VALLIYAMMAI ACHI, Apellant, and O. L. M. ABDUL MAJEED Respondent

051-NLR-NLR-V-45-VALLIYAMMAI-ACHI-Apellant-and-O.-L.-M.-ABDUL-MAJEED-Respondent.pdf


Valliyammai Atchi and O. L. M. Abdul Majeed.
169
1944Present: Howard C.J. and Keuneman J.VALLIYAMMAI ACHI, Apellant, and O. L. M. ABDUL MAJEED,
Respondent.
30—D. C. Colombo, 1,961.
Trust—Arrangement betweendebtor and creditor—Transferofpropertyby
debtor—Agreement to hold property in trust pending liquidation of debts—Papol evidenceof agreement—-Prevention ofFrauds Ordinance(Gap.57)
s. 2, Evidence Ordinance (Cap. U) s. 92.
Defendant’s testator, N.C.,who was acreditor ofplaintiff, undertook
the managementof plaintiff’s affairs andin pursuance ofthesaid
undertaking plaintiff transferred to N. C. for dn ostensible considerationcertain properties, all of which, except one, were under mortgage to him.
It was agreedbetween them that N. C.should collect therentsand
profits of the propertiesand give creditfor them totheplaintiff.The
proceeds of sale ofany properties,were to be appropriatedbyN. C.and
applied in settlement ofthedebts. N. C. undertook toretransfer the
properties remaining unsoldtoplaintiff afterthe debtshadbeen paid.
In terms of thesaid agreement,N. C. by his agententeredinto posses-
sion of the properties, collected the rents and profits and sold some, theproceeds of which were appropriated in payment of the debts.
When the debts hadbeen liquidated,N. C. agreedtoreconveylthe
properties remaining unsold to plaintiff.But on N.G’sdeath before
such re-conveyancethe defendant,the executrix ofN.C’slastwill,
fraudulently repudiated the agreement and claimed the properties.
Held, that the defendant, a-s the executrix of N'. C., held the propertiesremaining unsold in trustforthe plaintiff,and thatparolevidence was
admissible to establish the trust.
A
PPEAL from ajudgment of the District JudgeofColombo:the
facts are stated in the head-note. The District Judge gave judgment
for the plaintiff.
H. V. Perera, K.C. (with him N. Nadarajah/ K.C., and S. J. V. Chelva-. nayagam), for the defendant, appellant.—The plaintiff sold, by deed P illof March 3, 1930, certain properties to one Natchiappa Chettiar, of whoseestate the defendant is the executrix. The transfer deed does not discloseany conditions, and was given for full consideration. The plaintiff now,after an interval of ten years, when properties have risen in value, seeksto get back the properties on the basis that the transfer was subject to atrust according to which the transferee was to pay off certain debts ofthe plaintiff out of the income or sale of the properties and, thereafterto reconvey to plaintiff such of the properties as remained unsold. Thealleged trust is sought to be proved entirely by oral evidence.
P 21 was admittedly executed in order to prevent unsecured creditorsfrom seizing the properties which were transferred. The purpose wasillegal. Plaintiff, therefore, cannot maintain the present action. SeeSauramma et al. v. Mohamadu Lebbe1 and sections 404 and 406 of Penal
(1943) 44 N. L. R. 397.
170
Valliyanumai Atchi and O. L. M. Abdul Majeed.
Code. Under section 2 of the Prevention of Frauds Ordinance (Cap. 57)a contract for the retransfer of immovable property has to be notariallyexecuted—Wijewardene v. Peiris et al.7. Deed P 21 does not containany condition for reconveyance. Section 92 of the Evidence Ordinanceis also applicable, and no evidence of a contemporaneous oral agreementis admissible to prove any such condition. No oral evidence is admissiblefor the purpose of ascertaining the intention of the parties to a deed orto contradict the express terms of the document—Balkishen Das et al. v.LeggePerera v. Fernando3. The additional agreement which is pleadedby the plaintiff discloses, if true, not a trust but the creation.of securityfor money lent. Such a contract in respect of immovable propertyhas to conform to the provisions of section 2 of the Prevention of FraudsOrdinance. See Adaicappa Chetty v. Garuppen Chetty4; Perera v.Fernando {supra); Saminathan Chetty v. Vander Poorten3. Section 2 of ourPrevention of Frauds Ordinance is more drastic than the correspondinglaw in the English Statute of Frauds, and rules of equity which obtainin England cannot be applied in Ceylon. The trial Judge has, in hisjudgment, referred to Ranasinghe et al. v. Fernando et al. 6, but the viewtaken in that case on this point was not upheld in Arseculeratne v. Perera7,a case which was taken to the Privy Council8. See also Balkishen Daset al. v. Legge {supra).
There is no evidence, in this case, of any trust, whether express orconstructive. Section 5 (1) of the Trusts Ordinance (Cap. 72) providesthat a trust created by a non-testamentary instrument should be notariallyexecuted, and sub-section (3) provides that that rule does not apply whereit “would operate so as to effectuate a fraud’’. The fraud contemplatedin sub-section 3 is fraud at the inception of the transaction, and by aparticular person. It cannot be said that when P 21 was executedNatchiappa Chetty was guilty of any fraud. He did not come by theproperty by virtue of a prior representation made by him that he wouldhold it in trust. As to whether there is a constructive trust, section 83 ofthe Trusts Ordinance cannot be of assistance to the appellant. Theexpression “attendant circumstances” in that section has a limitedmeaning—NarasingerjiGyanagerji v. Parthasaradhi Ryanim Guru3;
Aiyar on the Indian Trust Act {1941 ed.) p. 230. The plaintifE relied much,at the trial, on the decision of the Privy Council in Saminathan Chetty v.Vander Poorten {supra). That case can be easily distinguished and, indeed,supports the case of the defendant. In that case no question of theadmissibility of parol evidence arose and the only question was one of theinterpretation of a contract relating to immovable .property as evidencedby two contemporaneous documents both of which were notarially ex-ecuted. Sections 5 and 83 of the Trusts Ordinance have to be read with,and do not in any way modify, the provisions of section 92 of the Evidence
Ordinance.
On the facts, too, it cannot be said that the alleged trust has beenproved.
i (1935) 37 N. L. It. 179.
8 (1899) I. L. R. 22 All. 149.» (1914) 17 N. L. R. 486.
* (1921) 22 N. L. R. 417.
• A. I. R. (1924) P. C. 226.
s (1932) 34 N. L. R. 287.
(1922) 24 N. L R. 170.
(1926) 28 N. I,. R. 1 at 12, 13, 23.
(1927) 29 N. L. R. 342 at 345.
Valliyammai Atchi and O. L. M. Abdul Majeed.
171
A. R. H. Canekeratne, K.G. (-with him C. Thiagalingam, G. Renganathanand M. M. K. Subramaniam) for the plaintiff, respondent.—The plaintiff’scase is not based on 'V anderpoorten’s case as contended by the appellant.The facts of this case are very similar to those in Ranasinghe et al. v.Fernando et al. (supra). It was held in that case that where a person hasobtained possession of immovable property of another, subject to a trustor condition, and fraudulently claims to hold it free from such trust orcondition he cannot be permitted to plead the Statute of Frauds in defence,and that oral evidence may be led to establish the trust. Similarly inTheevana'pillai et al. v. Sinnapillai1 where land was conveyed to a personon an express verbal understanding that she was to convey it to her son,when his debts were settled, it was held that oral' evidence could be led toprove the trust. See also Rochefoucauld v. Boustead Nanayakkaraet al. v. Andris et al.3; Oarthelis et al. v. Perera et al.*.
[Howard C.J. :How do you get over section 92 of the Evidence
Ordinance?]
There is a great difference between a contract, and a trust, in respectof immovable property. If, by way of contract, A transfers to B a landon condition that B should retransfer it on the fulfilment of a certaincondition, A loses all proprietary rights in favour of B. In the case of atrust, however, there is a separation of the legal and beneficial interestsin the property. In the present case there is a trust, and deed P 21relates solely to the transfer of the legal title. Section 92 of the Evi-dence Ordinance does not stand in the way of the plaintiff because P 21does not embody all the terms of the transaction. Parol evidence isadmissible to prove that the plaintiff retained the equitable title. Pro-viso 3 of section 92 allows it. ' Adaicappa CheDty v. Caruppen Chetty(supra) can thus be easily distinguished from Ranasinghe et al. v. Fernandoet al. (supra). The Statute of Frauds does not affect equitable rights,and parol evidence can be led to show the circumstances in which a personholds property—D.R. (1897) 1 Ch. 206; Narayanan Chetty v. Jawe'sFinlay & Co. s.
The Statute of Frauds cannot be invoked in order to effectuate a fraud.Section 5 (3) of our Trusts Ordinance gives effect to this rule even inthe case of express trusts. And section 2 of the Trusts Ordinance letsin English equitable principles in case of fraud. The fraud committedneed not be at the inception of the transaction—OKlmus v. Ohl-mus8.Plaintiff’s case may also come under section 83 or section 96 of the TrustsOrdinance. Parol evidence may, therefore, be led both on the basis ofan express trust and of a constructive trust. Proviso (1) of section 92of the Evidence Ordinance is also applicable in the present case. SeeMcCormick v. Grogen7; Ldncoln v. Wtight8 ; Re Duke of Marlborough3;Blackwell v. Blackwell 10; Thiagarajah v. Vedathanni 11; Monir’s Dawof Evidence (1940 ed.) pp. 634, 627.
H. V. Perera, K.C., in reply.—The written agreement in P 21 is com-plete and cannot now be varied by parol evidence as between the partiesto the contract, and cases decided in the English Court of Chancery
i (1921)22 N. L.R.316.*(1906) 9 N. L. R. 183.
L. R. (1897) 1 Ch.196.7L. R. (1869) 4 H. L. 82.
(1921)23 N. L.R.193.»(1859) 4 He Qex & Jones 16.
(1930)32 N. L.R.19.»L. R. (1894) 2 Ch. 133.■
s (1927) 29 N. L. R. 65.33 L. R. (1929) A. C. 318.
11 A. I. R. (1933) Mad. 48 at 51.
172
HOWAED C.T.— Valliyammai Atohi and O. L. M. Abdul Majeed
can have no application on the point in Ceylon. Section 2 of the TrustsOrdinance speaks of “principles of equity". Before such principles areapplicable we must have facts, and facts can be proved only by such rulesof evidence as are permitted by the Evidence Ordinance. The scope ofsection 92 of the Evidence Ordinance is fully considered in Maung Kyin v.Ma Shwe La1. See also Mohamadu v. Pathumah et al. 2; Monir’s Law ofEvidence (1940 ed.) p. 629 et seq.; Tsang Chuen v. Li Po Kwai3; MianFeroz Shah v. Sohbat Khan et al.41.
The agreement which is sought to be proved relates to the creation ofsecurity for money advanced, and needs a notarial deed. Plaintiff can-not, by calling it a trust, make it a trust.
Cur. adv. vult.
March 31, 1944. Howard C.J.—
In this case the defendant appeals from a judgment of the DistrictCourt, Colombo, declaring that a transfer deed No. 1604 of March 3,1930, was executed in trust for the plaintiff on the terms and conditionsset out in paragraph 7 of the plaint and that the defendant retransferand convey to the plaintiff certain properties on payment by the plaintiffto the defendant of any sum found to be due on an account being taken.The defendant was also directed to pay to the plaintiS the costs of theaction. The defendant is the executrix of the estate of one NatchiappaGhettiar, a money lender who resided partly in Colombo and partly inSouth India. By virtue of the above-mentioned deed—P 21—theplaintiff in consideration of a sum of Rs. 203,300 well and truly paid tohim by Natchiappa Chettiar sold, assigned and transferred to the saidNatchiappa Chettiar, Bis heirs, executors and assigns, the premises andlands described in the schedule, to have and to hold the said lands andpremises thereby conveyed together with the appurtenances unto thesaid Natchiappa Chettiar, his heirs, executors, administrators and assignsfor ever. The plaintiff in his plaint alleged that at the beginning ofMarch, 1930, he owned property, movable and immovable, of a totalvalue of Rs. 660,115 and had debts amounting to a sum of approximatelyRs. 539,114. These debts included, inter alia, (a) secured debts beingmoney due on mortgage in favour of Natchiappa Chettiar amounting toRs. 185,031.66, (b) unsecured debts due to Natchiappa Chettiar amount-ing to Rs. 5,280, (c) secured debts due to a third party amounting toRs. 1,515, (d) rates and taxes amounting to Rs. 1,430, making a sumtotal of Rs. 203,256.66. The plaintiff further alleged that when inFebruary, 1930, owing to lack of liquid cash he was financially embarrassedthe said Natchiappa Chettiar by his agent, one Ramanathan, promisedto act as trustee of the plaintiff and suggested to the plaintiff to give overthe entire management of the plaintiff’s affairs to the said NatchiappaChettiar. It was thereafter agreed that the plaintiff should execute the,transfer P 21 which should purport to be for the consideration thereinstated. That the said Natchiappa Chettiar should hold the said propertiesin trust for the plaintiff and should collect the rents, profits and incomethereof as trustee for and on behalf of the plaintiff. That the sums socollected should be devoted by the said Natchiappa Chettiar to pay the
1 I. L. R. 45 Cal. 320.3 A. I. R. (1932) P. C. 255.
* (1930) 11 C. L. Rec. 48.4 A. I. R. (1933) P. C. 178.
HOWARD C.J.— Valiiyammai Atchi and O. L. M. Abdul Majeed
173
said sum of Us. 1,430 for rates and taxes, the said secured debt ofRs. 1,515 and finally the sums of Rs. 185,031.66 and Rs. 5,280 togetherwith interest due to the said Natchiappa Chettiar. That the proceedsof any sales of property made by the said Natchiappa Chettiar should bepaid in liquidation of the said sum of Rs. 203,300 and after such liquida-tion the said Natchiappa Chettiar should reconvey to the plaintiff suchof .the properties as remained unsold. That the plaintiff should remainin possession as true owner of two of the said properties, to wit, Nos. 78and 81, Messenger street, Colombo. The plaintiff further alleged thatwithin a few weeks of the execution of P 21 the said Natchiappa Chettiar,having coriie to Ceylon personally, agreed to hold the said properties intrust for the plaintiff and to carry out the terms hereinbefore referred to.Thereafter Natchiappa Chettiar collected the rents of the said properties(save and except the two properties mentioned) and from time to timesold and transferred to the purchasers certain of such properties. Thesaid Natchiappa Chettiar died in India on December 31,1938, and
subsequently the defendant as executrix proved his will. It was alsoasserted by the plaintiff that in or about November, 1939, the defendantby her agent, the said Ramanathan, agreed and undertook to retransferto the plaintiff the properties described in shedules 33 and C of theplaint and to account for the moneys received. In or about January,1940, the defendant, according to the plaintiff, fraudulently and in breachof the trust, claimed, on behalf of Natchiappa Chettiar’s estate, theproperties aforementioned. According to the plaintiff all amountsdue to Natchiappa Chettiar had been liquidated before his death andthe latter held the remaining properties in trust for the plaintiff.
The District Judge found the following issues in favour of the plaintiff: —
Natchiappa Chettiar, by his agent Ramanathan Chettiar, a friendof the plaintiff, did promise to act as trustee of the plaintiff and suggestedto him to give over the entire management of his affairs to the saidNatchiappa Chettiar.
The plaintiff entered into the agreement set out in paragraph 7of the plaint with Natchiappa Chettiar acting through Ramanathanand P 21 was executed in pursuance of such agreement and on the termsand conditions contained in paragraph 7. It was agreed, inter alia, that(a) P 21 should purport to be for a consideration of Rs. 203,300, (b) Natchi-appa Chettiar should hold the said properties in trust for the plaintiffand collect the rents and profits as trustee, (c) on liquidation of the saidsum of Rs. 203,300 Natchiappa Chettiar should reconvey such propertiesas remained unsold to the plaintiff.
The value of the property transferred by P 21 valued by Mr. Belingat Rs. 460,115 was very much in excess of the amount due to NatchiappaChettiar. Natchiappa Chettiar in October, 1930, handed over the titledeeds of the properties to plaintiff’s lawyers to draw up a deed of re-conveyance to the plaintiff at which time Natchiappa Chettiar reaffirmedthe trust and prevented the plaintiff from getting back the property.
The beneficial interest in the properties remained in the plaintiffwho continued in occupation of Nos. 78 and 81, Messenger street. Thedefendant was under a duty to account to the plaintiff for all sumsreceived and to retransfer all properties as remained unsold.
174HOWARD C.J.— Valliyammai Atchi and O. L- M. Abdul Majeed
In June, 1935, Natchiappa Chettiar further reaffirmed the trustand agreed that the properties should be retransferred to the plaintiffin March, 1940.
In or about 1940 the defendant fraudulently and wrongfullyrepudiated the trust and the plaintiff is entitled to obtain a retransferof the properties mentioned in Schedules B and C of the plaint onpayment of whatever sums of money are found due to the estate ofNatchiappa Chettiar after an account has been taken.
In finding these issues of fact in favour of the plaintiff, the learnedJudge has been very much influenced by the evidence of Mr. T. Canaga-rayer, a proctor, who testified to the arrangements entered into by theplaintiff and Eamanathan Chettiar. According to Mr. Canagarayerthe final arrangement was made at the house of one Abdul Raheman,who was dead at .the date of trial. It was agreed between RamanathanChettiar and the plaintiff that, in order to prevent the unsecured creditorsof the plaintiff from seizing any of the properties, they should be trans-ferred to Natchiappa Chettiar in trust. It was also agreed that theunsecured creditors should be given the stock-in-trade which, it wasbelieved, was more than sufficient to meet their demands. The learnedDistrict Judge, in accepting the evidence of Mr. Canagarayer, has heldthat the agreement set out in paragraph 7 of the plaint has been proved.In this connection ■ it would appear that the plaintiff at this time toldMr. Wilson, a proctor acting on behalf of the unsecured creditors, thathe. had transferred the properties in trust to Natchiappa Chettiar.Mr. Wilson’s testimony was also accepted by the District Judge.Although there is no evidence to show that Natchiappa Chettiar wasaware of the secret arrangement made by his agent at the time of theexecution of P 21, there is evidence, iVhich has been accepted by thelearned Judge, that a few weeks after the execution of P 21 NatchiappaChettiar came to Ceylon and ratified the arrangements made by Rama-nathan Chettiar. At a later date also Natchiappa Chettiar reaffirmedhis willingness to carry out the terms of the agreement. Though hisagent, Natchiappa Chettiar entered into possession of the propertiestransferred and collected the rents and sold a number of such premises.The District Judge has held that in the majority of these cases thepurchasers were introduced by the plaintiff who was then taking anactive part in the sales. No accounts were, however, rendered to theplaintiff. According to the latter, Natchiappa Chettiar in 1935 finallypromised to retransfer the properties in March, 1940, when the accountswould be settled b(etween the parties. Before that date NatchiappaChettiar died and the defendant was appointed his executrix. Objectionwas taken to the reception of oral evidence which would have the effectof furnishing" proof that Natchiappa Chettiar through his agent agreedto retransfer the property on the -happening of certain events and thathe agreed to hold the property in trust for the plaintiff undercertain circumstances. After hearing argument by Counsel the learnedDistrict Judge admitted oral testimony for the purpose of ascertainingwhether a trust as alleged can be established on the evidence. He also-held that this evidence fell within the dictum of Lord Warrington in
HOWARD C.J.—Valliyammai Atchi and O. L. M. Abdul Majeed175
Blackwell v. Blackwell1 as evidence of the nature of the obligation whichthe defendant is alleged to have undertaken. The learned Judge furtherheld that oral evidence of an agreement by the defendant to reconveycan be admitted, not for the purpose of such an undertaking being heldto be of force or avail against him, but as evidence of the trust underthe personal obligation which Natchiappa Chettiar undertook withregard to the trust and for the purpose of ascertaining the terms andconditions upon which the transfer was executed and the nature of theobligation which the defendant was bound to fulfil.
The defendant appeals against the decision of the District Judge onthe following grounds : —
The Judge's order of January 29, 1942, that oral evidence of thetransaction was admissible is wrong.
(ft) Plaintiff was not entitled in law to contradict P 21 nor to proveany verbal trust of immovable property.
The plaintiff’s story amounts only to having transferred properties
to Natchiappa Chettiar as a security and in such circumstancesno trust is created.
Even if plaintiff’s story is accepted it amounts only to a promise
by Natchiappa Chettiar to transfer whatever properties areleft over after paying the debt due to him. Such a promisebeing only verbal can neither be proved nor enforced.
The evidence called in support of the plaintiff’s story of a trust
of security is unreliable.
The Judge’s finding on the issue of prescription was wrong.
If the learned Judge’s finding that P 21 was executed in fraud of
creditors is correct, the plaintiff cannot succeed inasmuchas he comes into Court with the case that his transfer was infraud of creditors.
(ft) Assuming that Puam ana than Chettiar promised to hold the propertiesin trust for the plaintiff, such trust would not bind NatchiappaChettiar. Even if the latter subsequently agreed to hold theproperties in trust, such trust being purely parol is not valid orenforceable.
Grounds (a), (ft), (c), and (d) have been strongly pressed by Mr. Pereraon behalf of the defendant. He contents that the admission of oralevidence is excluded by the provisions of section 92 of the EvidenceOrdinance (Cap. 11). If such evidence is excluded the issue betweenthe parties must be decided on an interpretation of P 21. This documentis a conveyance of the properties by way of sale to Natchiappa Chettiarby the plaintiff. No question of a trust or a conveyance with a right ofretransfer can be implied from P 21. If it stands by itself, the plaintiff’sclaim must fail. The first part of section 92 is worded as follows: —
“ When the terms of any such contract, grant, or other dispositionof property, or any matter required by law to be reduced to the formof a document, have been proved according to the last section, noevidence of any oral agreement or statement shall be admitted as
(1929) A. C. 318.
176
HOWARD O.J.— Valliyammai Atchi and O. L. M. Abdul Majeed
between the parties to any such instrument, or their representativesin interest, for the purpose of contradicting, varying, adding to, orsubtracting from its terms. ”
The terms of the contract between the parties have been reducedto the form of a document, that is to say P 21, which has been provedaccording to section 91. Hence no evidence of any oral agreement orstatement, so it is contended, shah be admitted as between the partiesto P 21 or their representatives in interest for the purpose of contradicting,varying, adding to, or subtracting from its terms. There is no doubtthat .the arrangement between the parties, whether amounting in lawto a trust or an agreement for the retransfer of the properties, withreference to which the plaintiff and his witness Mr. Canagarayer, havegiven oral testimony, does contradict, vary and subtract from theterms of P 21. Mr. Perera further contends that the plaintiff’s story,even if accepted, shows that the arrangement was the creation of asecurity for money advanced. The agreement to retransfer could not,in these circumstances, by reason of section 2 of the Prevention of fraudsOrdinance (Cap. 57) be proved by oral evidence. In this connectionMr. Perera cited the case. of Adaicappa Chetty v. Camppen Chetty1.The facts in this case were as follows:The added-defendant being
desirous of buying some pieces of land applied to a moneylending firm,of which planitiff and defendants were partners, for a loan, for securingthe repayment of the sum with interest, the ti-ansfers were executedin the name of the first defendant. Subsequently, the firm requestedthe added-defendant to let them have absolutely for their benefit a halfshare of all the property alleged to be held in trust for him for the actualcost of such share, and in consideration offered to forego all claim forinterest. The added-defendant accepted this offer, and acknowledged-verbally the title of the firm to the half share on the footing of the agree-ment. In this action the added-defendant intervened and sought toestablish by parol evidence that half share of the land was held in trustfor him by the firm. In holding that parol evidence was inadmissibleto establish the alleged trust, Lord Atkinson at pp. 425-426 stated asfollows: —
“ The first question which it is necessary to determine is what is thereal nature, the true aim, and purpose of .the transaction describedin the 6th paragraph of Perera’s answer. The purchase money waspaid by the Chetty firm through the medium of Perera. It was neverlent to him to disposeof it as hepleased. If he got command of the
money at all,he onlyhad command ofit in order to devote it to a
particular purpose, the purchase of these lands. He was to repayit with interest at 10 per cent., and the conveyance was made to the-first defendant: ‘ The deed of the land so purchased to be taken in thelatter’s name ’. Not for the purpose, in the view of either party,of being heldin trustfor Pereraor forPerera’s sole benefit, but to
secure to thefirm therepaymentof themoney sunk in the purchase
with interest. The object of the agreement was, in their Lordship’sview, to create something much more resembling a mortgage or
i 22 N. L. R. 417.
HOWAHZ) C.J.—Valliyammai Atohi and O. L. M. Abdul Majeed.
177
pledge than a trust. The arrangement differed absolutely in natureand essence from that entered into, where one man with his own propermoney buys landed _ property and gets the conveyance of that propertymade to another. In such a case that other has no claim upon theproperty vested in him. It would be a fraud upon his part to contendthat it belonged to him, or to insist that he was entitled to a charge orincumbrance upon it, or had a right to retain the possession of it againstthe will of the man who purchased it. But in the present case, untilthe purchase money with interest was repaid to the firm, the firstdefendant had a right to insist that his firm had a claim upon this land,and that he (the first defendant) had the right, in the interest of hisfirm, to retain the ownership of it. It is true that the deed whichconveyed the land to the first defendant did Hot contain any provisionfor redemption. It was not a formal mortgage in that respect, but theagreement the parties entered into was much more an agreement tocreate a security resembling a mortgage than to create a trust. Itwas in effect a parol agreement providing for the conveyance of landto establish a security for money, and creating an incumbrance affect-ing land, that Perera desired to prove the existence of by parol evidence.The parol evidence, which must be taken to have been tendered, wasproperly held to have been inadmissible, for the simple reason that theagreement, if proved by it, must, under Ordinance No. 7 of 1840, sub-section (2), have been held not to be of ' any force or avail in law ’.This section is much more drastic than the fourth section of the Statuteof Frauds. ”
Lord Atkinson took the view that the first question to determine wasthe real nature, true aim and purpose of the transaction. He thenheld it was not for the purpose of the land being held in trust for Perera,but to secure to the firm the repayment of the money sunk in the purchasewith interest. The judgment of Lord Atkinson in this ease would alsoseem to negative the suggestion of Counsel for the appellant in that easethat the plaintiff was using the Statute of Frauds to perpetrate a fraudon the appellant. In Balhishen Das v. Legge1 a deed of sale of landfor value was accompanied by a deed of agreement between the partiesfor purchase back by the vendor of the land on payment by him of moneyto the vendee on a future date fixed. The vendor did not exercise bisright of repurchase but after many years gave notice of his intentionto redeem and brought this suit to enforce bis right of redemption asupon a mortgage by conditional sale. It was held that oral evidencefor the purpose of ascertaining the intention of the parties to the deed wasnot admissible, being excluded by section 92 of the Indian Evidence Act.The following passage from the judgment of Lord TDavey occurs at page158: —
‘ ‘ Evidence of the respondent and of a person named Man wasadmitted by the Subordinate -Judge for the purpose of proving the realintention of the parties, and such evidence was to some extent relied onin both Courts. Their Lordships do not think that oral evidence ofintention was admissible for the purpose of construing the deeds or
1 I. L. R. 22 All. 149.
178
HOW AP'D C.T.—Valliyammai Atchi and O. L. M. Abdul Majeed.
ascerl aining the intention of the parties. By section 92 of the IndianEvidence Act (Act I of 1872) no evidence of any oral agreement drstatement can be admitted as between the parties to any such instrmra«nt or their representatives in interest for the purpose of contradicting,varying or adding to, or subtracting from, its terms, subject to theexceptions contained in the several provisos. It was conceded thatthis case could not be brought within any of them. The cases in theEnglish Court of Chancery which were referred to by the learnedJudges in the High Court have not, in the opinion of their Lordships,any application to the law of India as laid down in the Acts of theIndian Legislature. The ease must therefore be decided on a‘ consider-ation of the contents of the documents themselves with such extrinsicevidence of surrounding circumstances as may be required to show inwhat manner the language of the document is related to existing facts.”
The passage cited above from the judgment of Lord Davey in BalkishenDas v. Legge (supra) was referred to with approval by Lord Blanesburghin Gyanagerji v. Rayanim Gam1 in the following words: —
“ It seems to their Lordships that they can dispose of the presentease with no reference to any oral evidence, other than that of sur-rounding circumstances such as in Lord Davey’s words in BalkishenDas v. Legge are clearly required to show in what manner the languageof the documents was related to existing facts.”
Jlis Lordship then considered the surrounding circumstances and heldtnac the transaction was a mortgage only. In his judgment in TsangChven v. Li Po Kwai2, Lord Glanesburgh at page 261 also dealt with thequestion of the admission of parol evidence to correct written instrumentsin the following passage: —
” Indeed it appears from the authorities examined before theirLordships that the eases in which parol evidence when objected to is,apart from fraud or mistake, receivable to correct written instrumentsare cases where, for example, the evidence supplements, but does notcontradict, the terms of the deed; where the provisions of the deedleave the question doubtful whether merely a mortgage and not an outand out sale was intended, or where the language sought to be explainedin evidence is language in an ordinary conveyancing form not exhaus-tively accurate but without an actual mistatement of fact.”
It will be observed that in this passage His Lordship used the wordsapart from fraud or mistake ”. Lord Davey’s dictum in Balkishen Dasv. I egge (supra) was also approved by Sir George Lowndes in Mian FerozShah t Sohbat Khan3 in the following passage: —
“ Section 92, Evidence Act, forbids the admission or consideration ofevidence as to the intentions of the parties, or to contradict the expressterms of the document: see Balkishen Das v. Legge, and their Lordshipsthink that no presumption can legitimately be drawn from the factthat there had been previous transactions between the parties of asimilar character.”
i A. I. R. {1924) P. C. 226.* A. I. R. (1932) P. O. 255.
3 A. I. R. (1933) P. C. 178.
HOWAJEtD G.J.—Valliyammai Atchj and O. L. M. .4 bdul Majeed.
179
The judgment of "Lord Davey in Balkishen Das v. Degge was alsoconsidered and explained in Maung Kyin v. Ma Shwe Daw1. At pages209-210, Lord Shaw stated as follows: —
“ In the opinion of their Lordships, this series of cases definitely ceasedto be of binding authority after the judgment of this Board pronouncedby Lord Davey in the case of Balkishen Das v. Degne. It was there heldthat oral evidence was not admissible for the purpose of ascertaining theintention of parties to written documents. Lord Davey cites section 92of the Indian Evidence Act, and adds: —
* The cases in the English Court of Chancery which were referred toby the learned Judges in the High Court have not, in theopinion of their Lordships, any application to the law of Indiaas laid down in the Acts of the Indian Legislature. The casemust, therefore, be decided on a consideration of the contentsof the documents themselves, with such extrinsic evidence ofsurrounding circumstances as may be required to show in whatmanner the language of the document is related to existingfacts. ’
The principles of equity which are universal forbid a person to dealwith an estate which he knows that he holds in security as if he held itin property. But to apply the principles, you must be placed inpossession of the facts, and facts must be proved according to the law ofevidence prevailing in the particular jurisdiction. In England the lawsof evidence for the reasons set forth in Dincoln v. Wright2 and othercases, permit such fact to be established by a proof at large, the generalview being that, unless this were done, the Statute of Frauds would beused as a protection or vehicle for frauds. But in India the matter ofevidence is regulated by section 92 of the Indian Evidence Act, and itaccordingly remains to be asked. What is the evidence which underthat statute may be competently adduced ? The language of thesection in terms applies and applies alone ‘ as between the parties to anysuch instrument or their representatives-in-interest ’. Whereveraccordingly evidence is tendered as to a transaction with a third party,it is not governed by the section or by the rule of evidence which itcontains, and in such a case accordingly the ordinary rules of equity andgood conscience come into play unhampered by the statutoryrestrictions.”
It will be seen, therefore, that their Lordships held that section 92was not a bar to the reception of the parol evidence as the evidence wastendered as to a transaction with a third party. On the other hand atpage 210 the judgment stated that if section 92 applied, proviso (1) wouldseem to be in point because it would be a fraud to insist upon a claim toproperty arising under such a transaction, the claimant knowing thatthe true owner had never parted with it.
The principles laid down in the Privy Council eases I have cited havebeen followed in our Courts. In Perera v. Fernando3 where a person
A. I. R. (1917) P. C. 207.
* 17 N. L. R. 486.
{1859) 4 de 0 dk J. 16.
180
HOWARD C.J.— Valliyammai Atchi and O. L. M. Abdul Majeed.
transferred a land to another by a notarial deed, purporting on the faceof it to sell the land, it is not open to the transferor to prove by oral evidencethat the transaction was in reality a mortgage and that the transfereeagreed to reeonvey the property on payment of the money advanced.The admission of oral evidence to vary the deed of sale is in contraventionof section 92 of the Evidence Ordinance. The agreement to resell is nota trust, but is a pure contract for the purchase and sale of immovableproperty. In his judgment in this case on page 489 de Sampayo A.J.,stated as follows: —
“ Another aspect of the case is that arising from the provision of theOrdinance No. 7 of 1840, which requires a notarial instrument toestablish any agreement relating to immovable property. Here theplaintiff refers to the alleged trust and relies on the decisions of thisCourt, which have laid down the principle that the Ordinance will notbe allowed to be used for perpetrating a fraud, and of which Ohlruus v.Ohlmus1 cited by the District Judge is an example. But thosedecisions when examined will be found not to apply to such a case asthis. The argument as to the deed of sale being only a mortgage hasbeen above disposed of, and the position then is reduced to this: thatplaintiff seeks to enforce an agreement to resell the lands on repaymentof the amount paid by the purchaser, Diege Perera. Such an agreementdoes not constitute a trust, but is a pure contract for the purchaseand sale of immovable property, and the Ordinance No. 7 of 1840,declares it to be void in the absence of a notarial instrument.”
In support of his contention that oral evidence is admissible, even ifthe transaction is in the nature of a security for money, Counsel for therespondent has relied to a certain extent on the judgment of Bord Tomlinin Ana Lana Saminathan Chetty v. Vander Poorten2. In this case theDistrict Judge held that the respondent held the estate upon a trust andoral 'evidence was admissible. On appeal the Supreme Court allowedthe appeal and the action was dismissed. On appeal to the Privy Councilthe finding of the District Judge in favour of the plaintiff was restored.In coming to this conclusion their Lordships held, that the transactioneffected by certain deeds Nos. 471 and 472 was the creation of a securityfor money advanced, which, in certain events, imposed upon thedefendant, who was the creditor, duties and obligations in the nature oftrusts. Their Lordships did not hold that there was a trust or that oralevidence was admissible.
Having regard to the authority of the various cases I have cited, thequestion with regard to the admission of oral evidence would, it is thoughthave been removed from the regions of doubt. Balkishen Dos v. Legge(supra) and the cases that subsequently followed Lord Davey’s dictumno doubt make it clear that, so far as the law of India is concerned, in acase where none of the provisos to section 92 of the Evidence Act apply,oral evidence is inadmissible for the purpose of construing certain deedsor ascertaining, the intention of the parties to those deeds. That thereare still difficulties is evident from a perusal of a summary of the effectof the various Indian cases culminating in Mauug Kvin’s case in the. 2nd
{1906) 9 N. L- R. 1S3.
* 34 N. L. R. 287.
HOWARD C.J.—Valliyammai Atchi and O. L- M. Abdul Majeed.181
Edition of Monir's Law of Evidence at page 633. where it is stated asfollows:—-
“ It may, therefore, be taken now as generally settled that neitheroral evidence of intention nor evidence of the acts and conduct of theparties to a document is admissible between them or their represent-atives in interest to show that the document did not mean what itpurports to be, and that neither direct evidence nor indirect evidence,e.g., evidence of the acts and conduct of the parties to an instrument,is admissible to prove a contemporaneous oral agreement varying theterms Qf the instrument. A contemporaneous oral agreement toreeonvev, or allow redemption of property conveyed by a deed ofabsolute sale is inadmissible to show that the transaction was one ofmortgage. It is, however, apprehended that the Privy Council decisionin Maung Kyin’s case does not set at rest the controversy in all its aspects.Eirstly, however, considered the decision of the Privy Council on thispoint in Maung Kyin’s case may be, it is no more than an obiter dictum,as the actual decision of the case proceeded on another ground, namely,that section 92 does not apply to a transaction with a third party.”
The author also states on page 634 that, though the Privy Council hasdefinitely held the equitable doctrine of Lincoln v. Wright (supra) to beinapplicable to India, it has clearly recognized the possibility of such casesfalling within the first proviso to section 92. Moreover it has to be bornein mind that the passage I have cited from Lord Davey’s judgment wasan obiter dictum and no question of fraud arose. Again Lord Shaw inMauvg Kyin v. Ma Shwe Law (supra) states at page 210 that it would bea fraud to insist on a claim toproperty arisingundersuch a transaction,
the claimant knowing that thetrue owner hadneverparted withitand
the proviso to section 92 would apply.
At this stage it is relevant to consider what has been established by theevidence. In this connection I am of opinion that the findings of factmade by' the learned -Judge must be accepted. He is a Judge of wideexperience and had the opportunity of watching thedemeanourofthe
witnesses when they tenderedtheir evidence.It isimpossibletosay
that, in accepting the evidence of Mr. Canagarayer, the proctor, he hasmisdirected himself although it is possible we might have come to adifferent conclusion ourselves. The learned Judge has found that P 21was executed in pursuance of an agreement by Ramanathan actingas the agent of Hatchiappa Chettiar that the latter should act as trusteeof the plaintiff in whom remain the beneficial ownership of the properties.That this agreement was ratified by Natchiappa Chettiar. The learnedJudge has further found that the defendant has fraudulently repudiatedthe trust. Although the findings of the learned District Judge onquestions of fact are accepted, it is incumbent on this Court to considerwhether his interpretation of those findings and the inference to be drawn■therefrom are correct. In other words we must, to use the words ofLord Atkinson in Adaicappa Chetty v. Caruppen Chetty (supra) determinethe real nature, true aim and purpose of the transaction. Was theeffect of the oral arrangement to create a security for money advanced?I think the learned Judge was right in holding it was not, but such oral
182
HOWARD C.J.— Valltyammai Atchi and O. L. M. Abdul Majeed.
arrangement created a trust. In this connection it would appear thatall except one of the properties transferred by P 21 were already mortgagedto Natehiappa Chettiar. How then can it be argued that the purposeand true aim of the arrangement was to create a security for moneyadvanced ? The security was already in existence and only a smallamount was advanced. If the properties were held in trust by NatehiappaChettiar, such trust is an express one, arising not only by oral agreement,but also as a violent and necessary presumption from the nature of thetransaction between the parties. It now becomes relevant to considerthe provisions of section 5 of the Trusts Ordinance which is worded asfollows: —
‘ 5.(1) Subject to the provisions of section 107 no trust in relation
to immovable property is valid unless declared by the last will of theauthor of the trust or of the trustee, or by a non-testamentary instru-ment In writing signed by the author of the trust or the trustee, androtarially executed.
No trust in relation to movable property is valid unless declaredby the last will of the author of the trust or of the trustee, or by anon-testamentary instrument in writing signed by the author of thetrust or the trustee, or unless the ownership of the property is transferredto the trustee by delivery.
These rules do not apply where they would operate so as toeffectuate a fraud.”
The findings of the learned Judge imply that if a notarial agreement toprove the trust is required, a fraud will be effectuated inasmuch as suchtrust cannot be established by oral evidence In these circumstances,sub-section (1) would not apply and it is contended by Mr. Canekeratnethat section 2 of the Trusts Ordinance comes into operation. Section 2is worded as follows : -—
“ 2. All matters with reference to any trust, or with reference toary obligation in the nature of a trust arising or resulting by theimplication or construction of law, for which no specific provisionis made in this or any other Ordinance, shall be determined by theprinciples of equity for the time being in force in the High Court ofJustice in England ”
It is, in my opinion, impossible to maintain that specific provision for themanner in which a trust shall be established has not been made in thisor any other Ordinance. Such provision is made by the Trusts Ordinanceitself read in connection with section 92 of the Evidence Ordinance.It is suggested, however, that the judgment of the House of Lords inMcCormick v. Grogan1 is an authority for the preposition that in the caseof fraud section 92 of the Evidence Ordinance can be excluded fromconsideration. At page 97 Lord Westbury stated as follows: —
'* My Lords, the jurisdiction which is invoked here by the Appellantis founded altogether on personal fraud. It is a jurisdiction by whicha Court of Equity, proceeding on the ground of fraud, converts theparty who has committed it into a trustee for the party who is injuredby that fraud. Now, being a jurisdiction founded on personal fraud,
1 (1869) L. R. 4 H. L. 82.
HOWARD C.J.—Valliyammai Atchi and O. L. M. Abdul Majeed.
163
it is incumbent on the Court to see that a fraud a malua animus, isproved by the clearest and most indisputable evidence. It is impossibleto supply presumption in the place of proof nor are you warranted inderiving those conclusions in the absence of direct proof, for thepurpose of affixing the criminal character of fraud, which you mightby possibility derive in a case of simple contract. The Court ofEquity has, from a very early period, decided that even an Act ofParliament shall not be used as an instrument of fraud; and if in themachinery of perpetrating a fraud an Act of Parliament intervenes,the Court of Equity, it is true, does not set aside the Act of Parliamentbut it fastens on the individual who gets a title under that Act, andimposes upon him a personal obligation, because he applies the Actas an instrument for accomplishing a fraud. In this way the Courtof Equity has dealt with the Statute of Frauds, and in this manner,also, it deals with the Statute of Wills.”
So in this case it is urged that the equitable principle formulated, proceed-ing on the ground of fraud, converts the defendant who has committedit into a constructive trustee for the plaintiff who is injured by thatfraud. To hold that section 92 of the Evidence Ordinance is excludedwould, in my opinion, be contrary to the dictum of Ford Davev inBalkishen Das v. Legge {supra) and that of Lord Shaw in Maung Kyin v.Ma Shwe Law {supra) when he said that principles of equity are ofuniversal application but they can only be applied whep they rest onfacts which can be proved according to the law of evidence prevailingin a particular jurisdiction.
In Manuel Louis Kunha v. Jnana Goelho & others1 it was held thatunder English law, where a testator disposes of property in favour of alegatee, and, at the time of such disposition or at any subsequent periodduring his lifetime, the testator informs the legatee that the dispositionin his favour, although apparently for his benefit, was so made in orderthat he may carry into effect certain wishes of the testator which arecommunicated to him, and the legatee expressly, or impliedly, undertakesto carry out the wishes so expressed to him by the testator, the legateewill be. treated as a trustee, and will be compelled to carry7 out the instruc-tions so confided to him. The reason for this rule is that it would be afraud on the part of the legatee not to give effect to the testator’s inten-tions, and the law will not permit him to benefit by his own fraud. TheLegislature in enacting section 5 of the Indian Trusts Act and the provisothereto intended to make this rule of Equity applicable in India. Inmy opinion a legatee who expressly or impliedly undertakes to carryout the wishes of a testator and does not do so is not guilty of a greaterfraud than the grantee of property who undertakes to hold it for thebenefit of the grantor. The Court would, therefore, apply section 5 (3)of the Trusts Ordinance. This provision, however, does not deal withthe admissibility of evidence. It merely saves .certain trusts from therules formulated by section 5 (1) and (2). The question therefore arises,in what way does section 92 of the Evidence Ordinance operate in regardto the admission of oral evidence to prove a trust to which sub-section(1) of section 5 does not apply ? It was said by Lord Shaw in Maung
r I. L. R. 31 Mad. 187.
184HOWAUD C.J.—Valliyammai Atchi and O. L*. M. Abdul Majeed.
Kyin'd case that, if section 92 applied, proviso 1 would seem to be inpoint, because it would be a fraud to insist upon a claim to propertyarising • under such a transaction, the claimant knowing that the trueowner had never parted with it. But does Lord Shaw’s dictum applyto the transaction which took place in this ease between the plaintiffand the agent of Natchiappa Chettiar ? The defendant who is hisexecutrix cannot be in any better position than Natchiappa Chettiarand therefore it would be a fraud on her part as it would have been on thepart of Natchiappa Chettiar to deny the trust. Although there is noclear decision on the point, proviso 1 would seem to permit the introduc-tion of oral evidence to prove such a trust.
In Cutts & another v. T. F. Brown & others1 it was stated by Garth C.J.that the rule laid down in section 92 of the Evidence Act is taken almostverbatim from Taylor on Evidence and the exceptions to that sectionwhich follow in the provisos are discussed in the same work. Thatbeing sc. it was legitimate to refer to Taylor as a means of ascertainingthe true meaning of the provisos. In paragraph 1135 of the 12th Editionit is stated that the rule (that is to say the rule excluding parol evidence)is nor infringed by the admission of parol evidence, showing that theinstrument is altogether void, or that it never had any legal existence orbinding force, either by reason of forgery or fraud. In paragraph 1136it is stated that “if a person has been induced by verbal fraudulentstatements to enter into a written contract for the purchase of a house,a ship, or the like, it is competent for him. in an action for deceitfulrepresentation, to prove the fraud by evidence aliunde, though thewritten contract or the deed of conveyance is silent on the subject towhich the fraudulent representations refer In this connection seeDobell v. Stephens2. In this case there was a misrepresentation withregard to a state of affairs that existed in the past. But Taylor drawsno distinction between a representation made in regard to the past orthe future. Untrue statements which deceive the person to whom theyare made and which lead him to act to his prejudice as he would nototherwise have acted if he had not been deceived may be proved byparol evidence. Applying this principle to the facts of the present caseit is open to the plaintiff to establish by parol evidence the untrue state-ment made by Natchiappa Chettiar’s agent that he would hold theproperties in trust. This statement deceived the plaintiff and led himto act to his prejudice and execute the deed P 21. It is true that inCutis £■ another v. T. F. Brown & others (supra) Garth C.J. stated thatthe proviso applied to cases where evidence is admitted to show that acontract is void upon the ground of fraud at its inception. On the otherhand as I have already observed. Taylor imposes no such limitationon the applicability of the proviso. The words of the proviso are verywide and declare that any act of fraud might be proved which wouldentitle any person to any decree relating to a document. The wordsof the proviso are in my opinion wide enough to let in evidence of sub-sequent. conduct as in the view of a Court of Equity would amount tofraud and would entitle the grantor to a decree restraining the granteefrom proceeding upon his document. The conduct of Natchiappai Jnd. Decs. N. S. G Calc. 339.s 107 B. R. 864.
KEUNEMAJN J.—Valliyammat Atchi and O. L. M. Abdul Majeed 185
Chettiar in refusing to reconvey the premises and insisting that thetransaction was an out and out conveyance amounted to fraud andhence the plaintiff is entitled to a decree restraining the defendantfrom proceeding upon P 21.
Even if the transaction is regarded not as a trust, but merely as thecreation of a security with a right in the plaintiff to a retransfer of theproperty on payment of the amount due, I am of opinion that, havingregard to the dictum of Lord Shaw, proviso 1 to section 92 would applyas it would still be a case of a person making a fraudulent claim to property,such person knowing the true owner had not parted with it. I have,therefore, come to the conclusion that the oral evidence was properlyadmitted.
With regard to the other contentions put forward by Mr. Perera, I amof opinion that the learned Judge having come to the conclusion that thedefendant held the properties as a trustee, was right in holding that inview of section 111 of the Trusts Ordinance the claim of the plaintiffwas not barred by prescription. If the transaction is regarded as thecreation of a security for money advanced with a right to retransfer, thecause of action would not arise until there was a refusal to retransfer.Regarded from this point of view, therefore, the plaintiff’s claim was notprescribed.
With regard to ground (g), I am of opinion that it was not establishedthat any creditors of the plaintiff were defrauded or their claims delayedby reason of the transfer of properties in favour of the defendant. Inthese circumstances, the principles laid down in Saurannma v. MohamaduLebbe1 are not applicable.
With regard to ground (h), I am of opinion that the learned Judge wasright in holding that Eamanathan Chettiar’s promise was endorsed byNatchiappa Chettiar and hence the latter is liable. As I have alreadyindicated, the learned Judge’s other findings of fact must be acceptedand, in these circumstances, the plaintiff’s claim is established. Theappeal is, therefore, dismissed with costs.
Keuneman J.—
In his plaint, the plaintiff alleged that in March, 1930, he owned andpossessed, inter alia, movable property being stock-in-trade of the valueof Rs. 250,000, and certain specified immovable property of the valueof Rs. 460,115, in addition to other immovable property of the value ofRs. 200,000.
At the same period he had debts, viz : —
Rs.
unsecured debts to third parties……225,857
secured debts to Natchiappa Chetty,the testator, now
represented by defendant as executrix…<…185,031
unsecured debts to the same person as in(b)……5,280
secured debts to a third party…1,515
rates and taxes due……—1,430
(/) other debts of about……120,000
1 44 N. L. R. 397.
186
KEUNEMAN J.—Valtiyammai Atchi and O. L. M. Abdul Majeed
Plaintiff alleged that in February, 1930, when he was in bad healthand in financial .embarrassment owing to lack of liquid cash, the saidNatchiappa Chetty, by his servant and agent. Ramanathan Chetty,promised to act as the trustee of the plaintiff and suggested to the plaintiffthat he should give over the entire management of the plaintiff’s affairsto Natchiappa Chetty. Thereafter, the plaintiff alleged that an agree-ment was entered into between the plaintiff and Natchiappa Chettyby his agent, Ramanathan Chetty, as set out in paragraph 7 of the plaint.
In pursuance of the agreement plaintiff executed the deed of transfer1604 of March 3, 1930 (P 21 or D 1). The plaintiff alleged that NatchiappaChetty died on December 30, 1938, and that about January, 1940, thedefendant fraudulently and in breach of the trust claimed that theestate of Natchiappa Chetty was entitled to the premises in question.The plaintiff stated that all amounts due to Natchiappa Chetty hadbeen liquidated before his death, and that Natchiappa Chetty held theremaining properties in trust for the plaintiff.
In his very careful judgment, the District Judge held that the follow-ing facts were established, and I accept that finding as correct. Theplaintiff who was possessed of several immovable properties carried on abusiness as a hardware merchant. At first the business was successful,but the plaintiff who was indebted to Natchiappa Chetty and othersdecided to raise a loan of Rs. 300,000 at a moderate rate of interest inorder to pay off the debts which carried a much higher rate of interest.Negotiations for the raising of the loan were opened with the Doan Board.Meanwhile a complication arose, in consequence of two overseas creditors,who were unsecured, suing the plaintiff for Rs. 25,000 and Rs. 32,000 odd.Plaintiff then went to a firm of proctors to assist him in the raising ofthe necessary loan.
Mr. Beling, retired Assessor of. the Colombo Municipality, was com-missioned to make a valuation of the plaintiff’s properties for this purpose.The valuation was made, and according to this the value of the propertiestransferred to Natchiappa Chetty by the deed 1604 was Rs. 460,115.The District Judge definitely accepts the correctness of this valuation,which was made at that very time, and the point is of importance. Whilethe negotiations for the loan were in progress, Natchiappa Chetty’s agentin Ceylon, Ramanathan Chetty, who was a trusted friend of the plaintiff,approached the plaintiff with a proposal that the plaintiff should transferthe lands already mortgaged to Natchiappa Chetty for the ostensibleconsideration of Rs. 203,300 on the promise that the transferee wouldhold the lands in trust for the plaintiff subject to an obligation to retransferthe lands, or such of them as remained unsold, to the plaintiff.
The plaintiff consulted Proctor Canagarayer, who advised himagainst the suggestion and said that a deed setting out all the conditionsagreed upon was desirable. In spite of this, however, the plaintiffpersisted in going on with the suggestion of' Ramanathan Chetty. Itseems fairly clear that the object which the plaintiff had in mind was toprevent the unsecured creditors from seizing the valuable immovableproperties. At the same time it suited Natchiappa’s plans to have thewhole of these valuable properties in his own name, and not merelyunder mortgage.
KJEUNEMAN J.—Valliyammai Atchi and 0. L. M. Abdul Majeed
187
At this time the plaintiff had an extensive stock of hardware, andeven Mr. Wilson, who was acting for two of the unsecured creditors,was satisfied that the stock was sufficient to meet the claims of the un-secured creditors. The plaintiff told Mr. Wilson that he had transferredthe immovable properties to Natehiappa Chetty in trust. Mr. Wilsoninsisted on further security being given to the unsecured creditors, anda mortgage of Rs. 15,000 was promptly given. In the result the saleof the stock resulted in a small shortfall, but the mortgage was more thansufficient to meet the claims of the unsecured creditors. I have dealtwith this aspect of the matter out of its order, because I think the evidencedisposes of the argument addressed to us that the plaintiff acted infraud of his creditors, and that the fraud was actually carried out. I amof opinion that no creditor was either defrauded or even delayed as aresult of the plaintiff’s action.
The District Judge accepted the evidence of Proctor Canagarayerthat a final arrangement was arrived at in the house of one Abdul Rah-man, who was dead at the date of trial. Ramanathan Chetty and theplaintiff arrived at the agreement. It was decided that the propertieswhich were under mortgage to Natehiappa Chetty should be transferredto him in trust. This was to be done in order to prevent any creditorsproceeding to seize those properties in execution, and RamanathanChetty asserted that he was coming forward to help the plaintiff to savesome of his properties from the creditors. At the same time the unsecuredcreditors were to be given all the stock-in-trade, which it was believedwas more than sufficient to satisfy their claims. Another Chetty wasto have transferred to’ him the properties mortgaged to him. Thiswas Arumogam Chetty, who in fact received by deed No. 120 of April 15,1930, the transfer of certain immovable property for a sum of Rs. 61,000.As regards the properties transferred to him, Natehiappa Chetty was tomanage them and take the income and give credit to the plaintiff forwhat he collected. The plaintiff could, sell any of the property he liked,and Natehiappa Chetty was to take the proceeds and give credit to theplaintiff. Finally these persons were to look into accounts and adjustmatters and there was to be a retransfer of the properties, if any remained.All these terms were agreed upon'Retween Ramanathan Chetty and theplaintiff about February, 1930. Secrecy as to the arrangement wasinsisted upon by Ramanathan Chetty.
The District Judge has held that the agreement set out in paragraph7 of the plaint was established. In that paragraph, it is said that theagreement included a term whereby the plaintiff should remain in posses-sion as true owner of two of the premises transferred to NatehiappaChetty, Nos. 81 and 78, Messenger street.The evidence conclusively
shows that plaintiffcontinued to residein oneandhis mother-in-law
in the other of thesepremises, without payment ofanyrent, and they are
still in occupationof these premises.Ramanathan Chetty actually
paid rates and taxes on these premises till 1935, and thereafter theplaintiff has paidthem. Ramanathan Chettyincross-examination
gave this explanation. “ There are two houses; in one Majeed (plaintiff)was living and in the other his mother lived …. I asked himfor rent for some time, he did not pay the rent ….. I paid the
188
KF,UNEMAN J.—Valliyammai Atchi and O. L- M. Abdul Majeed
taxes for a little over two or three years, after that I did not pay. I amnot claiming those two properties now. I told my Mudalali ….
I would have to litigate, and that Majeed had been dealing with us forsome time and he is down in life, and I appealed to the Mudalali togive those lands to him. It is because there was no trust in his favourthat we gave up those two lands.” This discloses a degree of generosityon the part of the Chetty which it is difficult to credit. The explanationgiven by the plaintiff is more realistic, and I think this circumstancevividly shows that the transaction between the plaintiff and NatchiappaGbetty was not a mere business transaction of transfer.
On March 3, 1930, plaintiff executed the deed of transfer P 21 or D Iin favour of Natchiappa Chetty. In that deed the consideration isset out as Rs. 203,300. The consideration is as follows:Rs. 188,950
represented the mortgage debt due to Natchiappa ChSttv, plus a furthersum of Rs. 6,081.66 in respect of interest thereon. Rs. 5,200 plus Rs. 80was principal and interest due to Natchiappa Chetty on three promissorynotes made by plaintiff. Rs. 1,430 was for arrears of assessment rateson the premises. Rs. 1,515 was paid by cheque to Mr. Nagalingam toclear off an outstanding mortgage on one of the properties. Rs. 44.34was added in order to make a round figure. The items of Rs. 1,430 andRs. 1,515 were paid at the time of the execution of the deed. Thecheque for Rs. 43.34 was drawn and handed to the plaintiff, but admit-tedly it has never been cashed. Plaintiff stated that he handed it backto Ramanathan Chetty.
The transfer covered a large number of premises, all but one of whichhad already been mortgaged to Natchiappa Chetty.
There is no evidence to show that Natchiappa Chetty was aware ofthe Secret arrangement made by his agent at the time of the executionof the deed P 21 or D 1. But there is clear evidence that NatchiappaChetty came to Ceylon a few weeks after the execution and adoptedand ratified the arrangement made by his agent Ramanathan Chetty.At a later date also Natchiappa Chetty intervened, when the questionof commission claimed by Ramanathan Chetty arose, and reaffirmed hiswillingness to carry out the terms of the agreement upon which thetransfer was made.
Natchiappa Chetty through his agent entered into possession of thebulk of the premises transferred, and collected the rents and profits,.paid rates and taxes, and sold a number of the premises transferred.The District Judge has held that in the vast majority of these salesthe purchasers were introduced by the plaintiff, and there is strongevidence to support the finding that the plaintiff played an active partin arranging the sales.
In this connection the purchase by Haniffa of 79, Messenger street,is of interest. Haniffa lent plaintiff Rs. 4,700 without written security,and was allowed to occupy the premises mentioned in lieu of interest,although the premises were in the name of the Chetty. Eventuallywhen the premises were sold to Haniffa the amount lent to the plaintiffwas deducted from the consideration agreed on. The real consideration
K HIUNEMAN J.—Valliyammai Aichi and O. h. Af. Abdul Majeed
189
was Rs. 10,500, but in thedeedthe consideration wasstated to be
Rs. 6,000, i.e., the real amount less the debt then due from the plaintiff toHan iff a.
No accounts were, however, rendered to the plaintiff, and when heasked for them he was put off. This was mainly because NatchiappaChetty visited Ceylon very rarely. According to the plaintiff about1935 Natchiappa Chetty finally promised that the trust properties wouldbe retransferred in March, 1940, and the accounts settled "between theparties. Before that latter date Natchiappa Chetty died, and thedefendant was appointed executrix of his estate.
The learned District Judgehassubjected theevidencein thiscase
to very careful examination,andalthough hisfindingsof facthate
been challenged, no real ground has been shown to me why these findingsshould not be accepted. I am satisfied that the findings of fact arejustified and are strongly supported by the evidence.
There have been, however,certain matters oflaw which havebeen
argued, and certain inferences drawn by the District Judge on theevidence have been disputed.
The first point raised is that the evidence does not establish a trust,but only some form of security, which cannot be supported because ofthe absence of a notarial deed to establish it.
Counsel for the appellant referred us to the case of Adaicappa Chettyv. Caruppen Chetty1. The facts alleged in fcbis case were as follows: —The added defendant, being desirous <5f purchasing the land in question,.applied to a Chetty firm for the moneys required for the purpose. Thefirm agreed to lend the moneys, on condition that the same should berepaid with interest at 10 per cent, and that the deeds for the landpurchased be taken in the name of the 1st defendant, one of the partnersof the firm. The added defendant purchased the land with Rs. 10,000borrowed from the firm, and took the transfer in the name of the 1stdefendant, hater a new arrangement was arrived at. The firm re-quested the added defendant to let them have absolutely for their benefita half share of the land for the actual costs of that share, and agreed toforego all claims for interest on the moneys advanced by the firm inconsideration of the trouble of the added defendant in purchasing andplanting the property. As regards the first agreement Lord Atkin-son said:“The object of the agreement was … .to create
something much more resembling a mortgage or pledge than a trust.The arrangement differed absolutely in nature and .essence from thatentered into, where one man with his own proper moneys buys landed-property and gets the conveyance of that property made to another..”
Lord Atkinson added:“The second parol agreement is …
as invalid as the first. It was clearly a contract or agreement for effectingthe sale, transfer, or assignment of land, and for the establishment of asecurity or incumbrance affecting land.” Lord Atkinson held that“The parol evidence …. was properly held to have been in-admissible, for the simple reason that the agreement, if proved by it,must, under Ordinance No. 7 of 1840, sub-section (2),. have been heldnot- to be of any force or avail in law. This section is much more
1 22 N. L. R. 417.
190
■K mTTNTflTVl A NT J.—Valltyammai Atchi and O. L. M. Abdul Majeed
drastic than the fourth section of the Statute of Frauds”. lie pointsout that the latter section does not render the parol agreement invalid,but merely unenforceable.
Counsel for the appellant also relied on the case of Saminathan Chettyv. Vander Poorteri1. In this ease there were two deeds, No. 471 whichwas an absolute transfer by the “ Syndicate ” to the defendant andNo. 472 by the defendant and the members of the Syndicate, the materialterms of which are set out in the judgment. It is to be noted that inthis case there was no question of the Ordinance 7 of 1840 not beingcomplied with.
Lord Tomlin said …. ‘‘The first question is as to theconstruction and effect of the deeds Nos. 471 and 472.
" Having regard to the circumstances leading up to and sur-rounding their execution and to the language employed therein,these deeds…. clearly do not operate to vest in the
respondent an absolute interest in the property conveyed.
‘‘It cannot be overlooked that the Syndicate had expended aboutUs. 200,000 on the property before they got into conflict with theCrown, and that they provided Its. 64,000 towards the total sum whichhad to be deposited under the decree made in the Crown’s favourThey could, therefore, have had no interest in entering into anarrangement by which in effect the whole property passed absolutelyto the respondent and their expenditure was wholly lost.
“ But the language of deed No. 472 is …. inconsistentwith any such conclusion. By the terms of the documents (1) therespondent cannot sell below a certain price without the consent of theoriginal members of the Syndicate; (2) if he does sell he has imposedupon him an obligation to deal with the proceeds in a specified manner;(3) the distribution of the proceeds of sale includes payment to therespondent …. for moneys advanced to the Crown; (4) the ultimate balance of the proceeds of sale is to bedistributed pro rata according to their interests .amongst (the membersof the Syndicate); and . (5) the purchaser is relieved of any obligationto see to the application of the purchase money.
“ In these circumstances and upon this language their Lordshipsconclude without hesitation that the transaction effected by deedsNos. 471 and 472 was the creation of a security for money advanced,which in certain events imposed upon the respondent, who was thecreditor, duties and obligations in the nature ox trusts.”
It is to be noted in this case that the respondent had not sold thepremises or any part thereof. Their Lordships considered this aspectof the matter, and came to the conclusion that, as long as the propertyremained unsold, the arrangement was in the nature of a mortgage, andthat the members of the Syndicate had a right to redeem. Their Lord-ships did not uphold the finding of the trial Judge that a trust had beencreated.
With respect I think the facts in the present case can be differentiatedfrom each of the cases cited.
> 34 N. L. 287.
KEUNEMAN J.—Valliyammai Atchi and O. L. M. Abdul Majeed
191
In this case the following faets are of importance: —
Prior to the transfer P 21 or D 1, Natehiappa Chetty was alreadythe holder of a valid mortgage security over the premises transferredwhich was more than sufficient to cover his claim. It is difficult tounderstand how the transfer can be said to create a security. Ac-cording to the defendant, the transfer was in discharge of the debtsdue to Natehiappa Chetty. If the plaintiff’s story be true, it was atransfer of the legal title, which was to be held by Natehiappa Chettyaccording to the terms of the agreement.
The avowed object of the transfer was to put these immovableproperties • beyond the reach of the unsecured creditors, who had alreadybegun to press the plaintiff. I have dealt with this matter earlier, andneed only add that no fraud was actually perpetrated on the unsecuredcreditors, because the other assets of the plaintiff were more "than sufficientto meet the claims of the unsecured creditors, and in fact none ofthose creditors was either defrauded or delayed.
The surrounding circumstances, in my opinion, point strongly toa trust, in particular, the gross inadequacy of the consideration, theintimate relationship between the plaintiff and Ramanathan Chetty,the fact that it was part of the arrangement that the plaintiff should beallowed to remain in possession without payment of rent of the premisesoccupied by him and by his mother-in-law, and that he did remain insuch possession, and the fact that the plaintiff was to be permitted toplay an active part in the disposal of the premises transferred, and thathe did in fact arrange the bulk of the sales.
In this case the plaintiff alleges that the proceeds of the salesalready effected and of the rents and profits received were more thansufficient to satisfy the claims of Natehiappa Chetty; in other wordsthat the event has happened which imposes on the defendant “obliga-tions and duties in the nature of trusts’’—to use the language of LordTomlin.
In my opinion, the eases cited do not prevent me from holding that thedecision of the District Judge that a trust has been established is correct.The case of Ranasinghe v. Fernando1 is very much in point. In thatcase the judgment of Lord Atkinson in Adaicappa Chetty v. GaruppenChetty (supra) was considered. See also Theevanapillai v. Sinnapillai2and Carthelis v. Perera3. These are decisions of our Courts and,with respect, I do not think they conflict with the decisions of the PrivyCouncil, in the cases I have cited.
If this decision is right, there is evidence on which it can be held thatthere was an express trust created orally. I think at the same time thatthere is sufficient evidence to hold that there is a constructive trustestablished. If the matter is to be treated as a constructive trust, thenI think no question of a notarial deed being needed arises. If, however,we are to regard this as an express trust, then section 5 of the TrustsOrdinance has to be considered. Under this section—
“5 (1)—Subject to the provisions of section 107, no trust in relation
to immovable property is valid unless declared by the last will of the
1 24 N. L. R. 170.2 22 N. L. R. 316.
3 32 N. L. S. 19.
192
KETTNElMAIf J.— Valliyammai At chi and O. L. M. Abdul Majeed
author of the trust or of the trustee, or by a non-testamentaryinstrument in writing signed by the author of the trust or the trustee,and notarially executed.
“ (3) These rules do not apply where they would operate to effectuatea fraud.”
In this connection I may mention the case of Rochefoucauld, v. Boustead1in which liindley D.J. said—
‘‘It is further established by a series of cases, the propriety of whichcannot now be questioned, that the Statute of Frauds does not preventthe proof of a fraud; and that it is a fraud on the part of a person towhom land is conveyed as a trustee, and who knows it was so con-veyed, to deny the trust and claim the land himself. Consequently,notwithstanding the statute, it is competent for a person claimingland conveyed to another to prove by parol evidence that it was soconveyed upon trust for the claimant, and that the grantee, knowingthe facts, is denying the trust and relying upon the form of conveyanceand the statute, in order to keep the land himself.”
See also In re Duke of Marlborough, Davis v. Whitehead2.
In this case the Duchess, in consideration of natural love and affection,assigned to her husband, the Duke, a leasehold house belonging t.o her.The deed was in form an absolute assignment. Evidence was permittedon the part of the Duchess to show that she assigned the house to theDuke, solely to enable him to mortgage it in his own name, and that itwas part of the arrangement between them that he should re-assignto her.
I think this last case also disposes of another point taken by the ap-pellant, viz., that there is no evidence that Natehiappa Chetty himselfrepudiated the oral agreement, and no evidence that the defendant,his executrix, was aware of the arrangement. In the Duke ofMarlborough’s case Stirling J. said—
“If the late Duke of Marlborough had in his lifetime refused toconvey the equity of redemption at the request of the Duchess, Ithink he could not have set up the statute. Nothing of the kind everhappened; on the contrary, the evidence appears to me to show thathe was willing and intended to reconvey, though, unhappily, he putoff carrying his expressed intention into effect until if was too late.In my opinion the plaintiff, as claiming under him, is in no betterposition.” (The plaintiff in this case represented the Duke’s creditors.)In the present ease I think the defendant, the executrix of NatehiappaChetty, is in no better position than her testator, and that a repudiationof the trust, which would have been a fraud on the part of the test: 1. ?,must be deemed a fraud if caused by the executrix who claims underhim.
In this case I am of opinion that to permit the defendant to set upsection 5 (1) of the Trusts Ordinance would operate to effectuate' afraud.
L. It. (1897) 1 Ch. 196, at p. 206.
L. R. (1894) 2 Ch. 133.
KEUXEMAX J.—ValliyaTnmai Atchi and O. L. M. Abdul Majeed.
193
One further argument has been strongly pressed by Counsel for theappellant, viz., that the admission of oral evidence of the alleged agree-ment is obnoxious to section 92 of the Evidence Ordinance. Counselrelied upon the decisioh in the case of Balkishen Das v. Legge1. In thisease a deed of sale of land for value was accompanied by a deed of agree-ment between the parties for purchase back by the vendor of the landon payment by him of money to the vendee on a future date fixed. Thedeeds were followed by transfer of possession to the vendee, and hisreceipt of the profits. The vendor did not exercise his right of repur-chase; but after many years gave notice of his intention to redeem,and brought suit to enforce his right of redemption as upon a mortgageby conditional sale. In the Privy Council Lord Davey dealt with theadmission of oral evidence to prove .the intention of the parties.
‘Their Lordships do not think that oral evidence of intention wasadmissible for the purpose of construing the deeds, or ascertainingthe intention of the parties. By section 92 of the Evidence Act (Act 1of 1872) no evidence of any oral agreement or statement can be ad-mitted as between the parties to any such instrument or their re-presentatives in interest, for the purpose of contradicting, varying, oradding to, or subtracting from, its terms, subject to the exceptionscontained in the several provisos. It was conceded that this casecould not be brought within any of them. The cases in the EnglishCourt of Chancery which were referred to by the learned Judgesof the High Court have not, in the opinion of their Lordships, anyapplication to the law of India, as laid down in the Acts of the IndianLegislature. The case must therefore be decided on a considerationof the contents of the documents themselves with such extrinsicevidence of surrounding circumstances as may be required to show inwhat manner the language of the document is related to existing facts.”
In this case it was held that the deeds themselves contained indicationsthat the parties intended to effect a mortgage by conditional sale.
In Maung Kyin v. Mu Shwe La2 this matter came up once again forconsideration before the Privy Council. This also was a case where adeed which in form was an absolute sale was alleged to be a mortgage.Lord Shaw cited a number of Indian cases where the Judges applied thei equity doctrine as expressed in Lincoln v. Wright3—see the judgment ofLord Justice Turner: —
” The principle of the Court is, that the Statute of Frauds was notmade to cover fraud. If the real agreement in this case was that asbetween the plaintiff and Wright the transaction should be a mortgagetransaction, it is in the eye of this Court a fraud to insist on the con-veyance as being absolute, and parol evidence must be admissible toprove the fraud.”
In commenting on this ease Lord Shaw said—7
” The principles of equity which are universal forbid a person todeal with an estate which he knows that he holds in security as if
1 I. L. R 22 AU. 149.* I. L. R. 45 Cal. 320.
3 (1859) 4 De Gex <fc Jones 16.
VJ. N. A 93349 (11/49)
194
K3^13NEMAN J.—Valliyammai Atchi and O. L. M. Abdul Majeed.
he held it in property. But, to apply the principles, you must beplaced in possession of the facts, and facts must be proved accordingto the law of evidence prevailing in the particular jurisdiction. InEngland the laws of evidence, for the reasons set forth in Lincoln v.Wright and other cases, permit such facts to be established by a proofat large, the general view being that, unless this were done, the Statuteof Frauds would be used as a protection or vehicle for frauds. Butin India the matter of evidence is regulated by section 92 of the IndianEvidence Act, and it accordingly remains to be asked, what is theevidence which under that statute may be competently adduced?”
In the result, Lord Shaw held that in this case section 92 did not apply,because the evidence, the admissibility of which was in question, wasevidence going to show what were the' rights of a third party. Thelanguage of the section applied only as between the parties to theinstrument and their representatives in interest.
It has .been pointed out that both these decisions may be regardedas obiter dicta, but even so, I do not think that it is open to us to minimizethe weight of these pronouncements. It is, however. T think, competentfor me to point out that in neither of these cases was the question whetherparol evidence was admissible to prove a trust considered. With respect,.I suggest that Lincoln v. Wright was an extension of the principle ofequitable fraud to the case of mortgages, and that their Lordships de-clared that this was not permissible in India in consequence of section92 of the Indian Evidence Act.
In the later ease of Dhanarajagirji v. Parthasaradhi1 their Lordshipsof the Privy Council once more considered- this matter. In this casethe transaction as phrased in the documents was ostensibly a sale with aright of repurchase in the vendor and the appearance was laboriouslymaintained. Their Lordships, however, came to the conclusion that itwas a mortgage by conditional sale.
Their Lordships disposed of the case without reference to any oralevidence other than that of surrounding circumstances, in accordancewith the case of Balkishen Das v. Legge (supra). Lord Blanesburgh,however, added these words—
“ They would only observe before parting with it that, as at presentadvised, they must not be taken to subscribe to the view that therehas been introduced into the law of India such a radical change in thelaws of evidence, as suggested by the learned Chief Justice, a changewhich would have the effect of excluding from the class of mortgages byconditional sale, many transactions which before the Evidence Actwould have been held to have been within that class.”
It is interesting to note that one of the surrounding circumstancestaken into account was the fact that six lakhs was an ' bsurd purchaseprice.
In Baijnath v. Valley Mohamed2 the position was whether a transferof certain shares was by way of security or sale with a clause for repurchase.The facts that the amount paid by the transferee had no relation to themarket price of the shares, but was merely the amount advanced and
1 A. 1. R. (1924) P. O. 226.
A. I. R. (1925) P. C. 75.
KEtTNEMAN J.— Valliyammai Atchi and O. L. M. Abdul Majeed.
295
interest as well as a debt already due to tbe transferor, and that thetransferor’s claim to the dividends in the shares was recognized togetherwith other circumstances, were held to indicate that the transaction wasa mortgage and not a sale with a clause for repurchase.
In dealing with this matter Sir Lawrence Jenkins said—
“ Section 92 merely prescribed a rule of evidence; it does notfetter the Court's power to arrive at the true meaning and effectof a transaction in the light of all the surrounding circumstances.”
What is the principle to be deduced from these decisions of the PrivyCouncil? The first point is that it is permissible to examine *' the sur-rounding -circumstances ”, whatever that phrase may include. I amdoubtful whether the agreement itself can be considered as one of thesurrounding circumstances, but clearly facts such as gross inadequacyof consideration, and, I think, the transferor’s relationship to the propertyafter the transfer may be taken into account.
Next, do these decisions apply to a case where the evidence establishes atrust and not merely a security. On this point I may refer to thelanguage of Lord West bury in McCormick v. Cro.gan1.
The Court of Equity has, from a very early period, decided thateven an Act of Parliament shall not be used as an instrument of fraud;and if in the machinery of perpetrating a fraud an Act of Parliamentintervenes, the Court of Equity, it is true, does not set aside the Actof Parliament, but it fastens on the individual who gets a title underthat Act and imposes on him a personal obligation, because he appliesthe Act as an instrument for accomplishing a fraud. In this wavthe Court of Equity has dealt with the Statute of Frauds, and in thismanner, also, it deals with the Statute of Wills.” It is incumbent,however, “ to show most clearly and distinctly that the personyou wish to convert into a trustee acted malo animo ”.
I do not myself see why a Court of Equity should not act in the samemanner when the Evidence Ordinance intervenes.
In this connection I think it is necessary to consider the effect ofsection 2 of our Trusts Ordinance (Cap. 72) (This appeared as section118 in our original Trusts Ordinance, No. 9 of 1917.)
“ All matters with reference to any trust, or with reference to anyobligation in the nature of a trust arising or resulting by the implicationor construction of law, for which no specific provision is made in thisor any other Ordinance, still bedeterminedby theprinciples of
equityfor the time being in forcein the High CourtofJustice in
England.”
It has been argued before us that this has no application to a rule ofevidence,but I do not agree with thiscontention.I thinkinthis case a
“ matterwith reference to a trust ”has arisen.Thereisno specific
provision that the principle enunciated by Lord Westbury, namelythat a Court of Equity can act in personam as against an individualwho obtains a title under an Act of Parliament, should not be applicablein the case of a trust under the law of Ceylon. In my opinion we areentitled to import “ the principles of equity ” into this case.
i L. R. (1869) 4 H. L. 82 at p. 97.
196
HOWAUD C.J.—Savona, and Heen Uhku.
I think it follows from the Duke of Marlborough’s case and othercases that evidence of an oral agreement can be admitted in Englandto establish a trust in respect of a transaction which is embodied in adeed. In my opinion the same principle should be applied in Ceylon,and, in view of the fact that to uphold the defendant’s plea would operateto effectuate a fraud, our Courts without overriding section 92 of theEvidence Ordinance can fasten on the defendant a personal obligation tocarry out the terms of the trust.
I may add that, even if section 92 of the Evidence Ordinance has to beapplied in full rigour, it is permissible for .the plaintiff under proviso (1)to prove “ fraud ” such as arises in the circumstances of this case.
Counsel for the appellant has also pressed the issue of prescription.But here section III (1) (a) of the Trusts Ordinance is applicable, andprescription does not run. Eurther, I am of opinion that no cause ofaction accrued to the plaintiff until the defendant repudiated the trust—see Daniel Appuhamy v. Arnolis Appu1 and that took place less thanthree years before action brought.
The appeal is dismissed with costs.
Appeal dismissed.