SIR JOHN BEAUMONT—VaUiyammai Atchi v. Abdul Majeed.
[In the Privy Council.]
1947 Present: Lord Thankerton, Lord Uthwatt, Lord Du Parcq,
Sir Madhavan Nair and Sir John Beaumont.
VALLIYAMMAI ATCHI, Appellant, and ABDUL MAJEED,
Privy Council Appeal No. 15 of 1946.
S. C. 30—D. C. Colombo, 1,961.
Trust—Unconditional notarial transfer of land—Parol agreement of trust—Admissibility of oral evidence—Whether Section 2 of Statute of Fraudsapplicable—Formalities necessary to constitute trust—Section 5 of TrustsOrdinance—Effectuating fraud—Evidence Ordinance, sections 91 and 92.M who was entitled inter alia to certain immovable property of thevalue of over Rs. 460,000 executed an unconditional notarial transferof these properties to N for a consideration of Rs. 203,256. It wasalleged by M that this transfer was in pursuance of a verbal agreementthat N was inter alia to hold the properties in trust for him ; to pay outof the income certain specified debts and interest to himself at 12 per cent,on the said sum of Rs. 203,256 and to reconvey the properties to M on theliquidation of the said sum of Rs. 203,256 and interest. N died and hiswidow claimed to hold the properties free of the trust. In an actionby M for a declaration of trust and consequential relief—
Held, that oral evidence was admissible to establish the trust.
Held, further, that the formalities required to constitute a valid trustrelating to land are to be found in section 5 of the Trusts Ordinanceand not in section 2 of the Prevention of Frauds Ordinance ; that theact of the widow in seeking to ignore the trust and to retain the propertyfor the estate was to effectuate a fraud that, therefore, under section5 (3) of the Trusts Ordinance even a writing was unnecessary and sections91 and 92 of the Evidence Ordinance had no application.
PPEAL from a judgment of the Supreme Court reported in (1944)45 N. L. R. 169.
N. Pritt. K.C., with Stephen Chapman, for the appellant.
C., S. Rewcastle, K.C., with R. K. Handoo, for the respondent.
April 24, 1947. [Delivered by Sir John Beaumont]—
This is an appeal from a Judgment and Decree of the Supreme Courtof the Island of Ceylon dated March 31, 1944, affirming a judgmentand decree of the District Court of Colombo dated September 25, 1942.
The suit out of which this appeal arises was brought by one O. L. M.Abdul Majeed (hereinafter called “the plaintiff”) against the appellantas executrix of the estate of her late husband, K. M. N. S. P. NatchiappaChetty (hereinafter called “ Natchiappa ”). The plaintiff died afterthe hearing of the appeal in the Supreme Court, and by Order of Revivormade on June 4, 1946, the respondent was brought on record as theexecutor of his estate.
By the plaint filed on November 4, 1940," the plaintiff alleged(Paragraph 4) that he was entitled (a) to movable property of the value
290 SIR JOHN BEAUMONT.—Valliyammai Atchi v. Abdul Majeed.
of Rs. 250,000; (b) to a large number of immovable propertiesspecifically described of the value of over Rs. 460,000 ; (c) to otherimmovable property of the value of Rs. 200,000. Paragraph 5 specifiedthe debts for which he was liable at that date. In paragraph 7 it wasalleged that in February, 1930, it was agreed between the plaintiff andNatchiappa, by his agent and attorney Ramanathan Chetty: —<(o) thatthe plaintiff should execute a transfer of the properties referred to inparagraph 4 (b) in favour of Natchiappa; (b) that the deed of transfershould purrort to be for a consideration of Rs. 203,300;(c) that
Natchiappa should hold the said properties in trust for the plaintiff andshould collect the rents, profits and income thereof as trustee of and forand on behalf of the plaintiff ; (d) that the sum so collected should bedevoted by Natchiappa to pay the rates and taxes then due as thereinmentioned a secured debt of Rs. 1,515 due to a third party, to the paymentof rates and taxes and expenses in connection with the repairs of theproperties, and that he should pay himself interest at the rate of 12per cent, per annum on the total sum which would be due to Natchiappaamounting to Rs. 203,256.66 ; (e) that whenever the plaintiff arrangedfor the sale of any of the said properties Natchiappa should convey andtransfer such properties to such purchaser or purchasers so arranged andthat the purchase price should be paid to Natchiappa and the sameshould be applied by him in liquidation of the said sum of Rs. 203,300due to him from the plaintiff; (/) that on liquidation of the said sum ofRs. 203,300 and interest Natchiappa should recor.vey unto the plaintiffor his heirs at the expense of the plaintiff or his heirs the said propertiesor such of the said properties as remained unsold ; (g) that the plaintiffshould remain in possession, as true owner of two of the said propertiestherein mentioned. (Paragraph 8.)—That in pursuance of the saidagreement the plaintiff executed the Deed dated March 3, 1930 (whichbecame exhibit P. 21 in the suit), and that thereupon Natchiappa becameentitled to hold the said properties in trust for the plaintiff and for thepurposes aforesaid. (Paragraph 9.)—That within a few weeks of theexecution of the Deed of March 3, 1930, Natchiappa came to Ceylon andpersonally agreed to hold the said properties in trust for the plaintiffand to carry out the terms thereinbefore referred to. (Paragraph 15.) —That Natchiappa died on December 30, 1938; that the sum due toNatchiappa from the plaintiff in respect of the transaction between theplaintiff and Natchiappa had been liquidated out of the sums collected byNatchiappa, and there was no sum due and owing from the plaintiff toNatchiappa at the time of his death. (Paragraphs 17 and 18.)—ThatNatchiappa, by his last will dated December 3, 1938, appointed hiswidow, the defendant, to be executrix of his said will and that she dulyproved the will. (Paragraph 20.)—That in or about January, 1940, thedefendant fraudulently and in breach of the trust referred to in Paragraph7 claimed that the estate of Natchiappa was entitled to the propertiesaforesaid. The plaintiff claimed a declaration that Natchiappa obtainedthe transfer dated March 3, 1930, in trust for the plaintiff on the termsand conditions set out in paragraph 7 of the plaint and held the saidproperties in trust for the plaintiff; and other consequential relief.
The suit was tried by the District Judge of Colombo who held thatoral evidence of the trust set out in paragraph 7 of the plaint could be
SIR JOHN BEAUMONT.—Valliyammai Atchi v. Abdul Majeed.
given, and that such trust was proved. Accordingly, by decree datedSeptember 25, 1942, he made the declaration asked, for in the plaint,directed the defendant to transfer to the plaintiff the properties describedin Schedule “ C ” thereto and as many of the properties as remainedunsold out of the lands described in Schedule “ B ” thereto on paymentby the plaintiff to the defendant of any sum of money found due on accountbeing taken. The decree then directed that the appropriate accountsshould be taken and ordered the defendant to pay the plaintiff the costs ofthe action.
From this decree the defendant appealed to the Supreme Court of theIsland of Ceylon. The Supreme Court agreed with the finding of theTrial Judge that the trust alleged in paragraph 7 of the plaint had beenproved. The learned Judges discussed the legal aspect of the matter indetail and came to the conclusion that there was nothing in the EvidenceOrdinance or elsewhere in the Law of Ceylon to prevent oral evidencebeing given to prove the trust in the circumstances established in thecase.
Before this Board three points were argued : First, that there was noevidence to support the finding that the trust alleged in paragraph 7 ofthe plaint was proved,; that, at the most, the evidence showed only thatthe conveyance P 21 was in the nature of a mortgage involving an obli-gation to reconvey the property to the transferor on payment of the debtdue to the transferee. Secondly, that no oral evidence was admissibleto contradict, vary, add to or subtract from the terms of P 21 and thatthe alleged arrangements between the plaintiff and Natchiappa, whateverit amounted to, could not be proved. Thirdly, that the object of thearrangement made in 1930 between the plaintiff and Natchiappa was todefraud the unsecured creditors of the plaintiff, and that the Court shouldhave refused any relief to the plaintiff on the principle of the maximex turpi causa actio non oritur.
Upon the first point their Lordships have been referred to the relevantevidence and they are satisfied that there was ample evidence, ifadmissible, to justify the finding that the trust alleged in paragraph 7 ofthe plaint was established. They accept the concurrent findings of theCourts in Ceylon upon this point.
This finding confines the question as to the admissibility of oral evidencewithin narrow limits. The question fc.r determination is whether, theland in suit having been conveyed, to Natchiappa by a disposition inwriting, executed according to( law, with no written conditions, butsubject to a parol arrangement that he would hold the property upontrust in the events which have happened for the benefit of the transferor,it is open to the executrix of Natchiappa under the Law of Ceylon tomaintain successfully that the trust cannot be proved and to retain theland for the estate of Natchiappa. Both the Courts in Ceylon answeredthis question in. the negative, and their Lordships agree with them.
As the question was presented to the Board, the answer to the problemturns upon section 2 of the Prevention of Frauds Ordinance and section 5of the Trusts Ordinance, and it will be convenient to set out the terms ofthose sections.
292 SIR JOHN BEAUMONT.—Valliyammai Atchi v. Abdul Majeed.
Section 2 of the Prevention of Frauds Ordinance (No. 7 of 1840) is inthese terms : —
“No sale, purchase, transfer, assignment, or mortgage of land orother immovable property, and no promise, bargain, contract, oragreement for effecting any such object, or for establishing and security,interest, or incumbrance affecting land or other immovable property(other than a lease at will, or for any period not exceeding one month),nor any contract or agreement for the future sale or purchase ofany land or other immovable property shall be of force or avail inlaw unless the same shall be in writing and signed by the party makingthe same, or by some person lawfully authorised by him or her inthe presence of a licensed notary public andj two or more witnesses,present at the same time and unless the execution of such wr iting,deed, or instrument be duly attested by such notary and witnesses.Section 5 of the Trusts Ordinance, Ordinance 9 of 1917 is in theseterms : —
“ (1) Subject to the provisions of section 107 ” (which relates toCharitable Trusts) “no trust in relation to immovable property isvalid unless declared by the last will of the author of the trust orof the trustee, or by a non-testamentary instrument in writing signedby the author of the trust or the trustee, and notarially executed.”Sub-section 2 deals with trusts of movable property.
“ (3) These rules do not apply where they would operate so as to effec-tuate a fraud.”
The argument advanced on behalf of the appellant was that the parolagreement made between the plaintiff and Natchiappa in 1930 was anagreement for establishing an interest affecting land within the meaningof section 2 of the Prevention of Frauds Ordinance, and, not being inwriting and executed in accordance with the terms of that section, was ofno force or avail in law. It was further contended by Mr. Pritt that asthe whole transaction of 1930, namely, the conveyance and the trust,was required by law to be reduced to the form of a document no evidenceof the transaction apart from the document could be given under the termsof section SI of the Evidence Ordinance. This latter argument appearsto their Lordships to be superfluous since, if the verbal trust is of noforce or avail in law by reason of section 2 of the Prevention of FraudsOrdinance the question whether it is capable of proof does not arise.The argument based on the Prevention of Frauds Ordinance assumes thatunder the Law of Ceylon the beneficial owner under a trust affectingland acquires an interest affecting land, and, not merely a right to proceedagainst the trustee ; an assumption which would seem to involve that theLaw of Ceylon recognises the distinction between legal and equitableestates in land so familiar under English Law. No authority in supportof this assumption was cited to their Lordships other than the definitionof “ Trust ” in section 3 (a) of the Trusts Ordinance, a definition whichmust be read with the definition of “Beneficial Interest” in section 3 (g).However, their Lordships find it unnecessary to decide this questionbecause, in their view, the formalities necessary to constitute a Trustrelating to immovable property are those laid down in section 5 (1) ofthe Trusts Ordinance and not those in section 2 of the Prevention of Frauds
Dissanayake v. Jay awardene.
Ordinance. The Trusts Ordinance is a later enactment, and it dealsexpressly with trusts. If a trust disposition of land be executed in themanner required by section 5 (1) of the Trusts Ordinance it could not bechallenged, in their Lordships’ view, on the ground that it was notattested by two or more witnesses, as required by section 2 of the Preven-tion of Frauds Ordinance. If the formalities required to constitute avalid trust relating to land are to be found in the Trusts Ordinance, thensection 5 sub-section 3 expressly provides that the rule that the trust mustbe executed in accordance with sub-section 1 is not to operate so as toeffectuate a fraud. If Natchiappa, in his lifetime, had repudiated thetrust upon which the property was conveyed to him, his conduct wouldhave been manifestly fraudulent and the executrix of his estate can be inno better position. She was no doubt entitled to require that the trustbe proved against her, who may have had no personal knowledge aboutthe matter, but, once the trust is established, it would be a fraud on herpart to ignore the trust and to retain the property for the estate. Theposition therefore is that as against the appellant it is not necessary thatthe trust set out in paragraph 7 of the plaint should be in writing and,if that is so, sections 91 and 92 of the Evidence Ordinance, which were somuch discussed in the Supreme Court, do not come into the picture. Thecontract made in 1930 was not reduced to the form of a document; onlypart of it was so reduced ; and the parol part of the contract was notrequired by law to be reduced to the form of a document.
On the third point argued, both the lower Courts held that there wasno intention on the part of the plaintiff to defraud any of his creditors,and their Lordships see no reason to differ from this conclusion. It wassuggested that both the lower Courts took the view that there was nointention to defraud the creditors because, in fact, no creditor wasdefrauded, but their Lordships do not think that this is a fair criticismof the judgments. Both Courts no doubt relied strongly on the fact thatall the unsecured creditors were paid in full as one of the circumstancesnegativing a suggestion of intention to defraud, but they also relied onother circumstances, particularly that the plaintiff had explained to theproctor of the largest of the unsecured creditors the arrangement which hehad made with Natchiappa.
For these reasons their Lordships will humbly advise His Majesty thatthis appeal be dismissed. The appellant must pay the costs of therespondent throughout.
VALLIYAMMAI ATCHI, Appellant, and ABDUL MAJEED, Respondent