CHOKSY A. J.—V. A. Appuhamy v. Be tin Nona
1952Present : Choksy A.J.
V. A. APPUHAMY, Appellant, and BELIN KONA, RespondentS. C. 193—C. R. Kegalle, 18,327
PauUan action—Alienation, in fraud of creditors—Fraud of purchaser—Requirementof proof thereof.
Where a deed of sale is impeached by a judgment-creditor on the groundthat it was executed by the judgment-debtor in fraud of creditors, there mustbe proof of fraud not only on the part of the judgment-debtor but also on th&part of the purchaser, at least where the consideration has been paid.
A.PPEAL from a judgment of the Court of Bequests, Kegalle.
C. R. Ghunaratne, with T. B. Dissanayahe, for the plaintiff appellant.
H. W. Jayewardenc, for the respondent.
Cut. adv. vult.
Februaiy 6, 1952. Choksy A.J.—
The first defendant obtained a decree against the second defendantin C. K. Kegalle 17,277 on the 1st May, 1947, for a sum of Bs. 149. Itappears that the claim in that action had been referred. to arbitration.The arbitrator made an award on 12th November, 1946, in favour of thefirst defendant. This award was made a decree of Court on the 1st May,1947. In pursuance of that decree the first defendant who was thejudgment-creditor issued writ against the defendant in that action(who is the second defendant in the case under appeal). Under thewrit he seized the land which the plaintiff had purchased upon deedNo. 794 dated 27th March, 1947, which deed was registered on the 8thApril, 1947. The plaintiff in the present action claimed the propertybut his claim was dismissed, presumably on the ground that he did not-have possession of the property as the question of possession is the all-important question in a claim inquiry. He therefore instituted thisaction under 247 of the Civil Procedure Code for a declaration of titleto 25/48 share of the land and for a declaration that the said share is notliable to seizure and sale under the writ in C. B. Kegalle 17,277 at theinstance of the first defendant to this action, in view of the plaintiff’spurchase upon his deed No. 874. Among the questions tried in the actionwas whether the deed in favour of the plaintiff had been executed infraud of creditors.
The plaintiff has. appealed against the dismissal of his action by thelearned Commissioner of Bequests. The second defendant (who was thejudgment-debtor in the earlier action) gave evidence for the first defendantand with very remarkable readiness owned up that he had sold interestsin the land to the plaintiff in order to save the land from seizure. Heeven went to the extent of stating that he expressly told the plaintiffthat he was selling the land for the purpose of preventing its seizure atthe instance of the present first defendant. Not being content withthis very cleansing confession, the second defendant proceeded to addthat the plaintiff had promised to re-transfer this land to the seconddefendant. on the latter repaying the former the consideration paidfor the land. He proceeded to supply the first defendant with further
CH0K8Y A. J.— V. A. Appuhamy o. Belin Nona
evidence on factors which would be necessary to enable the first defendantto successfully defeat the claim of the plaintiff by alleging that the landwas a valuable planted land worth about Es. 1,500. He completed thetale of fraud by stating that he did not own any other lands on the dateof the execution of the transfer in favour of the plaintiff. Theconsideration on the face of the deed is said to be Es. 200. It is not-clear from the evidence of the second defendant whether only the interestwhich he sold, namely, 25/48 shares, is of the extent of three acres and isworth Es. 1,500 or whether he meant to say that the entire land was threeacres in extent and was worth about Es. 1,500. According to the seconddefendant only Es. 100 out of the consideration was paid to him at thetime of the execution of the transfer. He also started that he had soldhis shares in some other lands to the plaintiff himself, in 1945, to paythe expenses which he had incurred in connection with the earlier Courtof Eequests action. In cross-examination he admitted that he ownedsome share of a land awarded to him in a partition action, but proceededto whittle away the effect of this admission by stating that that sharewas not worth even Es. 2.50.
The plaintiff’s case was that he had paid the full consideration in thepresence of the notary and on this point he is corroborated by the notarywhom he called. The plaintiff’s evidence was that he had the title tothis land examined, and the encumbrances searched, on the 20th March,1947, and that he found that the second defendant had only one fourthshare whereas he had agreed to sell to the plaintiff a half share in theland and that therefore the deed was not executed on the 20th March.He further stated the second defendant thereafter asked him, the plain-tiff, to buy the full half share and that second defendant “ wouldi settlpthe share-holders off ”. He therefore states that he accordingly effectedthe purchase on the 27th March, 1947. He said that he did not knowwhy this was sold by the second defendant to him nor was he aware ofthe likelihood of any execution proceedings against the second defendant.In cross-examination he stated that the second defendant was a fairlyrich man, that the second defendant owned other property, that evenat the date he was giving evidence the share he had purchased was “ worthabout Es. 200 to Es. 250 ”, that he was not prepared to re-transferthose interests if the consideration he had paid for his- purchase wasgiven back to him. It was not put to him specifically that he had pur-chased these shares subject to an agreement (.even though non-notarial)to re-transfer those interests on re-payment of the consideration. Headmitted that he was not aware of the extent of the land forming thesubject-matter of the action, of which he said he had had possession,until seizure, although for the last two years, he admitted, he had nopossession because the first defendant’s brother was in forcible possession.The notary said that he made a search on the 20th March, and found thatthe second defendant was entitled to 7/12 of this land, but admittedin cross-examination that he did not discover the extent of the seconddefendant’s share in the land and that it was second defendant who hadsaid that he was entitled to 25/48 shares. He also admitted what theplaintiff had said in his evidence, namely, that he, the plaintiff, had on the20th March produced and handed to the notary- the earlier title deed of
15*. N. Bi 69182 (10/57)
CHOKSY A. J.—V. A. Appuhamy v. Belin Nona
the second defendant for purposes of the search and examination of title.In his evidence in chief the notary said that the plaintiff took up theposition on 20th March, that the second defendant’s “ title was not good ”,and accordingly refused to buy the land. A week later, however,according to the notary, the plaintiff and the second defendant camean'd wanted the notary to draw up a deed. This he did and the deedwas executed, the plaintiff paying to the second defendant the> full con-sideration of Rs. 200, in the notary’s presence. The notary also admittedthat the plaintiff had paid him his search fees for the search on the 20tliMarch.
It has been strongly urged that the notary has contradicted the plaintiffas regards the reason for the refusal of the plaintiff to complete thetransaction on the 20th March. Whatever the reason may have been,all the parties are definitely agreed that the plaintiff refused to completethe purchase on the 20th March and that the purchase actually wentthrough seven days later. The notary was not able to give any reasonsfor this change in the situation at the end of the seven days. Theplaintiff’s evidence as to the reason why he changed his mind and madethe purchase on the 27th March is not contradicted either by the notaryor by the second defendant. It seems to me that the refusal of theplaintiff to complete the transaction on the 20tli March—whateverthe reason for it—is a strong point in favour of the bona tides of the trans-action. It is not stated that this was a piece of sham gone through onthe 20th March for the sake of lending an appearance of reality to asham transaction. Moreover the deed was registered within a few days,namely on the 8th April. The notary and the plaintiff both swore tothe fact that the second defendant was paid the consideration in full.The contemporaneous attestation in the deed of transfer also supportsthe* plaintiff. These are strong considerations in favour of the plaintiff,vide NicJoo Nona v. Thomas Apvu 1. In that case Ennis J. stated that-the fact that the vendor had remained in possession and the judgment-debtor had no other property with which to meet other debts were ofthemselves not sufficient to rebut the inference of the bona tides of atransaction which arises from the fact that it was not secret and thatconsideration was paid. In that case Ennis J. also stresses the factthat the purchaser had a strong motive for obtaining a transfer of theland because in that way he was obtaining satisfaction of the debt dueto him by his vendor. That also tended in favour of the bona fides ofthe transaction. As against that, in the present ease, we have the un-doubted fact that the plaintiff refused to complete the transaction on the20th March and completed it a week later. There is also the uncontra-dicted evidence of the plaintiff that he had possession and that his lossof possession was due to the judgment-creditor’s brother taking forciblepossession from him. In my opinion these are also strong factors—atleast prima facie—in support of the bona fides of the transaction.
One of the elements that is usually relied on in establishing a case offraudulent intention to defeat judgment-creditors is that possession hasremained in the’ judgment-debtor despite the alleged transfer. In
(1918) 5 G. W. R. 155.
CHOKSY A.J.—V. A. Appuhamy t>. Bplin Nona
the present case the second defendant in the course of his voluble con-fession has not stated anywhere that he remained in possession of theproperty despite the transfer to the plaintiff. He has maintained asingular silence on that point. The plaintiff, however, • has admittedand explained how it is that he, either lost the possession which accordingto him he once had, or how he did not have possession at all. Ho we vet*that may be, there is no evidence that the second defendant at any timehad possession after the transfer. This again is a factor to be taken intoaccount in deciding the question as to whether the transfer was a genuine•one or a mere pretence.
Another important question for determination in cases of this natureis as to whether the consideration for the alleged transfer was genuineand has in fact been paid or not. The Commissioner has expressed nofinding on this question. The plaintiff and the notary testified that theconsideration was paid in the notary's presence. The learned Judge, onanother point, has preferred to accept the evidence of the notary ratherthan the evidence of the plaintiff. Had he been disposed to reject thenotary’s evidence on this point regarding the payment of the consideration,he would, I have no doubt, have said so. It certainly cannot be saidthat he has rejected the evidence of the notary on this point. Thereare no attendant or inherent circumstances upon which one can rejectthe notary’s evidence on this point. There is at least prima facie evidenceof the payment of the consideration afforded by the attestation of thenotary in the deed of transfer itself, and therefore in the absence of anexpress finding against the plaintiff on this point a further element ofsome importance in establishing a case of a conveyance in fraud ofcreditors has not been established. It is no doubt true that the paymentof the consideration for the purchase is by no means conclusive of thegenuineness or honesty of the transaction. It is only one factor and,while it will not enable the purchaser to retain the property where he hasparticipated in the fraud, vide Meera Saibo v. Ayan Sinnavan 1, yetwhere there is not sufficient evidence to involve the purchaser in anyfraud, or where it is merely a case of suspicion of his participation in afraud, then the payment of the full stipulate.d consideration strengthensconsiderably the purchaser’s claim to retain the land he has bought,vide Perera v. Menik Etana s. If however it is proved that the con-sideration has not been paid then that establishes one element in provingthat the transaction is a contrivance to defraud creditors, vide Bala-Etana v. Dassi Terunnanse s.
The most important element is that of a fraudulent intention to defeatthe claims of creditors. It is a truism to say that fraud cannot be pre-sumed but that it must be proved, vide Muttiah Cheity, v. MothamoodHadjiar *. That means, as the judgment in that case shows, that theremust be circumstances found from which a reasonable inference ofintention to defraud can be drawn, because it is very difficult, or veryrare, to get a plain and demonstrable case of fraud. Where fraud wouldbe a reasonable inference from the facts then the burden is shifted tothe other side * and unless ' that side satisfactorily explains those
(1927) 29 N. L. B. 84.* (1896) 2 Browne's Feports 35S.
(1918) 5 C. W. B. 258.‘ (1923) 25 N. L. B. 185.
CHOKSY A.J.—F. A. Appuhamy o. Belin Nona
circumstances otherwise, the Court would draw the inference of fraud ;but to begin with, however, the onus is on the party alleging fraud anduntil a prima facie case is made out by such party from which fraudcould reasonably be inferred, no onus is thrown on the party chargedwith fraud to repel the charge, because it just fails.
Moreover the effect of the authorities is that fraud must be provednot only on the part of the vendor but also on the part of the purchaser,at least where the consideration has been paid, vide Perera v. MenikEtana 1. In that case too this Court felt considerable suspicion thatboth purchaser and debtor knew that the property would be seized ina pending case, but held that the creation of suspicion is not a sufficientdischarge of the onus of proving fraud, vide Tobias Fernando, v. DonAndris Appuhamy 2. In Fernando v. Fernando 3, Keuneman J., whilebasing his judgment on other points, observed—vide page 18—that theplaintiff was not free from complicity in the fraud, the plaintiff there beingthe purchaser.
Consideration will not avail the purchaser if he had participated inthe fraud. Vide Meera Saibo v. Ayan Sinnavan*. The Commissionerhas not found that the plaintiff was a party to the fraudulentintention which the second defendant confesses he entertained in hismind in executing the transfer in question. Indeed the Commissionercould not have come to any such conclusion because there is no evidencewhatsoever to connect the plaintiff with the second defendant’sall too readily confessed dishonest intention. The evidence of a manwho so readily owns up to having had a fraudulent intention must beaccepted with caution where that evidence tends to defeat what appearsprims facie to be a bona fide transaction for consideration, especiallywhere the person testifying is labouring under a grievance that thepurchaser has gone back on his promise to reconvey the property.
The fact that the plaintiff two years earlier had purchased some otherinterests of the second defendant in some other land is, in my opinion,insufficient to fix the plaintiff with the knowledge of the fraudulentcharacter of the intentions of the second defendant in the presenttransaction, and the circumstance that the plaintiff aud the defendantwere “ no strangers to one another ” as the Commissioner has found isa very slender circumstance to rely on to prove fraud in the purchaser.In these circumstances the contention that the transfer was in fraud ofcreditors cannot be upheld, vide Tobias Fernando v. Don Andris Appu-hamy 2. Even if the second defendant’s evidence is accepted, as it wasby the Commissioner, that his intention was to defraud the first defendantof her' rights Under the decree, there is no proof that the plaintiffparticipated in those intentions.
In the course of the argument it was said that the ease involved aquestion of fact and that therefore the Court of Appeal should be veryslow to interfere with the findings on facts of the lower Court. It isbecause I accept the soundness of that position that I have been at painsto analyse the evidence in this case, for it appears to me that the final
1 (1918) 6 O. W. B. 258.* (1940) 42 N. L. R. 12.
* (1950) 43 C. L. W. 44.* (1927) 29 N. L. B. 84.
NAGALrENGAM J.—Gunaratnam v. Meeraleevat
outcome does not rest merely on the belief or disbelief of witnesses as to-a particular situation or set of facts, but rather to depend on the correctinferences to be drawn from the testimony of witnesses whose evidence-the Court of first instance has accepted.
I accordingly set aside the judgment of the learned Commissionerand order fhat decree be entered in favour of the plaintiff as prayed forin his plaint. The plaintiff will be entitled to His costs in the Courtbelow and to the costs of this appeal.
V. A. APPUHAMY, Appellant, and BELIN NONA, Respondent