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S. Rama Rao Vs. Dasarathy Rao and ors. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtKarnataka High Court
Decided On
Case NumberSecond Appeal No. 476 of 1950-51
Judge
Reported inAIR1955Kant43; AIR1955Mys43
ActsSale of Goods Act, 1930 - Sections 27; ;Factories Act, 1889 - Sections 2
AppellantS. Rama Rao
RespondentDasarathy Rao and ors.
Appellant AdvocateNittoor Srinivasa Rao, Adv.
Respondent AdvocateC.N. Ramamurthy, Adv.
Excerpt:
.....from denying seller's authority to sell - in view of proviso of section 27 provides that where mercantile agent is in possession of goods or of document of title to goods any sale made by him in ordinary course of business shall be valid. - karnataka panchayat raj act, 1993.[k.a. no. 14/1993]. sections 43 & 168: [mohan shantanagoudar, j] membership of gram panchayat- held, seat of member becomes vacant on expiry of fifteen days from date of receipt of such resignation, unless he withdraws resignation letter. where there is nothing on record to show that petitioner had withdrawn his resignation letter subsequently, petitioner had vacated his office as a member of gram panchayat within fifteen days from the date of his letter as prescribed under law. burden of proof heavily lies on..........act.' in 47 mys h.c.r. 554 (d) it is observed at page 571 'that the ordinary way of effecting a sale of shares is by handing over the certificates and blank transfers by the seller to the buyer who accepts them and gives the seller the price. the shares become ascertained and the sale is complete, even though the company may refuse to effect the transfer in the name of the buyer.' in --'fazal d. allana v. mangaldas', air 1922 bom 303 (e) it is laid down following 'colonial bank v. cady', (1890) 15 a. c. 267 (f), that 'delivery of share certificates with the transfers executed in blank, passed not the property in the shares but a title, legal and equitable, which will enable the holder to vest himself with the shares without the risk of his right being defeated by the registered owner.....
Judgment:

1. The Appellant is defendant 2 against whom and another a suit was filed for the recovery of two share certificates marked as Exhibits II and II(a) together with the blank share transfer deed, Ex. I from defendant I, and for declaration that the sale of these shares in favour of defendant 2 is illegal and for permanent injunction restraining defendant 3 from transferring these shares. Both the Courts have decreed the suit in favour of plaintiffs.

2. Defendant 1 is a broker. Defendant 2 is the purchaser of these shares from defendant 1 and defendant 3 is Sri Krishnarajendra Mills Ltd., to which Company the shares relate. The plaintiffs are three in number. Plaintiff 3 is the widowed mother of plaintiff 2, who is the grandson of plaintiff 1, Dasarathy Rao. The shares were in the names of plaintiffs 2 and 3 and Dasarathy Rao had deposited prior to 2-2-1947 the two share certificates comprising of 14 shares in the Indian Bank Ltd., Branch Office at Mysore. Defendant 1 is said to have approached plaintiff 1 and offered to sell the shares within a week from 2-2-47 and to pay the amount 'within that period orreturn the shares. Dasarathy Rao addressed a letter to the Indian Bank asking them to hand over to Defendant 1 the two share certificates and the relative transfer deed duly signed by the owners of the shares, viz., plaintiffs 2 and 3. Defendant 1 has passed the voucher Ex. N dated 8-2-47 but failed to comply with the alleged agreement entered into by the plaintiffs. In the amended plaint, the plaintiffs asked for a decree against both defendants 1 and 2 for Rs. 1,162/- with costs and ' current interest. The trial Court decreed the suit against both the defendants. Defendant 2 having appealed, his appeal was dismissed 'and he has now preferred this Second Appeal against those decisions.

3. The case for the plaintiffs is that defendants 1 and 2 have colluded and made a common cause to defeat the rights' of the plaintiffs to get back the shares. It is, however, admitted that defendant 2 was dealing with them as a mercantile agent and' that since he has not acted in good faith, no title passes to him.

4. Section 27, Sale of Goods Act, lays down that where goods are sold by a person, who is not. the owner thereof, and who does not sell them under the 'authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner (c)f the goods is by his conduct precluded from denying the seller's authority to sell. The proviso makes an exception to this rule and provides that Where a mercantile agent is, with the consent of the owner, in possession of the goods or of a document of title to the goods, any sale made by him, when acting in the ordinary course of business of a mercantile agent, shall be as valid as if he were expressly authorised by the owner of the goods to make the same; provided that the buyer acts in good faith and has not at the time of the contract of sale, 'notice that the seller has no authority to sell.

Mr. Ramamurthy, learned counsel for the respondents - contended that defendant 1 had no authority on the date of sale to' sell to defendant 3 and could not have passed a better title than what he had on 22-2-47, the -date of sale. The contention does not appear to be sound. ' It is admitted that the transfer deed, Ex. I was signed by the parties on 29-1-47 and Exs. II and II(a) which are the share certificates were along with Ex. I the transfer deed in the possession of defendant 1 who passed an acknowledgment marked Ex. N in which there was an undertaking to effect the sale within a week or return the documents and Ex. M is in confirmation of it. There is no evidence to prove that the agreement contained in Ex. N between defendant 1 and the plaintiffs was known to defendant 2. Exhibits M or N do not form part of the relevant documents of title, viz., Exs. I, II and II(a). It cannot be therefore said that the purchaser had notice of the defect in title of defendant 1 on the date of sale.

5. The next point urged was that the transaction between defendants l and 2 was not carried on in the ordinary course of business and the learned counsel rested his contention on the observation in-- 'Oppenheimer v. Attenborough & Son', 1908-1 KB 221 (A). Buckley L. J: who formed the Bench with Kennedy L. J. and Lord Alverstone C. J. has observed in that ease that to act in the ordinary course of business is to act in such a way as a mercantile agent acting in the ordinary course of business of a mercantile agent -would act, that is to say,, within business hours, at a proper place of business, & in other respects in the ordinary way in which a mercantile agent would act, so that there is nothing to lead the pledgee to suppose that anything wrong is being done, or to give him notice that the disposition Is one which the mercantile agent had no authority to make. It is argued that since defendant 1 has approached defendant 2 and settled the matter, defendant 2 should, as a man of prudence have suspected the authority of defendant 1 to sell.

Prom the facts elicited in this case, there is nothing 'to show that the' transaction was not done in the ordinary course of business of a mercantile agent; besides, the plaintiffs have admitted that defendant 1 is a mercantile agent: I am unable to agree with the contentions set forth by the respondents that the transferee has not, in the terms of the proviso to Section 27, acted in good faith or had at the time of the contract of sale notice that the seller had not the authority to sell.

6. Another English case, viz., -- 'Earl of Sheffield v. London Joint Stock Bank, Ltd-'. (1888) 13 A.C. 333 (B), was cited for the proposition that where a transferee was held to have had reason to believe that the securities sought to be transferred might not belong to the person purporting to transfer, the transaction is taken away from the act of person acting bona fide and in good faith. In that case one S gave to E certificates of railway stock with transfers thereof executed by him in blank, and bonds of foreign companies for the purpose of raising some amount. E gave these securities to M, a money-lender to secure a sum. M deposited the transfers and securities together with other securities of his customers with various banks, as security for large loan accounts running between him and them, the blanks in the transfers of stock being filled up with the names of nominees of the banks. In those circumstances, it was held that the banks in so dealing either actually knew or had reason to believe, that the securities did or might belong not to M but to his customers, and that the purchaser for value without notice was entitled to the value of such of the securities as had been sold by the banks, and to redeem the remainder. This case does not help the respondents as the bank knew the defect in title of M who purported to have pledged those securities.

This case Is distinguished in -- 'London Joint Stock Bank v. Simmons', 1893 A.C. 201 (c) where It was laid down that a person taking a negotiable instrument in good faith and for value obtains a valid title though he takes from one who had none. A broker in fraud of the owner pledged negotiable instruments together with other instruments belonging to other persons with a bank as a security en bloc for an advance. The Bank did not know whether the instruments belonged to the broker or other persons, or whether the broker had any authority to deal with them and made no inquiries. The Broker having absconded, the bank realised the securities: Held that there being, as a matter of fact, no circumstances to create suspicion, the bank was entitled to retain and realise the securities, having taken negotiable instruments for value and in good faith. As stated above in that case, the securities were in the possession of the broker and he had the transfer deed also. Section 27, Sale of Goods Act, is substantially similar to Section 2, Factories Act, 1889.

In 1908-1 K.B. 221 (A) Lord Alverstone C. J. observes (at p. 228 that:

'the preamble of the Factors Act 1842 recitesthat It is expedient and necessary that ownersentrust big agents with the possession of goodsshould be bound by any contract of pledgein like manner as they would be bound by acontract of sale, that is notwithstanding thepledgee has notice that the pledger is an agent.'

In the same case Buckley L. J. states (at page229) that:

'the object of the Act, as regards sale and as regards pledge was that a person who with the consent of the owner, is in possession of goods as a mercantile agent, shall have the same rights of dealing with them as if he were himself the owner. That was the purpose of the Act.'

In 47 Mys H.C.R. 554 (D) it Is observed at page 571

'that the ordinary way of effecting a sale of shares is by handing over the certificates and blank transfers by the seller to the buyer who accepts them and gives the seller the price. The shares become ascertained and the sale is complete, even though the Company may refuse to effect the transfer in the name of the buyer.'

In --'Fazal D. Allana v. Mangaldas', AIR 1922 Bom 303 (E) it is laid down following 'Colonial Bank v. Cady', (1890) 15 A. C. 267 (F), that

'delivery of share certificates with the transfers executed in blank, passed not the property in the shares but a title, legal and equitable, which will enable the holder to vest himself with the shares without the risk of his right being defeated by the registered owner or any other person deriving title from the registered owner'.

In the present case, the mercantile agent did deliver the documents of title and also the transfer deed signed by the plaintiffs. Defendant 2 in his statement avers that there was nothing in the papers which indicated any reason for suspicion and so far as he could make out, the title was in order. C S. Rao, the 1st defendant, was a recognised broker and there was no reason why defendant 2 should start an investigation, when there was really nothing to suspect his bona fides. He states that he was satisfied with the correctness of the transaction, paid the money and took the shares. He is a bona fide purchaser Of the shares for value without notice of any fraud or of anything defective in the transaction and hehas acted in good faith. In his deposition he states that Ex. I is the transfer deed duly signed by plaintiffs 2 and 3 and Ex. II and Ex. II(a) are the share scripts. He has satisfied himself that these were in order before he purchased the shares, that the holders of the shares had signed the transfer deed, Ex. I that he paid defendant1 by two cheques one for Rs. 800/- and the other for Rs. 100/-, that he paid a cash sum of Rs. 50/-thus completing full payment of consideration and that' he did not know of the existence of any agreement between plaintiffs 2 and 3 and defendant 1. In another portion, he also states that when he looted into Ex. I and Ex. II (1) there was nothing which could excite any suspicion in his mind. In those circumstances he took defendant 1 as the owner and purchased the shares for value.

7. It is argued for the respondents that since defendant 1 wanted financial help he parted with the shares on condition of repurchasing for a lesser sum than what he bargained for, and that circumstance ought to have put defendant 2 on guard to investigate whether the agent had authority to sell. It is undoubtedly true that the transfer deed did not excite any suspicion and defendant 2 and he acted with the full belief that defendant 1 had authority. It was contended that the evidence is not sufficient to show good faith in the purchaser. - The decision reported in --'Ramdeni Singh v. Gumani Raut', AIR 1929 Pat 300 (G), which was cited by the respondents, lays down that very little evidence, and in certain circumstances a mere denial, regarding want of knowledge of the plaintiff's contract would discharge this onus and shift the burden on the plaintiff. There was indeed nothing which could; make defendant 2 suspect the bona fides of defendant 1 and in any event he did satisfy himself before purchasing that defendant 1 had full authority to sell and the evidence adduced by him in the circumstances of the case does shift the burden on to the plaintiffs, ' who have not discharged the same inasmuch as they have not shown that he had notice of the defect.

8. The Courts below have approached the case from a wrong angle and have held that defendant2 is net a bona fide purchaser and that the transaction amounts to a pledge and not a sale. I am unable to agree with those findings. The plaintiffs when asked whether they are even agreeable to redeem the shares by payment of the money advanced on the foot of the transaction being a pledge expressed their unwillingness to redeem defendant 2 by paying the sum advanced by him. The transfer which was merely conditional could not be said to have become a pledge on the failure of the condition.

9. In the result, this appeal by defendant 2 is allowed and the judgments and decrees of both the Courts against him are set aside. In the circumstances of the case, defendant 2 and the plaintiffs will bear their own costs throughout.

10. Appeal allowed.


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