CONSTRUCTIVE TRUST FOR THE JUNIOR BAR - WRITER WAS A PRACTITIONER IN LAW FOR A SHORT PERIOD IN GALLE UNDER THE PUPILAGE OF ANANDA WICKRAMASEKERA P.C

TRUST - A presentation

- October 29, 2016

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.

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)

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 1^ST defendant (p15). The 1^ST 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.

FURTHER DETAILS OF CONSTRUCTIVE TRUST

A COMPLIMENTARY RESERCH FOR THE BENEFIT OF THE JUNIOR BAR

Contents awasalam

1. Ibrahim Saibo & Another v. Oriental Bank Corporation (1874)

2. Arunasalam Chetty v. Somasundram Chetty

3. Perumal v. Harding (1944)

4. Bernadette Valangenberg v. H. Anthony (1990)

5. Dayawathie and Others v. Gunasekera & Another (1991)

6. Premawathie v. Gnanawathie (1994).

7. MUTTAMMAH vs THIYAGARAJAH.

8. Thisa Nona and Others v. Premadasa (1997)

9. Piyasena v. Don Vansue (1997)

10. Gunaratna v. Nandawathie (2003)

11. Somawathie De Zoysa v. Jayasena Fernando (2005)

12. Arther v. Ameen (2014)

13. M M S MALANI VS DUNUWILA [UNREPORTED]

14. Hettiarachchige Don Sugath Nandana v Caroline Hewa Abewickrama

15. De Silva v. Silva (1956) 58 NLR 145

16. Wijeyaratne v. Somawathie [2002] 1 Sri L.R. 93

17. Piyasena v. Don Vansue [1997] 2 Sri L.R. 311

18. Seelachchi v. Visuvanathan (1922) 23 NLR 97

19. Ehiya Lebbe v. Majeed (1947) 48 NLR 357

20. Valliyammai Atchi v. Abdul Majeed (Privy Council)

21. Dissanayakage Malini v. Mohomed Sabur [1999]

22. Carthelis v. Ranasinghe [2002] 2 Sri L.R. 359

23. Wijeytilaka v. Ranasinghe (1931) 32 NLR 306

24. Perera v. Fernando [2011] 2 Sri L.R. 192

25. VINCY EDWARD VON HAGT PATHIRANA VS. DON RICHARD MUNASINGHE

26. MAKAEWITA A. SUSILAWATHI PERERA VS. M. D. DHARSHANEE DE COSTA

27. Gould v. Innasitamby

28. Sangaraoukka v. Kandiah

29. Muniyandi Natchie v. Jatanb

30. Wijayaratne v. Somawathie

31. Mohamed v. Abdul Gafoor

32. Ehiya Lebbe v. Majeed

33. Fernando v. Thamel

34. Muthalibu v. Hameed

35. Perera v. TISSERA 54 NLR 35

36. Saroja Nisansala v. Aberfoyle Holdings (Pvt) Ltd.

37. Andiris VS Punchihamy

38. J K Romold Dickson vs J K Padma Jenat & OTHERS

39. W. C. Kusumawathi Kulasuriya Vs D. W. H. Gunathilaka S.C

40. P.U.Sanath Fernando & P.U.Navaratne Fernando

42. R D GAMINI VS WICKREMA ARACHCHILAGE SUNEETHA

43. Balasuriya L. Somawathie v. Severinus D Ranjith Alles

44. Hewage D P Owitigala vs KARUNASENA HATHURUSINGHE

45. Krishanthy Balasubramanium Vs VELLAYAR KRISHNAPILLAI

786 Sri Lankan Cases on Constructive Trust

1. Ibrahim Saibo & Another v. Oriental Bank Corporation (1874)

In this early case, one “A” paid the price for certain lands but fraudulently had the deeds taken in the plaintiffs’ names to hide the property from A’s creditors (with an understanding that the plaintiffs would reconvey the lands to A after he settled with his creditors). A remained in possession of the lands and was insolvent. The plaintiffs (who were parties to the fraud) later sued to have title declared in their favor and to free the lands from seizure by A’s creditors.

Held: The plaintiffs were not entitled to the declaration of title or release of the property from seizure, as the trust arrangement was part of a fraud on creditors.

“Where a transaction is intended to effect a fraud, parol evidence is at all times admissible to establish and create a resulting or constructive trust.” WISH TO READ JUDGMENT- CLICK

2. Arunasalam Chetty v. Somasundram Chetty

(1920) – Privy Council Appeal from Ceylon (reported in 21 NLR 389).

A property was conveyed to Arunasalam Chetty with a firm name annexed; it was held that the property was transferred to him as an agent of the firm, not in his personal capacity. As the grantee was an express trustee (and not a constructive trustee), he could not plead prescription against the other members of the firm.

In explaining the distinction, the court noted: “An express trust can only arise between the cestui que trust and his trustee. A constructive trust is one which arises when a stranger to a trust already constituted is held by the Court to be bound in good faith and in conscience by the trust in consequence of his conduct and behaviour.” - WISH TO READ - CLICK

3. Perumal v. Harding (1944)

The plaintiff, as cestui que trust of a constructive trust, sued the defendant for a declaration of title to certain land. The defendant had purchased the property (within ten years before suit) from the original trustee, with notice of the trust.

Held: Under the Trusts Ordinance, a constructive trust is treated like an express trust for purposes of prescription. Section 111(1)(b) (read with Section 111(5)) of the Trusts Ordinance operated to prevent the defendant from claiming prescriptive title based on the trustee’s possession – since the trust was constructive (and thus treated as an express trust under English law), the defendant could not count the trustee’s possession in his favor - WISH TO READ FUTHER- GO AHEAD AND CLICK

4. Bernadette Valangenberg v. H. Anthony (1990)

The plaintiff (a hotel employee) lived with the defendant as man and mistress. He purchased a house in 1976 for ~Rs.840,000 (from his earnings) and in May 1977, before leaving for work abroad, conveyed the house to the defendant (his mistress) by deed – the deed stated a consideration of Rs.40,000, acknowledged as already paid

The parties’ relationship deteriorated in November 1979. The plaintiff then sued the defendant for return of the house, pleading that a trust existed, while the defendant claimed absolute title and asserted, she had paid the Rs.40,000 consideration shown in the deed.

Held: (1) Section 2 of the Prevention of Frauds Ordinance does not govern trusts arising under Chapter IX of the Trusts Ordinance (constructive or implied trusts). Therefore, a person seeking to establish a constructive trust need only bring the case within Sections 83–96 of the Trusts Ordinance

(2) The evidence clearly showed that the plaintiff initiated the purchase and paid the entire purchase price; the defendant’s resources were insufficient for her to have paid for the property; indeed, she had even written to the plaintiff offering to transfer the house back to him if he returned her gold chain and Rs.4,000

(3) The trial judge disbelieved the defendant’s claim that she paid the consideration, finding it “highly improbable.” The defendant’s denial of the constructive trust was effectively a fraud. As a result, neither Section 2 of the Trusts Ordinance nor Evidence Ordinance Sections 91/92 barred the plaintiff – he was entitled to lead parol evidence of the trust. In sum, the plaintiff retained the beneficial interest in the property when he transferred it to the defendant, so he could prove a constructive trust in his favor

(4) Presumption of Advancement: The English law presumption of advancement in favor of a mistress (i.e. treating a transfer to one’s mistress as a gift) does not apply in Sri Lanka. Section 2 of the Trusts Ordinance cannot be used to import such English rules

(In this case, the defendant’s status as the plaintiff’s mistress did not give her an irrebuttable presumption of beneficial ownership – the court looked to the actual intent and dealings, which proved the plaintiff did not intend to benefit her.)

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5. Dayawathie and Others v. Gunasekera & Another (1991)

The plaintiff (a building contractor) fell into financial difficulty and, in 1966, executed a deed transferring his house to the 1st defendant (the mother of his associate, 2nd defendant) with an informal agreement that the property would be re-transferred to him within 3 years if he repaid Rs.17,000. The plaintiff remained in possession. He defaulted on the repayment, and when he sued to recover the property, the District Court held that a constructive trust had arisen in his favor. The Court of Appeal, however, reversed that judgment on the ground that the agreement was simply a non-notarial pact to re-transfer (and thus not enforceable)

Held (Supreme Court): (i) Neither the Prevention of Frauds Ordinance nor Section 92 of the Evidence Ordinance bars the admission of parol evidence to prove that an ostensible sale was really subject to a trust – i.e. to show the transferor did not intend to pass the beneficial interest in the property

(ii) Extrinsic evidence of the attendant circumstances is admissible to establish a resulting or constructive trust. (In particular, evidence may be led to show the true nature of the transaction.)

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6. Premawathie v. Gnanawathie (1994).

The plaintiff sold a land to the defendant, and the buyer gave an informal (non-notarial) written promise to re-transfer the land to the plaintiff within six months upon repayment of the price (Rs.6,000). That informal undertaking was of no force in law under Section 2 of the Prevention of Frauds Ordinance. However, the plaintiff did tender Rs.6,000 within the six-month period – she was unable to complete the re-transfer only because she was hospitalized at the time. Meanwhile, possession of the land had remained with the buyer (1st defendant), and the land itself was worth about Rs.15,000 (far above the repurchase price)

Held: Even though the agreement to re-convey was not legally enforceable, the attendant circumstances (the plaintiff’s readiness to repay on time, her inability to get the re-transfer due to illness, the buyer’s continued possession of the land, and the large disparity between the market value and the price) all pointed to the existence of a constructive trust under Section 83 of the Trusts Ordinance. The circumstances showed that the 1st defendant (transferee) “did not intend to dispose of the beneficial interest” in the property – in other words, the transfer was subject to a trust in favor of the original owner.

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7. MUTTAMMAH vs THIYAGARAJAH.

Trust-Gift of immovable property-No intention on part of transferor' to dispose of.. beneficial interest-Parol evidence of "attendant circumstances "Admissibility-Trusts Ordinance, ss. 2, Ii (3), 83-Evidence Ordinance, proviso (1) pf 8. 92_Ptevention of Frauds Ordinance, s. 2.

In September1941, 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 P to enable him, the more easily, to raise a loan of Rs. 20,000 on a mortgage of the entire land. No reservation was made: in To favour in the deed of gift of 19-54, but by Parol evidence T proved interalia 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 reconvened to after payment of the mortgage debt. The loan of Rs. 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 F's estate, T claimed that the defendant held the half-share in trust for him.

Held, by SANSONI. J.. and H. N. G. FERNANDO, J. (BASNAYAKE, C.J., dissenting), that the plaintiff was entitled under section 83 of the Trusts Ordinance to lead parol evidence of " attendant circumstances" at or about the time of the execution of the deed showing that although T transferred his half-share to Pin 1954 by what was in form 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. - WISH TO READ FURTHER – GO AHEAD SIMPLY CLICK HERE

8. Thisa Nona and Others v. Premadasa (1997)

The court here emphasized the “attendant circumstances” that can reveal whether a transaction was truly a loan arrangement (with the property held in trust) rather than an outright sale. It was held that several facts which emerged in that case were highly relevant to determining the real nature of the transaction: (a) the existence of a non-notarial document (signed by the transferee) promising to re-transfer the property, (b) the payment of stamp duty and the notary’s fees by the transferor, (c) the fact that the transfer deed came into being as part of a series of transactions between the parties, and (d) the transferor’s continued possession of the property after the conveyance (just as before)

These circumstances indicated that the transaction was a loan (security transfer) rather than a sale – i.e. the transferor never intended to part with the beneficial interest, giving rise to a constructive trust in his favor.

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9. Piyasena v. Don Vansue (1997)

The plaintiff-respondent filed an action for declaration of title, damages, and ejectment based on a deed of transfer (No. 424 of 09.09.1986) from the defendant. The defendant-appellant, however, maintained that this deed was merely a loan-security transaction – he never intended to transfer the beneficial interest in the land – and he claimed the benefit of Section 83 of the Trusts Ordinance (constructive trust). The District Court ruled in favor of the plaintiff, and the defendant appealed

Held: (i) Even though a transfer is in the form of an outright sale, it is permissible to lead parol evidence to show facts from which it could be inferred that the real transaction was something else – for example, a money lending transaction with the land given as security (as in the present case), or a transfer in trust. In the latter situation, Section 83 of the Trusts Ordinance would apply

(ii) A trust can be inferred from the attendant circumstances of the case. The law will impose a constructive trust on parties who attempt to camouflage the true nature of their arrangement. Thus, when the surrounding facts point to a loan rather than a genuine sale, the provisions of Section 83 apply despite the form of the deed

(iii) On the facts of this case, it could not be reasonably inferred (consistent with the attendant circumstances) that the defendant intended to dispose of his beneficial interest in the property by executing the deed. In other words, the evidence did not support treating the transaction as a true sale

10. Gunaratna v. Nandawathie (2003)

The plaintiff-respondent (in 1984) sought a declaration that Deed No.397 (dated 5.2.1976) was invalid or, alternatively, that a constructive trust of the land had arisen in his favor under the Trusts Ordinance. The defendant-appellant contended that the land was unconditionally sold and transferred to him. The District Court found for the plaintiff

Held: (i) Although Deed No.397 was ex facie an outright transfer made in 1976, prescription on the plaintiff’s claim began to run only from the time the cause of action arose – i.e. when the defendant-appellant failed and neglected to reconvey the land as promised upon satisfaction of the loan (this demand and refusal occurred in 1983)

(ii) Since the action was instituted within 3 years of that refusal, there was no need to comply with the notice requirement in Civil Procedure Code §44

(iii) The failure to answer a specific issue at trial caused no prejudice to the defendant-appellant

(iv) The attendant circumstances demonstrated that the plaintiff-respondent never intended an outright transfer – a constructive trust had arisen for his benefit. READ JUDGMENT ONLINE BY A CLICK

11. Somawathie De Zoysa v. Jayasena Fernando (2005)

The plaintiff-respondent purchased a northern portion of a certain land in 1979 from the defendant’s former husband. The defendant-appellant claimed that she had paid the purchase money (from the sale of one of her own lands) and that her ex-husband had bought the property in trust for her; thus, when the plaintiff later bought that portion, the plaintiff held it subject to a constructive trust in the defendant’s favor (per Trusts Ordinance §84). The defendant further argued that under §65(1) she could follow the property into the plaintiff’s hands – unless the plaintiff was a bona fide purchaser without notice under §66(1).

The District Court agreed with the defendant and dismissed the plaintiff’s action. On appeal, the Court of Appeal reversed the decision, holding (erroneously) that the burden of proof under Section 66(1) (i.e. proving the plaintiff was a bona fide purchaser without notice of the trust) lay on the beneficiary (the defendant) rather than on the purchaser.

Held (Supreme Court): (1) The burden of proof under Section 66(1) is actually on the transferee (the party claiming to be a bona fide purchaser). The Court of Appeal had erred in law by placing that burden on the beneficiary.

(2) However, the Supreme Court upheld the Court of Appeal’s findings of fact: upon reviewing all the evidence, the defendant’s conduct did not reflect that she had provided the purchase money to her husband for the land, and the plaintiff had no notice of any trust at the time of his purchase

(3) Accordingly, the defendant-appellant’s appeal was dismissed. The plaintiff (purchaser) was entitled to the declaration of title. The plaintiff was a bona fide purchaser without notice, and the defendant failed to prove the existence of a trust, but the Supreme Court clarified that the legal burden under §66(1) rests on the purchaser, not on the alleged beneficiary.) READ THE JUDGMENT AS YOU WISH UPON A GENTLE CLICK

12. Arther v. Ameen (2014)

The plaintiff-respondent (original owner) sued for a declaration of title and ejectment, asserting that the defendant was holding over after selling the property to the plaintiff. The defendant-appellant admitted executing the deed of transfer but claimed it was only a loan transaction – he argued the plaintiff held the property in constructive trust for him (under Section 83). The District Court gave judgment for the plaintiff. On appeal, Held: [1] A party’s silence in the face of a clear demand can amount to an admission. Here, the defendant had agreed to vacate once he found alternative accommodation but failed to do so; moreover, when the plaintiff sent a notice to quit, the defendant (who received it) never replied. In such circumstances – where a reply was expected – the defendant’s failure to respond was tantamount to admitting that the transaction was as the plaintiff described (an outright sale).

[2] In determining whether a constructive trust exists, the attendant circumstances are very material. In this case, the defendant’s conduct (remaining in possession while making no protest or claim of a trust until sued, and his silence in the face of the notice to quit) supported the conclusion that the transfer was intended as an outright sale, not a trust

The Court found no grounds to disturb the trial judge’s findings, and the appeal was dismissed (the plaintiff’s title was confirmed).

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13. M M S MALANI VS DUNUWILA [UNREPORTED]

Constructive Trust – Section 83 of the Trusts Ordinance – Attendant circumstances – Loan transaction disguised as sale – Permissibility of parol evidence – Sections 91 & 92 of the Evidence Ordinance – Prescription – Commencement of cause of action – Inference from conduct and inadequacy of consideration.

The plaintiff executed Deed No. 13221, purporting to transfer a land worth about Rs. 200,000 for Rs. 30,000, in favour of the defendant as security for a loan obtained to assist a friend. The plaintiff remained in possession and later offered to repay the loan with interest, but the defendant refused to reconvey. The plaintiff instituted action seeking a declaration that the deed was not an outright sale but a loan transaction secured by immovable property.

Held:

Though the plaintiff had not expressly pleaded a constructive trust, the evidence and attendant circumstances, continued possession by the transferor, gross inadequacy of consideration, and intention to repay and obtain reconveyance, showed that the beneficial interest was never intended to be transferred. The transaction was therefore subject to a constructive trust under Section 83 of the Trusts Ordinance.

Parol evidence is admissible to prove that a deed of transfer was executed merely as security for a loan, since such evidence does not contradict or vary the document but goes to show the real nature of the transaction. Sections 91 and 92 of the Evidence Ordinance do not preclude such proof.

The period of prescription begins not from the date of execution of the deed but from the date on which the defendant refused the plaintiff’s demand to reconvey.

The appellate court will not interfere with the trial judge’s findings of fact based on credibility unless the inferences drawn are perverse or unsupported by evidence.

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14. Hettiarachchige Don Sugath Nandana v Caroline Hewa Abewickrama

The Constructive Trust – Section 83, Trusts Ordinance – Attendant circumstances – Parol evidence – Sections 2, Prevention of Frauds Ordinance and 91, 92, Evidence Ordinance – Loan transaction disguised as sale – Intention to part with beneficial interest – Inadequate consideration – Continued possession.

The defendant, having executed a deed of transfer in favour of the plaintiff for Rs. 100,000, contended that the deed was executed merely as security for a loan and that she never intended to part with the beneficial interest in her residential property. The District Court and High Court held for the plaintiff.

Held (per Mahinda Samayawardhena J.):

Where, from the attendant circumstances, it cannot reasonably be inferred that the transferor intended to dispose of the beneficial interest, a constructive trust arises under Section 83 of the Trusts Ordinance. The test is objective.

Parol evidence is admissible to establish a constructive trust, notwithstanding Section 2 of the Prevention of Frauds Ordinance and Sections 91 and 92 of the Evidence Ordinance, since Chapter IX of the Trusts Ordinance (a later enactment) prevails, and its provisions cannot be used to perpetrate fraud.

Continued possession by the transferor, inadequate consideration, contemporaneous informal agreements, and the relationship of lender and borrower are decisive attendant circumstances showing the transaction was a loan secured by land, not an outright sale.

The plaintiff was a moneylender holding the property as security; he must therefore reconvey upon repayment as directed.

Ratio:

A deed of transfer, though absolute in form, may be treated in equity as a constructive trust where the surrounding facts reveal that the transaction was intended only as a loan security. Formal statutory requirements yield to equity where adherence would enable fraud.

Appeal allowed; judgments of District Court and High Court set aside.

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15. De Silva v. Silva (1956) 58 NLR 145

Principle:

Established that the test for a constructive trust is objective, not subjective; courts infer intention from the surrounding circumstances rather than the parties’ declarations.

16. Wijeyaratne v. Somawathie [2002] 1 Sri L.R. 93

Principle:

Reiterated that constructive trusts arise from the conduct and attendant circumstances, and that the onus of proof lies on the party asserting the trust.

17. Piyasena v. Don Vansue [1997] 2 Sri L.R. 311

Principle:

Held that where the attendant circumstances point to a loan transaction rather than a genuine sale, Section 83 of the Trusts Ordinance applies. A constructive trust arises where parties camouflage a loan as a sale.

18. Seelachchi v. Visuvanathan (1922) 23 NLR 97

Principle:

Interpreted Section 96 of the Trusts Ordinance as a residuary provision—allowing the imposition of a trust even when a transaction does not strictly fall within preceding sections, to ensure equitable justice.

19. Ehiya Lebbe v. Majeed (1947) 48 NLR 357

Principle:

Recognized that when fraud would result from enforcing statutory formalities, Section 5(3) of the Trusts Ordinance permits proof of an oral or informal trust. Also identified possession, inadequate consideration, and continued occupation as strong evidence of a trust.

20. Valliyammai Atchi v. Abdul Majeed (Privy Council)

Principle:

Affirmed that formalities of Section 5(1) of the Trusts Ordinance—not Section 2 of the Prevention of Frauds Ordinance—govern trusts of land, and where enforcing such formalities would aid fraud, Section 5(3) allows oral evidence to prove the trust.

21. Dissanayakage Malini v. Mohomed Sabur [1999]

Principle:

Allowed non-notarial documents executed alongside formal deeds to be admitted in evidence to reveal the parties’ true intention, notwithstanding the Prevention of Frauds and Evidence Ordinances.

22. Carthelis v. Ranasinghe [2002] 2 Sri L.R. 359

Principle:

Identified continued possession, lack of title examination, and undervalue consideration as attendant circumstances evidencing that a transfer was in truth a security for a loan, not a genuine sale.

23. Wijeytilaka v. Ranasinghe (1931) 32 NLR 306

Principle:

Early authority recognizing that courts may look beyond the deed’s form to determine whether a transaction was a trust or a loan security, based on the parties’ conduct and circumstances.

24. Perera v. Fernando [2011] 2 Sri L.R. 192

Reaffirmed that constructive trusts are factual inferences arising when the transferee holds property in circumstances making it inequitable to deny another’s beneficial interest.

Trusts Ordinance - Section 83- Where it does not appear that the transferor's intention was to dispose of beneficial interest?

The main issue before the Supreme Court was whether the two deeds referred to in the plaint, were absolute transfers or conveyances creating constructive trusts. The District Court held in favour of the plaintiff and held that the two deeds were not absolute transfers. On appeal to the Civil Appellate High Court, the judgment of the District Judge was set aside and judgment was entered in favour of the Defendants.

Held:

(1) When the owner of a property transfers it without intention to dispose of the beneficial interest therein, then a constructive trust is created and the transferee must hold such property in trust for the benefit of the transferor according to the principles laid down in Section 83 of the Trusts Ordinance.

Per Suresh Chandra, J. -

". . . . It would be necessary to conclude that both transfers did not convey absolute title to the transferees and that they held the property in trust for the transferor as the transferor in both instances had not intended to convey the beneficial interest in respect of the property. This is in line with the principle laid down in Section 83 of the Trust Ordinance"

(2) The Civil Appellate High Court was in error in concluding that the Plaintiff had failed to establish that he reserved the beneficial interest when effecting the conveyances, whereas the learned District Judge had arrived at the conclusion on the abundance of evidence placed before Court that the transactions effected by the Plaintiff had been loan transactions.

READ JUDGMENT AT PAGE 192 – 2011 VOLUME 2 SLR

25. VINCY EDWARD VON HAGT PATHIRANA VS. DON RICHARD MUNASINGHE

Plaintiff instituted an action asserting that the transfer of his land under Deed No. 15 of 1987 for a consideration of Rs. 22,000 was not a genuine sale but a loan transaction for which the property was given as security. He contended that the defendant had agreed to re-transfer the property upon repayment of the loan, but later repudiated this undertaking. The plaintiff remained in continuous possession and had even prepared a deed of re-conveyance which the defendant refused to execute unless additional money was paid.

The District Court, evaluating the disparity between the market value of the property and the nominal sale price, the unbroken possession of the plaintiff, and the conduct of the parties, held that the transaction was in substance a constructive trust within the meaning of Section 83 of the Trusts Ordinance. The court declared the deed to be a security for the loan and not an outright sale.

On appeal, the defendant challenged the sufficiency of the evidence and the trial judge’s reasoning. The Court of Appeal, however, upheld the District Court’s findings, emphasizing that the trial judge had correctly inferred the parties’ true intentions from the attendant circumstances and the credibility of witnesses. The appeal was dismissed.

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26. MAKAEWITA A. SUSILAWATHI PERERA VS. M. D. DHARSHANEE DE COSTA

Constructive Trust – Section 83, Trusts Ordinance – Attendant circumstances – Undue influence – Burden of proof – Evaluation of evidence – Section 187, Civil Procedure Code – Failure to answer issues – Whether prejudicial.

The Plaintiff-Appellant sought a declaration that the Defendant-Respondent held the property in trust for him, or alternatively that the transfer was obtained through undue influence under Section 91 of the Trusts Ordinance. The District Court dismissed the action, finding that consideration had been paid and that the Defendant remained in possession for over three decades.

Held:

The evidence did not establish that the Appellant had no intention to dispose of the beneficial interest in the property; the attendant circumstances were insufficient to prove a constructive trust within Section 83.

The District Judge’s findings on credibility, based on oral testimony, were entitled to deference.

Failure to answer all issues under Section 187 of the Civil Procedure Code did not cause prejudice or a miscarriage of justice, following Gunasena v. Kandage [1997] 3 SLR 39 and Victor v. Cyril de Silva [1998] 1 SLR 41.

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27. Gould v. Innasitamby

Citation: (1905) 9 NLR 177

Principle:

Held that the absence of a notarially executed instrument does not bar the enforcement of a constructive trust if denying such enforcement would result in fraud. Equity will override statutory formality where the intention of the parties and the circumstances clearly reveal a trust.

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28. Sangaraoukka v. Kandiah

Citation: (1916) 19 NLR 344

Trust—Purchase of land in the name of another without that person's knowledge. 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 acquiesced in it, and agreed to transfer the land to A whenever called upon.

Held, that C held the land in trust for A, and that C 'could', maintain an action for a conveyance for the land from C, Or ' if C had parted with the land, to recover its value. Where property is purchased in another’s name without prior consent, but the nominal owner later acknowledges the arrangement, a resulting or constructive trust arises in favour of the person who paid the purchase money.

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29. Muniyandi Natchie v. Jatanb

Citation: (1988) 2 CALR 56

Principle:

Even when statutory restrictions prohibit ownership by certain classes (such as non-citizens), courts may enforce a constructive trust in favour of the true purchaser who used a nominee to hold title, if necessary to prevent fraud or unjust enrichment.

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30. Wijayaratne v. Somawathie

Citation: (2002) 1 SLR 93

Principle:

Reaffirmed that equitable considerations may prevail over procedural defects or documentary irregularities when necessary to prevent injustice. Courts may look beyond form to uphold the parties’ true intent and good conscience. [ this is not a case where the question of constructive trust arose]

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31. Mohamed v. Abdul Gafoor

Citation: (1956) 57 NLR 228

Principle:

An agent holding property for a minor was held to be a constructive trustee, and therefore could not claim ownership by prescription. Fiduciary holders of property are precluded from acquiring adverse title.

Trust—Purchase of land in the name of another without that person's

knowledge.

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 acquiesced in it, and agreed to transfer the land to A whenever called upon.

Held, that C held the land in trust for A, and that C 'could', maintain an action for a conveyance for the land from C, Or ' if C had parted with the land, to recover its value.

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32. Ehiya Lebbe v. Majeed

Citation: (1947) 48 NLR 357

Principle:

Courts may admit oral or informal written evidence to establish a constructive trust notwithstanding the Prevention of Frauds Ordinance, when strict adherence to statutory formality would perpetuate fraud.

Trust—Notarial transfer of land—Not intended to be out-and-out sale—Informal agreement to re-transfer—How far enforceable—Trusts Ordinance, ss. 83 and 5—Jurisdiction of Court of Requests.

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 Rs. 250 within two years. The defendant refused to re-transfer on tender of the money within the time. The Commissioner found on the facts that when the 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 until the plaintiff’s debt to the defendant of Rs. 250 was repaid.

Held, that in the circumstances the defendant was a trustee for the plaintiff in terms of section 83 of the Trusts Ordinance.

Held, further, (i) 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; (ii) that the Court of Requests had jurisdiction to entertain and try the action although the land was worth over Rs. 300.

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33. Fernando v. Thamel

Citation: (1946) 47 NLR 297

Principle:

Recognized that informal writings or oral promises may be relied upon to prove the existence of a constructive trust, since equity will not allow the Prevention of Frauds Ordinance to become an instrument of injustice.

Trust—Sale of land by deed—Transferor’s informal writing on same day promising to reconvey—Circumstances indicating trust and establishing transferee’s fraud—Admissibility of informal writing in proof of trust—Evidence Ordinance, s. 92, proviso (3)—Trusts Ordinance (Cap. 72), ss. 83, 96.

By notarial deed the plaintiffs conveyed a land to the defendant. On the same day the defendant gave the plaintiffs an informal document by which he undertook to re-transfer the land within three years on payment of a specified sum.

There were circumstances showing that the transfer was in trust and that the defendant had acted fraudulently—no money was paid on the day of transfer; the defendant merely undertook to redeem an existing mortgage; the plaintiffs reluctantly executed the deed only upon the promise to reconvey; and there was a gross disparity between the consideration and the market value of the land.

Held, that the informal document was admissible to prove that the defendant held the property in trust for the plaintiffs.

Held, further, that the informal document was not admissible under proviso (3) to section 92 of the Evidence Ordinance.

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34. Muthalibu v. Hameed

Citation: (1950) 52 NLR 97

Principle:

Established the presumption of advancement—where a father or person standing in loco parentis purchases property in a child’s name, the law presumes it a gift, unless evidence shows a contrary intention.

35. Perera v. TISSERA 54 NLR 35

Principle:

Trust—Administrator and heir—Settlement of accounts—Undue influence—Mortgage bond in favour of third party—Presumption attaching against third party—Sale of property to administrator—Creation of trust in favour of heirs—Judicial settlement of accounts—Passing of final account—Trusts Ordinance, No. 9 of 1917, s. 90—English law.

Where the widow of an intestate transferred her half share of certain lands to the administrator under an arrangement, the object of which was to preserve the property for the minor children of the intestate, and where by a subsequent deed, which purported to be a deed of agreement between the administrator and the guardian ad litem of the children, the administrator undertook to sell to the children the share of the lands he obtained, upon payment of a certain sum of money within a stated period—

Held, that in the circumstances a trust had been established in favour of the children and that all the pecuniary advantages obtained by the administrator in dealing with the lands transferred to him must be held by him in trust for the benefit of the minors.

The English law of undue influence has become part of the law of Ceylon.

The circumstances under which the presumption of undue influence arises in transactions between parent (or person in loco parentis) and child, and how that presumption may be rebutted under English law, were indicated.

The presumption of undue influence would also arise in the case of a settlement of accounts between the administrator and the heir of the intestate who was living with him at the time.

When at a settlement of accounts between the administrator and the heir a deed of agreement was entered into by which the heir acknowledged liability to pay the administrator a certain sum of money, and in order to discharge that liability mortgaged her property with a third party who was aware of the facts and attendant circumstances—

Held, that the presumption attached against the third party as well, and that he took the mortgage bond at his peril.

Held, further, that in order to disentitle a party from seeking relief from a contract on the ground of ratification by acquiescence, there must be proof not only of assent but also of assent after the party became aware of the violation of his rights.

An administrator who desires to have a conclusive settlement of accounts and distribution of assets must take steps under Chapter LV of the Civil Procedure Code. Under that Chapter, after scrutiny of accounts, the Court will enter a decree under section 740 directing payment and distribution to those entitled.

The passing of a “final” account after notice to all parties interested does not constitute a judicial settlement and does not supersede the procedure by way of a judicial settlement. Reaffirmed that the presumption of advancement applies between close family members, but may be rebutted by proof that the purchaser intended to retain beneficial ownership.

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36. Saroja Nisansala v. Aberfoyle Holdings (Pvt) Ltd.

Citation: (2011) 2 SLR 340

Principle:

Clarified that even when parties are complicit in illegality, courts may still intervene to prevent unjust enrichment and to ensure equity, thus tempering the operation of the maxim in pari delicto potior est conditio defendentis.

READ JUDGMENT AT PAGE 340

37. Andiris VS Punchihamy

(1922) 24 NLR 203

Illustrated the readiness of courts to apply equitable principles to prevent injustice or fraud, ensuring that no party profits from their wrongful conduct or deceit.

Transfer of properly to defraud creditors-Action by heir of transferrer against transferee to recover same-Trust.

Where A transferred his property to B without consideration, and with the object of defrauding his creditors. Held, that it is open to the heirs of A to sue B for the same.

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SUPREME COURT

38. J K Romold Dickson vs J K Padma Jenat & OTHERS

Jayasooriya Kuranage Romold Dickson vs Jayasooriya Kuranage Padma Jenat & OTHERS

SC Appeal 110/2018 - SC/HCCA/LA 481/2017 - NWP/HCCA/KUR/198/2011(F) - DC Marawila Case No. 1727/S

Constructive Trust – Section 83, Trusts Ordinance – Attendant circumstances – Nominal transfer – Absence of consideration – Possession retained by transferor – Presumption of advancement – Application of Section 84 – Fiduciary relationship between parent and child – Whether transferor intended to part with beneficial interest – Transfer by trustee to third party – Validity of subsequent deed.

The Plaintiff-Respondent (father) transferred his property to his sister by Deed No. 339 of 01.02.1987 for nominal consideration, and later, on his instructions, she transferred it to his daughter (2nd Defendant-Appellant) by Deed No. 11489 of 23.08.1994. The Plaintiff continued in possession throughout and no consideration was paid under either deed. The District Court held that the daughter held the property on a constructive trust in favour of the father; the High Court affirmed.

Held:

1. The presumption of advancement under Muthalibu v. Hameed (52 NLR 97) did not apply, as the father had not purchased the property in the child’s name but transferred his own property.

2. Under Section 83 of the Trusts Ordinance, where attendant circumstances show that the transferor did not intend to part with the beneficial interest, the transferee holds the property in constructive trust for the transferor.

3. Continued possession, absence of consideration, and the stated purpose of obtaining a loan established that the conveyances were nominal.

4. The 1st Defendant, having held the property in trust, could not validly transfer it to the 2nd Defendant; hence, the 2nd Defendant acquired no beneficial title.

Appeal dismissed. Read judgement click

39. W. C. Kusumawathi Kulasuriya Vs D. W. H. Gunathilaka S.C

The Constructive Trust – Section 83, Trusts Ordinance – Attendant circumstances – Oral evidence and admissibility – Bona fide purchaser for value without notice – Res judicata – Whether prior dismissal of action operates as bar.

The Petitioner transferred a land by Deed No. 7948 of 15.07.1987 to one Gamini Sarathchandra Mohotti for Rs. 10,000/-, alleging that it was not a sale but a loan secured by the property. The transferee subsequently conveyed the land by Deed No. 10944 of 12.09.1990 to the Respondent for Rs. 40,000/-. The Petitioner claimed that the property was held by Mohotti in constructive trust under Section 83 of the Trusts Ordinance and that the transfer to the Respondent was fraudulent.

The District Court dismissed the Respondent’s action for ejectment. On appeal, the High Court reversed the decision and held that no constructive trust was proved. The Petitioner appealed to the Supreme Court.

Held:

To establish a constructive trust, the transferor must prove by credible attendant circumstances that he did not intend to dispose of the beneficial interest in the property (per Section 83, Trusts Ordinance).

Oral evidence alone cannot contradict a notarial conveyance (per Perera v. Fernando [17 NLR 486]), though parol evidence may be admissible if corroborated by surrounding circumstances (Dayawathie v. Gunasekara [1991] 1 SLR 115).

Factors such as continued possession, inadequacy of consideration, and existence of re-transfer agreements may constitute attendant circumstances (Ehiya Lebbe v. Majeed [48 NLR 357]; Carthelis v. Ranasinghe [2002] 2 SLR 359).

In the instant case, consideration was adequate, continuous possession not established, and no evidence (notarial or non-notarial) existed of an agreement to reconvey. Hence, no constructive trust arose.

The Respondent, having purchased for value without notice, was a bona fide purchaser protected under Sections 65(1), 66(1), and 98 of the Trusts Ordinance.

The doctrine of res judicata did not apply as the earlier action was dismissed for non-payment of costs and not upon adjudication on merits (Pannaloka Thero v. Saranankara Thero [1983] 2 SLR 523).

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40. P.U.Sanath Fernando & P.U.Navaratne Fernando

S.C.Appeal 8A/09 - WP/HCCA/Kal/132/2001(F) - D.C.Panadura: 845/L

Constructive trust - Section 83, Trusts Ordinance - Loan transaction disguised as sale

Attendant circumstances such as Continued possession, Purpose of transfer (security for loan), Sequential transfers, subsequently transferee acquiring beneficial title. - Bona fides and interest—Variation of relief.

The Plaintiff conveyed his land first to Weda Malini Dharmalatha by Deed No. 147 of 05.05.1987 to raise Rs. 50,000 at 24% interest and, when she demanded repayment, arranged a second conveyance to the 1st Defendant (son of the 2nd Defendant lender) by Deed No. 581 of 16.12.1987 to obtain Rs. 75,000 at 36% interest. The Plaintiff never parted with possession; he built a house, obtained utilities and subsidies, and the lender periodically collected interest. Later, the 1st Defendant executed Deed No. 3742 (31.05.1993) transferring an undivided 1/6 share to the 2nd Defendant.

The District Court held both deeds were not absolute transfers but security arrangements giving rise to a constructive trust in favour of the Plaintiff. The Civil Appellate High Court reversed. On leave, the Supreme Court allowed the appeal, restored the District Court’s decree (with a variation of interest period), and directed reconveyance upon payment.

Held:

Under s.83, Trusts Ordinance, if from the attendant circumstances it cannot reasonably be inferred that the transferor intended to part with the beneficial interest, the transferee holds on constructive trust for the transferor.

The proved circumstances, unbroken possession by the Plaintiff, the loan-security purpose, ongoing interest collections, improvements by the Plaintiff, and the internal dealings among lender/nominee, showed both deeds (Nos. 147 and 581) were loan securities, not outright sales.

A first transferee who holds on trust cannot convey beneficial title to a second transferee; the latter likewise holds subject to the trust.

The High Court erred in (i) discounting attendant circumstances; (ii) suggesting the Plaintiff had to deposit the loan sum to prove bona fides (that requirement is apt to specific performance suits, not to the declaration of a trust); and (iii) treating title search/registration as dispositive of beneficial title.

Reconveyance ordered upon payment of Rs. 75,000 with 36% p.a. interest limited to 10 years (given long pendency of litigation), rather than for the entire elapsed period.

Appeal allowed; District Court judgment affirmed with variation; reconveyance ordered upon payment as specified.

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41. Mohamed Haniffa Sithy Zulfika VS CHANDRANI SEELAVANGSHA

Mohamed Haniffa Sithy Zulfika

CHANDRANI SEELAVANGSHA

SC. (Appeal) No. 8A/2010

The Trusts – Constructive trust – Section 83, Trusts Ordinance – Loan transaction disguised as sale – Attendant circumstances – Continued possession – Alleged undervaluation – Proof of money lending – Attornment of tenant – Evidence and contradictions – Whether beneficial interest was transferred – Absence of proof of trust intention – Bona fide purchase.

The Plaintiff-Respondent instituted action in the District Court of Gampola seeking a declaration of title and ejectment of the Defendant-Appellant from the premises conveyed by Deed No. 2572 of 06.03.1986, asserting an outright sale. The Defendant-Appellant contended that the transaction was a loan secured by transfer and that she had not intended to part with the beneficial interest, invoking a constructive trust under Section 83 of the Trusts Ordinance.

The District Court and subsequently the Civil Appellate High Court (Kandy) both rejected the defence, holding that the Appellant’s evidence was contradictory, inconsistent and lacked credibility—particularly as she alternately claimed to have repaid the loan yet offered to repay it again if judgment was in her favour.

The Supreme Court (Tilakawardena, J.) upheld the findings, noting that:

Attendant circumstances did not support the existence of a constructive trust; the transaction appeared as an outright transfer.

The Appellant remained inconsistent regarding repayment and offered no credible proof of a loan arrangement or of any agreement to reconvey.

The alleged undervaluation was unfounded—the sale price in Deed P1 exceeded that in the prior Deed P2.

The Respondent’s husband was not proved to be a moneylender; occasional loans do not constitute a money-lending business (Dias Nagahawatte v. Alwis Appuhamy (1987) 288 SLR, citing Edgelow v. Mac Elwee [1918] 1 KB 205*).*

Tenant attornment was presumed in law; rent payments made after registration of transfer established ownership in the Respondent (Hameed v. Anamalay (1946) 47 NLR 558*).*

No express or implied trust intention appeared on the deed or before the notary, who would have recorded such conditions if intended.

Held: There were no attendant circumstances to infer that the transfer was meant as security for a loan; the beneficial interest passed to the Respondent. No constructive trust arose.

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42. R D GAMINI VS WICKREMA ARACHCHILAGE SUNEETHA

The “A party who pleads equity must first establish truth. Where evidence is self-defeating, equity cannot arise.”

Trusts — Constructive trust — Section 83, Trusts Ordinance — Loan transaction disguised as sale — Burden of proof — Inconsistent pleadings — Failure to produce primary deed and informal agreement — Unreliable testimony — Unjust enrichment — Absence of credible evidence — Outright transfer versus conditional retransfer.

The Plaintiff sought a declaration that the Defendants held the suit property in constructive trust for her, alleging that the deed of transfer (No. 4057) was executed merely as security for a loan of Rs. 25,000, with an informal undertaking to reconvey (marked P2). She also claimed, in the alternative, on unjust enrichment. The Defendants contended that the deed was an absolute transfer for valuable consideration and denied any trust or informal agreement.

The District Court dismissed the action, holding that the Plaintiff’s evidence was self-contradictory, vague, and unsupported by documents. The High Court affirmed, finding no basis to disturb the trial court’s findings.

Before the Supreme Court, the Plaintiff argued that the deed was “subject to an undertaking of retransfer,” thereby creating a constructive trust. However, the Court observed that:

The Plaintiff failed to produce the primary deed (No. 4057) or the alleged contemporaneous agreement (P2) in evidence;

Her testimony shifted between alleging a conditional transfer and claiming the deed was a forgery, destroying her credibility;

No attendant circumstances were proved to infer a trust; and

Even the alternative plea of unjust enrichment could not succeed without proof of value or enrichment.

Held:

The Plaintiff’s case rested entirely on unsubstantiated allegations. The failure to produce the deed, the inconsistent evidence, and the absence of reliable corroboration were fatal. Deed No. 4057 was an outright transfer, not a conditional one. No constructive trust or unjust enrichment was established.

Appeal dismissed. No costs.

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43. Balasuriya L. Somawathie v. Severinus D Ranjith Alles

S.C. Appeal 144/2011 (decided on 05.12.2019)

Trusts Ordinance – Constructive Trust under Section 83 – Bona fide purchaser under Section 98 – Burden of proof – Attendant circumstances – Effect of transfer through intermediary – Absence of beneficial interest – Requirement of evidence – Notice of trust – Rights of transferees in good faith – Sections 65, 66, 83 and 98 of the Trusts Ordinance – Section 66 of the Primary Courts’ Procedure Act – Judicial evaluation of “attendant circumstances.

Held:

1. To establish a constructive trust under Section 83 of the Trusts Ordinance, the person asserting such a trust must lead cogent evidence of attendant circumstances from which the court can reasonably infer that the transferor did not intend to part with the beneficial interest in the property.

2. Mere assertion of continued occupation or personal hardship, without independent evidence or witnesses, is insufficient to establish that a transferor retained a beneficial interest after an absolute transfer.

3. A transferor’s “secret intention” or “oral promise” does not constitute an attendant circumstance within the meaning of Section 83. The term “attendant” refers to circumstances connected with or accompanying the transfer and not too remote in time.

4. When the property passes through successive conveyances executed for valuable consideration and without conditions, a constructive trust cannot arise in favour of the original owner unless clear evidence of a fiduciary obligation or intention to reconvey exists.

5. A bona fide purchaser for valuable consideration is protected under Section 98 of the Trusts Ordinance, and his rights cannot be impaired by alleged prior equitable interests not proved or notified.

6. In the absence of proof that the purchaser had notice of a trust, the transaction stands protected under Section 98, and the transferee acquires an unassailable title.

7. Where a trust is not established, it is unnecessary to consider procedural questions relating to parties or prayers for relief.

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44. Hewage D P Owitigala vs KARUNASENA HATHURUSINGHE

SC. Appeal 41/2013 - SC(HC) CALA. Application No. 68/12 -WP/HCCA/Kal/84/2002(F) - D.C. Matugama No. 710/Spl. - SC. Appeal 41/2013 - SC(HC) CALA. Application No. 68/12 WP/HCCA/Kal/84/2002(F) D.C. Matugama No. 710/Spl.

Constructive Trust – Section 83 of the Trusts Ordinance – Sections 91 & 92 of the Evidence Ordinance – Attendant Circumstances – Loan disguised as sale – Effect of undervalue and possession – Evaluation of concurrent judgments.

The plaintiff transferred land to the defendant by deed No. 3344 of 17.11.1987 for Rs. 40,000/-, claiming it was merely security for a loan and not an outright sale. The District Court held that a constructive trust had arisen under Section 83 of the Trusts Ordinance and ordered re-transfer of the property. The High Court first affirmed, but upon re-hearing after substitution, reversed its earlier decision and held the deed was an outright sale.

Held, by Eva Wanasundera, PCJ. (Aluwihare, PCJ. and Sarath de Abrew, J. agreeing):

The surrounding circumstances, continued possession by the plaintiff, absence of the original deed with the defendant, implausibly low consideration, and the relationship of lender and borrower, clearly showed that the beneficial interest was never intended to be transferred. The High Court erred in disregarding the District Judge’s factual findings and misapplied Section 83 of the Trusts Ordinance.

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45. Krishanthy Balasubramanium Vs VELLAYAR KRISHNAPILLAI

Trusts – This case concerns resulting and constructive trusts under section 83 of the Trusts Ordinance. The Court considered what constitutes “attendant circumstances” and clarified the burden of proof required to establish a trust.

Conveyancing – The question arose whether the transfer was an outright sale or merely a security for a loan. The Court examined the application of section 2 of the Prevention of Frauds Ordinance, and discussed whether an oral promise to reconvey could be proved through parol evidence under section 92 of the Evidence Ordinance.

Evidence – The Court analyzed the adequacy of consideration, conduct inconsistent with retention of beneficial interest, delay in asserting ownership, payment of municipal rates, the effect of witnessing a subsequent transfer, and acts of possession including forcible entry.

Appellate review – The grant of Special Leave was confined to one question, namely whether the Court of Appeal erred in affirming a trust without properly evaluating the evidence presented before the District Judge.

Facts

The respondents were original co-owners (P4), later partitioned adjoining lands and became owners of a divided lot (P3). In 1975 each respondent transferred his/her undivided half share to Murugaiah Jegatheswary by Deeds P5 and P6 (Rs. 2,100 each), out-and-out transfers attested by a notary with consideration paid. In 1976 Jegatheswary conveyed the entirety (Schedule B) to Logeswary Balasubramaniam (2nd appellant) by P7; the 1st respondent signed as a witness. In 1986 the 2nd appellant donated a portion (Schedule B, western part) to the 1st appellant by P8.

Respondents alleged the 1975 transfers were in trust and sought reconveyance on payment of Rs. 4,200 (loan + interest) said to be referenced in P5/P6. The District Court dismissed the appellants’ rei vindicatio, ordered reconveyance upon payment; the Court of Appeal affirmed. Special Leave was granted only on whether the Court of Appeal erred in confirming a trust without evaluating all the evidence.

Held (per Sripavan, J.)

1. No trust under s. 83 of the Trusts Ordinance. On a careful appraisal of oral and documentary evidence, the Court could not reasonably infer, consistently with the attendant circumstances, that the transferors intended to retain the beneficial interest. P5 and P6 are facially absolute sales, for valuable consideration paid before the notary; no stipulation for reconveyance appears.

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CONSTRUCTIVE TRUST FOR THE JUNIOR BAR - WRITER WAS A PRACTITIONER IN LAW FOR A SHORT PERIOD IN GALLE UNDER THE PUPILAGE OF ANANDA WICKRAMASEKERA P.C

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