da Silva v. Hirdrainani Ltd.
1955 Present: Lord Oaksey, Lord Tucker, Lord Keithof Avonholm, Lord Somenrell of Harrow and Hr. L. M. D.::de SUvaT. A. K. DE SILVA, Appellant, and HIRDRAMANT LTD., RespondentPrivy Council Appeal No. HO op 1054
S. ('. U4—D. C. Colombo, 21,772 AI
The names given to different kinds of novation in Roman-Dutch law inlroducono principle which would not equally operate in similar circumstances undertho law of contract in England.
8 (the plaintiff appellant) had for several years been employed as leadinjuwellor in a business owned by P. There was also employed in the businessS’g brother-in-law, W, whom S had earlier introduced into the business. In1944, 8 decided to retire from his employment and an agreement was enteredinto on January 29, 1944, between P, S and W the effect of which was to give8 a conditional annuity of Rs. 150 a month during his life and to put V intohis place as leading jewellery maker also on certain conditions. The agreementwhich was duly signed by all the contracting parties expressly provided, interalia, that (l) towards the payment of the aforesaid monthly sum of Rs. 150 byP to S, W should contribute a sum of Rs. 75 monthly from his remuneration,(2) in the event of W dying or being dismissed from service the payment to Sof the “ said sum of Rs. 150 shall immediately cease anything herein containedto the contrary notwithstanding S thereafter received the sum of Rs. 160monthly in terms of tho agreement.
On Juno 27, 1946, a private limited company (the defendant respondent)was formed, with P as managing director and chairman of the Board of Directors.It was not in dispute that this company took over the business that had beenowned by P. When the company took over the business, W ceased to be inl*’s employment and became an employee of the company. In July, 1946,soon after the Company was formed, S spoke to P, who then, as managingdirector of tho Company, undertook to make the payments due to S under theagreement. Following on this undertaking, S continued to receive his monthlypayments of Rs. 150 which were made by Company cheques, occasionally sentto him under covering letters from the Company.
P died on March 23, 1948. The Company then took the view that there wasno longer any liability on it to make payments to S under the agreement ofJanuary 29, 1944. S thereupon instituted the present action claiming fromthe Company payment of Rs. 150 per month.
Held, that, irrespective of any condition with regard to W’s employment,a completely new form of contract was made between tho Company and theappellant (S) when the Company undertook to pay the appellant for his lifeon annuity of Rs. 150 per month. Suoh a contract might be regarded as amixturo of novation and delegation.
2J. N. It 45700-1,502 (7/55).
482 LORD KEITH OF AVONHOUC-Hii Sttva v. Hirdramani Ltd.
AiPPEAXi from a judgment of the Supreme Court reported in55 N. L. R. 294.
"L. O. Weeramantry, with Biden Ashbrooke, for the plaintiff appellant.Stephen Chapman, for the defendant respondent.
Cur. adv. vult.
May 0, 1955.[Delivered by Loud ICbith of Avokholm]—
This is an appeal from a judgment of the Supreme Court of Ceylonreversing a judgment of the District Court of Colombo in favour of theappellant and dismissing his action.
The facts of the case can be briefly stated.
The appellant had for some 11 years been employed as leading jewellerin a business known as Hirdramani which in 1944 was owned by oneParmanand Tourmal. There was also employed in the business theappellant’s brother-in-law, Wijeratne, whom the appellant had earlierintroduced into the business.
In 1944 the appellant decided to retire from his employment and anagreement was entered into between Parmanand, the appellant andWijeratne the effect of which was to give the appellant a conditionalannuity of Rs. 150 a month during his life and to put Wijeratne into hisplace as leading jewellery maker also on certain conditions. The agree-ment which was duly signed by all the contracting parties and witnessedwas in the following terms :—
“This Agreement made and entered into between ParmanandTourmal carrying on business at No. 65/69, Chatham Street, Colombo,under- the name and style of Hirdramani hereinafter referred to as‘ Mr! Parmanand ’ (which term as herein UBed shall mean and includethe said Parmanand Tourmal his heirs, executors and administrators)of the one part and ThenuweraAoharige Karnolis de Silva ofAmbalangoda (hereinafter referred to as ‘ Silva ’) and AlahendrageAcharige Charles Perera Wijeratne of Kalutara (hereinafter referredto as ‘ Wijeratne ’) of the other part.
Whereas the said Silva and Wijeratne have for some time pastbeen employed under Mr. Parmanand as leading jewellery makerand Assistant respectively.•
– And whereas Silva has agreed with Mr. Parmanand to retire from'•service as leading jewellery maker in the firm of Hirdramani andhas requested Mr. Parmanand to employ Wijeratne as his leadingjewellery maker which Mr. Parmanand has agreed to do subject tothe terms and conditions hereinafter set'forth.
LORD KEITH OF AVONHOLM—de Silva v. Hirdramani Ltd. 463
Now this Agreement witnesseth and it is hereby mutually covenantedand agreed between the parties hereto as follows :—■
(а)The said Silva shall retire as leading jewellery maker in thefirm of Hirdramani as from the first day of February Onethousand nine hundred and forty-four and shall in considerationof the sum of Rupees Four hundred and seventy-five (Rs. 475)being the purchase price, deliver to Mr. Parmanand all machines,tools and other implements that are now at Hirdramani and ownedby Silva.
(б)The said Wijeratne shall as from the 1st day of FebruaryOne thousand nine hundred and fourty-four serve under Mr. Par-manand as leading jewellery maker on such remuneration as maybe agreed upon from time to time and shall devote his whole timeand attention to such work and shall not work for any other personor firm whomsoever without the consent first had and obtained fromMr. Parmanand.
In consideration of the services rendered as aforesaid bySilva and as long as Wijeratne is employed under Mr. Parmanandhe Mr. Parmanand shall as from 1st February One thousand ninehundred and forty-four pay to Silva monthly at the end of eachand every month a sum of Rupees One hundred and fifty (Rs. 150)during the life time of Silva.
Towards the payment of the aforesaid monthly Bum of RupeesOne hundred and fifty (Rs. 160) by Mr. Parmanand he the saidWijeratne shall contribute a sum of Rupees seventy-five (Rs. 75)monthly from his remuneration.
(e) The said Silva shall be at absolute liberty to undertake ordersand carry on his usual business of jewellery maker.
(/) In the event of the said Wijeratne dying or being dismissedfrom service or being incapacitated by illnoss or otherwise or leavingthe service of Hirdramani at any time or in the event of the deathof Silva then the payment to Silva of the said sum of Rupees Onehundred and fifty (Rs. 160) shall immediately cease anythingherein contained to the contrary notwithstanding.
(g) In the event of the said Wijeratne proving at any time here-after in the opinion of Mr. Parmanand incompetent, insubordinate,negligent or dishonest then it shall bo lawful for Mr. Parmanandto dismiss Wijeratne immediately and in that event this Agreementshall cease and be of no avail.
(A) In addition to any other remuneration that Mr. Parmanandshall pay to Wijeratne for his service as leading jewellery makerand as long as the said Wijeratne shall serve Mr. Parmanand heMr. Parmanand shall pay to Wijeratne monthly at the end of eachand every month as from 1st February One thousand nine hundredand forty-four the sum of Rupees Fifty (Rs. 50) as salary.
LORD KEITH OF AVONHOLM—de Silva v. Hirdramani Ltd.
In witness whereof the said Parmanand Tonrmal, the said ThenuweraAcharige Karnolis de Silva and the said Alahendrage Acharige CharliePerera Wijeratne do set their respective hands hereunto at Colomboon this twenty-ninth day of January One thousand nine hundred andforty-four. ”
The appellant left the service of Hirdramani on the 1st February, 1944,and Wijeratne took the appellant’s place in the business. The appellantthereafter received the sum of Rs. 150 monthly in terms of the agreement.
On the 27th June, 1946, the private limited company of HirdramaniLimited (the defendant in this action) was formed, with Parmanand asmanaging director and chairman of the Board of Directors. He andvarious relatives were also appointed by the Articles of Association firstdirectors and life directors of the company and were allotted shares inthe issued and subscribed capital of the company. It is not in disputethat the company took over the business of Hirdramani.
The appellant came to know that the business had been converted intoa limited company and in or about July, 1946, he spoke to Parmanand.His evidence (the only evidence in the case) in this matter is containedof the following passages. In examination-in-chief he said :—„
“ After I came to know that the business had been converted intoa limited liability Company I spoke to Mr. Tourmal. I spoke tohim about the payments that were being made to me. I asked himwhether there would be any change in the payments made to meaccording to the agreement after the business was incorporated intoa limited liability Company. He said he was the Managing Directorand Chairman of the Board of Directors, and that there would beno change, and that the Company would pay. The Company con-tinued to pay me according to the agreement. Wijeratne continuedto work in Hirdramani Ltd. He is working there up to date. I spoketo Mr. Tourmal about my payments on the agreement in June or July,1946. By that time Mr. Tourmal was the Managing Director of theDefendant-Company. ’ ’
In cross-examination he said :—
“ After the Company was formed I spoke to Mr. Tourmal. Hesaid that he was the Managing Director of the Defendant-Companyand that there would not be any change in regard to the paymenton the agreement, and that he would continue to pay me. Thatwas a very important matter so far as I was concerned. I had nomisgivings in my mind that he would continue to pay me. ”
Later in cross-examination with reference to a passage in a letter whichhe wrote on the 28th June, 1948, he was asked :—
“ You stated there ‘ I feel that the Gompany or in the alternativethe estate of the late Mr. Parmanand Tourmal is liable to pay methe said amount throughout my life Why did you say that 1
A. I expected either the Company or the estate of Mr. Parmanandto pay me according to the agreement, because Mr. Parmanand hadtold me so.
LORD KEITH OF AVONHOLM—de Silva v. Hirdramani Ltd.
Q. What did Mr. Tourmal tell you ?
A. He said the Company would continue to pay. ”
Poliowing on this meeting with Pannan&nd the appellant continuedto receive his monthly payments of Bs. 160 which were made by companycheques, occasionally sent to him with covering letters from the company.
Pannanand died on the 23rd March, 1948. The company then tookthe view that there was no longer any liability on anyone to make pay-ments to the appellant under the agreement but was prepared to continueto do so, on an ex gratia basis, and accordingly sent to the appellant twoletters dated the 9th and 30th April, 1948, respectively :—
The first was in the following terms :—
“ Dear Sir,
Wo enclose herewith a cheque for Rs. 160 being the amount paidto you monthly by the late Mr. T. Parmanand.
As you are aware of Mr. Parmanand died recently and beforehis death our Company was formed.
We are therefore continuing this payment without any obligationor binding on our part.
Ploaso acknowledge receipt.
Yours faithfully,Hirdramani, Ltd. ”
The second was as follows :—
“ Deur Sir,
By <»ur letter of 9th inst., wo informed you the condition subjectto which wo will bo paying you your monthly payment and you havedoubtless accepted the paymont subject to that condition.
Wo arc enclosing herewith cheque for Rs. 150 being April pay-mont and shall be glad if you will acknowledge receipt.
Ploaso note that all future payments will be subject to thatcondition.
Yours faithfully,Hirdramani, Ltd. ”
488 LORD KEITH OF' AVONHOtK-nfe Siftn«. Hirdramani Ltd. *
The appellant did not at this time reply to these letters but after receiv-ing the second letter he called on Parmanand’s son, Bagawandas, whowas one of the directors of the company. In his evidence the appellantsays he told Bagawandas that according to the agreement the paymentcould not be stopped and that he was trying to do an injustice to himby including a condition in the letter in regard to future payments andthat he, the appellant, expected to receive.payment. Bagawandas toldhim that the company was not bound to pay.
Thereafter the company sent the appellant a further cheque along withthe following letter dated the 31st May, 1948 :
" Dear Sir,
Enclosed please find cheque No. T. 174696 on Chartered Bank forRe. 150 drawn in your favour subject to the condition mentionedin our previous letter and which you have accepted.
Please acknowledge receipt.
Yours faithfully,Hirdramani, Ltd. ”
To this the appellant replied by the following letter dated the 28th June,1948:
“ Agreement dated 29-1-44, between the LateMr. Parmanand Toubmal and K. de Silva.
I am in receipt of your letters, dated 9 4 48, 30-4-48, and 31-5-48,enclosing cheques due to me and thank yon for same.
However, I find it difficult to understand why you state that thesepayments are being made without any obligation or binding on yourpart and I shall be glad if you will explain your position clearly formy future guidance.
I have not in anyway accepted this position of yours although youstate that I have done so.
I feel that the company or in the alternative the estate of thelate Mr. Parmanand Tourmal is Hable to continue the payment ofthe said sum throughout my life.
T. A. K. de SUva. ”
LORD KEITH OF AVONHOLM—da 8Uoa v. Hirdraautni Ltd.
This correspondence is concluded by a letter from the company to theappellant dated the 29th June, 1948, re-affirming Its position and statingthat “ the agreement is now at an end No payment has been madeto the appellant since May, 1948.
In September, 1949, the appellant began the present suit claimingRa. 2,250 arrears of payment from June, 1948, to September, 1949, andpayment of Rs. 150 per month from September onwards.
The learned District Judge (K. D. de Silva, A.D.J.) in an able andcareful judgment found for the appellant. On appeal the Supreme Courtset aside his judgment and dismissed the appellant’s action withcosts.-
The crucial question for consideration is what happened to the agree-ment when the business of Hirdramani was turned into a limited com-pany ? The District Judge has found that at the meetings between theappellant and Parmanand in July, 1946, “ Parmanand as managingdirector of the defendant-company undertook to make the payments dueto the plaintiff under the agreement ” and answered affirmatively therelevant issue on this point, “ Did the defendant-company undertake topay the plaintiff the sum of Rs. 150 per month mentioned in the saidagreement ? ”. As their Lordships read the opinion of Gratiaen J., in theSuprome Court, concurred in by Gunasekara J., the other member ofthe Court, the Supreme Court has also accepted this finding. It is nottheir Lordships’ practice to upset concurrent findings in fact of twocourts, but their Lordships would observe that the evidence alreadyquoted amply supports the findings so made.
The real controversy is as to what the effect of this undertaking wason the rights of the appellant under the agreement. Both Courts belowtreated the matter as falling to be determined on an application of thedoctrine of novation under Roman-Dutch law. Their Lordships werereferred to two species of novation recognised under the Roman-Dutchsystem. One is novation properly so called by which the obligationsunder an agreement are altered, the new obligations being substituted forthe old while the parties remain the same. Another is known as delega-tion, by which the obligations remain the same but a new debtor issubstituted for the original debtor, with the consent of both and of thecreditor, the original debtor being discharged of his obligation. Theterms of the agreement thus remain the same, but the parties are altered.Other species of novation are recognised under Roman-Dutch law butneed not for the purposes of this case be considered. In the present casethe Supreme Court considered the form of novation relied on to be “atransaction described by the Roman-Dutch jurists as delegation ”.
Tho principle of novation in contract is not foreign to English law.As was pointed out in Scarf v. Jardine (1882) 7 App. Cas. 345 it frequentlyoperates on a change of partnership where the new partners take over theobligations of the old partners with the consent of the creditors. ButLord Selborne, L.C. recognised also that novation might include a newcontract substituted for the original contract between the same parties
LORD KEITH OF AVONHOLM—de Silva v. Hirdramani Ltd.
(p. 351). The names given to different kinds of novation in Roman-Dutchlaw and in other Bystems of law drawing on the civil law are a convenientmeans of classifying different kinds of transaction but, as their Lordshipsapprehend, introduce no principle which would: not equally operate insimilar circumstances under the law of contract in England.
The agreement here was a tripartite agreement. But the contractualrelationships set up were between Parmanand and the appellant on theone hand and Wijeratne and Parmanand on the other, although the con-tractual obligation of Parmanand to the appellant might be conditionedin certain circumstances by what happened within the contractual re-lationship existing between Parmanand and Wijeratne. When, therefore,on the formation of the company, the company took over ParmanAnd’sobligation to the appellant the immediate result was to substitute thecompany for Parmanand as the appellant’s debtor and to roleasoParmanand from his obligation for, on their Lordships’ view of the effectof the evidence, it must be assumed that the appellant was a consentingparty to this transaction. It is to bo observed, however, that one ofthe conditions of Parmanand’B liability to the appellant under the originalagreement was that Wijeratne should be in his employment. When thecompany took over the business of Hirdramani, Wijeratne ceased to bein Parmanand’s employment and became an employee of the company.It is upon this fact that the defence to this case and the judgment of theSupreme Court are based.
Their Lordships would here observe that if the defence is well foundedthe undertaking given by the company to the appellant had no meaningat all, for at that time Wijeratne was in fact no longer employed byParmanand and was employed by the company. None the less thecompany as from the date of the undertaking made payment to theappellant without condition or qualification for some two years until thedeath of Parmanand. Their Lordships are quite unable to hold in thesecircumstances and taking the evidence as a whole that some form ofnew contract was not made on the formation of the company wherebythe company became bound to the appellant. In certain eventualities itmight be necessary to determine what the precise terms of this newcontract were but, in their Lordships’ opinion, on any view of the contractthe company is bound, as matters at present stand, to fulfil the obligationundertaken by them to pay the appellant Rs. 150 a month.
Two possible views, in their Lordships’ Opinion, are alone tenable onthe evidence. One is that a completely new form of contract was madeby which the company undertook to pay the appellant for his life anannuity of Rs. 150 per month, irrespective of any condition with regardto Wijeratne’s employment. This it may be observed would not benovation proper according to Roman-Dutch law, because there would boa change of debtor, as well as a change in the terms of the obligation.Nor would it be delegation, because there would be a change of theterms of the contract, as well as a change of debtor. It might be regardedas a mixture of novation and delegation, and in principle their Lordships■ee no reason why this could not be so.
LORD KEITH OF AVONHOLM—de. Silva v. Hirdramani Ltd.
Tbo other view is that the company was substituted for Parmanand atall points of the agreement, so that not only did the company become thedt btor of the appellant for the payment of Its. 150 per month, but alsobecame the employer of Wijeratne, with the benefit of all the rights andsubject to all the obligations previously existing between Parmanandand Wijeratne under the agreement and with the right to terminate thepayment to the appellant on Wijeretne’s ceasing to be in the company’semployment for a reason contemplated in the agreement. This wouldbe difficult to bring under any single category of novation in Roman-Dutch law. It would be novation of a somewhat composite character.But again there is no reason in principle why such a new arrangementcould not be made with the consent of all the parties.
l’rima facie the facts of the case so far as brought-out by the evidencesuggest that the latter was the true view cf the arrangement come to onthe formation of the company. The evidence that Parmanand said therewould be no change made to the appellant according to the agr smentand that the company would pay may be thought to support that view.Wijeratne also in fact became an employee of the company and i3 stillemployed by the company. But there is no evidence of Wijoratne orof the company as to what are the contractual relations between themand in the absence of such evidence it would be improper to make anyassumption in this matter. Their Lordships, however, see no escapefrom the viow that in fact and in law the company took over Parmanand’sobligation to the appellant. Their Lordships are unable to hold thatthis obligation was subject to a condition which was impossible of fulfil-ment at the time of the novation, namely that Wijeratne should continuein the employment of Parmanand. If it was subject to any othorcondition, or conditions, it was for the company to prove this byevideneo.
The learned District Judge said that it was necessary to considerwhothor the othor party to the agreement, namely Wijeratne, was a con-senting party to the novation and held that in the absence of evidenceto the contrary it was legitimate to presume that he was. This may wellhavo been so but as already observed it is not, in their Lordships’ view,necessary so to find. Wijeratne’s obligation to pay half of the monthlypayment to Parmanand was a separate obligation from Parmanand’sobligation to make the monthly payment to the appellant and there wasno interdependence between the two obligations. The appellant couldnot have sued "Wijeratne for half the annuity and Wijeratne’s failure topay his share would not have excused Parmanand from paying the fullannuity to the appellant. Wijeratne’s position on the formation of thecompany was a matter for agreement between Wijeratne, Parmanandand the company with which strictly the appellant had no concern,except in so far as it afft cted the receipt of his monthly payment.
The ground of judgment of the Supreme Court would seem to bocontained in the following passage in the opinion of Gratiaen, J. :—
“ The plaintiff could not succeed by pleading and proving that the
Company had undertaken only the original obligation of Parmanand
LORD KEITH OF 'AVONHOI3S—ds SHoa v. Birdramani Ltd.
Tourmal under the agreement dated 29th January, 1944, for evenupon an interpretation most favourable to the plaintiff, that particularobligation was no longer subsisting after the date of ParmanandTourmal’s death. Indeed, the action could not be maintained exceptupon the basis of a fresh contract whereby the Company undertookan obligation not measured by the limits of Parmanand Tourroal’sextinguished liability but continuing for a period of time ertendinyfar beyond that which had been contemplated in the terms of the originalcontract, namely, so long sb Wijeratne served ‘ Hirdramani Limited ’as its * leading jeweller No such contract has been pleaded or provedby the plaintiff. ”
The words emphasised in italics are so emphasised by the learned judge,not by their Lordships’ Board.a
As their Lordships understand this passage the learned judge isintending to convey that, as the original obligation of Parmanand, orhis heirs, executors and administrators, under the agreement was confinedto the poriod during which Wijeratne served him or his heirs, & c., thecompany’s obligation could not be extended beyond that period, forWijeratne had ceased to serve Parmanand. and was now in the serviceof the company. But that event happened when the company wasformed and their Lordships do not appreciate the significance of lookingat things as at the date of Pannanand’s death. By that time the companyhad assumed the liability and there iB nothing to suggest that it waslimited to the period of Parmanand’s life. If on the other hand Oratiaen,
J., moans that all liability ceased on the formation of the company andthe transfer of Wijeratne’s services to it, that, as has already been pointedout, gives no meaning to the evidence that the company would take overParmanand’s liability and that there would be no change in the payments.
Some importance was attached by Gratiaen, J., to the correspondencealroady quoted that took place between the company and the appollantafter Parmanand’s death. The learned judge appears, however, to haveomitted to notice the evidence of the meeting of the appellant withBagawandas when the appellant protested against the attitude taken upby the company. But in any event what the companj' wrote afterParmanand’s death could not affect a liability which had already beenaccepted by the company during his life.
An argument was addressed to their Lordships for the appellant, basedon tho doctrine of estoppel, but, in their Lordships’ view, there are nocircumstances in this case which call for any consideration of that doctrine.
For tho reasons given their Lordships will humbly advise Her Majestylhat the appeal be allowod, the judgment of the fuprome Court be setaside with cost6 and the judgment of the District Court be restored. Therespondent must pay the costs of this appeal.
T. A. K. DE SILVA , Appellant , and HIRDRAMANI LTD , Respondent
da Silva v. Hirdrainani Ltd.