/7o/cfer v. Holder (8).However honest and fair the sale may be a 'cestui que trustee' has anabsolute right to have the conveyance set aside within a reasonabletime after he discovers the circumstances. It matters not whether thepurchase by the trustee was for himself alone, as sole trustee oras some co-trustee. Rei Harvey v. Lambert (9); Wright v. Morgan(supra) (3).
Purchase of trust property by a trustee from himself must bedistinguished from purchase by a trustee of his beneficiary's beneficialinterest. Unlike the former, where the trustee is both buyer and sellerthe latter will not always be voidable. Certainly it will be watched by thecourt with the utmost diligence. Coles v. Trecothick (10) per LordEldon, L.C., and is liable to be set aside if there is any hint of an abuseof trust position or of undue influence exercised by him over the cestuique trust.
With regard to such purchase by trustees from themselves (asdistinguished from purchase from their beneficiaries) the doctrinestands much more on principle than upon the circumstances of anyindividual case. It rests upon this, that the purchase is not permitted,in any case, however honest the circumstances be, the genera!interest of justice requiring it to be destroyed in every instance;because no court is equal to the examination and ascertainment of thetruth.
"The rule I take it to be this; not that a trustee cannot buy from hiscestui que trust, but that he shall not buy from himself"-Per LordEldon in Ex parte Lacey (11).
A trustee for sale of trust property cannot sell to himself William v.Scott (12). A trustee cannot adopt for his own benefit an executorycontract to purchase to which he is a party as vendor-Parke v.Makenna (13).
Under the terms of the Last Will the specific devises referred to inclauses 2, 3 & 4 vested in the legatees on the death of the testator.The testatrix bequeathed the residuary estate to the plaintiff anddefendant. "Residuary" estate means the assets which ultimatelyremain out of the estate after the payment of the testator's debts,funeral and testamentary expenses and the costs of the administrationof the estate, the costs of the administration suit and after payment ofthe legacies.
The plaintiff and defendant in terms of clause 7 of the Last Willcould become equally entitled to the residuary estate only after thedischarge of the obligations referred to in clause 5. The payment ofthe debts and legacies referred to in the said clause are antecedent tothe ascertainment of the residuary estate.
The duties of an executor consist in (1) the recovery and collectionof the assets of the deceased (2) payment of debts, estate duty andother testamentary expenses and finally (3) payment and distributionof the legacies in terms of the Will. It is not disputed that there was nomoney in the estate available for the payment of the estate duties,mortgage loans and other monetary legacies referred to in clause 5 ofthe Will. Hence it was necessary to sell and convert into money No. 3,Mile Post Avenue, Colpetty, as provided for by clause 3 of the Will.The sale was part of the process of realising the estate and paymentof the monies referred to in clause (3). It is significant that in clause 'D'of the agreement between the parties it is provided that-
"It ,s frrther agreed that the respondent should purchasepremises bearing Assessment No.3. Mile Post Avenue, forHs. 51,000 only and the said sum of Rs. 51,000 is to be utilised inpaying off debts due to the State Mortgage Bank on this propertyand the balance, if any left to be applied in payment of estate dutyand the legacies referred to in clause 5 of the Last Will."
The motivation for the sale of the said premises is clear; it was topay the debts and legacies as directed by the testatrix; until thatdirection was complied with the "residuary estate" referred to inclause 7 of the Last Will could not be identified. The stage was notreached where it could be said that the premises had vested in theresiduary legatees for them to deal with that property as residuarylegatees.
It is relevant to note that according to paragraph 8 of the plaint, interms of the agreement of contract, the plaintiff agreed to purchaseand the defendant agreed to sell and convey the entire premises. Theprayer of the plaintiff is that the defendant be ordered and directed toexecute a conveyance of the entire premises and not her half share ofthe said premises which she might get as residuary legatees. Theplaint makes it clear that by the agreement P1, the plaintiff was notseeking to purchase the share or rights of the beneficiary under theWill. The plaintiff, while still retaining the character of executor andtrustee, entered into the agreement to purchase the trust property; hedid not purport to purchase the half share of the other residuarylegatee.
The court will not exercise its extraordinary powers to compelspecific performance where to do so would involve a breach of trust.The sale agreement which is sought to be enforced in this caseinfringes the rule that an executor cannot purchase property entrustedto him for sale. The plaintiff is incapable of contracting with hisco-executor for the purchase of the property in suit and a court ofequity cannot lend its aid to enforce such a contract. The plaintiff'saction has therefore to be dismissed.
I affirm the judgment of the Court of Appeal and dismiss the appealwith costs, in all the courts.
TAMBIAH, J. – I agree.
L. H. DE ALWIS, J. – I agree.
Appeal dismissed.