Rakken and Another vs Alagappudayan

Best, J.—The District Judge dismissed the appeal on the ground that the document executed by the appellants ""must be taken to be what it

purports to be--an outright deed of sale,"" and that they ""cannot be permitted to plead a contemporaneous oral agreement or arrangement under

which it was to be treated as a mortgage.

The question of the admissibility of oral evidence to prove that an apparent sale is, in fact, a mortgage has been considered very fully in Baksu

Lakshman v. Govinda Kanji ILR 4 Bom. 594, and the rule ""most consonant both to the statute law and to equity and justice"" found to be that

though a party, whether plaintiff or defendant, who sets up a contemporaneous oral agreement, as showing that an apparent sale was really a

mortgage, shall not be permitted to start his case by offering direct parol evidence of such oral agreement, yet ""if it appears clearly and

unmiatakeably from the conduct of the parties that the transaction has been treated by them as a mortgage, the Court will give effect to it as a

mortgage and not as a sale; and thereupon, if it be necessary to ascertain what were the terms of the mortgage, the Court will, for that purpose,

allow parol evidence to be given of the original oral agreement.

The courts will not allow a rule, or even a statute, which was introduced with a view to suppressing fraud, to be used as a weapon or means of

effecting a fraud [Lincoln v. Wright 4 De G. & J. 16].

The above decision of the Bombay High Court was approved and followed by Garth, C.J., and Mitter, J., in Hem Chunder Soor v. Kally

Churn Das ILR 9 Cal. 528, and by this Court in Venkatratnam v. Reddiah ILR 13 Mad. 494.

The case of Kashinath Dass v. Harrihur Mookerjee ILR 9 Cal. 898 may also be referred to in support of the position that Section 92 of the

Evidence Act is not a bar to the admission of evidence of subsequent conduct and surrounding circumstances for the purpose of showing that what

on the face of it is a conveyance is really a mortgage. As was observed, however, in the case last referred to, it must be recollected that the rule

turns on the fraud which is involved in the conduct of the person who is really a mortgagee, and sets himself up as an absolute purchaser; and that

the rule of admitting evidence for the purpose of defeating this fraud would not apply to an innocent purchaser without notice of the existence of the

mortgage, who merely bought from a person who was in possession of the title-deeds and was the ostensible owner of the property.

The respondent (plaintiff) in the present case claims possession of the property as such innocent purchaser, whereas the appellants point out that

he is a near relation of first defendant and contend that the sale of the land to him by the latter is merely collusive and intended to defraud them.

The District Judge has not recorded any finding on the second issue, but simply states that the appellants "" may have been in enjoyment

throughout."" If so, this and the fact of their being "" still the pattadars "" are circumstances favourable to their contention that their property was

merely mortgaged and not sold outright to first defendant.

The Lower Appellate Court''s decree must be set aside and the case remanded for replacement on the file and disposal on merits. The costs

incurred hitherto will abide the result, and be provided for in the decree to be passed by the Lower Court.

Muttusami Ayyar, J.

I come to the same conclusion. I desire, however, to rest my decision on the ground stated by Lord Justice TURNER in Lincoln, v. Wright 4

De G. & J. 16. His Lordship said in that case "" Without reference to the question of part performance on which I do not think it necessary to give

any opinion, I think the parol evidence is admissible and is decisive upon the case. The principle of this Court is that the Statute of Frauds was not

made to cover fraud. If the real agreement in this case was that, as between the plaintiff and Wright, the transaction should be a mortgage, it is in

the eye of this Court a fraud to insist on the conveyance as being absolute, and parol evidence must be admissible to prove the fraud. Assuming the

agreement proved, the principle of the old cases as to mortgages seems to be directly applicable. Here is an absolute conveyance when it was

agreed that there should be a mortgage and the conveyance is insisted on in fraud of the agreement. The question then, as I view it, is whether there

was such an agreement as this bill alleges, and, upon the evidence, I am perfectly satisfied that there was. Besides, the agreement for the mortgage

was only part of an entire transaction, and the appellant cannot, as I conceive, adopt one part of the transaction and repudiate the other."" Thus the

ratio decidendi was that the conveyance formed only part of the real agreement, and that the oral agreement which gave a claim to equitable relief

formed another part of the same transaction. Again, the ground for departing from the ordinary rule of evidence was subsequent unconscionable

conduct in taking advantage of that rule and thereby endeavouring to mislead the Court into the belief that what was only an apparent sale, but a

real mortgage was a real sale and not a mortgage. The fraud referred to by the Lord Justice was not fraud practised at the time when the document

was executed, but the advancement of a claim in fraud of the true intention or the real agreement of the parties. It seems to me that Section 92 of

the Evidence Act, as observed in Venkatratnan v. Reddiah ILR 13 Mad. 495, does not render evidence of the oral agreement inadmissible, for, if

the real agreement were proved, it would invalidate the document as a deed of absolute sale within the meaning of the 1st proviso to Section 92 of

the Evidence Act and constitute a ground for a Court of equity and good conscience giving effect to it only as a mortgage. Nor do I see my way to

adopting the rule that a party should not first start his case with proof of a contemporaneous oral agreement and then confirm it by evidence of

subsequent acts and conduct of the parties, but that he should prove the latter first and then proceed to prove the former. The subsequent acts and

conduct are only indications of the contemporaneous oral agreement, and it is such agreement that is the real ground of equitable relief. Such rule

involves in it the anomaly that, while indirect evidence of the true agreement is admissible, notwithstanding Section 92, direct evidence of the same

is not admissible. I do not, however, desire to be understood as saying that it would be safe to rely on the uncorroborated oral evidence of the

contemporaneous oral agreement at variance with the terms of a document, but I think the absence of corroborative evidence in the shape of

subsequent possession and conduct and other circumstances is an objection that ought to go to the credit due to the parol evidence and not to its

admissibility. In the case before us, there was such corroborative evidence though the weight due to it was a matter for the Judge to determine. I

concur in the remarks made by my learned colleague about a bond fide purchaser for value without notice or knowledge of the real agreement of

the parties and in the necessity for a distinct finding on the 2nd issue and in the order proposed by him.