DE SILVA et al., Appellants, and SILVA et al., Respondents

041-NLR-NLR-V-58-DE-SILVA-et-al.-Appellants-and-SILVA-et-al.-Respondents.pdf

1950Present: Pulie, J., and Weerasoorlya, J.DE SILVA et al., Appellants, and SILVA et al., Respondents
S. C. 159—D. G., Malar a, 22,869 L
TrustsTransfer of property to defraud creditors—Constructive trust—Elements
necessary—In pari delicto potior est conditio possidentis—Rule against unjustenrichment—Trusts Ordinance, ss. 82, 83.'
A oxecuted a conveyance of certain lands in favour of B intending to transferto B not only tlio legal title to tho lands but also tho beneficial interest in themso as to put them beyond the reach of his creditors, fully believing that in duotime B, in whom A had complete confidence, would effect a re-transfer of thosamo lands in favour of A.
In tho present action A’s intestato heirs sued B claiming a reconveyance oftho lands to them.
Held, (i) that although the facts might have constituted a ground for aPaulian action at the instance of the creditors of A, no constructive trust withintho meaning of sections 82 and S3 of the Trusts Ordinance was created by thoconveyance executed by A.
(ii) that, even if a constructive trust was established, tho plaintiffs, as heirsof A, would have to rely on tho fraud committed by A. The maxim in paridelicto potior est conditio possidentis being applicablo in the circumstances, theplaintiffs could not maintain the action.
Held further, that, inasmuch as the execution of the conveyance by A actuallyresulted in his creditors being dofrauded and any unjust enrichment accruingto B was at tho oxponso of tho defrauded creditors and not of the plaintiffs, thoplaintiffs could not avail themselves of the maxim that no person ought to boenriched at the oxpense of another {nemo cum dam no alterius locupletior fieridebet).
J^lPPEAL from a judgment of the District Court, Matara-.
Sir Lalila Rajapakse, Q.G., with A. C. Gunaraine, for the plaintifFs-appeliants.•
jD. S. Jayawickreme, Q.G., with D. It. P. Goonelilleke, for the 1stdefendant-respondent.
N.E. Weerasooria, Q.C., with D. R. P. Goonelilleke, for tho 2nddefendant-responden t.
Cur. adv. vull.
7LVIII —
2J. > B 61300—1,593
May 18, 1956. Weerasoobiya, J.—
In this case tho plaintiffs-appellants seek to obtain a decree declaring—
(а)that Deed No. 688 (Pi) dated tho 27tli November, 1948, executed
by one William Ediriweera in favour of the 1st defendant-respondent created a trust- and that the 1st defendant-respondentheld the several lands transferred thereon in trust for thoplaintiffs ;
(б)that Deed No. 34065 dated the 2nd August, 1951, by which the 1st
defendant-respondent purported to sell the said lands to the2nd defendant-respondent “ is of no force or avail in Jaw as the2nd defendant has purchased the said properties with notice ofthe said trust ” ; and
that the 2nd defendant-respondent is liable to re-convey the saidlands to the plaintiffs.
The 1st and 2nd defendants in the respective answers filed by themtake up tho position that Deed P1 was a transfer for valuable considerationpaid by the 1st defendant to William Ediriweera and on the executionthereof the legal title to, as well as the beneficial interest in, the said landspassed to the 1st defendant who subsequently, by Deed No. 34065,conveyed the same to the 2nd defendant, also for valuable consideration,and they accordingly pra3r for a dismissal of the action.
Tho 1st plaintiff is the widow and the 2nd to Sth plaintiff's are theminor children of William Ediriweera who died on the 13th May, 1950,and they bring this action as his intestate liens. The 1st plaintiff alsoclaims to be the duly appointed administratrix of the estate of herhusband in D. C., Matara, Case No. 4,472 (Testamentary).
The case went to trial originally on eight issues the first of which is inthe following terms : “Was deed No. 688 of November 27, 1948 (PI)attested by Iffr. R.Hewagama, Notary Public, executed by the late WilliamEdiriweera in favour of the 1st defendant in trust for the said WilliamEdiriweera ? ”. It is clear that a decision of this issue in the negativewould necessarily involve a dismissal of the entire action. UnderSections 82 and 83 of the Trusts Ordinance (Cap. 72) a constructive trustis created whenever the owner of property transfers it and it cannotreasonably be inferred consistently with the attendant circumstancesthat he intended to dispose of the beneficial interest therein. Theburden was, therefore, on the plaintiffs to prove the alleged circumstancesin which P 1 came to be executed from which it cannot reasonably beinferred that Ediriweera intended to dispose of tho beneficial interest intho lands transferred thereon. In order to discharge this burden the1st plaintiff stated in tho evidence given by her at the trial that Ediriweerawas very attached to the 1st defendant, who is a son of Edinweera’smother’s brother, and had complete confidence in him. About threeyears prior to the execution of P 1 the 1st defendant had purchased in hisname, on Deed P 3, a certain land for a sum of Es. 1,400. It has been
cslablished conclusively that the full consideration on P 3 ivas providedby Ediriweera. The 1st plaintiff also stated that on the 1st defendant’smarriage he received as a gift a substantial sum of money from Edirhvecraand that on other occasions as -well the 1st defendant benefited byEdirhvecra's generosity towards him.
There is evidence that on the same date on which P 1 was executedEdiriweera transferred to one Julian Silva, a brother of the 1st plaintiff,by Deed P 2 such divided interests in Ediriweera’s residing house andgarden and another land as would be allotted to Ediriweera (in lieu of hisundivided interests) in two partition actions which-were then pending inthe District Court of Matara in respect of those lands. P 2 purports to bea deed of sale for a sum of 11s. 1.000 and is attested bjr the same notaiywho attested P 1 and he has declared in the attestation clause that thefull consideration on P 2 passed in his presence. Both P 1 and P 2 havebeen duly registered. Although the consideration on P 1 is stated to beKs. 7,000, the lands dealt with hi that deed would ajjpear to be worthmuch more, as one of them alone had been purchased by Ediriweera in19-17 at a partition sale for Rs. 7,000. The 1st plaintiff also stated that ator about the time of the execution of P 1 and P 2 Ediriweera transferredcertain other lands of his in favour of one William Silva, who is anotherbrother of the 1st plaintiff, and that after Edii'iweera’s death WilliamSilva re-trajisferred those lands to the 1st plaintiff. Neither the originaltransfer in favour of William Silva nor the deed of re-transfer have,however, been produced in these proceedings.
At the time when P 1 and P 2, as also the transfer in favour* of WilliamSilva, were executed it would appear that Ediriweera was indebted tovarious creditors to the extent of Ks. 15,000, and that in an action filedby another creditor writ had been taken out against Ediriweera to enforcepaj'ment of the comparatively small sum of Ks. 300 for which judgmenthad been entered in favour of the plaintiff in that case. According to the1st plaintiff the object of her husband in executing these transfers was toput liia p roller ties out of the reach of his creditors. That he achieved thisobject is shown by the fact that- in two subsequent actions filed by certainof his creditor's for the recovery of monies due to them the decrees whichthey obtained against Ediriweera remained unsatisfied. Affidavits werefiled by Ediriweera in those actions stating that he was not possessed ofany property or income..
The 1st plaintiff staled, further, that even after P 1 had been executed,her husband continued to be in possession of the properties which hadbeen transferred on that- deed and took the income from them. In supportof this assertion she produced the documents P 5a, P Ga, P 7, P 8 and P 9.
P 5a and P Ga are dated respectively the 1st December, 194S, and t-ho31st December, 1949, and they purport to be receipts for rent for premisesdescribed as No. 157, Bogahalange, Pinwatta. P 7 is a receipt for irri-gation contribution in respect of the land Muhandiramge Amraai. Apartfrom the evidence of the 1st plaintiff there is nothing, however, to showthat the lands to which these documents refer are any of the lands trans-ferred on P 1. P S is a certified copy of a plaint filed by Ediriweera in the
year 1945 suing a certain party in respect of an alleged encroachment ofone of the lands transferred on P 1. P 9 is a certified copy of the decreeentered in the'case and it shows that a few months after the execution ofP 1 the dispute was compromised by the payment of a sum of Es. 550 toEdiriweera by the defendant in the case. The fact that Ediriweera agreedto this compromise does not appear in any way to bear out the evidenceof the 1st plaintiff that the land which was the subject matter of thataction was possessed by Ediriweera even after P 1 had been executed.
In regard to the consideration of Es. 7,000 on deed P 1, the 1st plaintifftried to make out that it was provided by Ediriweera. She does notclaim, however, to have been present when P 1 was executed, and in orderto substantiate this allegation she had to rely on the evidence of thenotary who attested P 1 and his clerk. The evidence of both thesewitnesses was unsatisfactory and was completely discredited by the trialJ udge.
After the 1st plaintiff had given her evidence-in-chief on the first dateof trial, two further issues of law were raised by counsel for the 2nddefendant and allowed by the trial Judge without any objection beingtaken to them. These issues (as subsequently amended) read as follows:—
“ 9. Did William Ediriweera purport to transfer to the 1st defendantwith the intention of defrauding his creditors or with theintention of perpetrating a fraud ?
10. If so, are the present plaintiffs entitled to maintain this action forthe re-transfer of the land from the 2nd defendant ? ”
The 1st plaintiff was recalled and further examined-in-chief and alsocross-examined, and then counsel for all the parties invited the Court todecide these issues as preliminary issues. Although counsel for the 1stdefendant reserved further cross-examination of the 1st plaintiff oncertain unspecified points, it would appear that at this stage all theevidence available to the plaintiffs in proof of their case had been adducedby them. The learned trial Judge thereupon gave judgment answeringissue No. 9 in the affirmative and issue No. 10 in the negative anddismissing the plaintiff's action with costs. In so answering these issuesthe trial Judge held—
that P 1 was executed for valuable consideration paid by the vendee
to the vendor;
that neither William Ediriweera nor the plaintiffs had possession of
the lands in suit since the execution of P 1 ; and
that the purpose of the execution of P 1 was to delay payment of
the debts due from Ediriweera to his creditors and to put thetransferred lands beyond their reach and that both of theseillegal objects had been achieved.
He held on the authority of Saurmma cl al. v. Mohamadu Lebbe 1 that asthe plaintiffs, in order to establish a constructive trust as nlleged by them,would have to rely on the fraud committed by Ediriwepra in executingPI, the maxim in pari delicto potior csl conditio possidentis applies and theyronnnt. therefore, maintain this action.
In regard to the findings at (a), (b) and (c) above, there is sufficientevidence on record to justify them and I see no reason to disturb them.On these findings the position that emerges is that Ediriwcera in executingP 2 intended to transfer to the 1st defendant not only the legal title to thelands in question but also the beneficial interest in than so as to put thembeyond the reach of his creditors, fully believing that in due time .the1st defendant, in whom (as the 1st plaintiff herself stated) Ediriwcera hadcomplete confidence, would effect a re-transfer of the same lands inEdiriweera’s favour. Assuming that the 1st defendant was aware of thepurpose of the transfer (on which matter there is no definite finding bythe trial Judge) the facts may have constituted a ground for a Paulianaction at the instance of the creditors of Ediriwcera who were defrauded bythe execution of P 1, but it is apparent that no constructive trust wascreated on that deed, and if the occasion had arisen for the trial Judgeto decide on the other issues as well, issue No. 1 would have had to boanswered in the negative and the plaintiffs’ action dismissed.
In regard to the actual ground on which the plaintiffs’ action was dimissed, learned counsel representing them at the hearing of the appe;sought to distinguish the present case from that of Saurmma et al. ■Mohamadu Lebbe (supra) on the submission that even if the 1st plaintibecame aware of Ediriweera’s fraud it was after P 1 had been executeand that as she was no party to it neither she nor, in any event, the otlieplaintiffs could be regarded as in pari delicto so as to justify the application of the maxim relied on by the trial Judge. Learned counsel ha<to concede, however, that had Ediriwcera himself sued the 1st defendanfor a declaration that P 1 had been executed in trust the maxim woul<undoubtedly have been applicable and his action dismissed. I do not se<how the plaintiffs can claim to be in a better position since they too haveto set up Ediriweera’s own fraud as the ground on which they ask for tindeclaration that P 1 created a constructive trust.
Learned counsel for the plaintiffs also relied on the case of Andris vP unchi ham y -. The report of this case has the misleading head-notethat the point decided was that where A transferred his property to 33without consideration and with the object of defrauding his creditors, itwas open to the heirs of A to sue B for the same. The facts of that casearc that the plaintiff sued for a declaration of title and ejectment of thedefendant who was the widow of the vendor on a deed by which the latterpurported to sell to the plaintiff for valuable consideration the land indispute. The defendant while admitting the transfer stated that herhusband (the vendor) received no consideration, that the deed wasexecuted in trust and with the object of defrauding his creditors, thatnotwithstanding its execution the vendor remained in possession of the
(i9i-3) n y. r,. n. sor.
(1922) 21 X. I,. It. 203.
land and that after his death she, as his widow, continued in possession. Thisevidence' of the defendant was accepted by the trial Judge who, however,gave judgment fpr the plaintiff. But the judgment was reversed in appealby Ennis J., who, while accepting the findings of fact arrived at by thetrial Judge, held that although under Roman-Dutch Daw a poison whoconveys with an intention to defraud is not entitled to any relief, thiswas a ease where the plaintiff could not be allowed to enrich himself at theexpense of the defendant who was in possession of t he land. The judgmentdoes not indicate whether the execution of the deed actually resulted in thecreditors of the vendor being defrauded. In the present case, however,there is clear evidence that Ediriwcera succeeded in achieving what heset out to do when he executed P 1, and even if the Jtoman-Dutch Lawmaxim that no person ought to be enriched at the expense of another(nemo cum damno altcrius locuplctior fieri debet) is applicable in anappropriate case, it cannot avail the plaintiffs in the present case sinceany unjust enrichment accruing to the 1 st defendant was at the expense ofEdiriwecra’s creditors and not of the plaintiffs.
The same maxim was applied in favour of the plaintiff in Moha-medu-Marikar v. Ibrahim Naina 1 but that case too can be distinguished fromthe present case as it was held there that, although the plaintiff’stransfer was without consideration and intended to defraud third parties,the contemplated fraud was not effected. On the facts of that case itcould have been urged, therefore, that as between the plaintiff and thedefendant, who was the administrator of the estate of the deceasedtransferee, there would have been -unjust enrichment accruing to thetransferee’s estate at the expense of the plaintiff if the impugned deedwas allowed to stand. .
In my opinion the appeal fails and must he dismissed with costs. •PuLiLE, J.—I agree.
Appeal dismissed.