Desai v Bhatt (Civil Appeal No. 2 of 1948) [1948] EACA 6 (1 January 1948)

## COURT OF APPEAL FOR EASTERN AFRICA

Before SIR BARCLAY NIHILL, C. J. (Kenya), PEARSON, J. (Uganda), and AINLEY, J. ( $Ug$ anda)

JINABHAI C. DESAI, Appellant (Original Defendant)

v. NAMODARSHANKER KARORA BHATT, Respondent (Original Plaintiff)

## Civil Appeal No. 2 of 1948

(Appeal from decision of H. M. High Court of Uganda)

Option agreement—Sale of land—Plantiff's option to purchase for £8,000— Agreement to sell for £10,000 to Defendant—Vendor's price not disclosed— On acquiring subsequent knowledge of it Defendant wishing to withdraw from agreement—Subsequent agreement—Whether original contract between Plaintiff and Defendant rescinded by subsequent agreement or by misrepresentation.

The evidence and facts appear fully from the judgments below.

Held (7-7-48).—That on the evidence which was accepted by the learned Chief Justice whotried the action there was no recission of the original agreement between the parties either by mutual consent or on account of any misrepresentation.

Appeal dismissed with costs. Salter for the Appellant. Wilkinson for the Respondent.

SIR BARCLAY NIHILL, C. J.—The short point for our consideration in this. appeal is whether an agreement entered into between the Appellant and the Respondent dated 30th March was subsequently rescinded. Under this agreement the Appellant covenanted to purchase a tea estate from the Respondent for the sum of 200,000 shillings together with certain licence rights to grow and manufacture tea. The Respondent was in a position to make this contract because at the time he held an option to buy this estate from the proprietor Mr. Senior for the sum of 160,000 shillings and he had deposited or had promised to deposit with this gentleman a sum of 10,000 shillings. The option was secure up to 30th April, but if by that time the Respondent did not complete the purchasehe stood to lose that sum of money to Mr. Senior. The Respondent has always. admitted that he never contemplated buying the estate himself. His aim was to find a buyer to whom he could transfer the option at a profit. The learned Chief Justice of Uganda who tried the action and found for the Plaintiff-Respondent. has held, and I accept his finding, that the Respondent made no misrepresentation to the Appellant. What he did do, or rather did not do, was to disclose that if the Appellant was ready to part with 200,000 shillings he stood to makea profit of 40,000 shillings. I cannot see that he was under any obligation to make such a disclosure. He had an option and was entitled to transfer it at a profit if he could find a purchaser. The appellant and his friends duly visited. and inspected the estate and declared themselves satisfied. It is true that the agreement discloses that a company was to be formed for the purpose of acquiring and running the estate and that in this company the Respondent was to get 25 per cent of the shares. It may be this fact that added to the Appellant's. anger when he discovered shortly after visiting the estate that Mr. Senior would sell for 160,000 shillings. It would appear that at this stage the Appellant threatened to back out but some accommodation was reached at the office of an advocate, Mr. Haribhai V. Patel. As it is claimed that this accommodation was in fact a novation of the earlier contract it will be necessary to examine in detail what exactly it amounted to, a task which has been made easier by the fact that the learned Chief Justice accepted Mr. Patel's evidence in its entirety.

This witness has stated that on 3rd or 4th April, 1946, the parties, together with another Indian, held a conference in his office and that he was instructed. to find a way out—to quote his actual words as recorded: "Discussion took place and they all told me to find a way out, Jinabhai Desai (the Appellant) had certain objections, and the result was that I was instructed to draft a direct: agreement with Mr. Senior for £8,000, and, so far as £2,000 were concerned, all three agreed amongst themselves that, as Bhatt (the Respondent) was to be interested in the new company, they would account for it as his share of capital". Nowhere in Mr. Patel's evidence can be found any indication that the Respondent was ready to forego the profit he stood to make by his agreement of 30th March. Doubtless he was anxious that the Appellant should go on with the business and he may have given the impression that he could be satisfied in some other way than by an immediate cash payment. The salient fact,. however, that does seem to me to emerge from that portion of Mr. Patel's: evidence which I have quoted above is recognition by the Appellant that the Respondent would have to be satisfied. Now we know that the Respondent has never been satisfied, all that has been offered to him has been a holding: in the company which he has not the means to take up. The Appellant the other hand obtained an estate, now increased in value, for $\alpha$ n a sum of £2,000 less, than after inspection, he was prepared to pay. I think therefore that on the evidence which the learned Chief Justice accepted he was entitled to come to the decision that there had been no rescission of the agreement of 30th March by mutual consent or on account of misrepresentation by the Respondent which induced the Appellant to sign that agreement.

As regards the contention that the Respondent, as a promoter of the company, was under obligation to make full disclosure to the Appellant before entering into the agreement of 30th March, the authority quoted by the learned. Chief Justice in his judgment is in point. The Appellant had something to sell to the company and the persons who were to form the company knew that he was both the promoter and the vendor. He was not on 30th March in a fiduciary position to the company which had not then been formed and he was not therefore a person who had to account to the company for any profit made on the resale of the estate by him to the company.

I would dismiss this appeal with costs.

PEARSON, J.—The Appellant contracted to buy an estate of land from the Respondent for £10,000 (Exhibit P.1). The Respondent had an option to buy this land for £8,000. He had to deposit £500 for the option. Negotiations proceeded and the Appellants paid £500 to the vendor direct in consideration. Then: the Appellant discovered that the vendor's price for the land was £8,000 only. He then sought to rescind his contract with the Respondent. After consultation with a lawyer, at which the Respondent was present, another written agreement was made by the vendors to sell the estate to the Appellant for $£8,000$ . (Exhibit D.1). The question is whether the former contract between the Appellant and the Respondent was thereby rescinded.

It is established that that former contract was not carried out exactly as contemplated in Exhibit P.1, and that the Respondent was privy to the latter agreement for the sale by the vendors direct to the Appellant. But it is also clearly established by the evidence of Haribhai Patel, which the learned trial Judge accepted, that the Respondent never consented to forego the consideration due to him on the former contract and that he was assured that he would receive $£2,000$ accordingly. On this assurance he countenanced the latter agreement of sale by the vendors with the Appellant.

The learned trial Judge has found as a fact that there was no misrepresentation by the Respondent. He had evidence to support his finding and didnot believe the Appellant's evidence of it.

The Respondent having an option to buy the land, his acquiescence was necessary to the transfer of the estate to the Appellant. I think he acquiesced in the latter agreement as part performance of his former contract—to implement it as Wilkinson puts it—and did not rescind it; nor can I find it rescinded by mispresentation or otherwise.

I would dismiss the appeal.

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AINLEY, J. (Uganda).—In this case the Plaintiff claimed from the Defendant the sum of 40,000 shillings due, he said, under a contract entered into between him and the Defendant on 30th March, 1946. The learned Chief Justice of Uganda, before whom the suit was tried, gave judgment in favour of the Plaintiff and it is from this judgment that the defendant appeals.

It will be necessary before discussing the issues and arguments to describe the background of the case.

A gentleman named Senior owned a tea estate. The Plaintiff had been granted a first option to purchase this estate for the sum of 160,000 shillings and in consideration of an extension of this option to 30th April, 1946, had deposited 10,000 shillings with Mr. Senior which was to be forfeited if the option was not exercised before that date. The Defendant wished to purchase the said estate and to secure the transfer of the same to a limited liability company which both he and the Plaintiff were promoting. To bring about the desired result it was of course necessary to persuade the Plaintifi to exercise his option, and to bring about the transfer of the estate to the company. To obtain what he wished the Defendant entered into an agreement with the Plaintiff the main terms of which are admittedly set out in a document dated 30th March, 1946, which was put in evidence as Exhibit P.3. I would hesitate to apply any terms of art to this contract. It is better, without tying labels to it, to examine the terms. The document begins: —

"With reference to our conversation $re$ purchase of tea estate in the Toro District with a licence to grow 100 acres of tea together with manufacturing licence, etc., on freehold land we are are prepared to buy that estate from you on the following terms and conditions:—

- (1) Price to be £10,000 (shillings two hundred thousand). - (2) You are to get 25 per cent shares of the above value in the new company. - (3) You have to manage to transfer title deed of the land, tea rights, manufacturing tea licence, etc., unto the name of new company from the name of the original proprietor."

Then follow a number of terms of no great relevance. The estate was inspected by the defendant before the final sealing (I use the words metaphorically) of this bargain and the Defendant was plainly of the opinion that it was worth $.200,000$ shillings to him.

Now of this bargain I would say two things here and now since a good deal of ground will thereby be cleared.

First that I am quite satisfied that the learned Chief Justice was fully entitled to hold on the evidence before him that it was not induced by misrepresentation on the part of the Plaintiff. The learned Chief Justice held, and 1 think rightly held, that though the Plaintiff never informed the Defendant that the option was to purchase for 160,000 shillings he never represented that the option was to purchase for 200,000 shillings. He simply kept his mouth :shut about the matter.

Secondly, that it is quite obvious that the payment of money under the contract was the responsibility of the Defendant, and short of a complete recission or abrogation of that contract that responsibility could shift to no other person. I mention these two points at this stage because once they are established it appears to me that the whole case narrows to one issue and to one issue alone and that is, did the parties mutually abandon the contract of 30th March, 1946, and substitute therefor a new agreement? Upon this issue the relevant facts are as follows: between 30th March and 5th April, 1946, the Defendant learned that the Plaintiff's option was to purchase for 160,000 shillings. He realized in short that he had agreed to pay 200,000 shillings for a result which, considering the Plaintiff's financial position, he could have got for a great deal less if he had known the full facts. He was extremely angry which is understandable, and considered that he had been swindled, which is less understandable as he had seen what he was getting and had decided that it was worth to him what he had agreed to pay.

Be that as it may, before the deal went through there appears to be little doubt that the Defendant desired to resile from the bargain and said as much to the Plaintiff. Whether he succeeded in persuading the Plaintiff to come to a radically different bargain is the vexed question. The answer to that question has I think to be sought in the evidence of Mr. Haribhai Patel. This gentleman appears to have acted as the adviser of both parties and of the owners of the estate. It was in his office that the final discussion between the parties took place or at any rate the results of those discussions were made manifest there, and his honesty and the disinterested nature of his evidence appears to have been accepted without question by the learned Chief Justice. His evidence is however somewhat confusing and puzzling. Perhaps one thing only can be said to emerge with complete certainty from his evidence and that is this, that on 5th April the estate passed direct from Mr. Senior to the newly formed company and payment of the purchase price, which was 160,000 shillings, was made by the Defendant. That at any rate is a pardonably simplified way of expressing what took place. There further appears to be very little doubt that the Plaintiff knew that this was taking place. I pause here to consider how far this fact taken by itself indicates that the contract of 30th March had been rescinded by mutual agreement of the parties. Certainly if one takes the preamble and first paragraph of the document of 30th March by themselves one can say as Mr. Salter on behalf of the Defendant did say that here is no sale by the Plaintiff to the Defendant for 200,000 shillings. Here is something being done with the knowledge of the Plaintiff radically different from what was agreed to be done. But paragraph 3 of that document must not be ignored and the whole background of the bargain must be considered. It can, I think, scarcely be supposed that the parties ever decided that what would take place would be an acquisition of the property by the Plaintiff, a payment of 200,000 shillings to him by the Defendant and a transfer by the Plaintiff to the company.

What the precise mechanics of the payments and conveyance would be was probably left in the air to some extent and hence one of the reasons for consulting Mr. Haribhai Patel. A direct transfer to the company from the owner was certainly no indication of mutual rescission. But what of the payment of 160,000 shillings by the Defendant? This again to my mind is no indication of a flight from the original bargain if the bargain is properly understood. It was not in truth the essence of that bargain that the Plaintiff should at any time stand possessed of 200,000 shillings any more than that he should at any time appear as owner of the estate. Nor do I think, indeed I have already said so, that one can read into the agreement the notion that the purchase price demanded by the owner was 200,000 shillings and that it was the Plaintiff's duty simply to hand over that sum to him.

What is I think true is this, that both parties regarded the 200,000 shillingsas being a fund from which the owner was to be satisfied. But the extent to which it was to be utilized for that purpose was unknown to the Defendant. and, so it seems to me, he has indicated by signing the agreement in the form it took that he was content to remain in ignorance. It seems to me that he took his chance of the owner's price being less than 200,000 shillings, and the mere fact that we find him paying the owner's price direct to the owner does. not necessarily mean that he had been absolved by the Plaintiff from bringing about what he had agreed to do, that is to give the Plaintiff the benefit of any difference which existed between the owner's price and 200,000 shillings, which is as we know 40,000 shillings and was the sum claimed by the Plaintiff.

There is, of course, the Defendant's sworn evidence that the Plaintiff specifically absolved him from the bargain, but it is here that Mr. Haribhai. Patel's evidence most materially conflicts with the Defendant's evidence. If Mr. Patel's evidence was honest and reliable, and the learned Chief Justice thought: it was and I see no reason to disagree with him, then it is impossible to escape the conclusion that the difference between the owner's price and 200,000 shillings was on 5th April still regarded as a debt due from the Defendant to the Plaintiff by both parties, and that if any variation of the original contract did take place on that day it was a variation of what may be called the mechanics of the bargain. I will quote one passage only from his evidence which seems to sum up all that was very lengthily said by him on the subject. He was asked: "The agreement of 5th April was the result of the refusal of Desai to be bound by the agreement of 30th March". He replied: "The agreement of 5th April was entered into with a clear understanding of £8,000 plus £2,000 to be accounted for. Nothing was taken in writing that Bhatt was to get £2,000 because all three agreed among themselves and there was permanent harmony between them". I do not see how in the face of that evidence, accepted as it was by the trial Court, that I can hold that the learned Chief Justice's conclusion that there was not on 5th April any supersession or cancellation of the agreement of 30th March, and as I regard that question as the only question in this case I would dismiss the appeal with costs.