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1926 Supreme(SC) 10
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT DUNEDIN, LORD SHAW, LORD SUMNER, SIR JOHN EDGE, AND LORD SALVESEN.
MANECKJI PESTONJI BHARUCHA - Appellant
Versus
WADILAL SARABHAI AND COMPANY (DEFENDANTS 2 AND 3 - Respondents
On Appeal from the High Court of Bombay.
Decided On : March 1. 1926.
Solicitors for appellants : T. L. Wilson & Co.
Solicitors for respondents: Hore, Pattisson & Bathurst.
Shares are "goods" under the Indian Contract Act. Property passes upon delivery of certificates and blank transfers. After delivery, the seller cannot rescind the contract for non-payment unless an express stipulation exists, and any statutory lien is lost upon parting with possession.
Headnote:(A) Indian Contract Act, 1872 - Sections 78, 83, 95, 121 - Sale of shares - Delivery of certificates and blank transfers - Passing of property - Right to rescind - The definition of "goods" as every kind of movable property includes choses in action such as shares. Once certificates and blank transfers are delivered and accepted, the goods are ascertained, the sale is complete, and property passes to the buyer. Under Section 121, a seller is not entitled to rescind the contract upon the buyer's failure to pay the price after delivery unless there is an express stipulation to that effect. (Paras 22-24)
(B) Indian Contract Act, 1872 - Section 95 - Lien - Statutory lien requires possession; once possession is parted with, no statutory lien exists. Equitable liens applicable to choses in action in other jurisdictions do not apply to goods under the statutory law of the jurisdiction. (Para 23)
(C) Stock Exchange Rules - Conditional delivery - Rules requiring the return of shares upon dishonor of a cheque are for the purpose of fixing damages for breach of contract and do not prevent the passing of property upon delivery. (Para 24)
Facts of the case:
A broker sold shares to a buyer. The broker delivered the share certificates and blank transfers signed by the registered holders. The buyer provided a cheque for the price, which was subsequently dishonored. The buyer then passed the certificates and transfers to third parties. The sellers sought the return of the certificates and transfers or damages.
Findings of Court:
The court held that the shares were "goods" and property passed to the buyer upon delivery of the certificates and blank transfers. Consequently, the sellers had no further right to the certificates and could only sue for the unpaid price.
Issues: Whether shares constitute "goods" under the Indian Contract Act, whether delivery of certificates and blank transfers passes property, and whether the seller can rescind the contract for non-payment after delivery without an express stipulation.
Ratio Decidendi: Shares are movable property and thus "goods." Property passes upon delivery of the means to get on the register (certificates and blank transfers). Section 121 prohibits rescission after delivery unless expressly stipulated. Statutory lien is lost upon parting with possession.
Result: Appeal dismissed with costs.
Legal Category Hierarchy
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contract law
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sale of goods
- passing of property
- right of rescission
- unpaid seller's lien
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sale of goods
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commercial law
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stock exchange transactions
- shares and securities
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stock exchange transactions
Judgement
Appeal (No. 26 of 1924) from a decree of the High Court in its appellate jurisdiction (March 15, 1923) reversing a decree of that Court in its original jurisdiction.
The appellants brought the present suit in the High Court against one Gora and the respondents (defendants 2 and 3). Against Gora they claimed the return of certificates and blank transfers in
Law Rep. 53 Ind. App. 92 ( 1925- 1926) Maneckji Pestonji Bharucha V. Wadilal Sarabhai and Company
respect of 129 shares in Alcock, Ashdown & Co., Ld., or Rs. 1,54,800, the contract price; against the respondents, Wadilal Sarabhai & Co. and Gora, they claimed delivery of the certificates and transfers, and payment of damages by Gora.
The facts appear from the judgment of the Judicial Committee. The trial judge (Kajiji J.) made a decree, the effect of which was as follows Gora was ordered to deliver to the plaintiffs 129 shares or to pay Rs. 1,54,800 ; defendants 2 and 3 were declared to be in possession of 104 shares and were ordered to deliver them, to pay Rs. 71,500 damages, and to account for all dividends received.
The defendants 2 and 3 filed separate appeals, which were tried together, and allowed. The reasons of the learned judges (Macleod C.J. and Crump J.) appear from the present judgment.
1925. Nov. 17, 19, 20. Clauson K.C., E. B. Raikes and H. Johnston for the appellants. Upon the default in payment the appellants were entitled to rescind the contract and call for the return of the certificates and transfers. A stipulation was to be implied in the contract that the seller could rescind upon default in payment. Time was of the essence of his contract to pay In re Schwabachen . (( 1908) 98 L. T. 127, 129.) That was especially so if the Bombay Stock Exchange rules applied. In
s. 121 of the Indian Contract Act, 1872, the proviso as to a stipulation to the contrary includes an implied stipulation. But s. 121 does not apply, because the subject of the sale was a chose in action, not " goods." There was no delivery, since the name of the transferee had not been put upon the register.
Sir John Simon K.C., Sir George Lowndes K.C. and Dube for the first respondents. Having regard to
s. 76 and the illustration to s. 88 of the Indian Contract Act, 1872, and s. 2, sub-s. 6, of the General Clauses Act, 1868, the subject of the contract was " goods " within the former Act. The sellers had no right to rescind. The stipulation referred to in the proviso to s. 121 of the Act of 1872 is an express stipulation. Rule C. of the Bombay Stock Exchange was not shown to have been incorporated with the contract; the rules were not pleaded. There was a complete delivery in the only way in which delivery of the subject of the contract could be made Hibblewhite v. MMorine (( 1839) 5
M. & W. 462.); Pollock and Wright on Possession, p. 6.
Clauson K.C. in reply. Time being of the essence of the contract, the seller had a right to rescind under s. 55 of the Indian Contract Act even if the property had passed Buldeo Doss v. Howe . (( 1880) I. L. R. 5 C. 64.) Gora was bound by the rule of the Bombay Stock Exchange to return the shares, and the appellants were in no better position. The subject matter of the contract was not " goods," but a chose in action ; the Court will apply equitable principles. Until the shares were placed in the transferees name on the register the seller had an equitable lien in respect of the price ; the buyer was in the position of a trustee In re Stuckley ([ 1906] 1 Ch. 67.); Fry on Specific Performance, 6th ed., pp. 549, 550. The subject of transfers of choses in action is dealt with in the Transfer of Property Act, 1882, ss. 130 et seq., but s. 157 excludes stocks and shares. A contract for the sale of shares is enforceable by specific performance Paine v. Hutchinson (( 1868) L. R. 3 Ch. 388.); Fry on Specific Performance, 6th ed., p. 678 ; the law in India is the same Specific Relief Act, 1877, ss. 12, 35.
Sir John Simon K.C. in rejoinder on new contention
