Chandrakant Vinubhai Patel v Frank Lionel Marealle and Another [1984] TLR 231 (CA).

CHANDRAKANT VINUBHAI PATEL v FRANK LIONEL MAREALLE AND ANOTHER 1984 TLR 231 (CA)

Court Court of Appeal of Tanzania - Dar Es Salaam

Judge Mustafa JJA, Makame JJA and Kisanga JJA

July 17, 1984

B CIVIL APPEAL 5 OF 1984

Flynote

Land Law - Disposition of an interest in land - Requisite consent not obtained - Agreement void and unenforceable.

Contract - Delay in payment of instalment - Transaction completed and property in shares had passed - Whether rescission of agreement possible.

Company Law - Shares - Transfer of shares - Act of handing over share certificates duly endorsed in blank D and signing share transfer forms in blank - Whether property in the shares has passed.

-Headnote

The appellant Chandrakant Patel is the legal representative of Vinubhai Patel. The latter entered into an agreement to purchase business and premises of New Sea View Hotel Ltd. (a private limited E liability company) with furniture and fixtures for shs.600,000/= from the respondents. The agreement for the disposition of interest in the said premises did not get consent of the Director of Land Development Services. After the appellant had paid a substantial part of the price and the vendor F had handed over the share certificates endorsed in blank and share transfer forms also signed in blank the respondents sought to rescind the agreement and repossess the hotel. The high court found that the agreement was not void ab initio despite want of requisite consent from the Director of Land Development Services. He moreover found, inter alia, that the appellant G was fraudulent. He decided in favour of the respondents, ordered repossession of the hotel and awarded damages to the respondents. On appeal it was argued that the agreement for the disposition of the suit premises was void H because of, among others, want of requisite consent. But, even though, there was other evidence to prove that there was an agreement of sale of the hotel business, that property in the shares of the company passed to the purchaser and, therefore, that the respondent could not rescind it. 

Held: (i) The agreement for the disposition of an interest in land was void for want of consent from the Director of Land Development Services; (ii) the delay in paying the instalments could not entitle the respondents to rescind the transaction once it was completed and the property in the shares had passed; (iii) the act of handing over the share certificates duly endorsed in blank and the signing of the B share transfer forms in blank constituted prima facie evidence of an unequivocal act of transfer and constituted the deliveree as owner as against the deliveror. 

Case Information 

Appeal allowed.

No case referred to. 

M. Raithatha, for the appellant 

M.A. Lakha, for the respondents 

[zJDz]Judgment 

Mustafa, J.A. read the following judgment of the court: On 9th June, 1978, the respondents Frank Marealle and Kisinane Njau Tarimo (now represented by his personal legal representative Emmanuel Tarimo) had filed a case against Fatehali Janmohamed. By their amended plaint dated July l6 1978 E they apparently sued on an agreement dated 6th June, 1977, (hereafter called the agreement) in respect of the sale of the business of New Sea View Hotel Ltd., (a private limited liability company) with furniture and fittings for an inclusive sum of Shs.600,000/= to Janmohmaed. The New Sea View Hotel (hereafter called the hotel) had issued 1,000 fully paid up shares of shs.100/= each, 750 of which were in the name of Frank Marealle and 250 in the name of Tarimo. These two were the only share holders of the hotel. The agreement inter alia provided for the payment of the purchase price G as follows: Shs.350,000/= to be paid at once and the balance by monthly instalments of shs. 25,000/= each. At the date of the filing of the suit, only four instalments had been paid, and another sum of shs. 100,000/= had allegedly been paid to the Income Tax authorities for liabilities incurred prior to the date of sale, leaving a sum of shs. 50,000/= still due and owing. Frank Marealle had H alleged that he had, on 10th March, 1978, demanded repossession of the hotel and that the defendant Janmohamed had failed to comply. Marealle and his co-plaintiff Tarimo had asked for an order for them to re-possess the hotel, and for damages for loss of income at the rate of shs. 25,000/= per month.  

Janmohamed in his amended statement of defence alleged inter alia that he had on 10th December, 1977, irrevocably assigned all his rights and liabilities of the transaction to a third party, who would be responsible for instalment arrears, if any. B The third party, Vinubhai Patel (now represented by his personal legal representative Chandrakant Patel) took out third party proceedings and was joined as a third party in the suit. In his amended statement of defence the third party (hereafter called Patel) alleged inter alia that both the plaintiffs had transferred all their respective shares to him and his son and that subject to C the discharge of tax and other liabilities on the part of the plaintiffs, he will pay any balance found due. He denied the right of the plaintiffs to repossess or to damages. Unfortunately, this case had from the start proceeded on a totally wrong footing. The agreement D was allegedly drafted by a practising advocate. It was a very unusual document. The case and trial would seem to have been based, in one form or another, on the said agreement, and indeed the trial judge decided the case on the basis that it was a valid and enforceable agreement. He found that Marealle's consent to the agreement was obtained by fraud or that certain words subsequently E added to the agreement were added in fraud and the agreement was therefore voidable in terms of the provisions of section 19(1) of the Law of Contract Ordinance, 1961, or alternatively that the defendant Janmohamed had committed a breach of the agreement by assigning it to Patel before F completion of payment of the purchase price. On these grounds the trial judge found for the plaintiffs and ordered possession and damages in their favour. G The agreement reads in part as follows: 

THIS AGREEMENT made this day ....of JUNE One thousand nine hundred and seventy seven (1977) BETWEEN THE SEA VIEW HOTEL (1976) LIMITED, a Limited liability Company incorporated in Tanzania H and having its registered office at Dar es Salaam of Post Office Box No. 542, Dar es Salaam (hereinafter called the vendor) of the one part and FATEHALI RAJABALI JANMOHAMED of P.O. Box 2202 Dar es Salaam I (hereinafter called the purchaser) of the other part. or his nominees: VINUBHAI B. PATEL. 1984 TLR p234 MUSTAFA JA WHEREAS: the Vendor is the owner of the undivided share in the right of occupancy comprised in the A Certificate of Title No. .... of on and over plot No. ...Ocean Road, Dar es Salaam in the City of Dar es Salaam (hereinafter called the premises). NOW THIS AGREEMENT WITNESSETH as follows: B 1. The Vendor has agreed to sell to the purchaser and the Purchaser has agreed to buy the aforesaid hotel situated on the aforesaid premises with furniture and fixtures fittings all inclusive for a sum of shs. 600,000/= free from all encumbrances. C 2. ... 3. ... 5. The Vendor shall execute and do all such acts, things and instruments as may be necessary or D convenience to transfer the right title and interest in the said premises to the purchaser. It will be seen at once that it was an agreement for the disposition of an interest in land which needed consent from the Director of Land Development Services. There was no consent. It is not in E dispute that the Right of Occupancy was in the name of one Bharwani, not in the hotel. Again there was apparently no company seal affixed to the document. 

That agreement cannot be looked at and cannot form the basis of the suit nor of the judgment. Indeed in their amended plaint, the F plaintiffs in paragraph 9 contended that the agreement was void in law for lack of consent. Presumably they were relying on that ground for the right to recover possession. And in his amended statement of defence Janmohamed in para 2 also averred that the agreement was void in G law for lack of consent. The trial judge, though he framed issue No. 3 in the following terms "is the agreement void in law?", made no finding directly on it. He roamed over arguments concerning whether it was void or not, but did not refer to the lack of consent factor, and the nearest he could be said to have come to a conclusion was in these words in his judgment: H My view is that taking into account what took place after the signing of the contract between the first plaintiff and the defendant - for example the payment of shs. 350,000/= by the defendant towards the purchase of the I hotel and the subsequent 1984 TLR p235 MUSTAFA JA A payments of the monthly instalments it would be wrong for the court to say that the contract between the first plaintiff and the defendant was void ab initio. B It would seem from these words that the judge found that the agreement was valid and enforceable. The payment of the initial purchase price and the instalments could by themselves have been evidence of a contract not necessarily written without reference to the agreement, and we fail to see how those acts could have validated an agreement that was declared by law to be C unenforceable and void. On appeal before us Mr. Lakha for the respondents submitted that the agreement is void, and Mr. Raithatha, for the appellant, agreed. 

Indeed in Mr. Lakha's notice of grounds for affirming the judge's decision, paragraph 2 reads: D The learned High Court judge ought to have held that the agreement Exhibit P1 is void in law by reason of not having been properly executed by the company or the second defendant and also for lack of consent requisite in a disposition of an interest in land. E We are of the view that the agreement is void and since the trial judge has based his decision entirely on a void agreement, his judgment is vitiated as it is based on a fundamental flaw. We will F have to set it aside, unless the judge's decision can be affirmed on other grounds. Before we proceed any further, we think we will have to consider the evidence tendered in court by Marealle, Tarimo and Janmohamed, Patel died before he could testify. At the trial it transpired that the central issue was whether, when, Marealle handed over possession of the hotel business to G Janmohamed on 6th June, 1977, he did so knowing that Patel in fact was the real purchaser or was interested in purchasing it. H Janmohamed in evidence testified at one stage as follows: When I had completed negotiations with Mr. Marealle about the purchase price then Mr. Marealle came to know at Mr. Akena's office that the real purchaser is Mr. V.P. Patel. I told Mr. Marealle that Mr. Patel was I interested. This was in Mr. Akena's office. ... Mr. Marealle did not object when I told him that Mr. V.P. Patel was the real buyer of the hotel. 

Another stage in cross-examination he said inter alia: A ... Marealle had hinted that if he got a good buyer he would sell the hotel. It was on this hint that I told Mr. Patel regarding buying the hotel. I did not reveal to Mr. Marealle that Mr. Patel wanted to buy the hotel. B ... I did not tell him who was buying it. He did not ask me who was buying it. ... Mr. Patel could probably not get the hotel at the price if he had negotiated ... I admitted the contents of P4 that is why I did not reply. ... In P4, Marealle had written to Janmohamed: C Furthermore I sold the business specifically to yourself for reasons best known to you. D Janmohamed had contradicted himself on a vital issue then before the court, and his testimony cannot be believed in any material particular. Similarly, Marealle in evidence was questioned on a letter dated 5th December, 1977, (Exhibit P7) E written by the managing director of the hotel to him, and which enclosed a cheque for shs. 25,000/= being the 4th instalment payment. In the course of the trial, this letter assumed great importance. On this matter Marealle said in evidence: F ... Yes, I have received this letter. I do not remember receiving this letter from Sea View Hotel. Yes, it appears I have received it. ... I do not remember receiving a cheque nor the letter dated 5th December, 1977. I do not have the letter. ... G It was established in evidence, and so admitted by Mr. Marealle, that he had handed over the share certificate in the name of Kisinane Tarimo to Janmohanmed on 6th June, 1977. It was a share certificate for 250 shares. Mr. Marealle had signed in blank the reverse of the share certificate, H obviously with the object of endorsing the shares over to whoever the purchaser was. His possession of Tarimo's share certificate and his handing it over to Janmohamed in the sale transaction, and his endorsement in blank on its reverse, established beyond doubt that he was acting, or holding out as acting, as Tarimo's agent. Yet in his testimony on Tarimo's shares, he I stated inter alia: 

 I have nothing to do with Isinane's shares. I have no power of attorney to sign for him. ... It will be difficult to accept Mr. Marealle's evidence on any point of substance. B Tarimo also gave evidence. He agreed that Mr. Marealle used to act for him in the business. He had trusted Marealle and had left his share certificate with him. He said: C I did not authorise him to sell any share. He never consulted me regarding transfer of the shares. Up to now I do not know whether the hotel has been sold. He had no authority to sell my shares without my authority. D The signature on the plaint resembles that of my son. I did not authorise him to sign on my behalf. ... Mr. Tarimo was a joint plaintiff with Mr. Marealle in claiming recovery of possession of the hotel premises, and yet stated that he was unaware at the time he testified, if the hotel had been sold. He E even denied that the plaint had been signed by his son on his behalf; yet he had appeared as a plaintiff in the action. According to his conduct he had either authorised or ratified and adopted the action of Marealle and his son, despite his denial. It is difficult to give credence to such a witness. F We have also to consider the evidence of two defence witnesses D.W.3 Siriaki and D.W.8 Joseph. Their evidence would seem to support Patel's claim that Marealle had sold the business to him and Janmohamed. However, for reasons not very plain to us, the judge was not impressed by G them, and since the judge had remarked that they were, from his observation, witnesses of doubtful credibility, we will discount the evidence of these two witnesses. 

These were the witnesses who testified to the material facts in dispute before the trial court and from the above account, none of them can be accepted as witnesses of truth, and no reliance can be H placed on their testimony on any matters of importance or substance. We have rejected the agreement as being void, and we think that the material witnesses who had testified are not credible or reliable. We will have to rely on other evidence and transactions between the parties to discover the truth in this case. However, there are certain facts which are not I in dispute. 1984 TLR p238 MUSTAFA JA It is common ground that on 6th June, 1977, Mr. Marealle handed over his share certificate for 750 A shares in the hotel, and Mr. Tarimo's share certificate for 250 shares in the hotel to Janmohamed in the offices of the advocate Mr. Akena. He had accepted a cheque for shs. 350,000/= as part payment of the sale of the hotel, and subsequently received four instalment of shs. 25,000/= each. He had B signed on the back of both the share certificates, endorsing them in blank. At the same time Marealle had signed three transfer of share or stock forms in blank, clearly for the purpose of effecting the share transfers to the purchaser. These shares were duly transferred as to 750 shares C to V.P. Patel, as to 150 shares to S. V. Patel and as to 100 shares to Janmohamed and so registered on the 22nd June, 1977, and share certificates in the names of transferees as above were issued on 23rd June, 1977. Janmohamed took over possession of the hotel business on 6th June, 1977. On 12th October, 1977, Marealle wrote to the hotel stating that the balance of the purchase price D attracted interest at 9% per annum - (Exhibit T.P1). On 5th December, 1977, the hotel forwarded a cheque for shs. 25,000/= being the fourth instalment payment to Marealle (Exhibit T.P.7). 

On 6th December, 1977, the hotel by a letter signed by V.P. Patel as managing director, replied denying that any interest was payable, and attempted to clarify the payment position (Exhibit P3). On 21st December, 1977, Marealle wrote to the Registrar of Companies, purporting to lodge a complaint under section 135 of the Companies Ordinance and asked that no application for change F of directors of the hotel should be made. He made the allegation "The property was specifically sold to Mr. Fatehali payment was to be made in instalment. It has now come to my knowledge that Mr. Fatehali is now in the process of selling the hotel to someone else who is not acceptable to me". G (Exhibit T.P.6). On 7th January, 1978, Marealle wrote to Janmohamed purporting to rescind the sale agreement and stated inter alia: Particularly I have been offended by the fact that it has now come to my knowledge that you have transferred H the business without informing me first while you still have to pay me the balance of the purchase price. Furthermore, I sold the business specifically to yourself (Exhibit P4). I 1984 TLR p239 MUSTAFA JA A On 21st February, 1978, Marealle wrote to Janmohamed intimating that he was taking back possession of the hotel and returning a cheque for shs. 350,000/= (Exhibit P5). Mr. Lakha for Marealle and Tarimo submitted before us that since the agreement was void and since B the share transfers flowed from that agreement, the share transfers were equally void. We disagree. 

The transfer of shares could be and was a separate transaction, independent of the agreement, as indeed was so averred by Patel in paragraph 10 of his amended statement of defence. Mr. Lakha also submitted that Marealle had handed over the share certificates and the transfer forms signed in C blank to Janmohamed under two conditions, one, that the shares were to be transferred specifically to Janmohamed and only so after all the instalments had been paid. He contended that Jahmohamed had breached both these conditions and Marealle was therefore entitled to rescind the sale, and D though not prayed for, presumably to have the shares re-transferred to him and Tarimo. Mr. Raithatha submitted that Mr. Marealle had fully divested himself of the shares on his own behalf and on behalf of Tarimo when he handed over the share certificates and endorsed them in blank on E the reverse, and signed the share transfer forms in blank, and had no more interest in the hotel. We think that Mr. Raithatha is right. We can find no evidence that any conditions were attached to the share transfers. Mr. Marealle is an experienced business man, chairman of and running a number F of limited liability companies with an annual turnover of about 20 million shillings. He knew and must have known the effect of handing over share certificates and share transfer forms signed and endorsed in blank to a buyer of his shares in the course of a sale transaction. We are not persuaded G even from a survey of the correspondence we have set out above, that there were conditions attached to the transfer of shares. 

Mr. Lakha and Mr. Raithatha cited extensively from authorities regarding the relationship of principal and agent, the position of an undisclosed principal, the right to assign by a purchaser, and Mr. H Lakha even purported to rely on the plea of nonest factum. With great respect to both learned counsel, we do not think that those matters were really relevant. Learned counsel will forgive us if we do not refer to their numerous authorities cited in argument. I In our view, this was a straightforward transaction, where one party sold and transferred his shares in a company to another party for a consideration. The act of handing over the share certificates 1984 TLR p240 duly endorsed in blank and the signing of the share transfer forms in blank in this case constituted A strong prima facie evidence of an unequivocal act of transfer and constituted the deliveree as owner as against the deliveror. There is no credible evidence to rebut that evidence at all. Even if it were true that the transfer was subject to the condition that the shares were to be B registered only in the name of Janmohamed, we do not think that could prevent Janmohamed from assigning his shares to Patel. There was nothing special or exclusive in the way of personal consideration in the transaction. The delay in paying the instalment, even if true, could not entitle C Marealle to rescind the transaction once it was completed and the property in the shares had passed. The party in default could be sued for any sum found due and owing. Mr. Lakha submitted that the share transfers were forged on the ground that Marealle never intended the shares to be transferred to Patel and that the transfer of Tarimo's shares was no D executed by Tarimo. 

We have already dealt with these contentions. We are satisfied that Marealle purported to and did act as agent for Tarimo, and from the course of conduct of the sale transaction, the filing of the plaint and the admission by Tarimo that Marealle acted for him in the business, we E are of the view that Tarimo had so authorised Marealle as his agent. The appeal succeeds. We allow the appeal, set aside the judgment and decree of the High Court and substitute therefor an order that the claim be dismissed with costs, both here and below. The sum of F shs.350,000/= deposited in Court is to be returned to the respondents/ plaintiffs.

Appeal allowed.

1984 TLR p240

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