D. L. KARIAPPERUMA and another, Appellants, and D. J. KOTELAWALA, Respondents

040-NLR-NLR-V-77-D.-L.-KARIAPPERUMA-and-another-Appellants-and-D.-J.-KOTELAWALA-Respondents.pdf


Rariapperuma v. Kotelawala
106
1971 Present : H. N. G. Fernando, C.J., and Thamotheram, J.
D. L. KARIAPPERUMA and another, Appellants, andD. J. KOTELAWALA, Respondent
S. C. 111/66 (F)—D. C. Panadura, 8332/L
Contract—Informal agreement to convey immovable property—Fraudu-lent breach of such agreement—Whether a constructive trust canbe inferred—Prevention of Frauds Ordinance (Cap. 70), s.2—Trusts Ordinance (Cap. 87), ss. 5, 83 to 96.
A and B were co-owners and parties in a partition action. Afterinterlocutory decree was entered, B gave an informal writing to Awhereby he agreed to convey to A after the decision of the partitionaction a certain portion (44) perches) of the corpus which hadbeen mistakenly allotted to B instead of A in the interlocutorydecree. After the final decree was entered, B, in breach of theinformal writing, conveyed the portion to a third party C.
In the present action A claimed a declaration that the portion of44£ perches was held in trust by either B or C or both of them.The trial Judge held that the provisions of section 96 of the TrustsOrdinance were applicable. His opinion was that, whenever thereis a fraudulent breach of an informal agreement to transfer land,the person committing the breach must thereafter hold the propertyunder a constructive trust.
Held, that the informal writing, for lack of due notarial executionin terms of section 2 of the Prevention of Frauds Ordinance, wasnot “ of force or avail in law Section 96 of the Trusts Ordinancewas not applicable for the reason that full title had already vestedby operation of statute law in B before he made the informalpromise.
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H. N. G. FERNANDO, O.J.—Kariapperuma v. Koielawala
^PPEAL from a judgment of the District Court, Panadura.
C. Ranganathan, Q.C., with H. E. P. Cooray, for the defendants-appellants.
G. P. J. Kurukulasuriya, with F. N. D. Jayasuriya, for theplaintiff-respondent.
Cur. adv. vult.
May 29, 1971. H. N. G. Fernando, C.J.—
In a partition action No. 5739 D. C. Kalutara, Interlocutorydecree was entered on 10th June 1960. By that decree certainshares were allotted to one D. L. Kariapperuma who was thesecond plaintiff in the action, and also to his wife who was thirdplaintiff. Certain other shares were allotted to one D. J. Kotela-wala who was the 4th plaintiff. Thereafter Final Decree in thataction was entered after commission for partition. According tothe Final decree entered on 24th April 1961, the 2nd and 3rdplaintiffs were allotted Lot 15 in the final Plan of partition, whichwas a Lot in extent 1a. 2r. 28.07p.
On 27th September 1961 the former 2nd and 3rd plaintiffsexecuted an usufructuary mortgage of 40 perches out of Lot 15,and on 30th June 1962 they sold the entire Lot 15 to one T. S.Subasinghe.
In the present action D. J. Kotelawala (the former 4th plaintiff)sued D. L. Kariapperuma (the former 2nd plaintiff), as the1st defendant, and the purchaser of Lot 15 as the 2nd defendant,for a declaration that a share of Lot 15, equivalent in extent to44i perches, is held in trust by either or both of the two presentdefendants.
According to the findings of the learned District Judge in thepresent action, the present plaintiff found at the time of the finalsurvey in the Partition action that the Lot which was beingallotted to him appeared to be much smaller than the extent towhich he was entitled in respect of his former undivided holding.Examination of the Interlocutory decree then showed that certainshares which should have been allotted in that decree to thepresent plaintiff had been instead allotted to the former2nd plaintiff, i.e., the present 1st defendant Kariapperuma. Thepresent plaintiff’s Proctor had then advised that the propercourse to rectify the error would be to make an application inrevision to the Supreme Court.
H. K. G. FERNANDO, C.J.—Kariapperuma v. Kotelawala197
The present plaintiff thereafter discussed the matter withKariapperuma who then stated that the matter could be adjustedwithout incurring the expenditure involved in an application tothe Supreme Court. At that stage Kariapperuma gave to thepresent plaintiff a writing, a translation of which is markedP 13 : —
“ Agreement written and granted.
Regarding Case No. 5739 of the D. C. Panadura.
I, the undersigned Don Liyoris Kariapperuma (2ndplaintiff) of Dombagoda, have inadvertently included inthe lots of the 2nd and 3rd plaintiffs 2/280 + 1/28 shares(44J perches) on the Eastern side of the land, belonging toDon James Kotelawala the 4th plaintiff in the case.
Therefore I do hereby agree that the said extent of landshall be conveyed to him by me and my wife the 3rd plain-tiff by a deed of transfer after one month of the decisionof the action.
Sgd. D. L. Kariapperuma.”
Be it noted that this writing was given on 21st February 1961which was about 2 months before the final decree was ultimatelyentered. Kariapperuma’s subsequent conduct in disposing of theentirety of Lot 15 to the present 2nd defendant establishesperhaps that he did deceive the present plaintiff by giving himthe writing P13, and thus prevented an application being madeto this Court for the correction of the error in the Interlocutorydecree.
On the facts found in favour of the present plaintiff, thelearned District Judge has held that the provisions of s. 96 of theTrusts Ordinance applies in this case.
With the utmost respect, I cannot agree with the opinion of thetrial judge and with the argument of Counsel for the plaintiff inappeal that the judgment of Keuneman J. in Valliyammai Atchiv. O. L. M. Abdul Majeed1 (45 N. L. R. 169) is of any assistance tothe plaintiff. In that case, the owner of certain properties hadtransferred them to a creditor in pursuance of an informal agree-ment that they would be held by the transferee in trust, theobject of the transfer being to prevent the sale of the propertiesat the instance of the owner’s unsecured creditors. The terms ofthe informal agreement were that the transferee would managethe properties, take the income and give credit to the owner for
1 4H N. L. R. ICS.
!*•—A 08 461 (74/07)
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H. N. G. FERNANDO, C.J.—Kariapperuma v. Kotelawala
the income collected. Any of the properties could be sold at theinstance of the original owner, but the proceeds of such saleshad to be paid to the transferee. Finally, accounts between theoriginal owner and the transferee were to be looked into, and thetransferee was to re-transfer to the original owner any propertywhich remained.
Although the facts in that case were complicated, and althoughdifficult questions arose as to the admissibility of oral evidence inproof of a trust, what is important for present purposes is thatthere was in that case a transfer of property to a person, whoaccording to the evidence had actually agreed to hold theproperty as a trustee. Keuneman J. in holding that there was atrust, did not in any way rely on s. 96 of the Trusts Ordinance.There is no reference in the judgment to that section.
The distinction between the present case and that ofValliyammai Atchi becomes clear from the judgment of thePrivy Council in the appeal in that case (48 N. L. R. 289). Therewas in that case ample oral evidence that the transferee actuallyagreed to hold the property in trust for its former owner. Theonly question was whether oral evidence was admissible toestablish the trust. On that question, Their Lordships first heldthat “the formalities necessary to constitute a trust relating toimmovable property are those laid down in s. 5 (1) of the TrustsOrdinance, and not those in s. 2 of the Prevention of FraudsOrdinance ”. Their Lordships then relied on sub-section (3) ofs. 5 of the Trusts Ordinance for holding that “ the rule that atrust must be executed in accordance with sub-section (1) is notto operate so as to effectuate a fraud ”. If the transferee in thatcase “ had repudiated the trust. …, his conduct would have
been manifestly fraudulent”. On this ground, it was held thatparol evidence could properly be admitted to establish thecreation of a trust under s. 5 of the Trusts Ordinance.
Thus Valliyammai Atchi’s case was not one in which aconstructive trust was held to exist by operation of law. Instead,it was held that an express trust had been created.. But in thepresent case, the opinion of the District Judge appears to be that,whenever there is a fraudulent breach of an informal agreementto transfer land, the person committing the breach mustthereafter hold the property under a constructive trust.
That opinion is not borne out by any of the provisions of theTrusts Ordinance dealing with the creation of a “ constructivetrust”. Sections 83 to 91 and ss. 93, 94 and 95 deal with entirelydifferent situations.
H. N. G. FERNANDO, C.J.—Kariapperuma v. Kotelawala
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It occurred to me at one stage that s. 92 might assist the presentplaintiff. It provides for a case “ where a co-owner of propertyby availing himself of his position as such, gains an advantage inderogation of the rights of the other persons interested in theproperty”. When the decree in the partition action incorrectlyallotted excessive shares to the present 1st defendant, he didgain an advantage in derogation of the plaintiff’s rights. But thereis no evidence to show that the error from which that advantageresulted was induced by the 1st defendant having availedhimself of his position as a co-owner. In the ordinary course, aninterlocutory decree is prepared by the Proctor representing theplaintiff in a partition action. In this partition action, the sameProctor represented the present plaintiff and the present 1stdefendant, who were co-plaintiffs in the action. The error wascommitted by the Proctor who was the agent of both parties, andwas unfortunately adopted by the Court. There is thus no scopefor the application of s. 92.
There remains for consideration only s. 96 which declares that“ where the person having possession of property has not thewhole beneficial interest therein, he must hold the property forthe benefit of the persons having such interest What is con-templated in s. 96 is a case in which the legal title of the apparentowner of property is in law subject to some beneficial interestheld by other persons; if so, the property is held for thebenefit of the persons having such interests. The illustrations tos. 96 support the construction that the section is intended toprotect interests which some persons may have in law in respectof property held by another. The section recognises an existingright ; but it does not purport to create any right. In the instantcase, however, the contention can be only that the 1st defendantagreed to transfer 44J perches of land to the plaintiff, or elsethat when he fraudulently resiled from that agreement, theplaintiff became entitled to a beneficial interest in that extent ofland. I find no support in s. 96 for this contention.
After judgment was reserved in the instant case, I quitefortuitously came upon another decision, given a few monthsafter that of Keuneman J., which is directly relevant on thequestion whether any trust exists in the circumstances of this
case.
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H. X. Q. FERNANDO, C.J.—Kariapperurna v. Kotelawala
In Sanmugampillai v. Anjappa Kone 1 (45 N. L. R. 465), a partyhaving legal title to certain property became bound by asettlement recorded in an action to convey the property to X,or any nominee of X, on payment of Rs. 35,000. In pursuance ofthis settlement, the party bound by it transferred the propertyto a nominee of X on payment of that sum by the nominee. Onthe same day, the nominee entered into an informal writing,agreeing to transfer the property to X on payment to him of asum specified in the agreement. Soertsz J. held that the nomineewas not a trustee ; there was merely his informal agreement totransfer the property to X, but that agreement was void as beingobnoxious to the Prevention of Frauds Ordinance.
It seems to me that the facts of the present case negative theexistence of a trust even more clearly than the facts of the casedecided by Soertsz J. In that case, there was at least the possibi-lity of some implication of a trust, because the nominee could nothave acquired title to the property, but for the fact that he wasthe nominee of X. In the present case, the 1st defendant’sacquisition of a title to lot 15 did not depend on any assistanceprovided by the present plaintiff, but depended instead on theInterlocutory decree entered by the District Court.
The writing P 13, like the writing considered in the judgmentof Soertsz J., is merely an agreement to convey 44J perchesof land to the present plaintiff ; even the word “ trust ” is notonce used in P13, so that it furnishes no evidence that the 1stdefendant agreed to hold that 44£ perches as a trustee. Sucha writing, for lack of due notarial execution, is not “ of force oravail in law ” (s. 2 of Cap. 70).
The most favourable construction for the plaintiff of the factsof the instant case is that the representation made to him in P13by the 1st defendant induced the plaintiff to desist from makingan application to the Supreme Court for the rectification of anerror in the Interlocutory decree entered by the District Court.Even if such a representation could have been constituted acause of action entitling the plaintiff to some relief against the1st defendant, the plaintiff did not in this action claim any suchrelief. As for the 2nd defendant, who has the legal title to thesubject-matter of this action, he was certainly not called uponin this action to answer such a claim.
> 45 JV. L. B. 465.
H. N. G. FERNANDO, C-J.—Kariapperuma v. Kotelawala
201
For these reasons, the appeal has to be allowed, and theplaintiff's action is dismissed. In the circumstances, I order thatthe plaintiff will pay costs in both Courts only to the 2nddefendant.
Thamotheram, J.—I agree.
PostScript
I much regret that owing to an error in my note of thearguments in this appeal, my judgment attributed to Counselfor the respondent a submission different from that which heactually made. His submission that a trust arose in this case didnot depend on the judgment of Keuneman J. in ValliyammaiAtchi’s case (45 N. L. R. 169), although it happens somewhatcuriously that that judgment was of assistance in considering thequestion to be decided in the present case. But Counsel haddepended instead on a judgment of the same learned Judgereported in the same volume of the Report—Jonga v. Nanduwa(45 N. L. R. 128).
In that case a land had been transferred to the defendants bya Deed (P2) which reserved to the vendor the right “ to redeemthis transfer ” by paying a specified sum of money within aspecified period. When the defendants were sued for the re-transfer, they pleaded that they had not signed the Deed (P2),and that the provision for the re-transfer was void underSection 2 of the Prevention of Frauds Ordinance.
Referring to Section 96 of the Trusts Ordinance, Keuneman J.stated that under that Section an obligation in the nature of atrust arises if “ the person having possession of property has not 'the whole beneficial interest therein ”, and if some other personhas that beneficial interest. Having regard to this requirement inthe Section, he pointed out that “ it is clear that a person cannotbe held to be a constructive trustee unless he owes some duty tothe other persons interested ”. He then applied the law to thefacts of the case in the following passage : —
The very terms of the grant here set out the condition,and the defendant must be regarded as having takenpossession under the grant coupled with the condition. I thinkthe defendant, who entered into possession under thesecircumstances, owed this duty to the first plaintiff, viz., tohave the property available for the condition to be carriedinto effect. I do not regard this as a mere personal right
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vested in the first plaintiff. In fact the defendant did notreceive the “ whole beneficial interest ” but only the beneficialinterest burdened with the condition, and this fractionalportion deducted enured to the benefit of the first plaintiff.Although, in strict law, if this was treated merely as acontract, the condition could be defeated under the Ordinanceof Frauds, yet in equity the obligation in the nature of atrust can be enforced. I hold that the present case comeswithin the scope of section 96 of our Trusts Ordinance whichis a section of wide application.
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On the facts in Jonga v. Nanduwa, the defendants entered intopossession of the land by virtue of the Deed of Sale P2, and itwas because of the condition in the Deed itself that the defen-dants did not receive the “ whole beneficial interest ” ; in otherwords, the Deed did not convey the full dominium, because thesubject of the transfer was the ownership of the land, less theright to obtain a re-transfer. This right was not enforceable assuch, because of section 2 of the Prevention of Frauds Ordinance ;but since the vendor did reserve that right to himself, thedefendants had to hold the property to the extent necessary tosatisfy the vendor’s just equitable demands.
The facts of the instant case are in no way comparable. Thepresent 1st defendant obtained title to the shares allotted to himby the interlocutory decree ; and at the time when that titleaccrued, there was no reservation whatsoever in favour of thepresent plaintiff either in the decree itself or even in any oralagreement between the parties. Hence the whole beneficialinterest was vested in the first defendant by the decree, andthere was no duty owed by him to the present plaintiff.
What happened in the instant case was that full title vestedby operation of statute law in the 1st defendant, and that hethereafter made an oral promise to convey a part of the land tothe plaintiff. That oral promise formed no part of the transactionin which the title vested in him, because the promise was madeonly at a later stage. That being so, there arises in this casemerely the familiar question whether an oral promise to conveyan interest in land has any validity in law. That question isclearly answered by Section 2 of the Prevention of Frauds:Ordinance.
Appeal allowed.