constructive trust - synopsys of a presentation
TRUST - A presentation
786 GALLELAW
BLOGGER
[ many authorities cited in this
document have been hyperlinked by the blogger to save the precious time of the
reader]
"Constructive trust serves as the
guardian of the oppressed when the rigidity of written law hinders the pursuit
of justice. It embodies the flexibility and moral conscience of the legal
system, ensuring that equity prevails where legal technicalities may fall
short. By recognizing the rightful claims of those unjustly deprived,
constructive trust provides a path to fairness and restores balance, offering
hope and remedy to those wronged by the limitations of formal law." - GALLELAWBLOGGER
October 29, 2016
TRUST – synopsis of a
presentation made to the District Judges on 24.8.2002 by A W A Salam at the
auditorium of the Office of Judicial Service Commission presided over by
Justices Udalagama Director of SLJI and
Justice Kulathilaka
Consultant respectively.
Some of the decisions
discussed in the course of the presentation.
1. Gould
vs. Innasitamby 9 NLR 177: The court
held that the absence of a notarial instrument does not bar the enforcement of
a constructive trust, as the statute of frauds should not be used to perpetrate
fraud.
2. Sangaraoukka
vs. Kandiah (19 NLR 344): The
court recognized that a constructive trust arises when a person pays for
property but has the conveyance executed in another's name without their
knowledge..
3. Muniyandi Natchie vs. Jatanb (1988
(2) CALR 56): The court found that a constructive trust existed where the
plaintiffs, non-citizens at the time of purchase, had the deed written in the
name of a citizen to avoid taxation.
4. Thisa
Nona vs. Premadasa 1997 (1) SLR 169:
Discusses circumstances where a transfer of property was claimed to create a
trust due to the nature of the transaction being more akin to a loan.
5. Wijayaratne
vs. Somawathie 2002 (1) SLR 93: The
court held that the essential element of due execution is compliance with the
provisions of the Prevention of Frauds Ordinance, despite non-compliance with
the Notaries Ordinance.
6. Thamby
Lebbe vs. Jamaldeen 39 NLR 73: The court
held that an agreement not attested by a notary is enforceable if there is an
agreement constituting a constructive trust.
7. ValliyammaiAtchi
vs. Abdul Majeed 48 NLR 289: Recognized
the enforceability of an oral agreement to create a trust despite the lack of
notarial attestation.
8. Perera
vs. Perera 57 NLR 265: Discusses
the presumption of advancement and how it may be rebutted by proving the lack
of intention to transfer beneficial interest.
9. Fernando
vs. Thamel (47 NLR 297): The court
found that informal documents could prove a trust existed despite the lack of
formal notarial attestation.
10. EhiyaLebbe
vs.Majeed (48 NLR 357): The court
found a constructive trust existed and allowed non-notarial documents to prove
it, to prevent fraud.
11. Mohamed
vs. Abdul Gafoor (57 NLR 228): The
court recognized an agent as a constructive trustee, precluding them from
claiming the benefit of prescription.
12. Gunasekera
vs. Uyangodage 1987 (1) SLR 242: The
court held that parol evidence could not be used to establish a trust where the
terms of a deed are clear, emphasizing the importance of compliance with
formalities.
13. BernedetteVanlangenberg
vs. Hapuaratchige Anthony 1990
(1) SLR 190: The court emphasized the necessity of proving circumstances under
which a constructive trust is recognized under the Trust Ordinance.
14. Muthalibu
vs. Hameed 52 NLR 97: The court discussed
the presumption of advancement and the necessity of evidence to establish a
trust when a father or person in loco parentis purchases property in the name
of a child.
15. Ohlmus
vs Ohlmus (9 NLR 183):
Established that a constructive trust can arise to prevent fraud, even if the
fraud occurs after the initial transaction.
16. Setuwa
vs. Ukku 56 NLR 337: Emphasized
that parol evidence cannot convert a deed of sale into a mortgage unless it is
explicitly stated in the deed..
17. Thomas
vs. Fernando 57 NLR 521: Held that
consideration is an essential term in a contract of sale and that parol
evidence cannot be used to prove a transaction was not a sale.
18. Fernando
vs. Cooray 59 NLR 169: Held that in
the absence of fraud or trust, parol evidence cannot change the nature of a
deed of sale to that of a mortgage.
19. Muttammah
vs. Thiyagarajah 62 NLR 559: Discussed the
presumption of advancement and the conditions under which it can be rebutted..
20. Suppiah
vs. Situnayake 53 NLR 89: Held that a
written agreement could be revived only by another writing attested by a notary
as required by the Prevention of Frauds Ordinance.
21. Marikkar
vs. Lebbe 52 NLR 193: Recognized that
extrinsic oral evidence is admissible to establish a trust.
22. Thangavelauthan
vs. Saverimuttu 54 NLR 28: Held
that it was not open to the vendor to prove by parol evidence that a trust or mortgage
was created.
23. Saverimuttu
vs. Thangavelauthan 55 NLR 529: The
Privy Council emphasized caution in exceptions to the general rule requiring
notarially attested documents for transactions relating to immovable property.
24. Nadararaja
vs. Kanapathy 49 NLR 121: Held
that an oral agreement to hold land in trust was enforceable despite the lack
of notarial attestation.
25. VelupillaiSanmugam vs.
KathiraveluThambiayah 1987 (1) CALR 33: Discussed the creation of a
constructive trust under the Trusts Ordinance when a reconveyance agreement was
not fulfilled.
26. Lakshmanan
Chettiar vs. Muttiah Chettiar 50 NLR 337: Discussed the burden of proof in establishing fraud and
the exclusion of prescription in trust cases.
27. Lucia
Perera vs. Martin Perera 53 NLR 347:
Reinforced the principle that prescription cannot defeat a claim for trust
property.
28. Andiris
Punchihamy 24 NLR 203: Held
that a transfer made to defraud creditors can be challenged by the transferor's
heirs.
29. Hall
vs. Pelmadulla Valley Tea and Rubber Company Limited 28 NLR 422: Discussed the enforceability of contracts made with the
intent to defraud creditors.
30. Affefudeen
vs. Periyathamby 12 NLR 313: Addressed the
presumption of gift when a father purchases property in the name of his child.
In Perera
Vs David Appuhamy 6 NLR
236 at the request of A the father of B and C , Minors, D conveyed the
land B and C and delivered the deed to A. he leased the land to E for a
number of years. B arriving at majority, sold its share of the land to F. In
the action brought by F against E for the ejectment, Moncreiff J. held that as
A, the father of B, had no authority from B or the court to buy the land, the
deed in his favour conveyed no title to him but operated as a conveyance to A
himself, and that therefore A’s lease to E was good.
MOHAMED MARIKKAR VS IBRAHIM NAINA - 13 NLR 187 - The Plaintiff conveyed
a land to defendant to defraud third parties—No fraud effected—Action by
plaintiff for cancellation of deed. Plaintiff intending to defraud third
parties, by whom he expected that he would be sued in respect of a certain
land, executed without consideration a deed of conveyance, by which he
purported to transfer the land to one
Marikar Pulle. The contemplated fraud was not affected, as no action was
instituted by the third parties. Plaintiff then sued Marikar Pulle's
administrator for a declaration that the deed of conveyance was null and void.
Held, that plaintiff was entitled to succeed.
TRUST -
It is well-known that in
a developing society the proper application of the law of trust based on legal
principles and equitable consideration can play a vital role in the economic
development and proper dispensation of justice.
The law of trust as is
applied today in our country is a combination of equitable considerations mixed
with legal principles. It may not be sensible to go into the historical
background in which the law of trust came to be introduced into our legal
system because of the time restrain.
As you all know the very
first legislation enacted in field of Trust Law is the Trust
Ordinance of No.9 of 1917 which came into operation on 16th April 1918
and has been amended from time to time. The amendments made to the Trust
Ordnance todate are 4 in number. They are as follows.
1. Act
No.4 of 1918
2. Act No.1
of 1934
3. Act No.7
of 1968 and
4. Act No.30
of 1971
As the last amendment to
the Trust Ordinance has been made in the year 1971 the unofficial version of
the legislative enactment (The Brown book 1981 unofficial copy) carries a
consolidated version of the Trust Ordinance and therefore there is no need to look
up for the amendment separately.
The preamble to
the Ordinance reads that it is an ORDINACE TO DEFINE AND AMEND THE LAW RELATING
TO TRUST.
The preamble is
abundantly suggestive of the fact that the law of trust as was applicable in
England was applied by the English judges long prior to the introduction of the
Trust ordinance. That is why we find judgments touching upon the principles
relating law of trust even in cases decided prior to 16 April 1918 namely prior
to the introduction of the Ordinance.
Turning to the
classification of Trust let us straight away look at the type of Trusts the
modern law has recognized. They are:
1.
Statutory trusts
2.
Charitable trusts
3.
Express trusts, and
4.
Implied trusts (known as constructive trust or resulting trust)
There eleven chapters in
the Trust Ordinance and Chapter – IX – deals with Constructive Trusts – This
chapter contains fourteen Sections - that is from section 82 to 98.
As far as the
Preliminary chapter is concerned, section 2 plays an important role with
regard to the reception of English law in relation to matters. for which no
specific provisions are made, in the Trust Ordinance. So, the fundamental
principle we have to bear in mind, is that it is the English law,
as mentioned in section 2 of the Trust ordinance, which is
applicable as casus omisus in relation to matters governed by law of trust.
Section 2 of the Trust
Ordinance reads thus:
“All matters with
reference to any trust, or with reference to any obligation in the nature of a
trust arising or resulting by the implication or construction of law, for which
no specific provision is made in this or any other enactment, shall be determined
by the principles of equity for the time being in force in the High Court of
Justice in England.”
Even prior to the
enactment of the Trust Ordinance we have applied the Roman Dutch law of trust
to a certain extent. An example of this would be the application of the law of
fidei commission. The difference between trust and fidei commission is this. According
to the law of trust, the ownership is nominally vested in the trustee,
but the beneficial enjoyment is vested in the beneficiary. However, under fidei
commission, property is given to a person (fiduciary) and on his death or on
the happening of a condition property passes to another person (fide
commissary) and may likewise devolve on successive fide
commissaries.
The question as to the
applicability of English law of trust as contemplated in section 2 was raised
in Ibrahim Saibo vs. The Oriental Bank Corporation (3 N.L.R. 148). It was a
case where the price for the purchase of certain land was paid by one Abbas,
but the name of the plaintiff Ibrahim Saibo was fraudulently entered in the
conveyance as the purchaser having paid the consideration. This was done so as
to conceal the true ownership from Abase’s creditors; The purchase was intended
to be for the benefit of Abbas. There was a secret understanding between
Abbas and Ibrahim Saibo that Ibrahim Saibo should convey the land to the
Abbas after Abbas should compound with his creditors.
The land was seized by
The Oriental Bank Corporation in satisfaction of a decree entered against
Abbas. Ibrahim Saibo sued the Oriental Bank Corporation for a declaration that
he is the owner. The court held, that, the plaintiff was not entitled to a declaration
of title to the land, nor to have them released from seizure under a writ sued
out by defendants as creditors of Abbas. The rationale behind the
decision was that Ibrahim Saibo was a party to the fraud with Abbas to defraud
the creditors and therefore not entitled to equitable relief.
The other instance where
English law has been applied reflects in the judgment of Muttalibu
Vs Hameed 52 NLR 97. In that case the father provided the consideration to
purchase a land in his son’s name. The father relied on section 84 of the Trust
Ordinance which provides that “where property is transferred to one person for
a consideration paid or provided by another person, and it appears that such
other person did not intend to pay or provide such consideration for the
benefit of the transferee, the transferee must hold the property for the
benefit of the person paying or providing the consideration”.
The son argued that the
English equitable doctrine of advancement modified the rule in section 84. What
is docrine of advancement. That is where the purchase money was paid by a
person in loco parentis (the father being in this position), and the transfer
was made into the name of one for whom he was bound to provide (the son in this
instance) a gift was presumed. It was held in this case by Dias SPJ that
it is a well settled principle of Equity, which is recognized by section 2 of
the Trusts Ordinance, that where a father or person in loco parentis purchases
property in the name of his child or wife there is a strong initial presumption
that such transfer was intended for the advancement of such child or wife, and
the provisions of section 84 of the Trusts Ordinance do not apply to such
transaction. The onus in such cases is, therefore, on the party seeking to
establish the trust to prove that fact. The son, therefore, did not hold the
land in trust for his father A. Fernando v. Fernando (1918) 20 N. L. R. 244 and
Ammal v.kangany (1910)
13 N. L. R. 65 approved and applied.
Dias SPJ said, “that the
doctrine of advancement is part of our law and placed beyond all question by
section 2” that “forms an exception to section 84”.
In Ceylon Export Ltd Vs Abeysundera 38 NLR 117 it was held that " All
matters with reference to any trust, or with reference to any obligation in the
nature of a trust arising or resulting by the implication or construction of
law, for which no specific provision is made in this or any other Ordinance
shall be determined by the principles of equity for the time being in force in
the High Court of Justice in England."
Ladies and gentlemen as you know well
the law of trust is a vast subject and it is practically impossible to discuss
the four main categories of trust. They are as follows…
1.
Statutory trusts
2.
Charitable trusts
3.
Express trusts, and
4.
Implied
trusts (known as constructive trust or resulting trust)
In our day to day work
the type of litigation we generally come across arises from what is commonly
known as “constructive trust”. Constructive trust would mean that it is not
expressed but the existence of the it is construed by law depending on the circumstances.
As I told you earlier constructive trust is also termed by some jurists as
implied trust.
In order to understand
the concept relating to constructive trust it is necessary that we advert
ourselves to the provisions of the evidence ordinance as contained in chapter
VII. Chapter VII of the evidence ordinance contains nine sections 91 to 99. Chapter
VII of the evidence ordinance is given the subtitle as of the exclusion of oral
evidence by documentary evidence. Let me for purpose of clarity refer to the
marginal note to these sections.
91. Evidence of terms of
contracts , grants or other disposition of property reduced to the form of a
document
92.
Exclusion of oral agreement
93.
Exclusion of evidence to explain or amend ambiguous document.
Section 91 of the
evidence ordinance reads as follows.
91. When the terms of a
contract, or of a grant, or of any other disposition of property have been
reduced by or by consent of the parties to the form of a document, and in all
cases in which any matter is required by law to be reduced to the form of a
document, no evidence shall be given in proof of the terms of such contract,
Grant, or other disposition of property, or of such matter, except the document
itself, or secondary evidence of its contents in cases in which secondary
evidence is admissible under the provisions herein before contained.
Section 92 states that
once the terms of a contract, grant, disposition of property, or any matter
required by law to be documented have been established in accordance with
Section 91, no oral evidence is admissible to contradict, vary, add to, or
subtract from those written terms.
This principle is
designed to preserve the integrity and finality of written agreements by
ensuring that their terms cannot be altered by oral statements, thereby
protecting the written document as the definitive source of the parties'
agreement.
Proviso (1) to Section
92 of the Evidence Ordinance:
Any fact may be proved
which would invalidate any document, or which would entitle any person to any
decree or order relating thereto, such as fraud, intimidation, illegality, want
of due execution, want of capacity in any contracting party, the fact that it
is wrongly dated, want or failure of consideration, or mistake in fact or law.
Proviso (1) to Section
92 allows the proof of any fact that could invalidate a document or entitle a
person to a decree or order concerning that document. This includes, but is not
limited to, cases of fraud, intimidation, illegality, lack of proper execution,
incapacity of a contracting party, errors in dating, lack or failure of
consideration, or mistakes in fact or law.
This proviso ensures
that even though the terms of a document are protected from alteration by oral evidence,
the validity of the document itself can still be challenged on legitimate
grounds, ensuring fairness and justice.
Proviso (1)
Any fact may be proved
which would invalidate any document, or which would entitle any person to any
decree or order relating thereto, such as fraud, intimidation, illegality, want
of due execution, want of capacity in any, contracting party, the fact that it
is wrongly dated, want or failure of consideration, or mistake in fact of law.
Proviso (2)
The existence of any
separate oral agreement as to any matter on which a document is silent, and
which is not inconsistent with its terms, may be proved. In considering whether
or not this proviso applies, the court shall have regard to the degree of formality
of the document.
Proviso (3)
The existence of any
separate oral agreement constituting a condition precedent to the attaching of
any obligation under any such contract, grant, or disposition of property may
be proved.
Proviso
(4) The existence of any
distinct subsequent oral agreement to rescind or modify any such contract,
grant, or disposition of property may be proved, except in cases in which such
contract, grant, Or disposition of property is by law required to be in writing
or has been registered according to the law in force for the time being as to
the registration of documents.
Proviso
(5) Any usage or custom
by which incidents, not expressly mentioned in any contract, are usually
annexed to contracts of that description, may be proved. Provided that the
annexing of such incident would not be repugnant to, or inconsistent with, the
express terms of the contract.
Proviso
(6) Any fact may be
proved which shows in what manner the language of a document is related to
existing facts.
Examining Constructive
Trusts in the Context of Section 92 of the Evidence Ordinance
Section 92 of the
Evidence Ordinance establishes the principle that when the terms of a written
contract, grant, or other disposition of property are proven, no oral evidence
can be admitted contradicting, vary, add to, or subtract from those terms. This
provision safeguards the integrity of written documents by ensuring that their
terms remain unaltered by external, unwritten agreements. However, this
principle is not absolute, and there are exceptions, including the concept of
constructive trusts.
Constructive Trusts and
Section 92:
A constructive trust is
an equitable remedy imposed by the court to prevent unjust enrichment. It
arises when one party holds property under circumstances that it would be
inequitable for them to retain it. Constructive trusts can be particularly
relevant in situations where a deed or document is silent about a trust, but
the circumstances suggest that a trust should be inferred.
The Intersection with
Section 92:
Section 92 might seem to
preclude the introduction of any oral evidence to prove a trust if the deed or
document does not expressly mention it. However, this is not entirely the case.
Courts have recognized that Section 92 does not prevent the establishment of a
constructive trust in relation to a deed or document, even if that document is
silent about the existence of a trust. This is because constructive trusts do
not contradict or vary the terms of the document but instead impose an
equitable obligation based on the circumstances surrounding the transaction.
Legal Basis:
The rationale is
grounded in equity, which allows the court to look beyond the strict terms of a
document to prevent unjust enrichment and ensure fairness. Proviso (1) to
Section 92 explicitly allows proof of facts that could invalidate a document or
entitle a person to a decree, including issues like fraud, illegality, or
mistake. By analogy, a constructive trust can be established to prevent unjust
enrichment, thereby ensuring that one party does not unfairly benefit at the
expense of another, even if the document does not mention a trust.
Courts have consistently
upheld the view that Section 92 does not bar the recognition of constructive
trusts. For instance, if a party conveys property to another under
circumstances that suggest an understanding that the property is to be held for
the benefit of a third party, a constructive trust may be inferred, despite the
deed's silence on the matter.
In summary, while
Section 92 of the Evidence Ordinance generally protects the terms of a written
document from being altered by oral evidence, it does not preclude the proof of
a constructive trust. Courts can, and do, impose constructive trusts based on
equitable principles, ensuring that justice is served in cases where the strict
legal ownership does not reflect the true intentions or fairness of the
situation.
The trust Ord. chapter
IX lays down the circumstances and the guidelines as to when a constructive
trust can be said to have been created. In terms of section 82 an
obligation in the nature of a trust referred to in the ordinance as a " constructive
trust" is created in the cases set out in that chapter.
Constructive trust created by purchasing a property in
another’s name.
(a)
Constructive or Implied
Trusts:
When a person acquires
title to a property using funds provided by another individual, the legal
principle of constructive or implied trust may come into play. The underlying
concept is that the person who furnishes the consideration (the true owner) is regarded
as the actual owner of the property, even if the title is in someone else's
name.
(b) Constructive or Implied Trusts:
A constructive or
implied trust arises when property is acquired in the name of one person, but
the consideration for the purchase is provided by another. The law recognizes
that the true owner (the person who paid for the property) has an equitable
interest in it. This situation often arises in cases where conveyances are
executed in another's name with the understanding or agreement that the
property will ultimately belong to the true owner.
( c ) Legal Rights and
Remedies:
In such cases, the true
owner can bring an action based on a constructive or implied trust to assert his
right of ownership. The courts may impose a constructive trust to reflect the
true ownership and prevent unjust enrichment of the nominal titleholder. This
legal remedy ensures that the individual who paid for the property is
recognized as the rightful owner, even if the title is not in his name.
(c)
Admissibility of Parole
Evidence:
One of the key
considerations in these cases is the admissibility of parole evidence (oral or
extrinsic evidence) under the provisions of the Evidence Ordinance despite the
stringent provisions requiring the notarial execution of certain types of
acquisition of property under the
Prevention of Frauds Ordinance. While Section 92 of the Evidence Ordinance
generally restricts the admission of oral evidence to contradict, vary, add to,
or subtract from the terms of a written document, exceptions exist for
situations involving constructive or implied trusts.
Exceptions and
Limitations:
The courts have
recognized that parole evidence can be introduced to a certain extent to
establish the existence of a constructive or implied trust without violating
the provisions of the Evidence Ordinance and the Prevention of Frauds
Ordinance. This evidence may include oral agreements, conduct, or other
circumstances that demonstrate the true intention of the parties involved.
However, such evidence must be carefully evaluated to ensure it does not
contradict the written terms of the conveyance but instead supports the
equitable remedy of a constructive trust.
In summary, when
property is purchased in one person's name with funds provided by another, the
true owner may bring an action based on constructive or implied trust to assert
his rights. Parole evidence is admissible within certain limits to prove the
existence of such a trust, ensuring that the true owner's equitable interest is
protected. This legal framework allows courts to ensure justice and prevent
unjust enrichment while respecting the provisions of the Evidence Ordinance and
the Prevention of Frauds Ordinance.
In the case of Gould vs. Innasitamby 9 NLR 177 the plaintiff, Gould, wished to
purchase a particular piece of land but chose to do so in the name of his
servant, Innasitamby, who was the defendant in this case. Gould provided the
money for the purchase, and Innasitamby, both before and after the transaction,
promised to convey the land to Gould when requested. However, instead of
fulfilling this promise, Innasitamby claimed the land as his own. Consequently,
Gould initiated legal action to obtain the bills of sale, plans, and other documents
and for a declaration that Innasitamby held the land in trust for him as his
agent. Gould further sought to have the title transferred to his own name.
The central legal issue
in this case was whether Gould could maintain his action given that there was
no notarial instrument embodying the transaction, as required by Section 2 of
the Prevention of Frauds Ordinance. This section mandates that any transaction
relating to immovable property must be in a notarially executed instrument
signed by the parties or their authorized agents.
District Court Judgment:
The District Court
dismissed Gould's action, siding with Innasitamby. The court held that in the
absence of a notarial instrument, the transaction could not be legally
recognized, and therefore, Gould was debarred from maintaining the action.
Supreme Court Ruling:
On appeal, the Supreme
Court overturned the District Court decision. The Supreme Court ruled in favor
of Gould, holding that despite the absence of a notarial instrument, Gould was
entitled to the relief sought.
Middleton J., delivering
the judgment, emphasized that the statute of frauds, as enshrined in the
Prevention of Frauds Ordinance, should not be allowed to be used as an
instrument to perpetrate and cover a fraud. The court recognized that although
the transaction was not embodied in a notarial instrument, the circumstances of
the case, where the defendant had promised to transfer the property and
subsequently attempted to claim it as his own, warranted equitable
intervention. The court directed that judgment be entered in favor of Gould,
recognizing his rightful claim to the property.
The case of Gould vs.
Innasitamby highlights the principle that statutory requirements, such as those
in the Prevention of Frauds Ordinance, should not be applied in a manner that
allows a party to commit fraud. The Supreme Court's decision affirms that equity
can intervene to ensure justice is served, particularly when one party has
acted in bad faith. The judgment emphasizes that the law should not be used to
shield a fraudulent behavior and that the true intent of the parties should be
honoured, even in the absence of formal documentation.
In Sangaraoukka vs. Kandiah (19 NLR 344) the plaintiff,
"A", entered into an agreement to purchase land from "B".
After paying the purchase money, "A", anticipating potential
litigation, decided to have the conveyance executed in the name of
"C" without informing "C" beforehand. Subsequently,
"A" informed "C" about the deed, and "C" accepted
it, agreeing to transfer the land to "A" whenever requested.
The primary legal issue
was whether "C" held the land in trust for "A", and whether
"A" could maintain an action to compel "C" to transfer the
land or, if "C" had transferred the land to another, to recover its
value.
Justice Shaw ruled that
"C" did indeed hold the land in trust for "A". The court
found that "A" was the true owner of the property, having paid for
it, and "C" was merely holding the title on behalf of "A".
As such, "A" could maintain an action to compel "C" to
transfer the land back to him or recover its value if the land had been
conveyed to someone else.
This case illustrates
the concept of a constructive trust, where the legal titleholder is recognized
as holding the property on behalf of the true owner. The court emphasized that
"C", by accepting the deed and agreeing to transfer the property when
requested, acknowledged the trust and the equitable interest of "A".
The case of f Muniyandi
Natchie vs. Jatanb (1988 (2) CALR 56) is significant for several reasons,
particularly in the context of trust law, property law, and the interplay
between statutory provisions and equitable principles. Here are the key points
of importance:
1. Recognition of Constructive Trusts:
The case underscores the
court's willingness to recognize and enforce constructive trusts, even when the
legal title to the property is held by someone other than the person who
provided the purchase money. This recognition is crucial in situations where
the nominal titleholder is holding the property for the true owner, who
provided the consideration for its purchase.
2. Interplay Between Equity and Statutory Law:
The case highlights the
complex relationship between equitable principles, such as constructive trusts,
and statutory provisions, particularly the Trusts Ordinance and the Finance Act
No. 11 of 1963. The plaintiffs were able to successfully argue for the
enforcement of a trust despite potential conflicts with statutory law intended
to regulate property ownership by non-citizens.
3. Circumvention of Statutory Restrictions:
The case is significant
in illustrating how parties sometimes structure transactions to circumvent
statutory restrictions—in this instance, the requirement that non-citizens pay
a 100% tax on property purchases. The court had to carefully navigate whether
such circumvention was permissible under trust law and whether the trust’s
purpose was lawful.
4. Application of Section 4(1) of the Trusts
Ordinance:
The case provides a
practical application of Section 4(1) of the Trusts Ordinance, which sets out
the conditions under which a trust can be considered lawful. The court had to
consider whether the trust in favor of the plaintiffs, created to avoid paying
a higher tax as non-citizens, was lawful or if it violated the provisions of
the Finance Act.
5. Precedent on Trusts and Unlawful Purposes:
The case serves as an
important precedent on how courts may approach trusts that are alleged to have
been created for an unlawful purpose. The judgment reinforced that while equity
seeks to prevent unjust enrichment, it must not be used to achieve purposes
that contravene statutory law or public policy.
6. Judicial Balancing of Equity and Law:
The case is also notable
for demonstrating how courts balance the equitable principles that favor the
recognition of trusts with the need to uphold the integrity of statutory law.
It shows that courts are careful to ensure that while they enforce equitable
rights, they do not do so in a way that encourages or condones the evasion of
statutory obligations.
7. Protection of True Ownership:
Finally, the case
emphasizes the court's role in protecting the true ownership of property,
especially in situations where the legal title may have been placed in
another's name for reasons such as avoiding potential legal issues or financial
penalties. The court’s decision to enforce the constructive trust upheld the
plaintiffs' rights as the true owners who provided the consideration for the
property.
In summary, Muniyandi
Natchie vs. Jatanb is an important case that illustrates the judiciary's
approach to constructive trusts, the limitations imposed by statutory law, and
the circumstances under which courts will enforce equitable remedies to protect
the true intentions and rights of the parties involved.
Muniyandi Natchie vs.
Jatanb (1988 (2) CALR 56)
In Muniyandi Natchie vs.
Jatanb, the plaintiffs sought to purchase property sold through the Estate
Fragmentation Board. However, at the time of the purchase, they were
non-citizens of Sri Lanka, awaiting the finalization of their citizenship
applications. Under the Finance Act No. 11 of 1963, non-citizens were required
to pay a 100% tax on property purchases. To circumvent this, the plaintiffs had
the deed written in the name of their sister, the defendant, who was a Sri
Lankan citizen. After obtaining citizenship, the plaintiffs filed an action
seeking a declaration that the defendant held the property in trust for them
and for the transfer of the title to their names.
The main legal issue was
whether the plaintiffs could establish a trust in their favor, despite the
conveyance being in the defendant’s name, and whether such a trust was lawful
under the Trusts Ordinance and the Finance Act.
The trial judge found in
favor of the plaintiffs, determining that they had indeed provided the
consideration for the purchase of the property, rejecting the defendant's claim
that she bought the property with her own money. However, the defendant's counsel
argued that the trust was void under Section 98 of the Trusts Ordinance, as it
was created in evasion of Section 51(1) of the Finance Act.
A trust may only be
created for a lawful purpose. A purpose is unlawful if it is forbidden by law,
defeats the provisions of any law, is fraudulent, causes injury to others, or
is deemed immoral or against public policy.
The court had to
determine whether the trust was created for an unlawful purpose, given that the
transaction was structured to avoid the tax imposed on non-citizens by the
Finance Act. This case presents a complex intersection between trust law and
statutory provisions intended to regulate property ownership and taxation by
non-citizens. While the plaintiffs successfully argued that the property was
held in trust for them, the court had to navigate the implications of the
trust’s purpose in light of the relevant legal restrictions.
Both Sangaraoukka vs.
Kandiah and Muniyandi Natchie vs. Jatanbhighlight the legal complexities
surrounding constructive and implied trusts, particularly when the trust is
established to circumvent statutory provisions. The courts in these cases
recognized the plaintiffs’ equitable interests in the properties, despite the
legal title being in another’s name.
However, these cases
also illustrate the potential conflicts between equitable principles and
statutory law. While constructive trusts are typically imposed to prevent
unjust enrichment and to reflect the true intentions of the parties, the courts
must also consider whether the trust’s purpose is consistent with statutory
requirements and public policy.
In the context of the
Prevention of Frauds Ordinance and the Trusts Ordinance, the courts have shown
that they will not allow statutory provisions to be used as tools to perpetrate
fraud or unjust enrichment. Nevertheless, they remain vigilant to ensure that
trusts are not employed to evade the law or achieve unlawful purposes.
These cases demonstarate
the importance of equitable principles in addressing situations where formal
legal documents do not accurately reflect the true ownership of property, while
also balancing the need to uphold the rule of law and statutory regulations.
“A” agreed to buy a land
from B and paid the purchase money, but, fearing some litigation, obtained a
conveyance in the name of C without C’s knowledge. “A” informed C subsequently
of the execution of the deed in C’s favour, and C accepted it, and agreed to
transfer the land to A whenever called upon. Justice Show held that C held the
land in trust for A, and that A could maintain an action for a conveyance for
the land from C, or if C had parted with the land to recover its value.
In Muniyandi Natchie Vs.
Jatanb (1988 (2) CALR 56) the plaintiffs desired to own property that was sold
through the Estate Fragmentation Board. They were both persons whose
applications for citizenship in Sri Lanka were being finalized by the
Registering Authorities of the State. Thus, they were non-citizens at the time
of the sale. Under the Finance Act No.11 of 1963, they were required to pay
100% tax if they purchased the property as non-citizens. In order to overcome this,
they paid the purchase price for the land and had the deed written in the name
of the defendant who was their sister and a citizen of Sri Lanka. After they
became citizens, they filed this action for a declaration that the defendant
holds his property in trust and for the transfer of the title to the
plaintiffs. Defendant’s claim that she had bought the property out of her
money, was totally rejected by the trial judge, who found that the plaintiffs
had provided the consideration for the purchase. However, counsel for the
defendant contended that section 98 of the Trust Ordinance read
with section 4(1) of the same ordinance would prevent the creation of such a
trust in so far as the transfer of property was in evasion of section 51 (1) of
the finance act. Section 4 (1) states that, a trust may be created for any
lawful purpose. The purpose of a trust is lawful unless it is (a)
forbidden by law, or (b) is of such a nature that if permitted, it would defeat
the provisions of any law or (c) is fraudulently or (d) involves or implies
injury to persons or property of another or (e) the court regard it as immoral
or opposed to public policy.
The relevant provisions
of the finance act do not impose a prohibition on the transfer of lands to the
class of persons to whom the plaintiff belonged. Section 58 (1) read with
section 59 of the Finance Act impose a tax and empower the Commissioner of Inland
Revenue and recover any underpaid tax from anyone from whom it has become due.
If the plaintiffs are found to be noncitizens at the time of the re-transfer of
the land, then the obligation casts on such transferees to pay the 100% tax
could not be evaded. The breach of a revenue law has not been within the
contemplation of section 4 (1) of the Trust Ordinance. It is the prohibition by
law or the immortality or objectionable nature in regard to public policy that
has been considered in assessing this matter – Palkitrner J held that a
constructive trust exists under section 84 of the Trust Ordinance in favour of
the plaintiffs.
The same question came
up recently for determination in the Supreme Court in SC Appeal 82/2009 -
SC (HC) CALA 35/2009 before a bench presided over by Dr Shirani A
Bandaranayaka J (as her ladyship was then). At the time when the author
made this presentation the judgment had not been reported. Fortunately, the
judgment has now found it’s way into the Sri Lanka Law Report and the reference
is Sri Lanka Law Reports 2011 - Volume 2 , Page No – 340.
The facts in the case of
Saroja Nisansala V. Aberfoyle were identical in some way to the facts in
Muniyandi’s case. The appellant Saroja Nisansala had been in Dubai where she
had been working in several houses on an hourly basis and had stayed at the
plaintiff John Laurances’s house. In lieu of rent she had helped to clean the
garden of Laurance for two hours. Nisansala submitted that, during that period
Laurance had a close intimacy with her. When she returned to Sri Lanka,
Laurance purchased a house. It was gifted to her. Nisansala submitted that the
Laurance had purchased the said land for her benefit.
The position of Laurance
was that he purchased it in the name of Nisansala to avoid the 100% on the deed
as he is foreigner and that he intended to form a company and then have it
transferred in the name of the company. Significantly, Nisansala had given a
letter P2 undertaking to transfer it to the company to be formed or to a
nominee of Laurance. It is on the basis of this document P2 Laurance claimed
that Nisansala was holding the property in trust for him. It was strenuously
submitted that the case of Muniyandi has been wrongly decided.
The questions that came
up for determination were whether Lawrence could ( Plaintiff) in the
circumstances of the case, plead a constructive trust and the trust alleged by
the plaintiff (Lawrence) contrary to the provisions in sections 4(1) and 98 of
the Trusts Ordinance. Considering the judgments in Muniyandi’s case and certain
other authorities the supreme court affirmed the decision of the Provincial
Civil appellate court and endorsed the view that the circumstances are no bar
to claim a constructive trust.
In this case, the legal
framework primarily involved the Trusts Ordinance and the Finance Act. Section
4(1) of the Trusts Ordinance permits the creation of a trust for any lawful
purpose, while Section 98 protects the rights of bona fide purchasers. Under
the Finance Act, Sections 58(A) and 59 provide for the recovery of taxes deemed
to be in default, emphasizing the legal consequences of non-payment. The
principle of "In pari delicto potior est conditio defendentis"
(where both parties are equally at fault, the defendant's position is stronger)
was also relevant in this context.
These questions brought
into focus whether the purchase of property by a third party, allegedly to help
a foreigner evade a 100% tax on the sale, could legally establish a
constructive trust under the relevant sections of the Trusts Ordinance.
The Court found no
evidence indicating that the transaction in question was for an unlawful
purpose under Section 4(1) of the Trusts Ordinance. Hence, the legitimacy of
the transaction, as per the Trusts Ordinance, was upheld. Further, according to
Section 58(1) of the Finance Act, when read together with Section 59, the law
imposes a tax obligation and grants the Commissioner of Inland Revenue the
authority to recover taxes from those who default on payment. In the
circumstances, the Court determined that the Plaintiff was justified in
pleading a constructive trust. Furthermore, the trust claimed was not in
violation of Sections 4(1) and 98 of the Trusts Ordinance, affirming the legal
validity of the Plaintiff-Respondent's position.
The Court also noted
that when both parties share an unlawful intention, it does not necessarily
preclude the possibility of restitution. Thus, the mere presence of an unlawful
intention does not automatically bar the Plaintiff-Respondent from seeking
relief.
pari delicto potior est conditio
defendentis.
The Latin phrase "In
pari delicto potior est conditio defendentis" translated would mean "In
a case of equal fault, the position of the defendant is stronger." This
legal principle is often applied in cases where both parties involved in a
transaction or agreement are equally at fault or have engaged in wrongdoing.
In Pari Delicto refers to situations where both
parties are equally at fault or have participated in some form of illegal or
unethical conduct. For example, if two parties enter into an illegal contract,
both are considered to be "in pari delicto" because they have
both engaged in the wrongful act.
Potior Est Conditio
Defendentis means that, when both
parties are equally culpable, the law will generally favour the defendant. The
rationale behind this principle is that courts should not assist a party who is
equally at fault or complicit in the wrongdoing.
In practice, this
principle means that if two parties are equally responsible for a wrongful act
or illegal transaction, the court is less likely to grant relief to either
party. For instance, if both parties to a contract are attempting to enforce an
illegal agreement, the court may refuse to enforce the contract and leave the
parties as they are, essentially favouring the defendant who resists the enforcement.
The purpose of this
principle is to discourage illegal or unethical behavior by ensuring that
neither party benefits from their wrongdoing. By refusing to intervene in cases
where both parties are equally at fault, the law aims to uphold justice and
maintain the integrity of legal proceedings.
In summary, "In
pari delicto potior est conditio defendentis" is a legal doctrine that
denies relief to a plaintiff who is equally at fault with the defendant,
thereby favoring the defendant's position in the dispute.
Section 4(1) of the
Trusts Ordinance explicitly states that a trust may be created for any lawful
purpose. The ordinance also specifies the unlawful purposes that would prohibit
the creation of a trust. In the case of Saroja, the appellant argued that the
intent to evade the 100% tax on the land transaction clearly reveals the
plaintiff-respondent's objective. However, the Court held that an unlawful
intention alone does not render a contract illegal.
Addressing the issue of
unlawful intentions, Prof. G.L. Peiris, in his work Some Aspects of the Law of
Unjust Enrichment in South Africa and Ceylon (pp. 72-73), highlights a
significant development in modern law. He notes that:
“An unlawful intention,
bilaterally entertained, is no longer an absolute bar to restitution. This
principle was acknowledged in South African law in 1939 in the case of, Jajbhay
v Cassim where Chief Justice Stratford stated that 'the rule expressed in
the maxim in pari delicto potior est conditio
defendentis is not one that can or ought to be applied in all cases... It
is subject to exceptions which must be identified in each case by considering
the principle of public policy.
The principle of both
parties being guilty of unlawful intention bilaterally entered has been
considered in the recent case of The Minister of Police v Underwriters at Lloyds of London (Case no 1212/19) [2021] ZASCA 72 (8
June 2021) where the principle enunciated in the case of Jajbhay
v Cassim has been authoritatively reaffirmed by Goosen AJA (Wallis and
Makgoka JJA and Kgoele and Phatshoane AJJA concurring)
In the judgment, the
principle "in pari delicto potior est conditio defendentis" (which
means "where both parties are equally at fault, the position of the
defendant is stronger") was discussed, and the court acknowledged that it
is not always applicable. This is because the maxim, while intended to prevent
the enforcement of illegal or immoral contracts, has exceptions that the courts
must consider preventing injustice or promote public policy.
The judgment in Jajbhay
v Cassim (1939), is considered a landmark case where it recognized that the
strict application of the maxim could sometimes lead to unjust outcomes. In
such cases, the courts have the discretion to refuse to enforce the maxim if
doing so would result in an unfair or inequitable situation. The judgment
highlighted that the maxim should not be rigidly enforced if it would encourage
or allow the perpetration of fraud, illegality, or immorality, especially when
public policy or fairness dictates otherwise.
Therefore, the
importance of the above judgment lies in its acknowledgment that while the
principle "in pari delicto" aims to discourage illegal or immoral
actions by denying judicial relief to parties equally at fault, it is not
absolute. Courts can, and should, deviate from this principle when necessary to
prevent injustice or when public policy considerations warrant a different
outcome. This ensures that the legal system remains fair and just, even when
dealing with cases involving wrongdoing by both parties.
Justice Watermeyer added
that 'the principle underlying the general rule is that the Courts will
discourage illegal transactions, but the exceptions demonstrate that where it
is necessary to prevent injustice or to promote public policy, they will not
rigidly enforce the rule.' This perspective has been authoritatively accepted
as applicable to the law of Ceylon."
Constructive trusts created on the
ground of frauds.
When a person holds a
property with a purpose of defrauding the beneficiary of it, the beneficiary is
entitled to bring in action for a declaration that the property is subject to a
constructive trust in his favour and to recover the same. It is necessary
to prove that there should have been a fraud at the very inception of the
transaction, it is sufficient if it arises subsequently. This
principle was followed in Ohlmus
vs Ohlmus (9 NLR 183).
In Andiris Punchihamy 24 NLR 203, (1922) the facts involved a dispute over land
ownership. Dines, the original owner of the land, executed a deed of sale in
favor of the plaintiff on December 8, 1916. The plaintiff claimed ownership and
sought a declaration of title and ejectment of the defendant, who was Dines'
widow and had taken possession of the land after Dines' death.
The defendant admitted
the transfer but argued that Dines received no consideration for the deed and
that it was executed in trust with the intent to defraud Dines' creditors.
Justice Ennis found that the deed was executed by Dines with the intent to defraud
his creditors and that the plaintiff was complicit in this semi-fraudulent
transaction.
The court ruled that the
defendant had been in possession of the land since Dines' death and that no
consideration had passed for the deed. The court dismissed the plaintiff's
appeal, holding that the plaintiff could not enrich himself at the expense of
the defendant, who was in possession of the land.
It was argued on behalf
of the plaintiff who sought declaration and ejectment of Dines’s widow that
only a creditor who has been defrauded can maintain an action to set aside a
deed. However, the court noted that this case did not consider an earlier
relevant case and rejected that argument.
The earlier case cited
by the court applied the English Equitable Doctrine to soften the rigors of
Roman-Dutch law. The doctrine allows for equitable relief even in situations
where the strict application of Roman-Dutch law would deny it. [ see Mohamadu Marikar v. Ibrahim Naina]
This established that
under Roman-Dutch law, a person who conveys property with the intention to
defraud is not entitled to relief. However, it also emphasized that no person
can unjustly enrich themselves at the expense of another, merging Roman-Dutch and
English equitable principles.
Equitable Doctrine
The court applied the
English Equitable Doctrine to prevent unjust enrichment, even in cases where
the strict application of Roman-Dutch law would otherwise deny relief.
Fraudulent Intent and Trust: The case emphasized that deeds executed with the
intent to defraud creditors are not entitled to legal enforcement, particularly
when the plaintiff seeks to unjustly benefit from such a transaction.
The court ultimately
upheld the defendant's position, dismissing the appeal and reinforcing the
importance of equitable principles in preventing unjust enrichment.
In Hall
Vs. Pelmadulla Valley Tea and Rubber Company Limited (28 NLR 422) by
a notarial contract, the added defendant after reciting that he had agreed to
sell 1,000 acres of land to the defendant company, bound himself to give effect
to that agreement and to deduce a good and valid title. In pursuance of the
agreement the company was placed in position of certain blocks of lands which
forms the subject matter of the present action. The plaintiff, with
notice of the said agreement, purchased the land has sought to eject the
company therefrom. The Court held that the contract was an existing
enforceable contract within the meaning of Section 93 of the Trust Ordinance
and that the plaintiff was bound to hold the property for the benefit of the
company to the extent necessary to give effect to the contract. The
proviso to Section 93 of the Trust Ordinance does not prevent the application
of the Section to contracts affecting immovable property, which are not
required by law to be registered. section 93
In Thidoris
Perera vs. Eliza Nona 50 NLR 176 by an agreement duly registered, first and
second defendants agreed to sell to the plaintiff within three months of the
final decree in a partition action then pending the divided lot that would be
allotted to them in the final decree. They however sold this lot to the third
defendant. In an action by the plaintiff for specific performance of the
agreement, it was held that the agreement was an existing contract within the
meaning of section 93 of the Trust Ordinance and that specific performance
could be enforced.
In De Silva vs. Senaratne
50 NLR 313 first to seven defendants agreed
to transfer to the plaintiff the lot allotted to them by the final decree in a
partition action. The agreement was registered. It was further stipulated that
if the defendants failed to effect the transfer within the one month of the decree,
they were to pay to the plaintiff a certain sum of money. The defendants failed
to convey the land to the plaintiff but in breach of the agreement conveyed it
to the 8th defendant. The defendants claimed the right to pay the stipulated
sum of money in lieu of performance of the agreement. It was held that the
defendant had no right of election. And held further, that in the absence of
the evidence that the plaintiff had waived his right to specific performance,
the contract was an existing contract and that the 8th defendant having notice
of the agreement was in terms of section 93 of the Trust Ordinance under
obligation to convey the land to the plaintiff.
In Mohamed
vs. Abdul Gafoor (57 NLR 228) plaintiff was a minor and lived with his
elder sister. Each of them was entitled to a half share of the business of a
Tea Factory. Defendant, who was the husband of the sister, of his own accord
undertook to manage the business on behalf of the plaintiff and conducted the
entire business. Fernando J. held that.
1.
Under section 90, read with section 82 of the Trusts ordinance the defendant
was a constructive trustee as an agent who stood in fiduciary relation to the
plaintiff and, accordingly, held the half share of the business for the benefit
of the plaintiff.
2.
Inasmuch as a person in the position of an agent is generally treated by
English law as an express trustee, the provisions of section 111(5)of the
Trusts Ordinance precluded the defendant from pleading the benefit of the
Prescription Ordinance.
In Fernando vs. Thamel
(47 NLR 297) by notarial deed the plaintiff conveyed a land to the defendants.
On the same day the defendant gave the plaintiffs an informal document by which
he undertook to give a re-transfer of the land within a period of three years
on payment of a certain sum. There were circumstances tending to show that the
transfer of the land was to be in trust and establishing fraud on the part of
the defendant. It was proved that no money was paid by the defendant on the day
of transfer, that he merely undertook to free the property from a mortgage
which it was subjected to, that the plaintiffs were reluctant to grant the
transfer and only did so on an agreement to retransfer and that there was gross
disparity between the price and the value of the property. Court held that the
informal document was admissible to prove that the defendant held the property
in trust for the plaintiff. It was further held that informal document was not
admissible under proviso (3) to section 92 of the Evidence Ordinance.
In EhiyaLebbe vs.Majeed
(48 NLR 357) plaintiff on P1 of 1943 conveyed a certain land to the defendant.
On the same day by P2 a non-notarial document , the defendant agreed to
re-convey the land to the plaintiff on payment of the sum of 250/= within
two years. The defendant refused to retransfer on tender of the money within
the time. The Commissioner found on the facts that when plaintiff executed P1
it was never in the contemplation of either party that the defendant was to
hold the property as absolute owner but only till plaintiff’s debt to the
defendant 250/= was repaid. Dias J. held that in the circumstances the
defendant was a trustee for the plaintiff in terms of section 83 of the Trusts
Ordinance. It was held further that, to shut out the non-notarial document P2
would be to enable the defendant to effectuate a fraud and that section 5(3) of
the Trusts Ordinance would apply. Section 5(3) provides that the rules
provided in Section 5(1) and 5(2) of the trust Ord.
Nadararaja Vs Kanapathy
49 NLR 121 by deed P1, notarially attested, plaintiff’s mother since dead and
the co-plaintiffs transferred certain lands to the first defendant. These lands
were subjected to mortgage decrees in favour of the second and third defendants.
The consideration for the transfer was the amount due on the decrees. There was
an oral agreement between the parties that the first defendant was to
re-transfer the lands on payment to him within a reasonable time of the amount
due on the mortgage decrees which he had undertaken to settle and that he
should hold the land in trust till then. It was held that, the agreement was
enforceable at law although it was not notarially attested. To hold otherwise
would allow the statute of Frauds to be used as a protection or vehicle
for frauds. ValliyammaiAtchi vs. Abdul Majeed 48 NLR 289 followed.
In VelupillaiSanmugam
vs. KathiraveluThambiayah 1987(1) CALR 33 the defendants sold the property in
question, 1964 by deed P1, to two persons, subject to an agreement to reconvey
if a sum of 5,000/=was paid by the defendants to transferees within two years.
The defendants remained in possession. In 1970 by deed P2 the transferees under
deed P1 sold the property to the plaintiffs. When the plaintiff brought an
action to evict the defendants from possession, the defendants argued that they
had duly paid the sum of 5,000/= within the stipulated time, and that since the
transferees under deed P1 failed to reconvey the property as agreed they held
the property subject to a constructive trust under the section 93 of the Trusts
Ordinance. They also argued that the transfer under P2 was affected to defeat
their interest in the land and that the plaintiff too should hold the property
on trust. The District Court rejected the contention of the defendants that the
agreed sum of money was duly paid to the transferees under deed P1 ad upheld
the plaintiff’s right to possession of the property. On appeal to the Court of
Appeal; Goonawardena J. held that,
1.the defendant’s
objection must fail on the ground that the condition for reconveyance, namely
payment of 5,000/= was not fulfilled by them.
2. even had the money
been duly paid by the defendants, the plaintiffs cannot be said to have bought
the property with notice of a constructive trust in their favour. In the
instant case if prior to the execution of P2 in 1970 the plaintiff searched the
registration of the transfer P1, it would have led him to the document P1
itself and upon its terms he would have observed that the period of two years
stipulated therein had long passed without a re-conveyance having been obtained
and it would not in my view be reasonable or possible to say that he should
have had notice of any existing contract affecting the property to which the
privilege of section 93 have been attracted… Therefore even if the contract to
reconvey was existing at the time of execution of P2 and was capable of being
specifically enforced to my mind the plaintiff must be deemed to have had no
notice of it inasmuch as an examination of the registration entries leading up
to P1 would not have revealed it; and even if there had been actual knowledge
of any such existing contract which the plaintiff had gathered aliunde, to my
mind such knowledge would be irrelevant and of no value for the purpose of
attracting the privileges granted by section 93.
Loco Parentis
When a person purchases
a property or invests money in the name of another, the property or investment
is deemed to be held on trust for the purchaser or the person who invests. But
where the purchaser is the father or is a person standing in loco parentis to
the person in whose name the property is purchased, then the transaction does
not amount to a trust, but is presumed to be a gift to the child.
This principle has been
followed by the English law without any variation. For example, Gray vs. Gray
1677(2) Swan 594, Bennett vs Bennett 1879(1) Ch.D.474 and Commissioner of
Stamps vs. Byrnes 1911 A.C386.
In Bennett vs Bennette a mother Ann Bennet, wanted to help
her son who was in some financial difficulty. Consequently, she gave Philip
Bennet £300 in the way of a loan. Unfortunately, the son still went bankrupt
and could not pay his debts. The trustee in bankruptcy tried to claim what was
left of his money.
The mother argued that
there could not be a presumption of advancement, as she had only loaned her son
the money and this sum of £300 should be returned to her. The issue in this
case was whether there was a presumption of advancement between the mother and
son or if the money was held on a resulting trust for the mother.
The court held that
based on the evidence presented in this case there was no presumption of
advancement between Ann Bennet and Philip Bennet. The money she had given his
son was a loan to help him deal with his financial troubles. In addition, the
courts stated that in equity, there was no presumption of advancement between
mother and her child, as there was no moral obligation for a mother to provide
for her child. This could only be a father or a male figure. Thus, the court
upheld Ann Bennet’s claim and the £300 sum was held on a resulting trust for
the mother.
The principle is the
same under the Roman Dutch law. In Rangahamy vs. Bastian Vedara; a 2 NLR 3 60
when the first plaintiff was a small child her father, the defendant, many
years ago bought a piece of land in her name, for which he had paid the
consideration. The daughter's position was that he thought he was going to die,
and he wanted to provide for his daughter in case he should die. He had no
intention of parting with the land during his lifetime. Withers J. cited
Voet and held that the defendant became the owner of the land, because he had
no mandate from his daughter nominate the as the purchaser. (Voet 18.1.8)
In Perera Vs David Appuhamy
6 NLR 236 at the request of A the father of B and C , Minors, D conveyed the
land B and C and delivered the deed to A. he leased the land to E for a
number of years. B arriving at majority, sold its share of the land to F. In
the action brought by F against E for the ejectment, Moncreiff J. held that as
A, the father of B, had no authority from B or the court to buy the land, the
deed in his favour conveyed no title to him but operated as a conveyance to A
himself, and that therefore A’s lease to E was good.
Similar question arose
in Affefudeen vs. Periyathamby 12 NLR 313. It was a case where a person paid
his own money for the land and got his daughter's name inserted in the deed as
purchaser, the daughter became the owner of the property, where the transaction
was in effect a donation not a sale. This principle has been recognized in
South Africa too. i.e Elliot’s trustee versus Elliott 1845 3 menz 86.
This presumption is
rebuttable and only evidence of the intention of the parties at the time of or
contemporaneous with transaction is admissible. But subsequent acts or
expression on the part of the parent will Not convert it into a trust.
Bertram CJ in Fernando
versus Fernando 20 NLR 244 concluded that when property is bought in the name
of one person with money of another, there is a presumption of a resulting
trust in favour of the person who provides the money. This presumption does not
arise where property is bought by father or another person in loco parentis in
the name of the child in such a case strong presumption arises that it was
intended to be a gift to the child such a presumption (of gift) does not
necessarily arise in the case of a mother, but only when she has placed
herself in loco parentis within a special legal sense, that is when
she had assumed an obligation to provide the child very little evidence
is wanted to establish that the mother stands in loco parentis. The presumption
of gift in favour of the child can be displaced by the evidence of the
intention of the parties. In order that the person who is put to election (of
his rights under a Will) should be concluded by it, two things are necessary.
1.a full knowledge of
the inconsistent rights and of the necessity of electing between them;
2 an intention to elect
manifested either expressly or by acts which imply choice and acquiescence.
where property was
bought by a mother in the name of her son, it was held in the circumstances of
this case, that the son held it in trust for the mother and that, even if it
was in the nature of the gift to the Son, he had elected under the mother's will
to treat it as the mother's property.
In Muthalibu vs. Hameed
52 NLR 97 A, an Indian Muslim domiciled in Ceylon for 50 years, provided
the consideration to 4 vendors B, C , D and E who thereupon
transferred by deed property to F , was the son of A. A and F having fallen out,
A sued F for a declaration that F held the property in trust for A or for
a declaration that the four properties or the consideration for the four
transfers were gift to F by A was entitled to revoke the gifts.
It was sought to be
argued, in view of the decisions of the privy Council in GopeekristGosain vs.
Gungapersaud Gosain (1954 6 Moore’s Indian appeals 53 and Moulvie SayyudUzhur
Ali vs. Mussumat Beebee Ultaf Fatima 1869 (13) Moor’s Indian Appeals 232, that
the usage in India known as Benami transactions applied to this case and that
therefore F held the lands or the consideration as a trustee for his father A.
Dias J. held that there was no proof that the usage in India known as Benami
transactions applied to this case and that, therefore, F held the lands or the
consideration as a trustee for his father A. Dias J. held that there was no
proof that the usage in India known as Benami transactions had been introduced
into Ceylon. The Mohammedan law which prevails in Ceylon is so much, and no
more of it, as has received the sanction of custom or usage in Ceylon, Abdul Rahi
man vs. Usdan Umma 19 NLR 175 followed.
It was further decided
that is a well settled principle of equity, which is recognized by section 2 of
the Trusts Ordinance, that where a father or person in loco parentis purchases
property in the name of his child or wife there is a strong initial presumption
that such transfer was intended for the advancement of such child or wife, and
the provisions of section 84 of the Trusts Ordinance do not apply to such
transaction. The onus in such cases is, therefore, on the party seeking to
establish the trust to prove that fact, therefore, did not hold the lands or
the consideration in trust for his father A. Fernando vs. Fernando 20N:LR 244
and Ammal vs. Kangany 13 NLR 65 approved and applied. The transactions could
not be regarded as donations either of the lands or of the consideration given
by A. Affefudeen vs. Periatamby 12 NLR 313 dissented from.
In Perera vs. Perera 57
NLR 265Gratiaen J. said that if a person transfers property to another to
whom he stands in loco parentis there is a presumption of advancement, so that
a resulting trust under section 84 of the Trusts Ordinance does not arise in
favour of the transferor. But, under section 83 of the Trusts Ordinance the
presumption of advancement may be rebutted by proof that the transferor did not
intend to dispose of the beneficial interest in the property unconditionally to
the transferee. Plaintiffs had deposited a total sum of 5,000/= in favour of
their younger sister, the defendant, in the Post Office, Savings Bank. Although
the account in the post office, savings bank was in the name of the defendant,
the bank passbook was retained by the eldest brother (the 1st plaintiff). The
attendant circumstances showed that the beneficial interest in the money was
intended to be “given as dowry” to the defendant only if and when she would be
“given in marriage” to a bridegroom approved by the family. Defendant, however,
soon after she attained her majority, eloped with and married a man of her own
selection without the approval of her parents or her brothers. Gratiaen J. held
that when the defendant contracted a marriage without the approval of her family,
she became disentitled to receive the sum of 5,000/=. The money, therefore,
belonged to the plaintiffs.
Admissibility of parole
evidence with reference to section 2 of the Prevention of Frauds Ordinance and
sections 91 and 92 of the Evidence Ordinance.
Section 2 of the
Prevention of Frauds Ordinance No.7 of 1840 stipulates the necessary
requirements to be complied with, in respect of any sale, purchase, transfer,
assignment or mortgage of land or other immovable properties. If any person who
enters into such a contract fails to adhere such provisions, such transaction
cannot be enforced in law. Section 2 of the Ordinance reads thus:
“No sale, purchase,
transfer, assignment, or mortgage of land or other immovable property, and no
promise, bargain, contract or agreement for effecting any such object, or for
establishing any security, interest or encumbrances 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 of any
land or other immovable property, and no notice, given under provisions of the
Thesawalamai Pre-emption Ordinance, of an intention or proposal to sell any
undivided share or interest in land held in joint or common ownership, shall be
of force or avail in law unless the same shall be in writing and signed by the
party making the same, or by some person lawfully authorized by him or her in
the presence of a licensed notary public and two or more witnesses present at
the same time, and unless the execution of such writing, deed or instrument be
duly attested by such notary and witnesses.”
In addition to that
section 91 of the Evidence Ordinance requires that with the terms of a
contract, or of a grant, or of any other disposition of property has been
reduced through a form of document no evidence shall be given in proof of the
terms of such contract. It reads thus:
“When the terms of a
contract, or of a grant or of any other disposition of property have been
reduced by or by consent of the parties to the form of a document, and in all
cases in which any matter is required by law to be reduced to the form of a
document, no evidence shall be given in proof of the terms of such contract,
grant, or other disposition of property or of such matter, except the document
itself, or secondary evidence of its contents in cases in which secondary
evidence is admissible under the provisions herein before contained.”
Section 92 of the
Evidence Ordinance further makes provisions for exclusion of evidence of oral
agreement for the purpose of contradicting, varying, adding to, or subtracting
from its terms. Section 92 reads to say:
“When the terms of any
such contract, grant, or other disposition of property or any matter required
by law to be reduced to the form of a document, have been proved according to
the last section, no evidence of any oral agreement or statement shall be
admitted as between the parties to any such instrument, or their
representatives in interest, for the purpose of contradicting, varying, adding
to or subtracting from its terms.
Proviso (1) Any fact may
be proved which would invalidate any document, or which would entitle any
person to any decree or order relating thereto, such as fraud, intimidation,
illegality, want of due execution, want of capacity in any contracting party, the
fact that it is wrongly dated, want or failure of consideration, or is
take in fact or law.
Proviso (2) The
existence of any separate oral agreement as to any matter on which a document
is silent, and which is not inconsistent with its terms, may be proved. In
considering whether or not this proviso applies, the Court shall have regard to
the degree of formality of the document.
Proviso (3) the
existence of any separate oral agreement constituting a condition precedent to
the attaching of any obligation under any such contract, grant, or disposition
of property may be proved.
Proviso (4) The
existence of any distinct subsequent oral agreement to rescind or modify any
such contract, grant, or disposition of property may be proved, except in cases
in which such contract, grant or disposition of property is by law required to
be in writing, or has been registered according to the law in force for the
time being as to the registration of documents.
Proviso(5) Any usage or
custom, by which incidents, not expressly mentioned in any contract are usually
annexed to contracts of that description may be proved.
Provided that the
annexing of such incident would not be repugnant to, or inconsistent with
the express terms of the contract.
Proviso(6) Any fact may
be proved which shows in what manner the language of a document is related to
existing facts.
In order to create the
right of superficies, (jus superficiarum) it is necessary that there should be
a distinct agreement between the parties to that effect. In exceptional cases
such agreement may be inferred from the fact that the owner permits another to
build on his land. A jus superficiarum involves an interest in the land, and as
such cannot be created except by a notarial writing as required by section 2 of
the Ordinance No.7 of 1840. This principle was followed in Ahamado Natchia vs.
Muhamado Natchia 9 NLR 331.
In ThambyLebbe vs.
Jamaldeen 39 NLR 73 Hearne J. held that an agreement to give as dowry immovable
property to the value of 20,000/= or the equivalent in cash, which is not
notarially attested is enforceable. The words “ promise, bargain, contract or
agreement for effecting any such object” in section2(b) of the Ordinance of
Frauds refer to a means of and a stage in the formal effectuation of a sale,
purchase, transfer, assignment, or mortgage. It was held further that the cause
of action arose on the refusal to carry out the agreement and that the action
was not barred by section 8 of the Prescription Ordinance.
In ValliyammaiAtchi vs.
Abdul Majeed 48 NLR 289 M who was entitled inter alia to certain immovable
property of the value of over 460,000/- executed an unconditional notarial
transfer of these properties to N for a consideration of 203,256/-. It was
alleged by M that this transfer was in pursuance of a verbal agreement that N
was inter alia to hold the properties in trust for him; to pay out of the
income certain specified debts and interest to himself at 12 percent. On the
said sum of 203,256/=and to reconvey the properties to M on the liquidation of
the said sum of 203,256/- and interest. N died and his widow claimed to hold
the properties free of the trust. In an action by M for a declaration of trust
and consequential relief it was held that oral evidence was admissible to
establish the trust. The Privy Council held further, that the formalities
required to constitute a valid trust relating to land are to be found in
section 5 of the Trusts Ordinance and not in section 2 of the Prevention of
Frauds Ordinance; that the act of the widow in seeking to ignore the trust and
to retain the property for the estate was to effectuate a fraud; that,
therefore, under section 5(3) of the Trusts Ordinance even a writing was
unnecessary and sections 91 and 92 of the Evidence Ordinance had no
application.
In Noorul Hatchika vs.
Noor Hameem 51 NLR 134 Wijewardena CJ. Held that, an agreement to transfer
immovable property in consideration of marriage is governed by section 2 of the
Prevention of Frauds Ordinance and should be embodied in a notarial agreement.
ThambyLebbe vs. Jamaldeen 39 NLR 73 and Lila Umma vs. Majeed 44 NLR 524
overruled.
In Suppiah vs.
Situnayake 53 NLR 89 was a case where a notarially attested agreement relating
to the purchase and sale of land provided that the agreement should be null and
void at the expiration of three months from the date of its execution.
Basnayake J. held that it was not open to a party, either under section 92or
any other provision of the Evidence Ordinance to prove a subsequent oral
agreement to keep the written agreement alive beyond the stipulated period of
three months. The written agreement could be revived only by another writing
attested by a notary as required by section 2 of the Prevention of Frauds
Ordinance.
In Marikkar vs. Lebbe 52 NLR 193 Dias J. decided that under section 5(3) of the
Trusts Ordinance, extrinsic oral evidence was admissible to establish a trust.
Thangavelauthan vs.
Saverimuttu 54 NLR 28 was a case where a person transferred for consideration a
land to another by a notarial deed, and, thereafter on the same day, the
purchaser executed an independent notarial lease of the land to the vendor for
a certain period. Gratiaen J. held that it was not open to the vendor to prove
by parole evidence that either a trust or something resembling a mortgage or
pledge was created.
The respondent appealed
to the Privy Council against the said judgment and reported as Saverimuttu vs.
Thangavelauthan 55 NLR 529 . Whilst affirming the Supreme Court decision
Privy Council held that although in some cases the provisions of section 2 of
the Prevention of Frauds Ordinance have been relaxed on proof of fraud on
the ground that the “statute of Frauds may not be made an instrument of fraud”,
this proposition has only a limited application, and it is necessary that
courts should approach with caution the facts and the law on which any case
is claimed to be an exception to the general rule that a transaction
relating to immovable property is invalid unless the terms of the transaction
have been embodied in a notarially attested document.
A, transferred for
adequate consideration certain immovable property to B by deed No.3. The
property in question had previously been the subject matter of a mortgage
decree on which, at the date of the transfer, a balance amount of 2,000/-
was payable by A to B. It was stated in deed No.3 that the consideration for
the transfer was the balance amount due on the mortgage decree. Satisfaction of
the decree was duly certified of record, and, on the face of it, deed No.3 was
an unqualified transfer for consideration. Immediately after the execution of
deed No.3, on the same day, B by deed No.4 leased the property to A for a
period of six years. In a rei vindication action instituted (after the expiry
of the lease) against A by B’s successor in title, A sought to assert by
evidence of an informal agreement that the transfer to B was subjected to a
condition that B was to hold the land in trust for A and reconvey it to A
on payment to B of a sum of 2,000/- with interest. The Privy Council
held, that the informal agreement relied on by A amounted not to a trust but to
a contract for the transfer of immovable property and was therefore invalid as
it contravened the provisions of section 2 of the Prevention of Frauds
Ordinance. Valliyamma Atchi vs. Abdul Majeed 48 NLR 289 distinguished.
In Setuwa vs. Ukku 56
NLR 337 Gratiaen J. held that it is never open to a party who execute a
conveyance which is unambiguously a deed of sale to lead parol evidence to show
that in reality it is a deed of mortgage and not of sale. This rule equally
applies where there is an agreement in the deed itself whereby the vendee
undertakes to retransfer the property for consideration within a specified
period and also where there is a separate agreement to the same effect, whether
notarial or not. “The respondent did not rely on any proviso to section 92 of
the Evidence Ordinance. Nor did he allege a trust of the kind which section
5(3) of the Trusts Ordinance permits to be established by oral evidence. In the
result, the learned trial judge should not have admitted evidence for the
purpose of contradicting, varying, adding to or subtracting from the terms of
two notarial instruments each of which unambiguously purported to record a
transaction between a vendor and his purchaser (not between a mortgagor and his
mortgagee)”.
As Sansoni J. held in
Thomas vs. Fernando 57 NLR 521 the consideration is an essential term in a
contract of sale. Section 92 of the Evidence Ordinance debars a party to the
deed of sale from adducing parole evidence to prove that the consideration for
the deed was not money and therefore the deed was not a sale but represented an
entirely different transaction.
In Fernando vs. Cooray
59 NLR 169 K.D.de Silva J. (Basnayake C.J. dissenting) held that in the absence
of any allegation of fraud or trust, it is not open to a party, who conveys
immovable property for valuable consideration by a deed which is exfacie a
contract of sale but subject to the reservation that he is entitled to
re-purchase it within a stipulated period on the repayment of the consideration
together with interest thereon, to lead parole evidence of surrounding
circumstances to show that the transaction was not a sale but a mortgage .Such
parole evidence, even if admitted without objection, would offend the
provisions of section 92 of the Evidence Ordinance and cannot be acted upon.,
Muttammah vs.
Thiyagarajah 62 NLR 559 was a case where in September 1941 , P, who was
entitled to the entirety of a land, donated to T, his son, an undivided
half-share of the property. In October 1954 , T donated the same half-share
back to his father to enable him, the more easily, to raise a loan of 20,000/-
on a mortgage of the entire land. No reservation was made in T’s favour in the
deed of gift of 1954, but by parole evidence T proved inter-alia that he
continued to remain in possession of his share of the land and that it was
expressly understood between the parties that the share should be reconveyed to
T after payment of the mortgaged debt. The loan of 20,000/- was never raised,
and P died in March 1956. In the present action instituted by T against the
executrix de son tort of P’s estate, T claimed that the defendant held the half
share in trust for him. In this Sansoni J. and H.N.G Fernando, J. (Basnayake
C.J. dissenting) held that the plaintiff was entitled under section 83 of the
Trusts Ordinance to lead parole evidence of “attendant circumstances” at or
about the time of the execution of the deed showing that although T transferred
his half-share to P in 1954 by what was in from an absolute conveyance it
was the intention of the parties that T should retain the beneficial interest
in the property and that what was conveyed was only the nominal ownership to P.
In Karunawathie vs. Robo
Singho 1983(2) SLR 407 Moonamalle J. held that the oral agreement by the
defendant to reconvey the lands to the plaintiff on payment of 3000/- does not
give rise to a trust. Further facts, clearly indicative of a trust must be
proved before a trust can arise. The facts that adequate consideration did not
pass, that plaintiff remained in possession after execution of the conveyance
and that an oral promise was made to re-transfer are insufficient. Further this
oral agreement relied on by the plaintiff amounts to a contract for the
transfer of immovable property which is invalid and cannot be enforced as it
contravene section 2 of the Prevention of Frauds Ordinance. Though parole
evidence of this oral agreement was admitted at the trial without objections it
would still be prohibited by section 92 of the Evidence Ordinance.
In Fernando vs. Fernando
1986 (1) CALR 412 Siva Selliah J. decided that, when there is an allegation of
fraud or misrepresentation the court is empowered to admit oral evidence for
the purpose of ascertaining the true nature of the deed.
In Gunasekera vs.
Uyangodage 1987(1) SLR 242 the plaintiff executed a transfer in the name of 1st
defendant all arrangements for the transaction being made by the 2nddefendant.
The plaintiff sued the defendants for a declaration that they held the property
in trust for her alleging an oral agreement to re-transfer the property to her
within three years on payment of 17,000/-. In the meantime, the plaintiff was
to remain in possession service the housing loan while the defendants would
assist her to raise a loan from a third party if the need arose. Although the
consideration of the deed in favour of the first defendant was stated to be
17,000/-only 10,000/-was paid in terms of the agreed arrangement. The
plaintiff’s sued was filed after the lapse of the three years and no tender of
the money had been made within the three years. Jameel J. held apart from
the fact that section 91 and 92 of the evidence ordinance do not permit the
receipt of evidence to vary the terms of a notarilly executed deed
so as to superimpose on a simple transfer deed characteristics such as
mortgages oh agreements to retransfer yet even on the facts no trust can be
held to have been established. Time was the essence of the alleged oral
agreement and the constructive trust yet there was no evidence that the money
was even tendered in time.
In
BernedetteVanlangenberg vs. Hapuaratchige Anthony 1990 (1) SLR 190 the
plaintiff, Hapuaratchige Anthony a middle grade hotel employee lived with the
defendant BernedetteVanlangenberg a hairdresser and mother of four children as
man and mistress. Both worked in the same hotel. Thereafter the plaintiff
proceeded to Sweden where he learned the language and received an income of
about 9000/-a month. The defendant went over to Sweden for a short spell, and
she too found employment receiving about 2000/-a month. The plaintiff purchased
the house property in 1976 for 840,000/-paying the consideration out of his
earnings. On 12.5.77 as he had to go to Sweden again be conveyed the said house
property to the defendant his mistress by deed of transfer in the attestation
to which the consideration of 40,000/-was acknowledged to have been received
earlier. Parties fell out in November 1979. The plaintiff then sued the
defendant for the return of the house pleading a trust. The defendant claimed
absolute title and that she paid the consideration of 40,000/-on the deed in
her favour.
Bandaranayarke J held
that section 2 of the frauds is not meant to govern trusts arising under
chapter IX of the Trust Ordinance i.e constructive for implied trusts. A person
has therefore to make out a case falling within the provision of section 83 to 96
of the Trust Ordinance. The plaintiff initiated the moves to buy the house
whilst still in Sweden; he had paid the purchase price. The defendant’s
resources were insufficient to enable her to pay the consideration on the
transfer to her. She had written to the plaintiff that he will transfer the
house to him if he returns her gold chain and money amounting to rupees
40,000/-. The trial judge rejected the claim of the defendant that she paid the
consideration after considering the financial resources of the parties as being
highly improbable. The defendant’s claim was very probably false and her denial
of the existence of a constructive trust amounts to fraud. In the result,
section 2 of the Trust Ordinance and section 92 of the evidence ordinance do
not apply, and plaintiff can lead parol evidence of the existence of a
construed to trust in his favour on the basis that he retained the beneficial
interest in the property at the time he transferred it to the defendant. The
presumption of advancement in favour of mistress though available in England is
not a part of Sri Lanka law. Section 2 of the Trust Ordinance cannot be utilized
to bring in English law.
In Dayawati Vs
Gunasekara 1991 1 SLR 115 the plaintiff bought the property in suit in 1955. He
started construction work in 1959 and completed in 1961. The plaintiff, a
building contractor needed finances in 1966 sought the assistance of the second
defendant with whom he had transactions earlier. This culminated in a deed of
transfer in favour of the first defendant, who is the mother of the second
defendant and the second defendant being a witness to the deed. The property
was to be
retransferred within three years if 17,000/-was paid. The plaintiff be faulted.
In his action to recover the property, the plaintiff succeeded in the trial
court in establishing a constructive trust. The court of appeal to reverse the
judgement on the sole ground that the agreement was the view and simple
agreement to retransfer. Degradant J held that
1. The prevention of
frauds ordinance and section 92 of the evidence ordinance do not bar parole
evidence to prove a constructive trust and that the transferor did not intend
to pass the beneficial interest in the property.
Extrinsic evidence to
prove attendant circumstances can properly be received in evidence to prove
resulting trust.
In Premawathie Vs
Gunawathie 1994 2 SLR 171 the plaintiff instituted action for a declaration of
title to the land described in the schedule to the plaint, for the ejectment of
the defendants and for damages. Admittedly the first defendant was the owner of
the land in suit and she by deed No 5755 dated 4thapril 76 transferred it to
the plaintiff for a sum of 6000/-. P1 exfacie an out and out transfer.
Using her claim of title on P1, it was the plaintiff's case that the defendants
acting in concert had wrongfully prevented her from taking over the possession.
The first defendant's position was that she did not intend to dispose of the
beneficial interest in the land to the plaintiff and relied upon the section 83
of the Trust Ordinance. The trial judge overruled the position, and he held in
favour of the plaintiff.
In an appeal to the
Supreme Court GPS Silva CJ held that the undertaking to reconvey the property
sold was by way of a non-notarial document which is of no force or avail in law
under section 2 of the Prevention of Frauds Ordinance.
However the attendant
circumstances must be looked into as the plaintiff had been willing to transfer
the property on receipt of 6,000/- within 6 months but could not do so despite
the tender of 6,000/- within the 6 months as she was in hospital, and the
possession of the land had remained with the 1st defendant and the land itself
worth 15,000/- , the attendant circumstances point to a constructive trust
within the meaning of section 83 of the Trust Ordinance. The “attendant
circumstances” show that the 1stdefendant did not intend to dispose of
beneficial interest.
In Thisa Nona vs.
Premadasa 1997 (1)SLR 169 Thisa Nona the 1stdefendant transferred an
undivided extent of one rood from her undivided 1/3 share out of the land in
dispute which was in extent of one acre and twenty perches to the plaintiff,
Premadasa for a sum of 1,500/- by deed marked P16. She claimed her title by
another deed dated same day as P16 (9.1.1975) and attested by the same notary.
This was a transfer by the plaintiff to the 1ST defendant (p15). The 1ST defendant contended that there were number of
attended circumstances to suggest that the P16 created a trust in favour of her
in terms of the section 83 of the Trust Ordinance. The grounds set out were as
follows.
1.
The dealing was a loan transaction
2.
The transfer was a security for the loan
3.
Notary’s fee and stamp duty were paid by her
4.
The plaintiff refused to accept the payment of 1,500/- even before the six-year
period mentioned in “1V2” namely, the contemporaneous non-notarial document.
5.
The possession was not handed over.
6. The 1st defendant
continued even after the transaction.
It had been contended on
behalf of the plaintiff that the provisions of the section 83 of the Trusts
Ordinance has no bearing to the fact of this case since:
1.
there was no evidence
led to show that consideration paid on the P16 was inadequate.
2.
there was evidence that the plaintiff was in
possession of another portion of the same land owned by a brother of the
1stdefendant.
3.
there was no effective steps taken to pay
1,500/- within six years assuming one and half is admissible despite section 10.
of the Prevention of Fraud Ordinance.
4.
even up to date 1,500/- had not been paid nor
deposited in court.
5.
P16 is an outright sale with no conditions
attached to it and for valuable consideration.
6.
all authorities cited by the counsel for the
1st defendant smacked of trust being created. Whereas there was no such
parallel in this case since the 1st defendant effectively disposed both her
illegal and beneficial interest to the plaintiff.
Wigneswaran J. after
considering all relevant materials came to the finding that. Fact that document
1V2 was admitted by the plaintiff, the fact that the first defendant paid the
stamp and notary’s charges, the fact that P16 was a document which came into
existence in the course of a series of transactions between the plaintiff and
the fact that the first defendant continued to possess the premises in suit
just the way she did before P16 was executed all go to show that the
transaction was a loan transaction and not an outright transfer. The amending
circumstances show that the first defendant did not intend to dispose of the
beneficial interest in the property transferred. Law therefore declares under
such circumstances that the plaintiff would hold such property for the benefit
of the first defendant.
In Wijayaratne vs.
Somawathie 2002 (1) SLR 93 proof of due execution would be on a balance of
probability. Non-compliance of the rules in section 31 of the Notaries
Ordinance does not invalidate a deed. Section 33 protects a deed. The absence
of a mark by the executants at most would be non-observance by the notary of
the rules specified in section 31. Udalagama J. observed that “it is my view
that the essential element of due execution is to comply with the provisions of
section 2 of the Prevention of Frauds Ordinance.”
7.Exclusion of
prescription.
Section 111(1) of the
Trusts Ordinance No.9 of 1917 makes provisions to exclude the defence of
prescription in respect of actions for trust. It reads thus:
(a)
In the case of any claim by any beneficiary against a trustee founded upon any
fraud or fraudulent breach of trust to which the trustee was party or privy.
(b)
In the case of any claim to recover trust property, or the proceeds thereof
still retained by a trustee, or previously received by the trustee and converted
to his use; ;and
(c)
In the case of any claim in the interests of any charitable trust,
for the recovery of any property comprised in the trust, or for the assertion
of title to such property.
The claim shall not be
held to be barred or prejudiced by any provision of the Prescription Ordinance.
Section 111 of the
Trusts Ordinance was incorporated to recognize the English rule in relation to
trust properties. In English law in Soar vs. Ashwell 1893 (2) Q.B.390 the court
has adopted the principle that prescription cannot defeat the claim of trust
property. This legal maxim has been followed throughout in our courts including
in the following cases.
Lucia Perera vs. Martin
Perera 53 NLR 347.Mohamed
vs. Abdul Gaffoor 57 NLR 228.Bahar vs. Burah 55 NLR 01 and Vaidhianathan
vs. IdroosMohideen 1988 (2) SLR 55. This subject has been discussed in detail
under the heading of “Prescription” and sub heading “Exclusion against
trustees” in Volume 1.
Burden of proof.
In LakshmananChettiar
vs. MuttiahChettiar 50 NLR 337 defendant was the attorney of the plaintiff
who was a money lender resident in India. Plaintiff had two debtors A and S.A
gave a promissory note, and a decree was obtained against the estate of S.
three days before leaving the service three of the plaintiff the defendant
assigned the decree to one Alagappa Chettiar and he had previously endorsed the
note to the same Chettiar who recovered the money from A. No consideration had
been paid by the Chettiar. Plaintiff claimed that defendant was trustee of
these monies and liable to account to the plaintiff. This action was brought
more than six years after the transactions in question. The court held that in
the absence of fraud or fraudulent breach of trust to which the defendant was a
party, the action was prescribed in terms of section 111 of the Trust Ordinance
for the reason that the money was neither retained by the defendant nor
converted for his own use. It was held further that the burden of proving fraud
was on the plaintiff. Fraud must be established beyond reasonable doubt and a
finding of fraud cannot be based on suspicion and conjuncture.
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