FERNANDO v. COORAY

• Jurisdiction: Sri Lanka
• Date: 18 November 1957
• Type of Document: New Law Report

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1957 Present : Basnayake, C.J., Pulle, J., K. D. de Silva J.,
T. S. Fernando, J., and L. W. de Silva, A.J.

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

S. C. 99-D. C. Colombo, 6,639/L

H. W. H. SIRIWARDENA et al., Appellants (in Appeal No. 476),
and W. D. SARNELIS et al., Respondents

S. C. 476-D. C. Gampaha, 3,604/C/D

Vendor and purchaser-Sale of immovable property-Reservation of condition for reconveyance-Parol evidence of a mortgage-Admissibility-Evidence Ordinance, ss. 21, 92 (provisos 1 and 6).

Held (BASNAYAKE, C. J., dissenting), 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 ex facie 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 parol evidence of surrounding circumstances to show that the transaction was not a sale but a mortgage. Such parol evidence, even if admitted without objection, would offend the provisions of section 92 of the Evidence Ordinance and cannot be acted upon.

APPEALS from a judgment of the District Court, Colombo, and a judgment of the District Court, Gampaha. These two appeals were referred to a Bench of five Judges under section 51 (1) of the Courts Ordinance.

H. W. Jayewardene, Q.C., with G. T. Samerawickreme, B. S. G. Ratwatte and N. R. M. Daluwatte, for plaintiff-appellant in Appeal No. 99.

E. B. Wikramanayake, Q.C., with A. L. Jayasuriya, Colin Mendis and E. D. Wikramanayake, for the defendant-respondent in Appeal No. 99.

A. M. Ameen, with M. Hussein, for the plaintiffs-appellants in Appeal No. 476.

C. V. Ranawake, with A. Nagendra, for the 2nd and 3rd defendants-respondents in Appeal No. 476.

Cur. adv. vult.

[The following judgment was delivered in Appeal No. 99 :-

November 18, 1957. K. D. DE SILVA, J.-

The plaintiff-appellant purchased the two small allotments of land which form the subject matter of this action on deed No. 407 dated November 3,1941 (Dl) for a sum of Rs. 300. By deed No. 2560 of August

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18,1950 (P1) he sold and transferred the same to the defendant-respondent for a consideration of Rs, 3,407/87, subject to a condition, in the following terms :-" To have and to hold the said premises hereby sold and conveyed with the rights and appurtenances unto the said vendee and her heirs, executors and administrators and assigns absolutely forever subject however to the condition that she shall reconvey the said premises to the vendor within two years from this date at the cost of the vendor if he shall repay to the vendee or her aforesaid the sum of Rs. 3,407/87 together with interest at 15% per annum from this date and until such payment the vendor shall be in possession of the same. "

The plaintiff having failed to pay the sum of Rs. 3,407/87 within the stipulated period which expired on August 18,1952, the defendant entered into possession of the lands thereafter.

In his action which was instituted on September 16, 1952, the plaintiff alleged that he " was always of the impression " that the deed P1 was given as security for the sums of money borrowed by him from the defendant and he pleaded that this deed was really a document to secure the repayment of money. In the prayer, he asked, inter alia, that the deed P1 be declared a security and not a transfer and that he be restored to possession of the lands.

The defendant in her answer averred that the deed P1 was an outright transfer subject to the condition set out therein and that on the failure of the plaintiff to comply with that condition she lawfully entered into possession of the lands.

The case proceeded to trial on several issues and the learned District Judge held that the deed P1 was an outright transfer subject to the vendor's right to claim a re-conveyance within two years on the payment of the stipulated sum. He also took the view, relying on the decision in Setuwa v. Ukku[1 (1955) 56 N. L. R. 337, ], that it was not open to the plaintiff to seek to vary the unambi-' guous terms of the deed P1 by attempting to show that it is something other than what it purports to be. Accordingly he dismissed the action with costs. This appeal is from that judgment. In view of the conflicting decisions on the question of law which arises for determination in this case My Lord the Chief Justice has, in terms of section 51 (1) of the Courts Ordinance (Cap. 6), referred this appeal to a Bench of five Judges.

The main question for decision is whether the transaction relating to P1 amounts merely to a security for money lent or whether it is a contract of sale of immovable property subject to a condition for reconveyance. Mr. Jayewardene, for the appellant, submitted that it was the former, while Mr. Wikramanayake for the respondent, contended that it was the latter. If this deed created only a security for money lent the document would be regarded as a mortgage and the equity of redemption cannot be lost despite the time limit laid down for the performance of the conditions-Saminathan Chetty v. Vanderpoorten [2 (1932) 34 N. L. R. 287.]. But,

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if it is a bill of sale subject to a condition time of the contract and the condition must be performed within the stipulated period-de Silva v. de Silva.[1 (1937) 39 N. L. R. 169.]

P1 on the face of it purports to be a contract of sale subject to a condition. However, Mr. Jayewardene argued that, no matter what label the parties attached to a particular transaction, it was the duty of the Court to scrutinize it carefully and ascertain its true nature. This view finds support from Grotius and Voet. Grotius expressed the view that an agreement embodied in a written contract relating to two ships, although drawn up in the form of a sale was a transaction in the nature of a pledge. [2 Opinion No. 74 of Opinions of Grotius-De Bruyn's Translation.]

Dealing with " Disguised Pledge " Voet states, " Such a contract of pledge, though it is sometimes cloaked by the contracting parties under the title of purchase or of giving by way of payment, nevertheless does not on that account remain the less a pledge, when the accompanying circumstances prompt that view according to the opinion of Hugo Grotius. " [3 Voet Bk. 3, Title 7, Section 1-Gane's Translation, Vol. 3, page 54.] This principle has been acted upon by the Courts both here and in South Africa. It was held in Zandberg v. Van Zyl [4 1910 A. D. 302.] that regard should be had to the substance of the transaction and not to the designation that the parties attach to it. Innes J. who was one of the three Judges who decided that case stated, " Not frequently, however, (either to secure some advantage which otherwise the law would not give, or to escape some disability which otherwise the law would impose), the parties to a transaction endeavour to conceal its real character. They call it by a name, or give it shape, intended not to express but to disguise its true nature. And when a Court is asked to decide any rights under such an agreement, it can only do so by giving effect to what the transaction really is ; not what in form it purports to be. " A similar view was expressed in Bhunja v. Khoja [5 1937 N. L. R. 246.] . In de Silva v. de Silva Hearne- J. adopted the same view.

Mr. Wikramanayake conceded that it was the duty of the Court to ascertain the true nature of the transaction evidenced by the deed but he maintained that for that purpose the Court was not entitled to go outside the document itself. He relied on the decision in Setuwa v. Ukku.[6 (.1955) 56 N. L. R. 337.] Mr. Jayewardene submitted that case was wrongly decided and that the correct statement of law was as laid down in Palingu Menika v. Mudiyanse [7 (1948) 50 N. L. R. 566.] which is a case decided by My Lord the Chief Justice when he was a Puisne Justice. Setuwa v. Ukku is a recent case decided by Gratiaen J. and Sansoni J. Most of the relevant Ceylon cases on this question have been referred to by Sansoni J. in his judgment in that case. The facts in that case are as follows :-In the year 1929 the 1st defendant borrowed a sum of Rs. 700 from the 1st plaintiff on a mortgage bond. In 1937 the 1st defendant sold the land in dispute and another land to the

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1st plaintiff for a sum of Rs. 1,410 of which Rs. 1,350 was set off against the principal and interest due on the mortgage and the balance was paid in cash. By a contemporaneous deed the 1st plaintiff agreed to retransfer the lands to the 1st defendant if she paid a sum of Rs. 1,410 within a period of 5 years. The 1st defendant failed to comply with the terms of the agreement and the 1st plaintiff in 1949, gifted the land in dispute to the 2nd plaintiff. In an action brought by the plaintiffs against the 1st defendant and 4 others for a declaration of title etc., the defendants pleaded that the deed of sale in favour of the 1st plaintiff though in form a transfer was in fact a mortgage for the repayment of Rs. 1,410 and that the 2nd plaintiff had no title to the land. In support of this contention evidence, both oral and documentary, of the circumstances surrounding the transaction of 1937 and the subsequent conduct of the parties was led by the defendants. After considering the numerous decisions on the matter, Sansoni J. observed, " If I may sum up the result of the authorities I have referred to I would say that it is never open to a party who executes a conveyance which is .unambiguously a deed of sale to lead parol evidence to show that it is a deed of mortgage." In Palingu Menika v. Mudiyanse [1 (1948) 50 N L. R. 566. ] which was decided before the last mentioned case the relevant facts were the following :-Palingu Menika and one Nadar on P1 sold and transferred a land to Mudiyanse the plaintiff for Rs. 75 reserving the right to re-purchase the...