Wakilii

Lalji v Ahmed (C.A. 14-1933.)

East African Court of Appeal · [1933] EACA 2 · 1933 Appeal Allowed AI-generated summary ↓ Download Pin to watchlist Add to matter
Jurisdiction
Uganda
Case Type
Appeal from Supreme Court of Kenya dismissing action on promissory notes
Decision
Judgment entered for the appellant on the original promissory notes

Observed later treatment

No later-treatment classification is recorded for this judgment.

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Holding

The Court of Appeal held that the word 'debtor' in the Deeds of Arrangement Ordinance should be construed by reference to the Bankruptcy Ordinance. However, the respondent did not commit an act of bankruptcy merely by offering a composition, as his statements to creditors did not amount to statutory notice of suspension of payment. The deed of arrangement therefore did not require registration in Kenya. Nevertheless, the appeal was allowed because the deed did not operate as an immediate release of the original debt, and the respondent failed to tender the promissory notes required by the deed. The appellant was entitled to sue on the original promissory notes. The fraudulent secret arrangement could not excuse the respondent from performing his obligations under the deed.

Outcome

Judgment entered for the appellant on the original promissory notes

Facts

The appellant sued the respondent on two promissory notes dated January 1932, due in April 1932. The respondent, a trader in Uganda, entered into a deed of arrangement dated 1 May 1932 with his creditors, including the appellant, offering to pay 50 per cent of debts in eighteen monthly instalments secured by promissory notes signed by himself and his brothers. The respondent came to Kenya and obtained signatures from creditors in Mombasa and Nairobi. The appellant signed the deed only after a secret arrangement that he would receive 50 per cent in cash rather than by instalments, giving him preferential treatment over other creditors. The respondent failed to tender the promissory notes required by the deed. The trial judge dismissed the appellant's suit, holding that the original promissory notes were discharged by the deed and that the fraudulent arrangement waived the requirement to tender new notes.

Issues

  1. Whether the word 'debtor' in the Deeds of Arrangement Ordinance, 1930, should be construed by reference to the Bankruptcy Ordinance, 1930.
  2. Whether an arrangement between a debtor and creditors requires registration in Kenya when effected with a debtor in Uganda.
  3. Whether the respondent committed an act of bankruptcy by offering a composition to creditors.
  4. Whether a deed of arrangement accepted by creditors under conditions is voidable if conditions are not fulfilled.
  5. Whether the appellant could sue on the original promissory notes where the respondent failed to tender new promissory notes as required by the deed of arrangement.
  6. Whether a fraudulent secret arrangement between debtor and creditor excuses the debtor from performing obligations under the deed of arrangement.

Orders

  • Appeal allowed.
  • Costs awarded to the appellant in this Court and the Court below.
  • Judgment to be entered for the plaintiff as prayed.

Rules and key headnotes

Deeds of Arrangement — Construction of 'Debtor' — Reference to Bankruptcy Ordinance
The word 'debtor' in the Deeds of Arrangement Ordinance, 1930, should be construed by reference to the Bankruptcy Ordinance, 1930, as both Ordinances are in pari materia and were enacted on the same day.
Deeds of Arrangement — Registration Requirements — Act of Bankruptcy
An arrangement between a debtor and creditors requires registration if the debtor already is or becomes by the arrangement a debtor under the Bankruptcy Ordinance, meaning a person who has committed an act of bankruptcy.
Deeds of Arrangement — Act of Bankruptcy — Notice of Suspension of Payment
A debtor's statement to creditors that he cannot pay debts in full, coupled with an offer of composition, does not necessarily amount to notice that he has suspended or is about to suspend payment of debts within the meaning of the Bankruptcy Ordinance where the statement is equivocal and the debtor could continue to carry on business if the composition were refused.
Deeds of Arrangement — Extra-territorial Effect — Registration in Kenya
It is not necessary to register in Kenya an agreement with creditors effected with a debtor in Uganda where the debtor has not committed an act of bankruptcy and is not subject to the bankruptcy laws of Kenya.
Novation — Deed of Arrangement — Suspension versus Discharge of Original Debt
A deed of arrangement providing for payment of a composition does not operate as an immediate release of the creditor's original rights where the deed stipulates that creditors will execute a release only upon payment of the composition. The original cause of action is suspended, not extinguished, and revives upon the debtor's failure to perform obligations under the deed.
Deeds of Arrangement — Conditions Precedent — Tender of Promissory Notes
Where a deed of arrangement requires the debtor to procure and tender promissory notes as security for payment of composition instalments, it is the debtor's duty to tender the notes to the creditor, not the creditor's duty to apply for them. Failure to tender the notes entitles the creditor to pursue the original cause of action.
Illegality — Fraudulent Arrangement — Ex Turpi Causa Non Oritur Actio
A debtor cannot rely on a fraudulent secret arrangement with a creditor to excuse his failure to perform obligations under a deed of arrangement. The maxim ex turpi causa non oritur actio applies as much against a defendant as against a plaintiff, and neither party will be allowed to invoke a fraudulent arrangement to depart from the legal position established by the deed.

Legislation cited (7)

  • Deeds of Arrangement Ordinance, 1930
  • Bankruptcy Ordinance, 1930 s.3(1)(h)
  • Bankruptcy Ordinance, 1930 s.3(2)
  • Bankruptcy Ordinance, 1930 s.3(1)(b)
  • Bankruptcy Ordinance, 1930 s.6(1)
  • Indian Contract Act s.62
  • Bills of Exchange Act s.62

Cases cited (24)

  • In re A. B. and Co. [1900] 1 QB 541
  • Cooke v The Charles A Vogeler Co [1901] AC 102
  • Dulaney v Merry [1901] 1 KB 536
  • In re Dagnall. 65 L.J. Q.B.D. 666
  • In re Midgley. 108 L.T.R. 45
  • North Western Salt Co Ltd v Electrolytic Alkali Co Ltd [1914] AC 461
  • Cranley v. Hillary, 105 E.R. 327
  • Hazard v. Marc, 158 E.R. 179
  • Ex parte Castler, In re Friedlander (1883) 13 QBD 471
  • Re Walsh, Ex parte Trustee, 52 L.T.R. 694
  • Atkinson v. Denby, 11 S.L.C. 13th Ed. 399 at 400
  • Good v. Cheesman, 109 E.R. 1165
  • Société Générale de Paris v. Green, 8 A.C. 606 at 615
  • Cook v. Lister, 143 E.R. 235
  • Foster v. Dawber, 155 E.R. 790
  • Mayhew v. Boyes, 103 L.T.R. p. 1 at p. 3
  • Ex parte Oliver, In re Hodgson, 64 E.R. 866 at 870
  • Morris v Baron and Co [1918] AC 1
  • Re Entwistle, Ex parte Turner (1891), 65 L.T.R. 349
  • Holman v. Johnson, 98 E.R. 1121
  • Simpson v. Blase, 129 E.R. 99
  • Cox v. Watson (1878), 47 L.J. Ch. D. 263
  • Crook v. Morley, 61 L.J. Q.B. p. 97
  • In re Lamb, 2 Morrell Bankruptcy Cases, p. 25

Full judgment

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Lalji v Ahmed (C.A. 14-1933.) [1933] EACA 2 (1 January 1933)
Source: this page presents Wakilii’s issue analysis and metadata for a publicly reported Ugandan judgment. Any AI-generated summary is marked as such. Judgment text is sourced from the Uganda Legal Information Institute (ulii.org). Wakilii is not affiliated with ULII.