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.

C 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.

I 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;

1984 TLR p232

MUSTAFA JA

(ii) the delay in paying the instalments could not entitle the respondents to

rescind the A 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. C

No case referred to.

M. Raithatha, for the appellant

M.A. Lakha, for the respondents D

[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/= I per month.

1984 TLR p233

MUSTAFA JA

A 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.

1984 TLR p236

MUSTAFA JA

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:

1984 TLR p237

MUSTAFA JA

A 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). E

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

G