W. N. WILLIAM FERNANDO, Appellant (in Appeal No. 99), and N. ROSLYN COORAY,

046-NLR-NLR-V-59-W.-N.-WILLIAM-FERNANDO-Appellant-in-Appeal-No.-99-and-N.-ROSLYN-COORAY.pdf

K. D. db S1I*VA, J.—Fernando v. Cooray
100
1957 Present :Basnayake, C.J., Pulle, J., K. D. de Silva J.,
T. S. Fernando, J., and L. W. de Silva, A.J.
W.N. WILLIAM FERNANDO, Appellant {in Appeal No. 99),.and N. ROSLYN COORAY, Respondent ',
S. G. 99—D. G. Colombo, 6,639[L
H. W. H. SIRIWARDENA et al., Appellants (in AppealNo. 476), and TV. D. SARNELIS et al., Respondents
S. C. 476—D. G. Gampaha-, 3,604/G/D~ '
Vendor and ‘purchaser—Sale of tin movable property—Reservation of condition for re-conveyance—Parol evidence of a mortgage—Admissibility—Evidence Ordinance,ss. 21, 92 (provisos 1 qnd 6).
■7-
Held (Basxayaki-:, C.J., dissendhg), that hi tlio absence of any allegation offraud or trust, it is not open to a party, who conveys immovable property forvaluable consideration by a deed whichis ex facie a contract of sale but subjectto the reservation that he is entitled to re-purchasa it within a stipulated periodon the repayment of the consideration together with interest thereon, to leadparol evidence of surrounding circumstances to show that the transaction wasnot a sale but a mortgage. Such parol evidence, even if admitted without -objection, would oiTend the provisions of section 92 of the Evidence Ordinanceand cannot be acted upon.'
^A.PPEALS from a judgment of the District Court, Colombo, and ajudgment of the District Court, Gampaha. These two appeals were. referred to a Bench of five Judges under section 51 (1) of the CourtsOrdinance.-
H. IV. Jayewardene, Q.G., with G. T. Sameraioickreme, B. S. G. Ralioatteand N. R. M. Dahnontte, for plaintiff-appellant in Appeal No. 99.
E. B. W ikramana-yake, Q.G., with A. L. Jayasuriya, Colin Mendisand E. D. W ikramanayake, for the defendant-respondent in Appeal No. 99. "
A. 31. Ameeii, with 31. Hussein, for the plaintiffs-appellants in AppealNo. 476… .
(7. V. Ranaiuake, with A. Nagendra, for the 2nd and 3rd defendants-respondents in Appeal No. 476..-
•Cur. adv. vult.
.[The following judgment was delivered in Appeal No. 99 :—JNovember IS, 1957. IC. D. de Sxlva, J.—.." – . . ••'.
The plaintiff-appellant purchased the two small allotments of landwhich form the’ subject matter of this action on deed No. 407 datedNovember 3, 1941 (Dl) for a sum of Rs. 300. " By deed No. 2560 of August .
170
K. D. de 'SILVA, J.—Fernando v. Cooray
18, 1950 (PI) he sold and transferred the same to the defendant-respondentfor a consideration of Rs. 3,407/S7, subject to a condition, in the followingterms :—“ To have and to hold the said premises hereby sold and con-veyed with the rights and appurtenances unto the said vendee and herheirs, executors and administrators and assigns absolute^ forever subjecthowever to the condition that she shall reconvey the said premises to thevendor within two years from this date at the cost of the vendor if heshall repay to the vendee or her aforesaid the sum of Es. 3,407/87 to-gether with interest at 15% per annum from this date and until suchpa3*ment the vendor shall be in possession of the same. ”
The plaintiff having failed to pay the sum of Rs. 3,407/87 within thestipulated period which expired on August 18, 1952, the defendant enteredinto possession of the lands thereafter.
In his action which was instituted on September 16, 1952, the plaintiffalleged that he “ was always of the impression ’’ that the deed PI wasgiven as security for the sums of money borrowed by him from the defen-dant and he pleaded that this deed was really a document to secure therepayment of money. In the prayer, he asked, inter alia, that the deedPI be declared a security and not a transfer and that he be restored topossession of the lands.
The defendant in her answer averred that the deed PI ’was an outrighttransfer subject to the condition set out therein and that on the failureof the plaintiff to comply with that condition she lawfully entered intopossession of the lands.
The case proceeded to trial on several issues and the learned DistrictJudge held that the deed PI was an outright transfer subject to the vendor’sright to claim a re-conveyance within two 3rears on the pajunent of thestipulated sum. He also took the view, relying on the decision in Setuiva v.XJkku 1, that it was not open to the plaintiff to seek to vary the unambi-guous terms of the deed PI by attempting to show that it is somethingother than what it purports to be. Accordingly he dismissed the actionwith costs. This appeal is from that judgment. In view of the con-flicting decisions on the question of law which arises for determination 'in this case My Lord the Chief Justice has, in terms of section 51 (1) ofthe Courts Ordinance (Cap. 6), referred this appeal to a Bench of fiveJudges.
The main question for decision is whether the transaction relating toPI amounts merely to a security for money lent or whether it is a con-tract of sale of immovable property subject to a condition for re-conveyance. Sir. Jayewardene, for the appellant, submitted that it. was the former, while Mr. "YVikramanayake for the respondent, contendedthat it was the latter. If this deed created only a security for moneylent the document woidd be regarded as a mortgage and the equitj' ofredemption cannot be lost despite the time limit- laid down for the per-formance of the conditions—Sqminathan C'hefty v. Vanderpoorten2. But,
(1965) 66 N. L. It. 337.
(1932) 34 N. L. B. 2S7.
IC. D. de SILVA,- J.—Fernando v. Cooray
171
If it is a bill of sale subject to a condition, time is. of the essence of tbecontract and the condition must be performed within the stipula-ted period—de Silva v. de Silva.. 1
PI on the face of it purports to be a contract of sale subject to a con-dition. However, Mr. Jaj'ewardene argued that, no matter what label- the parties attached to a particular transaction, it was the duty of theCourt to scrutinize it carefully and ascertain its true nature. This viewfinds support from Grotius and Voet. Grotius expressed the view thatau agreement embodied in a written contract relating to two ships,although drawn up in the form of a sale was a transaction in the nature ofa pledge. 1 2'
Dealing with “ Disguised Pledge " Voet states, " Such a contract ofpledge, though it is sometimes cloaked by the contracting parties underthe title of purchase or of giving by way of payment, nevertheless doesnot on that account remain the less a pledge, when the accompanyingcircumstances prompt that view according to the opinion' of HugoGrotius. ” 3 * This principle has been acted upon by the Courts both,here and in South Africa. It was held in Zandberg v. Van Zyl4 thatregard should be had to the substance of the transaction and not to thedesignation that the parties attach to it. Innes J. who was one of thethree Judges who decided that case stated, “ Hot frequently, however,(either to secure some advantage which otherwise the law would not give,or to escape some disability which otherwise the law would impose),the parties to a .transaction endeavour to conceal its real character.They call it by a name, or give it shape, intended not to express but todisguise its true nature. And when a Court is asked to decide any rightsunder such an agreement, it can only do so by giving effect to what thetransaction really is; not what in form it purports to be. ” A similarview was expressed in Bhunja v. Khoja5. In de Silva v. de SilvaHearne J. adopted the same view.'
Mr. Wikramanayake conceded that it was the duty of the Court toascertain the true nature of the transaction'evidenced by the deed but hemaintained that for that purpose the Court was not entitled to go outsidethe document itself. He relied on the decision in Seluwa v. Ukku. 6Mr. Jayewardene submitted that case was wrongly decided and thatthe correct statement of law was as laid down in Palingu Mehika v.Mitdiyanse 7 which is a case decided by My Lord the Chief Justice whenhe was a Puisne Justice. Seluwa v. Ukku is a recent case decided byGratiaen J. and Sansoni J. Most of the relevant Ceylon cases on thisquestion have been referred to by Sansoni J. in his judgment in that case.
The facts in that case are as follows :—In the year 1929 the 1st defendantborrowed a sum of Ps! 700 from the 1st plaintiff on a mortgage bond.
In 1937 the 1st defendant sold the land in dispute and another land to the
1 (1937) 39 N. L. R. 169..
' – Opinion Fo. 74 of Opinions of Grotius—De Rruyn's Translation.
3 Voet Bk. 3, Title 7, Section 1—Cane's Translation, Vol. 3, page 34.
1910 A. D. 302.-
s-1937 F. L. R. 246.
(1955) 56 N.L.R. 337.
’ (1948) 50 F. L. R. 566.
lli
K. D. de SILVA, J.—Fernando v. Cooratf
1st plaintiff for a sum of Rs. 1,410 of -which Rs. 1,350 was set off againstthe principal and interest due on the mortgage and the balance was paidin cash. By a contemporaneous deed the 1st plaintiff agreed to retransferthe lands to the 1st defendant if she paid a sum of Rs. 1,410within a period of 5 years. The 1st defendant failed to comply with theterms of the agreement and the 1st plaintiff in 1949, gifted the land indispute to the 2nd plaintiff. In an action brought by the plaintiffs againstthe 1st defendant and 4 others for a declaration of title etc., the defen-dants pleaded that the deed of sale in favour of the 1st plaintiff thoughin form a transfer was in fact .a mortgage for the repayment of Rs. 1,410and that the 2nd plaintiff had no title to the laird. In support of thiscontention evidence, both oral and documentary, of the circumstancessurrounding the transaction of 1937 and the subsequent conduct ofthe parties was led by the defendants. After considering the numerousdecisions on the matter, Sansoni J. observed, “ If I may sum up theresult of the authorities I have referred to I would say that it is neveropen to a party who executes a conveyance which is unambiguously adeed of sale to lead parol evidence to show that it is a deed of mortgage.”In Palingu. Menika v. Mudiyan-se 1 which was decided before the lastmentioned case the relevant facts were the following :—Palingu Menikaand one Nadar on PI sold and transferred a land to Mudij'anse the plain-tiff for Rs. 75 reserving the right to re-purchase the same within a periodof three j'ears by payment of that sum together with interest. Nadarbecame'a party to that deed because on a prior deed P2 similar in termsto PI, Palingu Menika conveyed the same land to him. It was concededby Mudij^anse that even after the execution of PI Palingu Menika, byagreement, was allowed to remain in possession of the land. PalinguMenika failed to obtain a re-conveyance of the property within the sti-pulated period. Mudiyanse thereafter sued Palingu Menika and twoothers for a declaration of title and ejectment. The defendants pleadedthat PI related to a money lending transaction. The question whicharose for decision was whether the deed PI, in law, was a mortgage or atransfer with an undertaking to re-sell within a specified time. In deci-ding this question Basnayake J. observed, “ In order to determine thenature of the transaction the circumstances leading up to and surroundingthe execution of the document under consideration and the languageemployed therein ma3r all be taken into account. ” That observationwas based on the Privy Council decision in Saminalhan Chetly v. Vander-pooricn*. The learned Judge then proceeded to consider whether PIwas a conditional transfer and stated, “ PI is not the form in which apactum de retrovendendo 3 is expressed, for Voet says: ‘ Nearly allied to thepactum, commissorium is the pactum de retrovendendo, agreement for re- ‘purchase {or Jus Redimendi), the effect of which, when annexed to apurchase, is that the vendor may within or after a time fixed, or at anytime, redeem or take back the tiling sold, on restoring the same pricehe actually received for it, and not what may be the just price and equi-valent to the commodity at the time of the redemption, unless it has beenexpressly agreed otherwise’. ” The stipulation of interest and the reteh- .tion of possession by the vendor in that case were held to be circumstancesJ {1948) SO A'. L. Jl. SCO.* {1932) 34 N. L.R. 287.-
* Vocl, 13k. XVIII, Tit. Ill, Section 7.
K. D- dk SII-VA, J.—Fernando r. Cooray
173
M'hich went a long way to negative the claim that -PI was a past inn derctrovendendo. The plaintiff's evidence in cross-examination that moneywas “ borrowed ” on PI to pay Radar’s *' loan ” was taken into conside-ration in support of the view that the transaction evidenced by PI wasone between debtor and creditor. Sansoni J. in Setuica v. Ukku1 hasdisagreed with the view that oral evidence of a stipulation for paymentof interest and the retention of possession b3r the vendor was admissibleto negative the express terms of the deed. He probably held that viewbecause in his opinion the reception of that evidence would offend theprovisions of section 92 of the Evidence Ordinance.
In Saminathan v. Vanderpoorten- two deeds iSfos. 471 and 472 executedon the same day came up for consideration before their Lordships of thePrivy Council. The first deed was an out and out transfer of a largetract of land in favour of Vanderpoorten by a number of persons referredto as the Syndicate while the second deed, i.e., Ho. 472 was an agreementwhereby Vanderpoorten undertook to pay the profits from the land tothe members of the Syndicate pro rata. The plaintiffs alleged thatVanderpoorten was attempting to effect a fictitious sale fraudulently andin breach of trust. In the circumstances of that ease their Lordshipsheld that the transaction effected b3T the two deeds was the creation of asecurity for money advanced by Vanderpoorten which in certain eventsimposed upon him duties and obligations in the nature of trusts. That wasprobably the reason as was pointed out by Soertsz J. in I Vi jay a. i oar denev. Peris 3 that circumstances leading up to and surrounding the exe-cution of the two deeds were considered in construing those documents. *Aro fraud was alleged and no trust was pleaded either in Setuica- v. Ukkuor Palingu Menika- v. JMudii/rinseJ. Tn the instant case too no such pleaswere set up in appeal.
Mr. Jayewardene cited several Indian and English decisions whichsupport the view that it is open to the Courts to examine closely a deedwhich purports on the face of it to be a transfer to ascertain whether thetransaction evidenced by it is in. fact a contract of sale or a mortgage.One such case is Balkishen Das and others v. Legge 5 decided by the PrivyCouncil. In that case, two deeds, one an outright transfer of immovableproperty by Legge in favour of Balkishen Das and another and the otheran agreement by the vendees to re-convey the same property to Leggeon the payment of a stipulated sum within a specified period came up forconsideration. It was contended that the two deeds together consti-tuted a mortgage and oral evidence was led in support of that contention.Their Lordships held that section 92 of the Indian Evidence Act of 1872• must be complied with. That section is identical with section 92 of ourEvidence Ordinance. Lord Davey who delivered the judgment stated,.
‘c The case must therefore be decided on a consideration of the contentsof the documents themselves, with such extrinsic evidence of surroundingcircumstances as may be required to shew in what manner the languageof the document is related to existing facts. ” The extrinsic evidencereferred to above is evidence that is admissible under proviso 6of section 92…-
1 (7355) 56 JY. R. R 337.3 (7335) 37 N. R. R. 179.
•' (1932) 34N.R.R 2S7.* (1948) 50 S. R. R 566.
– 5 1S90, 27 Lrtixo Reports Indian Appeals 5$.
2*J. X. B CSO (12/57)' ‘
1 74
K. D. DE SILVA, J.—Fernanda v. Cooray
That under the Roman-Dutch 'Law the Court is entitled to ignore,the labelaudthe form that the parties give to a particular transactionevidencedb3r a deed and ascertain its substance and true nature is beyond-question. For that purpose the conduct of the parties and thesurrounding circumstances leading up to the transaction -would be rele-vant. But this right which springs from our common law has beenrestricted by statute law. That is section 93 of the Evidence Ordinance.Any evidence which a party is entitled to lead for the purpose of ascer-taining the true nature of the transaction must not offend the provisionsof section 92. Jividence which is forbidden by that section, even if ad-mitted without objection, cannot be acted upon. If the terms of thedeed are clear and unambiguous no evidence of the conduct of the partiesand the circumstances surrounding the transaction is admissible for thepurpose of construing the document. The intention of the parties hasto be gathered from the document itself. It is onty when there is anambiguity in the deed that evidence of conduct and surrounding cir-cumstances becomes admissible in terms of proviso 6 of section 92.
The terms of the deed PI in this case arc clear and unambiguous.It is an outright transfer of the premises to the defendant subject toan undertaking by her to re-convey the property if the sum ofRs. 3,407/ST with interest at 15 per cent, is paid to her by the plaintiffwithin a period of two years. Therefore time is of the essence of thecontract. On the expiry of the period of two years the defendant isrelieved of the undertaking to re-transfer the property. Ho extraneousevidence is necessary to construe this document.
ill-. Jayewaixlene’s fust submission that the Court is entitled toinquire into the transaction executed by the deed PI unfettered by therestrictions of section 92 is untenable. He made a second submissionthat even if section 92 is operative he was entitled to lead parol evidenceunder proviso 1 to show that what was paid to him on deed Pi was notthe purchase price but a loan and that what passed on that deed wasnot the dominium to the propel ^ but merely security. This propositionis clearly obnoxious to the main section because such evidence wouldhave the effect of contradicting the deed. The filial submission madeby Mr. Jayewardene was that even if section 92 applied there was nobar which prevented the Court from examining all the surrounding cir-cumstances for the sole purpose of ascertaining whether time was ofthe essence of the contract. Here again there is no purpose of examiningthe surrounding circumstances when this can be ascertained from thedocument itself..
Mr. Jayewardene also argued that the stipulation for the payment ofinterest in the deed PI was inconsistent with a pactum dc retroverulendo.Voet’s definition of this pactum reads, “ Allied to these agreements isthe agreement for selling back. By attaching tliis agreement to pur-chases it is arranged that the seller shall have the freedom to buy backor receive back the property within or after a definite time or at any-time on refunding the same price given not, unless it was expressly ot her-wiso agreed, a price which could seem at the time of buying back to be
K- D. de SILVA, J".—Fernando v. Gooray
. 175
just and suitable to the property. ,’1 Tins definition shews that it ispossible by agreement to fix a fair price at which the property is to bere-purchased. In the deed PI the vendor is entitled to obtain a re-conveyance within a period of two years on the payment of Es. 3.407/S7with interest at 15 per cent. I see no valid objection to fixing the priceat which the property is to be bought back in terms of interest. Such anagreement Mould, in my opinion, be more favourable than not to theoriginal vendor because if he decides to bujr back the property within amonth of his sale, for instance, the additional amount he has to pay wouldbo negligible.
In the attestation clause of PI it is stated that the sum of Es. 3,407/87M'hich forms the consideration Mas made up of the amounts due to the.vendee on the mortgage bonds D3, Do and D6 and a further sum of Its. 500paid in cash at the lime of the execution of the deed. It M as argued thatthis was evidence of a money lending transaction. I am unable toagree with that submission. The fact that existing mortgage debtsdue to the vendee formed the u-hole or part of the consideration on PIcannot alter the character of the deed.‘
In the case of Saverimutfu v. Tha-ngavelaulham 2, a case decided bythe Privy Council, the plaintiff sought to establish a trust by leading oralevidence. That oral evidence is admissible for the purpose of provinga trust is conceded. Their Lordships held that the oral agreement soughtto be proved in that case amounted not to a trust but to an agreement to' transfer immovable property which M ould be invalid as it contravenes theprovisions of section 2 of the Prevention of Frauds Ordinance. TheirLordships also held that the decision in Perera v. Fernando 3 sets outcorrectly the laMr of Ce3*lon. In that case it vras held that ndiere a persontransferred a land on a notarial deed which on the face of it is a sale itwas not open to the transferor to lead oral evidence to shon- that thetransaction was in fact a mortgage because such evidence comes u'ithinthe direct prohibition of section 92. It M as also held there that evidenceof subsequent conduct of parties was not admissible because “ conductcan only corroborate the oral evidence as .to the original agreement. ”
I wish to observe that in Palin'ju Menika v. Mmliyan^e 4 there is noindication that an objection M as taken to the reception of oral evidence.The effect of section 92 of the Evidence Ordinance also was notconsidered in that case..
In my view Seluica v. Ukku° was correctly decided. Accordingly Idismiss the appeal with costs. •
Perlle, J.—I agree '.
T.>S. Ficrxando, J.—I agree. .
! Voet Bk. X VIII, Title 3, Section 7—Clone's Translation.
’ z (1054) 55 X. L. B. 529.'
3 (1914) 17 X. L. R. 4S6. – '
* (194S) 50 X. L. R. 566. :
3 (1955) 56 X. B. R. 337.
176-L. W. dk SILVA, A. J.—Fernando v. Cooray
W. de Silva, A.J.—
I agree with my brother K. D. de Silva J. and wish to refer to two as-pects of. the case. Since the question for decision is whether the deedcreates a security for money lent or whether it-is a sale with an agree-ment for a re-purchase, the court lias to find out tiie substance of thetransaction and give effect to its findings. As stated by WHle on Mortgage,75, 7G : “ Each case must depend upon its own facts ; no general rulecan be propounded which can meet them all. ” But proof of a trans-action recognized by the Common Law is governed by the restrictiverequirements of the Evidence Ordinance. Since the deed is on the faceof it a sale subject to the vendor’s right to claim a icconve3rance withina specified time on payment of a stipulated sxirn, evidence forbidden bylaw (section 92 of the Evidence Ordinance) cannot be admitted to provethat the deed is a mortgage. I find it impossible to regard the deed as amortgage without substituting other suitable words for “ vendor, ”“ vendee, ”“ sold, assigned, transferred, ”“ sold and combed, ”
“ shall reconvey, ”—terms which do not have more than one meaningand which are used throughout the deed. The period of two years withinwhich the reconveyance has to be obtained cannot be treated as super-fluous. There is no rule of legally admissible exddence which permits aplain deed of sale like this to be transformed into a mortgage. Theplaintiff has not alleged fraud or the like. Learned Counsel for theappellant urged however that the intention of the parties must bogathered. The answer to this has been given by the Privy Council inChandra Nandi v Prashad Singh 1 :
“ In construing the terms of a deed, the question is not what theparties may have intended, but what is the meaning of the wordswhich they used. ”,.
Tho other matter to which I refer is the point pressed by learnedCounsel for tho appellant that the stipulation in the deed for the paymentof interest is very strong intrinsic evidence that the transactionis a mortgage, and that such a stipulation is alien from the ingredientsof a pactum de relrovendendo. He relied on Voet xviii—3—7. Por adetermination of this question, it is necessary to consider two passagesfrom this citation. The first passage is at the commencement of section 7and defines the pact. It is as follows :
“ est et vicinum lnsce pactum de retrovendendo, quod emtionibusadjecto id agitur, ut venditori liceat vel intra vel post certain tempusvel quandocunque rediruere seu recipcro rem, reddito pretio eodemquod datum est, non eo, quod tempore redemtionis justum ac reirespondens videri posset, nisi aliud nominatim actum sit. ”
" Tho agreement to resell has a closo resemblance to this (i.e. thepactum commissorium). When it is annexed to jmrchascs, the arrange-ment is to permit the vendor to repurchase or take back the propertywithin or after a fixed period of time or at any time upon a refund of
1 A. J. Ji. (1917) Privy Council 23.
AV. de SILVA, A.J.-—Fernando v. Cooratj
177
the price actually paid, and not, unless it has been expressly otherwiseagreed, a price which may appear at the time of the repurchase to b.ca just return for the property. ”
The second passage from section 7 relates to interest and profits and is asfollows:'
“ eaetenim uti solum pretium emtori offerendum est ad redemtionemfaciendam, non item usurae cjus ; eo quod venditor, in cujus gratiamredimendi jus pacto inductum fuit, nuliam vicleri potest inoram com-misisse ; ita nec emtor venditori redimenti ad medii temporis fructusrestituendos obstrictus est, sed tantum ad eos, qiii post moram, seuoblatum a venditore pretium, percepti sunt. ”-
.“ But as a tender lias to be made only of the price and not also
interest on it to the purchaser for the purpose of making the repurchasebecause the vendor, in whose favour the right of repurchase wasintroduced by the agreement, cannot be regarded as having made anydefault, so the purchaser is liable to make good to the repurchasingvendor not the profits of the intervening period but only those profitswhich have been appropriated after his own default or after the tenderof the price bj' the vendor. ”
Voet goes on to say that the result of a pactum de relrovendendo is anew sale rather than an invalidation of the previous sale. He does notappear to draw any distinction between movables and immovablesexcept for certain covenants which are necessary if they are to run withthe land..
The point to be noted in the first passage I have cited is this : by anexpress agreement annexed to the deed, the parties may fix the price ofrepurchase at a different figure which may appear at the time of therepurchase to be a just return for the property. The point in the secondpassage is the reason given why interest is not payable for the purposeof making the repurchase. This passage appears to me to mean that thereis no legal liability to pay interest in the absence of an agreement in thedeed. In other words, without an agreement to pay interest, there canbe no default. The word used by Voet for default is mora which (accodr-ing to Berwick’s note) was neeessaiy by Eoman Law, in the absence ofexpress contract, to render one liable for interest. It appears therefore,according to Voet, interest is not forbidden if provision for its' payment isembodied in the deed by the agreement of the parties.-
Having regard to both citations, I am of the opinion that the stipulationfor the payment of interest is in fact less onerous to the vendor. Ifhe exercises his option to repurchase within a short period after his trans-fer, his financial liability is bound to be considerabty less than on a cove-nant for the paj'ment of a lump sum the whole of which he would becomeLiable to pay irrespective of the period of time within which he may chooseto bu3r hack the propert3r. I therefore regard the provision for the pay-ment of interest as a lawful-method of arriving at an estimate of themarket price.."• ■ .
• The fact that the consideration in the deed is made up of sums of mone3rdue on certain mortgage bonds granted b3r the vendor together with a
173
13ASNAYAKE, C.J.—Fernando v. Cooray
cash payment made to him makes no difference to the substance of thetransaction. The former relationship of mortgagor and mortgagee is notcontinued in the deed merely because the interest was accumulated andutilized as consideration for the sale.
The appeal is accordingly dismissed with costs.
Basxayake, C.J.—
The question that arises for decision in this appeal, which has beenreferred to a Bench of five Judges on account of the conflict of decisionsof this Court, is whether the deed PI is a mortgage or a contract of salewith a condition for the reconveyance of the land by the vendee on thepayment of the purchase price with interest thereon at 15 per cent withintwo years from the date of its execution.
Briefly the relevant facts are as follows : The plaintiff was the ownerof the two allotments of land described in PI. They are adjoining allot-ments and are. about half an acre in extent. On 19th March 1950 theplaintiff borrowed Rs. 2,000 from the defendant on a mortgage of thoselands by Bond No. 2,4S9. On 30th April 1950 the plaintiff borrowed afurther sum of Rs. 200 from her on Bond No. 2,507. On 30th June 1950ho borrowed a still further sum of Rs. 500 on Bond No. 2,534. Whenthe plaintiff applied for still another loan of Rs. 500 the defendant said(these are her very words) : “ The plaintiff came and spoke to me aboutthe moneys that were due to me. I told him that I will not advancehim an3f more money on bonds and to execute a conditional transfer. ”The deed PI was then executed the consideration specified therein beingRs. 3,407/S7, the aggregate amount of all the loans given bjr the defendantto the plaintiff together with accrued interest.
It is common ground that an acre of land in this area is worth from.Rs. 10,000 to Rs. 12,000. At that rate the price of this land would workout to Rs. 5,000 to Rs. 6,000. But the plaintiff places a much highervalue on it—Rs. 25,000 to Rs. 30,000. He claims to have built a houseon this land for the construction of which he spent all the money heborrowed and more. It is a house with plastered cabook walls ; but witha cadjan roof. The plaintiff was in possession of the land till about18th August 1952, when he was forcibly ousted by the defendant who isin possession since and has improved it by building a large house thereoncosting about Rs. 15,000.
The plaintiff claims that PI is a mortgage ; the defendant denies itand states that it is a transfer with a condition to reconvey the land withinthe stipulated period on payment of the purchase price and interestat 15 per cent on it..
The learned District Judge has held in favour of the defendant. Thisappeal is from that decision. Before I.proceed to discuss the principlesof law applicable to this case I think it .will be useful if I were to set outbelow the material paragraphs of the deed Pi.
– N'
“ Know all men by these Presents that .Weerasangili NakathigcWilliam Fernando of Maharagama (hereinafter sometimes referred
BASXAYAKE, C.J.—Fernando v. Cooray
no
to as the said Vendor) for and in consideration of the sum of Rupeesthree thousand four hundred and seven – and cents eighty seven(Rs. 3.407/S7) of lawful money .of Ceylon well and truly paid to himby Xawalage Roslin Cooray of Maharagama (the receipt whereof I dohereby admit and acknowledge) granted bargained sold assignedtransferred and set over and do by these Presents grant bargain sellassign transfer and set over unto the said ISTawalage Roslin Cooray(hereinafter sometimes referred to as the Vendee) her heirs executorsadministrators and assigns the premises fullj' described in the Schedulehereunder written together with all and singular the rights ways ease-ments advantages servitudes and appurtenances whatsoever to-the.said premises belonging. . ’ …
“ To have and to hold the said premises hereby sold and conveyedwith the rights and appurtenances unto the said vendee her heirsexecutors and administrators' and assigns absolutely for ever subject,however t-o the condition that she shall reeonvey the said premises tothe vendor within two years from this date at the cost of the vendorif she shall repay to the vendee or her aforesaid with the sumof Rs. 3,I07/S7 together with interest at 15 per cent per annum fromthis date until such pajnuent the vendor shall be in possession of thesame. ….”
It is-settled law that no matter what name or title parties give to atransaction the Court will inquire into the substance of it and give legal.effect to what it finds it to be in truth and fact. Tin’s principle of lawis not of recent origin. It is expressed in the Roman Law maxim plusenim valet quod agilur, quam quod simulate concipitur (Code 4,22)—(That,which is done is of more avail than that whicli is pretended to be done.)Voet says 1 :“ An agreement of pledge, though it may be disguised as
a sale by the contracting parties; nevertheless remains a pledge wheneverthe surrounding circumstances point to this. ” It is almost a universalrule. In support of his contention learned' counsel for the appellantrelied on not only decisions of this Court 2 but also on decisions from the
1 VocC 13.7.1. Ganc's translation.
s Soinrisitr.de ram Chet I y v. Todd. 13 A'. L. li. 3G1 at 36S.
Per era v. Fernando, 17 Ar. L. 11. JSS.-
Adaieappa Chetty r. Karuppen. Chetly, 22 27. i. R. 417. -Don v. Don. 31 24. L. R. 73..
Fernando v. Feiris, 32 21. L. R. 25.-
Mohamad it v. Rathumah, 11 Law Recorder 4S.
W ijctcardcne v. Feiris, 37 21. L. R. 179.■ ■
de Silva, v. de Silva, 39 21. L. R. 169..
Longa v. 21anduica, 45 21. L. R. 12S.'
Sobana v. Mecra Lebbe, 5 C. L. J. 46.-
Thatnbipillai, v. Muthucumarasamy, 5S 27. L. R. 387.
Silva v. Aoysa, 5S 21. L. R. 303.
-4ppuhony v. Saiya 27ona, 46 27. L. R. 313.
Belgasicatte i>. Ukknbanda, 43 27. L. R. 281.
Dingiri 27aide v. Kirimenike, 67 21. L. R. 559.-.
Fenderlan v. Fenderlan, 50 21. L. R. 513..-
Ukku v. Dintuica, 1 S. O. C. 89.’.
Saveritnutlu v. Thangaveldutham, 55 21. L. R. 529 at 532 and 535.VaUiyamtnai A-lchi v. Andul Majeed, 48 27. L. R. 289. . .Abeywickrctne v. Carlo, 3 Lorenz 68..
Jayc-wardene on ^Mortgage, p. 15.'
Saminathan Chettiar v. Yander Foortcn, 34 27. L. R. 287 at 294.
iso
BASNAYAJCE, G'.J'.—Fernando v. Oooray
American1, English 2, South African3 and Indian4 Courts. Hencethough the parties may call their contract a conditional transfer or amortgage the Court'ivill determine its true nature. The practice of dis-guising a disposition granted by way of security for a loan as an absolutedisposition to a creditor is a very old one. The principle that a Courtmay look beyond the terms of the instrument to the real transaction andgive’ effect to the actual contract of the parties when a deed absolute inform is shown to be executed as a security for a loan of money is too well-established to admit of any dispute. The only question is what evidencemay the Court use in piercing the veil that shrouds the transaction."Section 92 of our Evidence Ordinance which enacts a rule of law, whichitself is one of universal application, excludes evidence of any oral agree-ment or statement as between the parties to an instrument, or theirrepresentatives in interest, for the purpose of contradicting, varying,adding to, or subtracting from its terms. I think it is now settled bj'several decisions of the Privy Council that oral evidence of the intentionof any party cannot be admitted for the purpose of ascertaining the trueintent of the parties or construing the deeds. Put it has been repeatedlystated in those self same decisions that it is open to the Court to decidethe question “ on a consideration of the contents of the documents them-selves, with such extrinsic evidence of surrounding circumstances-as may])e required to show iii what manner the language of the document isrelated to existing facts ” (Balkishett’s case). In the case of Raja BahadurNarasingerji Gyanagerji the Privy Council affirmed its decision in Bal-kishen’s case and proceeded -to decide the true meaning of the deed byexamining the surrounding circumstances. This view was reiterated inBaijnath Singh’s case where the Board said : “ Section 92 merely pres-cribes a rule of evidence ; it does not fetter the Courts’ power to arriveat the true meaning and effect of a transaction in the light of all thesurrounding circumstances ”. The law is that in examining a transactionsuch as the one before us the Court will not take into account the evidenceof the parties as to their intention so as to vary, add to or subtract from theterms of the instrument recording it, but will look into all the other evidenceof “surrounding circumstances”. This rule has been put into the followingsimple form by Wigmore 5 : “ When a jural act is embodied in a singlememorial, all other utterances of the parties on that topic are legallyjmmaterialfor the purpose of determining what arc the terms of this act.”
• 1 Peugh v. Davis (1ST7) 96 U. S. Supreme Court Ttej>orts 332-330, Bk 24 Lawyers'
' L'dn, 775.!
– Beckett v. Tower Assets Company, (1S91) 1 Q. B. G3S.
Trustee of O. Mellor v. Haas and another, (1003) 1 1C. B. 226, 1005 A. C. 102.Samuel v. Salmzn ct; Gluckstem Ltd. (1945) 2 All E. 12. 520.
'D'oods v. Wise, (1055) 1 All E. 12. 767.
Zandberg v. Va/i Zyl, 1010 A. D. 302 at 307 and 315.
If'ille on Mortgage, p. 76..
iCorniaa o*i Purchase and Sale m South Africa, pp. 16—IS.' .
Lee—Ini n duclion to Roman Dutch Laiu 187 (5th Edn.).'
Hanif-u i Kissa and another v. Paiz-un-Nissa and another 33 I. L. 12. Alla-habad p. 340.–__
Baijnath Singh v. llajee Vally HI chained Hajec Abba, (1925) A. I. 12. P. C. 75 'Bhngican Sahai v. Bhzgwan Din ct others (1890) 17 L. 12. I. A. 9S.
■ Raja Bahatlur Narasingerji Gyanagerji v. Raja Dhanarajagirji, (1924) A. I. R.
■ P. C. 226.-•'.
Balkishcn Das cb others v. Legge, (1S99) 27 L. R. I. A. 5S at 64.
Shah SMukhun Ball <fr others v.Baboo Shrct ICislicn Singh cO others (1S6S) 12 Moo.I. A. 157.
*, irigmot e * n Evidence, Pol. IN, s. 242-5.
BASXAYAKE, C.J.—Fcrtuimlo v. Coorat/
181
Having laid down this rule and having amplified and examined itshistorical development Wiginore goes on to say “ the intent of llae partiesmust be sought where always intent must be sought, namely in the con-duct and language of the parties and the surrounding circumstances.Tho document alone will not suffice
The view taken in Setinca v. Ukku 1 is in my opinion too rigid a viewof section 92 of the Evidence Ordinance and in my opinion introduces agreater restriction on parol evidence than is imposed by that section.
Having ascertained the nature of the evidence that may be looked atI shall now proceed to ascertain the tine nature of tho document PIby reference to it. The plaintiff had within the space of four months .in 1950 obtained tliree loans of Us. 2,000, Rs. 200, and Its. 500 fromthe defendant on primary, secondary, and tertiary mortgages of thelands affected by PI. The interest on these loans was 15 per cent andIS per cent if the interest was not paid timeously. The plaintiffapproached the defendant for a fourth loan of Rs. 500 when the defendantinformed him that no further " advances ” could be given except on a■' conditional transfer ”. The result was deed PI. The considerationmentioned therein is the total amount of the three loans plus the sumof Rs. 500 which the plaintiff sought to borrow and accrued interest upto the date of the execution of the deed. The deed states that the plain-tiff the vendor is to remain in possession. Both according to the plain-tiff, and the defendant's witness the headman, land in the locality inquestion is worth Rs. 10,000 to Rs. 12,000 per acre. In fact the plaintiff. places it as high as Rs. 25,000 to Rs. 30,000. Even taking the admittedfigure of Rs. 10,000 to Rs. 12,000, the land in question would be worthat least Rs. 5,000 as it is a little over half an acre in extent. There is afurther circumstance of the stipulation of 15 per cent interest, and thefact that the plaintiff improved the house on the land with the moneyhe borrowed and more. The defendant and his witness the headman donot concede that the house is as good and as large as the plaintiff says itwas (it has since been pulled down by the defendant) but they admitthat it was of cabook with walls plastered in lime with a eadjan roof.
To my mind all these circumstances negative the defendant’s claim thatthe transaction is a sale subject to the right of repurchase in two years.The transaction is not in reality a jHictum de retrovendendo although itendeavours to assume its garb. Voet saj s : “ Allied to these agree-ments is the agreement for selling back. By attaching this agreementto purchases it is arranged that the seller shall have freedom to buy backor receive back the property within or after a definite time or at anytime on refunding the same price as was given—not, unless it was ex-pressly otherwise agreed, a price which could seem at the time of thebuying back to be just and suitable to the property In the leading-case of Zandberg v. Van Zyl2 Eord ds Villiers C.J. observed :“It is :
quite true, as was remarked by Mr. Justice Hopley, that Voet (IS. 3.7 & 8)refers to the pne/ton de retrovendendo—by virtue of wliich it is agreedthat the seller shall have the right to repurchase a thing sold by him for
1 (1955) 56 N. L. li. 337.
3 1910 A.D. 30z.
1S2
K. D. uk S1LYA, J.—T-Siriicardena v. Sartielis
the same price "which ho has received—as being a usual and legal pact ;bub Voet appears to assume that, until the exercise of such right, thething would be in possession of the original purchaser. If the thingis allowed to remain in the possession of the seller, and it is manifestthat the real object of the parties was not to transfer the ownership tothe purchaser, but to secure the payment to him of a debt owing to himby- the seller, the obvious conclusion is that the intention of the partieswas to effect a pledge and not a sale. ” • The same view is expressed iiiVoet 13.7.1..
For the reasons I have given above, I would allow the appeal with costsand enter judgment for the plaintiff as prayed for with costs.
Appeal dismissed.
( The following judgment was delivered in Appeal No. 4/6-:— ]
November IS, 1957. K. D. jde Silva, J.—
This appeal has been referred to a Bench of five Judges by My Lordthe Chief Justice in terms of section 51 (1) of the Courts Ordinanco(Cap. 6).'
The plaintiffs-appellants by deed No. 6317 of March 27, 1953 (PI)convc3'ed for a consideration of Rs. 1,000 three allotments of land to the1st defendant in the following terms :—“…. have hereby
sold transferred assigned, set over and assured unto the said Wanni-aratehige Don Sarnelis Appuhamy the property described in the schedulehereto together with everything appertaining thereto, and having reservedthe right with us to effect a retransfer of the said property within a fullperiod of five years on payment of the said sum of Rupees one thousandtogether with the interest thereof at the rate of sixteen per centumper annum, at once. ” The 1st defendant by deed No. 7,SG3 of May 10,1950 (P2) sold and transferred the premises in question to the 2nd defend-ant who by deed No. 215S of February 15, 1953 (3D1) sold and trans-ferred ono of the lands dealt with on PI to the 3rd defendant. Theplaintiffs failed to pay the sum of Rs.' 1,000 with interest within fiveyears of the date of execution of the deed PI. They instituted thisaction on May G, 1953, seeking to redeem the lands conveyed on PI allegingthat the deed PI was in fact a mortgage though drawn up in the form of atransfer. The learned District Judge held that this deed was a sale withan agreement to retransfer and not a mortgage and dismissed the action.This appeal is from that judgment. No allegation of fraud or a claimbased on trust arises on this appeal.• .
Tlio question for determination on this appeal is wiiether it is open,to a party who conveys immovable property for valuable considerationby a deed which is exfa-ci,e a contract of sale bu t subject to the reservationthat lie is entitled to re-purchase i,t within a stipulated period on the re-payment of the consideration together with interest thereon, to lead parolevidence to show that t-he transaction was not a sale but a mortgage.
IC. D. OK SILVA, J.—Siriwardena v. Sarnsfi*
IS3
There is a long series of decisions on fclu's point. In Paling u. Menika v.Mudiyanse,1, -which was decided by a single judge, Basnaj-ake J. tookthe view that in. order to determine the nature of the transaction parolevidence relating to circumstances leading up to and surrounding theexecution of the document under consideration was admissible. InSeluwa v. Ukku 2 Gratiaen J. and Sansoni J. took the opposite view. Inthat case Sansoni J. observed, “ It is never open to a party who executesa conveyance which is unambiguously a deed of sale to lead parolevidence to show that it is a deed of mortgage.”.
In the matter of a document of thiB nature it 'is open to the Courtaccording to the Roman-Dutch Law to consider the substance and thetrue nature of the transaction ignoring the label that the parties haveattached to it in the document. That is the view held by Grotius in hisopinion No. 74 of Opinions of Grotius—De Bruyn’s Translation. Dealingwith ** Disguised Pledge ” Voet states, “ Such a contract of pledge, thoughit is sometimes cloaked by the contracting parties under the .title ofpurchase or of giving by wajT of payment, nevertheless does not on thataccount remain the less a pledge, when the accomp0.1131’ng circumstancesprompt that view, according to the opinion of Hugo Grotius ”. 1 * 3 * * * 7 Thatview has been followed by the Courts both in South Africa and Ceylon—Zandbcrg v. Van Zyl4 and de Silva v. de Silva. 5 In the latter caseHearne J. was, however, careful to observe that the true nature of thetransaction had to be ascertained b3r evidence that is legally admissible.
Although according to the common law it was open to a party to showthat what purported to be a sale on the face of the document was in facta mprtgage the provisions of section 92 of the Evidence Ordinance haveconsiderably restricted that right. Within the ambit of that sectiona party is entitled to exercise his common law right of showing the truenature of the transaction. In Perera v. Fernando 6 it was held that wherea person transferred a land on a notarial deed which on the face of it is asale it was not open to the transferor to lead oral evidence to show thatthe transaction was a mortgage in view of the provisions of section 92.
I11 the Indian case Balkishen Das v. Legge 7 the Privy Council took thesame view. Their Lordships of the Privy Council held in Saverimullu v.
Thangar elanIlium3 that the decision in Perera v. Fernando G sets outcorrectly the law of Ceylon on this question. The position, therefore,is that if the terms of the deed are clear and unambiguous no parol evi-dence can be led for the purpose of construing the document. Extra-neous evidence can be adduced only if there is an ambiguity in the termsof the deed. The terms of the deed PI which comes up for considerationon this appeal are clear. There is no ambiguity whatsoever in it."
It is'an outright transfer with a pactum de relrovendendo attached to it.The learned Counsel for the appellants relied on certain admissions made
1 (1943) SO N. Z. R. 566.–..
(.1955) 50 N. Z. It. 337.-
3 Voet 13k. 3, Title 7, Section 1—Gatie's Translation Vol. 3 page 54.
1910 A.D. 302.
3 (1937) 39 X. Z. It. 169.
(1914) 17 -V. Z. R. 4S6."
7 1S99 Zaw Reports Indian Appeals 5S.
'* (1954) 55 X. Z. It. 5-29.
1S4
BAS5CAYAKE, C. J.—-Siriuxirdene v- Sarnelis
by the 1st and 2nd defendants in the course of the trial. The 1st defen-dant admitted that the transaction evidenced by PI was a money lendingtransaction while the 2nd defendant stated that at the time of theexecution of P2 he was aware that PI represented a money lending trans-action. It was contended on behalf of the appellants that these admis-sions are admissible in evidence under section 21 of the Evidence Ordin-ance. ' I am unable to agree with that submission in view of the pro-visions of section 92. The receipt P3 too, is inadmissible because itwould have the effect of contradicting the deed. .
It was also submitted by the appellant’s Counsel that the stipulationof interest in P2 was inconsistent with the requirements of a pactum deretrovendendo. Put Voet’s definition of this pactum 1 shows that the' parties are permitted to fix by agreement at the time the contract isentered into, a higher price at which the property is to be bought back.There is nothing objectionable, in principle, to that higher price beingcalculated in terms of interest.
– The appeal therefore fails and I accordingly dismiss it with costs.'Pulle, J.—I agree. •
T. S. Fernando, J.—I agree.
L. W. i>e Silva, A.-J.—I agree.
Basnayake, C.J.—
The question that arises for decision on this appeal is whether the deedPL is a mortgage or a deed of sale subject to a condition to reconvey.The material portion of the deed is set out below.
“ Know all men by these Presents that we HandupathirennehclageChandra wat-hic Menike and husband Heenkcnda Mudalige WilmotHenry Siriwarclcna residents of Gampalia Pahalagama in the RaigamPattu of Alntlikuru Korale in consideration of the sum of RupeesOne thousand (Rs. 1,000) of lawful money of Ceylon well and trul}'paid to us by Wanniaratchigc Don Sarnclis Appuhamy of Orutota inthe Meda Pattu of Siyane Korale (the receipt whereof is hereby admittedand acknowledged by us) have hereby sold transferred assigned setover and Assured unto the said Warmiaratchige Don Sarnelis Appu-hamy the property described in the schedule hereto together witheverj-thing appertaining thereto, and having reserved the right with' us to effect a retransfer of the said property within a full period offive years on pajnnent of the said sum of Rupees One Thousand to-' get her with the interest thereof at the rate of sixteen per centum perannum at once (osnOc5). ”
Shortly the facts are as follows :—On 13th December 1917 the plain-tiffs who are husband and wife executed deed PI in favour of the 1stdefendant. On 2nd February 1949 the 1st plaintiff paid him Rs. 300
i Voet Bk. XVIII, Title 3, Section 7—Cane's Translation Vol. 3, page 296..
'S'lie. Queen v. Victor Pcrcro
1S5
and obtained a receipt P3. On 10th May 1050 the 1st defendant trans-ferred the lands dealt with in PI to the 2nd defendant who is theplaintiff’s nephew. The possession of the lands continued to bo in the1st plaintiff, deed PI nothvitlistanding. It is not seriously disputedthat the lands are worth many times more than the amoimt stated inPI. The village headman values them at about Rs; 8,000. The 1stand 2nd defendants do not deny that the deed though in forma conditional sale wasintended to serve as security for a loan of Rs. 1,000.In his evidence the 1st defendant admitted that he lent Rs. 1,000 onPI and accepts the position that PI was intended to be a mortgage.
I have stated my view of the law applicable to. a ease such as this inmy judgment in S. C. 99/D. C. Colombo Case No. 6,639 and it isunnecessary to repeat what I have said there. The circumstances whichare in evidence in my opinion clearly show that PI though in form asale is in fact meant to serve as security for the loan of Rs. 1,000.
The circumstances which I have in mind are :—
(а)the stipulation of interest,.
(б)the fact that possession continued to be in the plaintiff after the
execution of PI,
the wide disparity in the “ consideration ” stated in the deed andthe market value of the lands,
• (d) the fact that though both parties were agreed as to the termsof PIneither intended that it should operate as a sale,
the admitted payment of Rs. 300 by the plaintiff to the 1stdefendant. I
I am of opinion that the appeal should be allowed with costs andjudgment entered for the plaintiff as prayed for.'
Appeal dism issed.