1936 Present : Abrahams C.J. and Fernando A.J.

SATHASIVAM v. ATHARIYA

87-D. C. Colombo, 48,002.

Agreement-Settlement between debtor and creditors-Agreement by third party to pay the deficit-Decision as to amount of deficit-Binding on obligor.

O. L. M. was indebted to several creditors and a settlement was arrived at by which it was agreed that the plaintiff respondent should receive his assets and realize the proceeds for the benefit of his creditors. The first defendant gave a mortgage bond to cover any deficit between the sum realized and O. L. M's debts, the liability on the bond not to exceed Rs. 15,000. It was inter alia agreed under the terms of the bond that the statement rendered to the defendant by the plaintiff as receiver aforesaid of the amounts realized by the conversion of the assets and book debts of O. L. M. shall be final, binding, and conclusive on the defendant.

Held, that the agreement was valid.

An agreement to submit to the decision of one party to a contract any dispute arising out of that contract is an exception to the doctrine that a party ought not to be judge in his own cause.

APPEAL from a judgment of the District Judge of Colombo.

Chelvanayagam (with him Muttucumaru), for defendants, appellants.

N. Nadarajah (with him J. R. Jayawardana), for plaintiff, respondent.

September 4, 1936. ABRAHAMS C.J.-

The facts which led to this appeal are as follows. One O. L. M. Majeed, a hardware merchant, was indebted to various creditors, and a settlement was arrived at by which it was agreed that his stock-in-trade should be handed over to the plaintiff-respondent who should receive it, sell it, and realize the proceeds for the benefit of the creditors. The first defendant-appellant gave a mortgage bond to the plaintiff-respondent to cover any deficit between the sum realized and Majeed's specified debts, but her liability was limited to Rs. 15,000. The plaintiff-respondent was the obligee of this mortgage bond. It is material to this appeal that the final clause of the bond ran as follows : -

"And I hereby expressly agree that I do hereby expressly waive all privileges and exceptions to which sureties are by law entitled and that the statement rendered to me by the said obligee as receiver as aforesaid of the amounts realized by the calling and conversion of the said assets and book debts of the said Oduma Lebbe Marikar Abdul Majeed shall be final, binding, and conclusive on me and shall not be open to question by me on any ground whatsoever."

Subsequently, the proctors for the plaintiff-respondent wrote the first defendant-appellant to the effect that the total gross receipts realized by the sale of the aforesaid assets, and from recoveries made, totalled Rs. 134,972.89. The latter added that, in addition to this sum, the receiver "has one lot of steam flanges of the value of

Its. 2,000 which are practically unsaleable". A demand for Rs. 15,000 due on the bond was made in the letter, to which apparently no reply was received. Judgment was given against the first defendant-appellant for the amount claimed.

It is argued in this appeal that the final clause of the mortgage bond is not binding on the first defendant-appellant. Counsel, so far as I can understand the submissions, contended that the obligor of the bond had to all intents and purposes agreed to consent to judgment on what might be mere assertions of the obligee, and that she thereby, bound herself not to raise any defence that might be open to her. Counsel was unable to give any authority for the proposition that such a clause in an agreement does not bind. He appeared to think that it ought not to be binding, and therefore was not binding. Counsel for the plaintiff-respondent, on the other hand, submitted that this clause was tantamount to a submission to the arbitration of one party to an agreement by the other party, and he cited a passage from Hudson on B