078-NLR-NLR-V-74-THE-SINHALESE-FILM-INDUSTRIAL-CORPORATION-LTD.-Appellant-and-H.-C.-MADANAYAKE-.pdf
Sinhalese Film Industrial Corporalian Ltd. v. Madanayake
2S9
[Pit ivy CouxcilJ
1971 Present: Lord Hodson, Viscount Dilhofne, Lold Wilber/orce,Lord Diplock and Lord Cross of ChelseaTHE SINHALESE FILM INDUSTRIAL CORPORATION LTD.,Appellant, and H. C. MADANAYAKE and others, RespondentsPrivy Council Appeal No. 42 of 1970
S. C. 454165 (.F)—D. C. Colombo, 1265/ZLContracts—Executory contract—Discharge by repudiation—Quantum oj evidence—
“ Election ”—Evidence of anticipatory breach oj a written executory contract— .Admissibility of parol evidence—Inapplicability of Evidence Ordinance, s. 92—Claim against a deceased person's estate—Requirement of careful scrutiny.
On 2nd March 1959 one M, who was n Director of the appellant Companyentered into an Agreement to soli a land to tho Company within eighteenmonths. The price was Rs. 40,000, of which Rs. 15,000 wore paid upon theexecution of the Agreement. The balance of Rs. 25,000 was payablo oncompletion. One of the terms of the Agreement was that M should perfect histitle (i.e., by partition actions) within eighteen months. Subsequently thefinancial position of tho Company deteriorated. The Company was unableto pay it3 debts, one of which was very urgont and amounted to Rs. 91,000.Much less was it in a position to find the Rs. 25,000 required to complete thopurchase of the land. On 9th November 1900 tho Directors of tho Companyheld a meeting, the relevant minute of which was fairly capable of tho inter-pretation that tho Directors expressed an intention not to complete tho purchaseof tho land. On ISth November.19G0 M withdrew the partition actions whichho had instituted to perfect his title to tho land. Evon if there was anyambiguity in the terms in which tho Company expressed its intention os regardsits further performance of the Agreement at tho meeting of 9th Novomber 1960,tho conduct of tho Directors of tho Company between Novomber 1960 andSeptember 1961 gave rise to tho irresistible inference that by the latter date atlatest the Company had made it clear to M that it had abandoned any intentionof completing the purchase of the land, and that M had accepted this os arepudiation of tho Agreement.
M died in March 1963. In tho present action the Company claimed from therespondents, who were tho heirs of M, specific performance of tho Agreement on'tho payment of tho balance sum of Rs. 25,000.
Held, (i) that, by September 1961 both parties to the Agreement weretreating it as having been repudiated by tho Company. Repudiation by thatdate was sufficient by operation of law to have released M from any furtherobligation to perform tho Agreement on his own part, even if tho dote'of thefinal repudiation could not bo pinpointed as having occurred at tho meeting oftho Directors hold on 9th Novombor 1960,. …-
txxrv—13
1*K 7127—2,255 (9/71)
290 LORD DIELCCK—Sinhalese Film Industrial Corporation Ltd. v. Madanayale
that where a party to an executory contract which is required by law tobe notarially attested seeks to bo discharged from his obligation on theground of repudiation by tho other party, parol evidence of the repudiationis admissible. Section 92 of tho Evidence Ordinanco is not applicable to a caseof anticipatory breach.
that a claim brought against tho estate of a deceased person should bo6Crutinised with great caro and inferences of fact against the deceased shouldnot bo lightly drawn.
*• Where one party to an executory contract mokes it manifest to tho otherparty that ho docs not intend to perform an obligation imposed upon him by thocontract which is fundamental to it, his conduct constitutes an anticipatory-breach or wrongful repudiation of tho contract by him. Tho other party may-then elect either to ignore tho wrongful repudiation and to treat tho contractand the obligations which it imposes upon him ns well as upon tho repudiatingparty as still binding upon each of them, or to treat tho contract and theobligations which it imposed upon each party as no longer binding on them,save os respects tho liability of tho repudiating party for damages for non-performance. Although tho latter choice is often described as an election torescind tho contract, their Lordships would observe, that the non-repudiatingparty’s obligation to perform tho contract any further is terminated by operationof low and not as tho result of any' agreement between tho parties to rescind it.Section 92 of the Evidenco Ordinanco accordingly has no application to cases ofanticipatory breach."
Appeal from a judgment of H. N. G. Fernando, C.J. (do Kretser J.agreeing) delivered on 10th May, 1909.
B. J. Fernando, for the plaintiff-appellant.
H. TV. Jayeuardene, Q.C., with B. Eliyatamby, for tho defendants-respondents.
Cur. adv. vull.
Slay 24, 1971.[Delivered by Lobd Dolock]—
On 2nd March 1959 Mudaliyar Jayasena Madanayake (“the deceased”)entered into a notarially attested agreement (“tho Agreement”) to sellto tho appellant Company (“the Company”) an area of land near Colombo(“tho Land”) at tho price of Rs. 40,000, of which Rs. 15,000 were paidupon tho execution of tho Agreement. In the circumstances to whichtheir Lordships will advert hereafter the Land has never been conve3'cdto tho Company. Tho deceased died on 13th March 19G3. Thorespondents are his hairs. On 27th January 19G4 tho Company called
LORD DIPLOCK—Sinhalese Film Industrial Corporation Ltd. v. Madanayahe 291
upon the respondents to convey the land to it. The respondents declinedto do so. The Compaq' sued them for specific performance of theAgreement. The District Court granted the Company a decree of specificperformance. The judgment was reversed by the Supreme Court onappeal. The case now comes on further appeal to their Lordships’Eoard.
The only question in the appeal is whether the contractual obligationof the deceased under the Agreement to convoy the Land to the Companywas still subsisting on 27th January 1964. Although the pleadings andthe argument have ranged over a wider field, their Lordships agreewith tho Supreme Court that the answer to this question turns uponwhether or not the deceased’s obligation to convey the Land to theCompany had been discharged by operation of law before that date,by reason of the Company’s wrongful repudiation of the contract andtho deceased’s acceptance of this as terminating his own obligationto perform the Agreement any further.
It is common ground that tho legal consequences of an anticipatorybreach of an executory contract are the same in Roman-Dutch law asat common law. Where one party to an executory contract makes itmanifest to the other party that he does not intend to perform anobligation imposed upon him by the contract which is fundamental toit, his conduct constitutes an anticipator}' breach or wrongful repudiationof the contract by him. The other party may then elect either to ignorethe wrongful repudiation and to treat the contract and the obligationswhich it imposes upon him as well as upon tho repudiating party asstill binding upon them, or to treat the contract and the obligationswhich it imposed upon each party as no longer binding on them, saveas respects the liability of the repudiating party for damages for non-performance. Although the latter choice is often described as an electionto rescind tho contract, their Lordships would observe, that tho non-repudiating party’s obligation to perform tho contract an}' further isterminated by operation of law and not as the result of any agreementbetween tho parlies to rescind it. Section 92 of the Evidence Ordinanceaccordingly has no application to cases of anticipatory breach.
The issues in tho instant appeal aro in the main issues of fact, andturn up m events which took place between I960 and 1962. Tho datofor completion contemplated by the Agreement was 2nd September 1960.The deceased, who was the person best qualified to give evidence of thefacts, did not die until two-and-a-half years later. The Comjjany madeno claim to have the Land conveyed to it until there had been a changeof shareholding and management following upon the death of thedeceased. The claim is brought against his estate. Their Lordshipsagree with the Supreme Court that it should be scrutinised with greatcare and that inferences of fact against the deceased should not belightly drawn.
292 LORD DIPLOCK—Sinhalese Film Industrial Corporation Ltd. v. ATadana’jaks
The deceased, who was a prominent businessman in Colombo, wasono of tho moving spirits in tho formation of the Company in July 1957.Its principal object was to produco cinematographic and television films.As the early minutes disclose the motive of its promotors was, at leastin.part, tho patriotic one of promoting Sinhala culture. Its only sourceof funds was by the issue of shares and tho directors’ policy was toencourage a broad-based public ownership of its capital.
Tho Agreement of 2nd March 1959 was the first step taken by theCompany to acquire the capital assets needed to enable it to carry outits objects, by purchasing land on which to build a studio and to shootfilms. It appears from the Annual Report of tho Directors that the priceof Rs. 40,000 was, even at that date, less than its market value. Thodeceased held it under a "village title”. It was a term of tho Agreementthat the deceased should perfect his title (i.e., by partition actions)within eighteen months. The Land was to bo conveyed to the Companywhen the title had been perfected. Rs. 15,000 was to bo paid onexecution of the Agreement and the Company was to be given immediatepossession with the right to put up buildings. The balance of the purchaseprice Rs. 25,000 was payable on completion.
Tho Rs. 15,000 was duly paid. It appears in the Balanco Sheet ofthe Company for 31st March 1959 as a “Fixed Asset” under tho rubric"Advance on Studio Site”. The Company had cash available to theamount of Rs. 107,000.
During the following year building proceeded on the site at a costof some Rs. 36,000 and on loth September 1959 tho Company enteredinto a contract with a French firm to purchase equipment at a totalcost of some Rs. 220,000. Of this amount 30% was payable at dateof shipment and tho remainder by 24 monthly drafts accepted by thoCompany and endorsed by the deceased and tho Chairman of Directorsof the Company, Mr. Gunasekera, as guarantors. These payments verynearly exhausted tho cash resources of the Company by 31st MarchI960. Tho Company’s Balanco Sheet at that date includes among thefixed assests “Studio site cost Rs. 40,000” and among tho liabilitiesthe deceased as creditor for Rs. 25,000, tho unpaid balanco of thopurchase price. It also discloses a debt to tho French firm ofRs. 135,000 for monthly drafts yet to fall duo. As against this thocash available had fallen to about Rs. 7,000.
Applications for new shares had, however, still been coming in thoughat a reduced rate, and in April I960 tho deceased commenced sevenpartition actions to perfect his title to tho Land as he was required todo under the Agreement. His proctors wero tho firm of whichMr. Gunasekera, tho Chairman of tho Company', was senior partner.
By August I960, however, the financial position of tho Company haddeteriorated further. Kew capital was coming in at a negligible rate.
LORD D1PLOCK—Sinhalese Film Industrial Corporation Ltd. v. Madanayake 293
The Company was compelled to borrow from tho Directors moneys tomeet even quite minor day-to-day expenses, as well as the monthly draftin favour of the French firm which would fall duo in September. Themajor part of these advances were made by the deceased.
It was in these circumstances that at a meeting of Directors held-on7th October 1960 the deceased to whom the Company was alreadyindebted in the sum of about Rs. 31,000 for cash advanced, apart fromits liability to pay him Rs. 25,000 for transfer of the Land whenjudgment in the pending partition actions had been obtained, expressedhis willingness to refund the sum of Rs. 15,000 which had been paid tohim on account of the purchase price of the Land. This proposal wasleft over for consideration of the Board.
On 9th November I960 there was held a meeting of Directors onwhich much of the argument in this case has turned. The relevantminute is in the following terms :—
“3. The question of settling the studio site at Dalugama wastaken up and after a lengthy discussion the Board decided to switchon to a long lease of 50 years (fifty years) instead of purchasingoutright, because the Board finds it not possible to pay' the purchaseprice the balance being Rs. 25,000 at this junction owing to thenon-availability of Company’s funds. The Board further decidedthat a long lease of 50 years as good as proprietary holding andplaced the entire matter of drawing up the necessary legal documentsin the hands of the Chairman Mr. D. L. Gunasekera. Mudaliyar J.Madanayake also agreed that ho will co-operate to tho utmost byproviding ample scope and facilities embodied in the NotarialDocument or Documents for the lease of the property' of ten acresat Dalugama on which the Kaly'ani Studios is being built now.”
This was a meeting of Directors who had already shown in practicalform that they had the interests of the Company at heart. It was in noposition to pay' its outstanding drafts in favour of tho French firm whichtotalled Rs. 91,000 and wore falling due at the rate of about Rs. 6,500monthly'. Much less was it in a position to find the Rs. 25,000 requiredto complete the purchase of the Land. The subject matter of the Board’sdiscussion was one in which the deceased had a dual interest. Hewas a Director of tho Company which was the purchaser under theAgreement. In his personal capacity he was the vendor. Tho meetingwas not an ordinary' confrontation between adverse parties to a contractwhich one of them is unablo to fulfil. In their Lordships’ view it wouldbe neither right nor realistic to decide this appeal upon narrow pointsof construction of the actual words used to summarise what is describedas a “ lengthy discussion”.
1 ••—X 7127 (9/71)
204 LOKD DIPLOCK—Sinhalese Filin Industrial Corporation Ltd. v. Madanayake
There are two possible interpretations of what is recorded in the minuto.Tho first is that the Directors, act ng on behalf of the Company, expressedan unequivocal intention not to complete tho purchase and coupled thiswith an independent offer to enter into negotiations with the deceasedfor a long lease of tho Land. Tho second is that they did not repudiatetho A .rocmcnt there an 1 then but merely offered to enter intonegotiations with tho deceased for a long lease of the Land which, ifentered into, would replace tho Agreement. If the long least were notentered into the Agreement would continue in force.
If tho matter rested upon the minute alone the latter interpretation,which was that adopted by tho District Judge, -would not be implausible;although their Lordships, in view of tho dire financial straits in whichtho Company then found itself, would be inclined to prefer the former,as did tho Supremo Court. But the matter does not rest there and theirLordships, in agreement with tho Supremo Court, consider that whathappened thereafter throws light upon tho intention which tho Companymanifested to tho deceased as respects tho further performance of itsobligations under the Agreement.
On 18th November I960 tho deceased withdrew tho seven partitionactions. He thereby abandoned the steps which he was tak'ng to fulfilhis obligation under the Agreement to perfect the title to the Land. Inview of tho fact that his proctor was the Chairman of the Company whohad been present at tho meeting of 9th November I960 the inferencois that tho deceased would not have been advised to do so byMr. Gunisckora unless the understanding of both of them was that thoCompany had repudiated tho Agreement. Otherwise the partitionactions would have been left on foot although activo steps to proceedwith them might have been suspended.
The mnutes of subsequent meetings of Directors show a continueddeterioration in tho financial position of the Company. By 31st March19G1 six drafts of the Company in favour of the Fieneh firm total.ingRs. 40,000 had been dishonoured. Tho Balance Sheet of theCompany of that date shows a cash balance of only I!s. 10-L\ hat is
particularly sign ficant about this Balance Sheet is that tho Land notourer figures among the fixed assets of the Company nor does the liabilityof Jls. 25,000 to tho deceased for tiie balance of the purchase price ofthe Land figure among the sums due to creditors. Instead the Es. 15,COOpaid to tho deceased on account of tho purchase price, which ho hadoffered to refund at the meeting of 7th October 19C0 appears as a currentasset of tho Company agauist a contra-entry of the Company’sindebtedness to tho deceased on loan account, of Rs. 34,000.
e
This Balance Sheet, in their Lordships’ view, is a clear rccogn tion bythe Company that on 31st March 1901 it was no longer entitled to havoflic Land conveyed to it by tho deceased. That there is no entry relating
LORD DIFLCCIv—Sinhalese Film Industrial Corporation Ltd. v.ada??ai;aLe 295
to the Company's liability for damages for its wrongful repudiation ofthe contract can bo accounted for by the fact that tho purchaso pricounJer t)io -Agreement was less than the market value of tho Land andany damages for anticipatory breach would bo nominal.
This Balance Sheet, however, was not approved by tho Directors until23rd September 1961. By that date much more that is of significanceliad happened.
It appears that at some time after November I960 a draft Jeaso of thoLan:l was prepared and submitted to the deceased. But the negotiationsfor a lease proceeded no further. Indeed the minute book records thaton 15th Maj' 1961 the Board decided to recommend the shareholders towind up the Company, but agreed to give the Manager, Mr. Hcwavitarana,until 31st July to see if he could bring in more shareholders with enoughnew capital to enable the Company to complete the expenditure neededto enable it to start production of films. Tho Manager’s success wasm'n mal and at Directors’ meet ngs in July 1961 it was agreed to ecasoto incur the expense of employing a salaried Manager and to close thoShare List. This.put it out of the Company’s power to obtain capitalfrom new shareholders.
On lSt-h August 1961 tho keys of the ha bora toy which had been builton the land were handed over to tho deceased. The watcher on thoLand became employed by the deceased. Tho deceased received theproduce of the Land.
Thereafter the Company was for practical purposes moribund untilthe death of the deceased, except for attempts to fnd wajs and means ofmeeting the claims of its external creditors. In Juno 1962 the Directorsresolved to sell tho water-cooling plant. In No ember 1962 they res oh cdto sell the equipment purchased from the French company. The Companythus fn illy- put it out of its power to embark upon the business forwhich it was originally formed.
In their Lordships’ viow the conduct of tho Directors of the Companyan l of the deceased between November I960 end September 1961 gjcsrise to the irresistible inference that by the latter date at latest thoCompany had made it clear to the deceased that it had abandoned any .intention of completing tho purchase of the Land, and that tho deceasedhad accepted this as a rcpudiat:on of the jAgroornent which operated inlaw' to release him from any further obligation to perform tho Agreementon his ow n part. If there was any ambiguity in tho terms in w hich thoCompany expressed its intention as regards its further performance of thoAgreement at the meeting of 9th November 1960 that ambiguity wasclearly resolred by tho conduct of the parties over the following monthsto which their Lordships have referred. It is clear that by tho date of
29G
TilakaS-iri Afenike v. Dingiri Banda
the approval in September 19G1 of the Compaq's Balance Sheet as at31st March 1901 both parties to the Agreement were treating it as havingbeen repudiated by the Company. Repudiation by this date is sufficientto entitle tho respondents, as representing tho Estate of the deceased tosucceed in their defence to the action oven if tho date of tho finalrepudiation cannot be pinpointed as occurring at the meeting of Directorsheld on 9th November 19G0.
Their Lordships uill humbly advise Her Majesty that this appealshould bo dismissed. The appellant Company must pa}’ tho costs oftho appeal.
Appeal dismissed.