EQUITY SAVES A MAN AND HIS RESIDENCIAL HOUSE- CONSTRUCTIVE TRUST SUPREME COURT RECENT JUDGMENT ARJUNA OBEYSEKERA J

 

The plaintiff sued the 1st and 2nd Defendants for a declaration of title to the subject matter of the action and ejectment of a landed property.
In the amended answer, the 2nd defendant admitted the execution of several deeds affecting the subject matter including one in favour of Odayan Kureishan, but claimed that Kureishan, the 1st defendant, and subsequently the plaintiff, came to hold the property in trust for him [ the 2nd Defendand]​​
 The main issue was whether the beneficial interest in the property had been transferred to Odayan Kureishan or if the property was being held in trust for the 2nd  defendant by Kureishan, the 1st defendant, and subsequently the plaintiff. Essentially, the court had to determine if these transactions were actual sales or just loans with the second defendant still owning the property.
 The District Court decided that the beneficial interest in the property had not been transferred to Odayan Kureishan. The court held that the property was being held in trust for the 2nd Defendant, by the 1st defendant and the plaintiff. Consequently, the court directed the plaintiff to transfer the property back to the 2nd defendant upon the payment of a sum of Rs. 110,000​​. 
In the Court of Appeal,  the judgment of the District Court was set aside, essentially overturning the District Court decision that the property was held in trust for the 2nd defendant.
Thereafter, an appeal was preferred to the Supreme Court by the substituted 2A defendant (the daughter of the original 2nd defendant). The Supreme Court allowed the appeal, thereby setting aside the judgment of the Court of Appeal, reinstating the judgment of the District Court.
Basis for the Supreme Court's Decision:
Constructive Trust: The Supreme Court found that the beneficial interest in the property was never intended to be transferred to Kureishan or subsequent transferees. Instead, the property was held in trust for the second defendant under Section 83 of the Trusts Ordinance.
Possession:
The SC noted that the 2nd Defendant had remained in possession of the property throughout all the transactions, strengthening the claim that all the dealings were meant as security against loan transaction than outright transfers.
 
Inadequate Consideration:
 The Supreme Court observed that the consideration mentioned in the deeds was significantly lower than the market value of the property, indicating that these transactions were not genuine sales but part of money lending arrangements.
 
Attendant Circumstances:
The Court evaluated the attendant circumstances and found them consistent with the existence of a constructive trust. These included the continuous possession by the 2nd defendant, the nature of dealings in the flavour of as money lending dealings and the involvement of the husband of the 1st defendant in facilitating these transactions.
 
Rejection of Plaintiff's Bona Fides: The Supreme Court found that the plaintiff was not a bona fide purchaser without notice of the trust, as he was aware of the 2nd defendant's possession and the true nature of the transactions.
The Supreme Court emphasized the need to carefully scrutinize the evidence and it upheld the finding of the DC that the property was held as a constructive trust.                    

Muttammah v. Thiyagarajah [62 NLR 559]:

This case was cited to support the principle that the provisions of the Prevention of Frauds Ordinance and Section 92 of the Evidence Ordinance do not bar parole evidence to prove a constructive trust. It emphasized that the terms of a transfer can be contradicted by evidence of attendant circumstances to show that the beneficial interest was not intended to be transferred.

Balasubramanium and Another v. Vellayar Krishnapillai and Another [(2012) 1 Sri LR 261]:

This case reiterated that parole evidence can be admitted to prove a constructive trust and that the transferor did not intend to transfer the beneficial interest in the property.

Dayawathie and Others v. Gunasekera and Another [(1991) 1 Sri LR 115]:

This case reconfirmed the proposition that parole evidence is admissible to establish a constructive trust despite the Prevention of Frauds Ordinance and Section 92 of the Evidence Ordinance.

Jude Fernando v. Malani Fernando and Another [(2017) 1 Sri LR 230]:

This case reiterated the principles regarding the admissibility of parole evidence to prove a constructive trust.

Senadheerage Chandrika Sudarshani v. Muthukuda Herath Mudiyanselage Gedara Somawathi [SC Appeal No. 173/2011; SC minutes of 6th April 2017]:

This decision highlighted the need for caution and scrutiny when applying Section 83 and determining whether a transferor intended to retain the beneficial interest in the property.

Watagodagedara Mallika Chandralatha v. Herath Mudiyanselage Punchi Banda and Another [SC Appeal No. 185/2015; SC minutes of 4th December 2017]:

This judgment emphasized the importance of meticulous examination of evidence when a constructive trust is claimed and to ascertain the intention of the parties involved.

Perera v. Fernando and Another [(2011) 2 Sri LR 192]:

This case supported the idea that subsequent transfers of property subject to a trust do not convey absolute title if the initial transfer was intended to be in trust.

Jayasooriya Kuranage Romold Dickson Sumithra Perera v. Jayasooriya Kuranage Padma Jenat Jasintha Perera and Others [SC Appeal 110/2018; SC minutes of 3rd April 2019]:

Discussed the implications of a constructive trust and how subsequent transfers should be treated.

Warnakulasuriyage Charlert Kusumawathi Kulasuriya v. Don Wimal Harischandra Gunathilaka [SC Appeal No. 157/2011; SC minutes of 4th April 2014]:

This judgment addresses the rights of transferees in good faith for valuable consideration without notice of the trust.

 

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