002-NLR-NLR-V-54-NEWTON-et-al-Appellants-and-SINNADURAI-Respondent.pdf
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GRATIAEN J.—Newton v. ISinriadurai
present: Gratiaen J. and Gunasekara J.NEWTON ef al., Appellants, and SINNADURAI, RespondentS. O. 250—D. G. Point Pedro, 4,733
Contract—Consent decree—Terms of settlement—Mistake—Power of Court to rectify/ it.
V'
Where the terms of settlement in a compromise arrived at between theparties to an action were carelessly drawn up in such a manner that they wereincapable of enforcement—
Held, that the consent decree could be rectified so as to give effect to thereal intention of the parties. If necessary, the Court could substitute freshterms which would be more in accordance with the substantial result whichthe parties had intended to achieve.
_/.PPEAL from a judgment of the District Court, Point Pedro.
This was an action on a promissory note. The parties arrived at asettlement according to which plaintiff agreed to transfer to a Companycertain shares which had been allotted to him ; and the defendantsagreed to pay to the plaintiff the amount of the promissory note. Aconsent decree was accordingly drawn up.. The defendants, however,discovered at a later date that the Company was precluded by itsArticles of Association from having the shares transferred to it. There-upon, they applied to the District Court for a declaration that thepurported settlement was inoperative and null and void. The plaintiff,on the other hand, claimed that he had fulfilled his part of the bargainand was therefore entitled to the benefit of his decree for the sumpayable on the promissory note sued on. The learned District Judgeupheld the latter contention. The defendants thereupon appealed.
N. E. Weerasooria, K.G., with T. W. Iiajaratnam, for the defendantsappellants.
S. J'. V. Ghelvanayakam, K.G., with V. _S. A. Pullenayagam, for theplaintiff respondent.
Cur. adv. vidt.
July 25, 1951. Gratiaen J.—
The difficulties presented by the questions arising for considerationin this appeal can all be traced to the carelessness with which the termsof compromises in pending litigations are so often drafted for submissionto the Court of trial. Indeed, I venture to suggest that some responsi-bility attaches in such cases to the trial Judge himself, whose dutyit is to enter a decree in accordance with the terms of settlement : thatresponsibility involves a duty to ensure that the decree so passed isembodied, in language which, while giving full effect to the intentionsof the litigants, is at the same time capable of enforcement should thenecessity arise.
This action relates to certain transactions which were allegedlyconnected with the incorporation of a private Company with limitedliability known as “ Newton’s Ltd. ”, The plaiqtiff sued the defendants
GRATIAEN J.—Newton v. Sinnadurai
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jointly and severally for the recovery of a sum of f^s. 2,500 and intentdue to him in terms of their promissory note dated September 26, 1947.The defendants admitted the execution of the note, but pleaded by wayof defence that they had discharged the debt by their fulfilment of acontemporaneous promise to secure the allotment to the plaintiff of25 shares in the Company of the aggregate par value of Rs. 2,500;These shares, they said, had been duly registered in the plaintiff’s name.The plaintiff, however, strenuously asserted that no such allotmentof shares had been authorised by him.
After some preliminary evidence had been led, the parties arrivedat a settlement of this dispute. The basis of the compromise wasthat the plaintiff, who presumably had less confidence in Newtons Ltd.than the defendants had, was prepared to place at their disposal theshares which had at their instance been registered in his name, and thedefendants in that event were willing to pay back to him the amountof the promissory note which was alleged to represent the value of theshares in question. A consent decree was accordingly drawn up on25th February, 1949, in the following terms :—
“ It is ordered and decreed of consent that on the plaintiff disclaim-ing all right, title and interest in the 25 shares ..allotted to him by theCompany called Newtons Ltd. and further stating that he will infuture have no further claim on the Company and that he will give'a writing to be considered by the Board of Directors of the saidCompany wherein he will ask the Company to buy over all his rightsto the said shares, and on this undertaking the defendant statingthat when the necessary papers referred to are executed and sentover to the company he will become liable in the amount claimedin the pro note to the plaintiff and the plaintiff do execute this writingreferred to and forward the same to the Company before 7.2.49.
It is further ordered and decreed that if this writing is executed andsent before 7.2.49 that the defendant should be given six weeks timefrom 7.2.49 to pay and settle the amount claimed on the pro note.It is agreed that on payment of the sum claimed in this case theplaintiff will return the title deeds, insurance policy and other documentswhich have been handed over by the defendant to the plaintiff.
It is ordered and decreed that if the writing is not so given by theplaintiff the action will stand dismissed with costs. If he gives thewriting the agreement will be given effect to as recorded.
And it is further ordered and decreed that if the writing is givenbut the defendant fails to pay the claim on the pro note within sixweeks from 7.2.49 then the defendant will be liable to pay costs.If the defendant pays the amount claimed within six weeks as agreedupon the costs will be divided ”.
That the parties had at this stage settled their disputes and genuinelydesired to give effect to the terms of this compromise is clear enough.In fact, the plaintiff furnished the stipulated disclaimer within theprescribed time, and expressed his willingness to make over the sharesto the Company in terms of the decree. Unfortunately, however,
2*J. N. B 18635 (7/55)
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QRAXiAEN 3.-^-Newton v. Sinnadurai
j defendants disdpvered at a later date what any reasonable manEngaged in a business transaction of this kind would have been concernedto ascertain before the terms of the final settlement was drawn up—namely, that “ Newtons Ltd. ” was precluded by its Articles of Associationfrom holding shares in its own business, and that the plaintiff’s dis-claimer in favour of the Company was valueless. '
In these circumstances the defendants applied to the Court for adeclaration that the purported settlement of 25th January, 1949, wasinoperative and therefore null and void. The plaintiff on the otherhand claimed that, on an application of the strict terms of the compro-mise, he had fulfilled his part of the bargain and was accordingly entitledto the benefit of his decree for the sum payable on the promissory notesued on. The learned District Judge upheld the latter contention,and :the effect of his order is that the plaintiff would not only succeedin recovering the money advanced to the defendants but would alsoretain the shares for which he had admittedly not paid. I Tefuse tothink that the law can countenance a situation so violently opposedto the spirit of the settlement which had been carelessly but honourablyarrived at in January, 1949.
It is necessary in the first instance to examine the terms of the recordedsettlement in the background in which the negotiations had takenplace. I shall then proceed to consider whether it was not legitimatefor the learned Judge to find some means of giving effect to the realintention of the parties to the compromise by adding to the terms ofthe agreement, and, if necessary, substituting fresh terms which wouldbe more in accordance with the substantial result which the partieshad intended to achieve.
On the first question I find no difficulty whatsoever. The plaintiffdid not wish to be burdened with the shares which the defendantshad purchased in his name. He demanded instead the return ofhis money which he had advanced to them. Obviously he could notreasonably retain the shares as well as demand the money. Thedefendants on their part agreed to repay the money on condition thatthe shares were transferred by the plaintiff to some person nominatedby them and from whom they could claim the consideration which theyhad provided for their purchase. Who that person should be, was amatter in which the plaintiff had no concern. It was only of subsidiaryimportance, not vital to the main purpose of the transaction. If thecompromise be looked at in this light, it is abundantly clear that thesubstantial agreement between the parties was that the plaintiff shouldhave a decree for the payment of the money advanced on the promissorynote provided that he agreed to take the necessary steps to transfer the shares ■to a person nominated and selected by the defendants.
In their attempt to give effect to this agreement, the terms of thesettlement were carelessly conceived and carelessly drawn up. Thetransferee nominated to receive the shares standing in the plaintiff’sname was not qualified in law to receive them. Is the Court then sopowerless that it must sanction a result which the parties themselvesdid not intend and would not, if they had addressed their minds to thequestion at the proper time, have contemplated ?
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GRATIAEN J.—Newton v. Sinnadurai
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One answer to the problem lies, I think, in thej-power of the Courtto rectify on equitable grounds a written agreement which, owing to■a common mistake, does not substantially represent the real intentionof the parties, and even to order specific performance of the agreementas rectified. United States of America v. Motor Trucks Ltd. 1.“ The
essence of rectification is to bring the document which was expressedand intended to be in pursuance of a prior agreement into harmonywith that prior agreement …. It presupposes that by commonmistake the final completed instrument fails to give proper effect tothe prior contract ”. Lovell and Christmas Ltd. v. Wall 1 2. The real scopeof the equitable jurisdiction vested in a Court of equity is not to rectifythe contract itself but to rectify the instrument in which the terms of thecontract have been inaccurately represented. Mackenzie v. Coulson3 4.That such jurisdiction is vested in our Courts has long been recognized.Fernando v. Fernando4 and Meerasaibo v. Theivanayagam Fillai 6.
In the present case it is also permissible, in my opinion, to read intothe recorded settlement of January, 1949, certain implied terms in orderto repair an intrinsic failure of expression. This power exists whenever“ the document which the parties have prepared may leave no doubtas to the general ambit of their obligations ; but they may have omitted,through inadvertence or faulty draftsmanship, to cover an incidentalcontingency, and this omission, unless remedied, may frustrate theirdesign. In such a case the Judge may himself supply a further termwhich will- implement their presumed intention and, in a hallowedphrase, give business efficacy to the contract. In doing this, he doesnot impose a term ab extra, but merely does what the parties wouldthemselves have done had they thought of the matter Cheshire andFifoot’s Law of Contracts 6.
The leading English authority on this point which has frequentlybeen followed in our Courts is The Moorcock1.“ The question ”,
said Bo wan L. J., “ is what inference is to be drawn where the partiesare dealing with each other on the assumption that the negotiationsare to have some fruit, and where they saw nothing about the burdenof an unseen peril, leaving the law to raise such inferences as are reason-able from the very nature of the transaction ”. I would refer to onefurther decision in which Mackinnon L.J. makes an observation whichseems very aptly to meet the problem with which we are confrontedin the present case :—
“ Prima facie that which in any contract is left to be implied andneed not be expressed is something so obvious that it goes withoutsaying ; so that, if while the parties are making their bargain anofficious bystander were to suggest some express provision for it intheir agreement, they would testily suppress 'him with a common£ Oh, of course ’ ”. Shirlaw v. Southern Foundaries Ltd. 8
1[1924) A. C. 196.5 (1922) 24 N. L. It. 453.
2104 L. T. 85.6 1st edition "page 102.
3L. R. 8 Eq. 375.? (1889) 14 P. D. 64.
4(1921) 23 N. L. R. 266.3 (1939) 2 K. B. 206.
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GBATTAKN J.—Nezeton v. Sinnadurai
Let us assume that( when the terms of settlement between the partieswere communicated to the Court in their present form, the learnedJudge himself, and not merely some “ officious bystander ”, had posedthe very pertinent question, “What would be the position if it is discoveredthat a transfer of the 25 shares by the plaintiff to Newtons Ltd.cannot be lawfully effectedCan it reasonably be suggested that
the answer would have been, as the plaintiff’s counsel in effect suggestedin the lower Court, “ Of course, in that event the plaintiff is entitled toretain the shares and have his money as well ?” or that the defendantwould have replied that the whole basis of the settlement must thenfall through 1 On the contrary, I do not doubt that both parties wouldhave informed the Judge that if Newtons Limited, in whom the defend-ants had a controlling interest, could not lawfully obtain a transferof the shares, it would be equally satisfactory that the plaintiffshould make the shares available to any other person nominated by thedefendants.
For these reasons I think that the Court is entitled, and indeed induty bound, to give effect to the intention of the parties either by recti-fying the terms of the recorded settlement or by reading into thoseterms an implied agreement to the effect that the plaintiff should, inthe eventuality which has occurred, implement the true purpose of theagreement by transferring the shares to any person nominated by thedefendent. I would therefore amend the decree passed in the lowerCourt on 25th January, 1949, and substitute for it a decree in thefollowing terms :—
“ (1) that the defendants should jointly pay to the plaintiff a sumof Rs. 2,500 with interest thereon calculated at the rate of 12 per cent,per annum from 26th September, 1947, until 25th January, 1949, andthereafter with legal interest on the aggregate amount of the decreeuntil payment in full.
that the plaintiff should sign and execute, on demand, suchtransfer forms or documents as may be tendered to him by the defen-dants for the purpose of transferring the 25 shares in Newtons Limitedstanding in his name to any person or persons nominated by thedefendants, and that, in the event of his failure to sign and executesuch forms or documents within one week of demand, the Secretaryof the District Court of Jaffna be authorised to sign and execute thesame on the plaintiff’s behalf
Tn all the circumstances of the ease I would make no order as to thecosts of this appeal or of the action or the incidental proceedings in theCourt below.
Gtoasekaea J.—I agree.
Decree amended.