IN THE COURT OF APPEAL FOR EAST AFRICA
AT NAIROBI
(CORAM: DUFFUS, P., LUTTA AND MUSTAFA, JJ.A.)
CIVIL APPEAL NO 20 OF 1971
BETWEEN
THEODORE WYNAND POTGIETER……………………….……….APPELLANT
AND
1. LOUIS HERBERT STUMBERG)
2. HENRY EDWARD STUMBERG)………………………..……….RESPONDENTS
(Appeal from judgment and decree of the High Court of Kenya at Nairobi (Simpson, J.) dated 27th January, 1971 in Civil Case No. 490 of 1966)
30th August, 1972
The following Judgments were read:-
MUSTAFA, J.A.
The appellant at the material time was the owner of a farming ranch known as Osinye Farm in Kenya. The respondents were businessmen resident in the United States of America. The appellant was also a professional hunter and Louis, one of the respondents, was his client. They became friends. Louis evinced an interest in having a share in the appellant's ranch. The appellant needed money for the development of his ranch which he had purchased for £26,800.
The appellant had told Louis that he had paid £10,000 towards the purchase price, and that the ranch was mortgaged in favor of the previous owner to secure the balance of £16,800, such sum being payable by yearly installments of £750. The appellant needed £8,000 for development and for the purchase of stock to make the ranch viable.
The appellant did not have the money. The respondents agreed to provide that sum. For reasons connected with income tax avoidance in the States the respondents did not want to remit the sum of £8,000 direct to the appellant. Instead the respondents adopted the following method. They were to arrange for a bank in the states to provide an irrevocable letter of credit for £8,000 to the appellant's bank in Kenya.
The respondents were to deposit a sum equivalent to £8,000 with the bank in the states as security. The appellant would be entitled to have overdraft facilities to the tune of £8,000 with his bank in Kenya, and if the appellant did not repay the overdraft, the bank in Kenya would be paid by the bank in the states on the letter of credit.
At this stage it will be convenient to set out the letter the respondents sent to the appellant on 13th August, 1962. It reads:
"PATIO FOODS INC.
SAN ANTONIO, TEXAS
LOUIS H. STUMBERG,
PRESIDENT.
August 13, 1962.
Mr. Theo Potgeiter,
The Ridge,
P.O. Timau,
Kenya Colony, East Africa.
Dear Theo:
After a number of meetings we have come with the following method of setting up our association on the ranch and farm:
1. We will supply a letter of credit for 8,000 pounds to your bank which they can draw against in the event that your 18 month loan is not paid and which this letter of credit acts guarantee. I f you will have your bank send us the form of the letter of credit that they would like our bank to issue we will follow their suggestions. All they have to do in the case of failure of payment is to draw against this letter of credit, an equivalent amount of money having been deposited in our bank to guarantee it.
2. Have your attorney draw up an option for Louis H. Stumberg and H.E. Stumberg, jr. to buy within two years at 500 pounds one-half interest in your ranch and farm and we can apply the 500 pounds against the note for the money you have already invested in the ranch or whatever other equitable arrangements. There are to be two separate transactions for legal purposes. Our tax people tell us in this way we have the best tax advantage under U.S. Law. We can decide at the time we exercise the option as to setting it up as a company, a corporation, or partnership or have it owned by U.S. Corporation. In the meantime for all practical purposes you will be the full owner of all of your land and stock.
The 18 month loan should read from your bank to you that this money is for the development and stocking of your ranch. I think it gives you exactly what you wanted and is completely in line wi0h what we discussed. The only thing we tried to do is to look at it from the best tax angle. We may even set up an American Corporation owning all of the land and stock and then you would own one half of the American Corporation. If you and I feel that we would have a better chance in dealing with the Kenya Government on this basis. We are ready to submit the letter of credit to your bank as soon as we have the option and the form of the letter of credit that the bank desires.
I tell you from the bottom of my heart that I look forward to being with you on this venture. If it goes well at the end of the six or eight months we might leave the letter of credit with the bank after the 18 months loan so as to acquire additional land and stock.
My understanding is that you have 8,000 pounds in the ranch and when we exercise the option you would be given a note for this amount so that you would get your money out of it as well. If there are any questions on this or if I am not quite clear drop me a line immediately and we will straighten it out to our mutual satisfaction. I assure you that you and I will never have a misunderstanding and I do not know of a nicer friend that I would rather be associated with and I know you will pay the loan as due. You might set it up in part payments over the 18 months.
Best regards to Hazal and the children.
Sincerely yours,
LHS/dlh. Sgd. Louis H. Stumberg.
"An option agreement in the terms mentioned in the said letter of 13th August, 1962 was drawn up and executed by the parties. The bank in the states duly issued an irrevocable letter of credit to the appellants bank in Kenya enabling the appellant to overdraw to the extent of £8,000. This letter of credit was renewed from time to time. It would seem that it was intended that both the appellant and the respondents would respectively recover £8,000 from the profits of the ranch, and that they would re-invest such sums for further development. The respondents in that event would be able to have a half-share in the ranch by the exercise of the option to buy without having to put in any money into Kenya apart from the sum of £500 mentioned in the option agreement.
The appellant promised to pay the money so guaranteed into a special farm account and that the sum would be used solely for development and the buying of stock. There was also the purchase of a coffee farm in 1963 by the respondents with which matter however, this appeal is not concerned.
During 1964 it seemed the respondents ware dissatisfied with the way the appellant was running the ranch. The appellant had not opened any special farm account as he had promised, and despite repeated requests the appellant had failed to keep the respondents informed of the progress of the ranching venture.
The respondents then arranged for a new agreement of option to be executed. It is in the following terms and is dated 19th September, 1964.
"THIS AGREEMENT is made the 19th day of September One thousand nine hundred and sixty four BETWEEN PHEODORE WYNAND POTGIETER of Timau Kenya (hereinafter called ‘the vendor' which expression where the context so admits shall include his personal representatives and assigns) of the one part and LOUIS HERBERT STUMBERG and HENRY EDWARD STUMBERG both of San Antonio Texas in the United states of America (hereinafter together called 'the Purchasers' which expression shall where the context so admits include their respective personal representatives and assigns) of the other part.
WHEREAS
1. The Vendor is the registered proprietor of all that piece or parcel of land situated at Timau aforesaid comprising ten thousand nine hundred and forty six (10,946) acres more or less being L.R. No. 9840 registered as I.R. No. 5861 together with all buildings improvements and movables including the livestock now or hereafter being thereon (hereinafter together called 'the Farm');
2. The Vendor has charged the said piece or parcel of land by Legal Charge (hereinafter called 'the Mortgage') dated the First day of August One thousand nine hundred and sixty one to Albert Boaz Bartlett, Frederick G. Bartlett, Robert Edwin Bartlett and Mrs. Anne Bosfield (formerly Bartlett) (therein described and there is still owing by the Vendor on the foot of the Mortgage the sum of approximately Pounds Fourteen thousand five hundred (£14,500) repayable annually by the installments and with the interest as therein provided;
3. The Purchasers have guaranteed to the Standard Bank Ltd. banking overdraft facilities for the benefit of the Vendor (hereinafter called 'the Overdraft') to the extent of Pounds eight thousand (£8,000);
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS:
1. The Vendor in consideration of the hereinbefore recited guarantee given by the Purchasers hereby grants unto the Purchasers the option to purchase at any time prior to the Thirty first day of March One thousand nine hundred and sixty seven an undivided one half share in the Farm at the price of Pounds three thousand (£8,000) payable as provided in paragraph 2 hereinbelow.
2. In the event that the Purchasers exercise thehereinabove described option, the said purchase price of Pounds three thousand (£3,000) shall subsequently be paid to the Vendor out of the profits to be thereafter earned from the operation of the Farm which profits shall be applied in the following priority:
Firstly, towards the annual capital and interest payments provided in the mortgage
Secondly, towards the liquidation of the overdraft;
Thirdly, towards payment of the said Pounds three thousand (£3,000) to the Vendor.
3. The Vendor covenants that he will
(a) reduce the overdraft
(i) to Pounds five thousand five hundred(£5,500) or leas by the thirty first day of March One thousand nine hundred and sixty five.
(ii) to Pounds three thousand (£3,000) or less by the thirty first day of March One thousand nine hundred and sixty six.
(iii) entirely by the thirty first day of March One thousand nine hundred and sixty seven.
(b) Create no further encumbrances over the Farm or any part thereof without the prior written consent of the Purchasers who shall be entitled to register a caveat claiming a mortgagee's interest over the lands comprising the Farm.
4. In the event of the Purchasers exercising the option to purchase hereinbefore referred to and at such time or subsequently thereto the overdraft has not been reduced as provided in Clause 3(a) hereof the Purchasers shall have sole and unfettered discretion to appoint Gilfrid Astley Powys or Charles William Powys as manager for the Farm for the complete control and operation of the Farm on behalf of the Vendor and themselves;
5. In the event of any serious disagreement arising between the Vendor and the Purchasers after the said option to purchase has been exercised then the Purchasers shall be entitled at any time to give written notice to the Vendor offering to sell to him their full undivided half share in the Farm at a figure to be quoted by them and the Vendor shall elect within ten days of the date of receipt of such notice to accept or reject such offer. Should Vendor fail to make an election during said ten-day period, his silence shall be considered as a rejection of said offer. In the event of the Vendor rejecting such offer then the Vendor shall be bound to sell his own undivided half share in the Farm at the same said figure to the Purchasers and the Purchasers shall be bound to buy said share. The Completion of the sale and purchase shall in either event take place within Ninety (90) days of the date of election as aforesaid by the Vendor.
IN WITNESS whereof the parties have hereunto set their hands the day and year first herein written
SIGNED by the said THEODORE )
WYNAND POTGEITER in the )
presence of Sgd. R.D.C. Wilcock, ) T.W. Potgeiter
SIGNED by the said LOUIS )
HERBERT STUMBERG in the )
presence of Sgd. Dan C. Glenn )
Notary Public, Bexar ) Louis Herbert Stumberg
County, Texas. )
SIGNED by the said HENRY )
EDWARD STUMBERG in the )
presence of Sgd. Dan C. Glenn )
Notary Public, Bexar ) Henry Edward Stumberg
County, Texas. )
"The appellant apparently still failed to supply information to the satisfaction of the respondents and no reduction of the overdraft was being made. The respondents eventually were called upon to meet the overdraft which they did by payment of slightly over £8,000. The respondents decided to exercise their option in terms of the agreement of 19.9.64 which they did through their advocates M/S Archer and Wilcock, who wrote a letter dated 26.10.65 to the appellant reading as follows:
"ARCHER & WILCOCK ADVOCATES
OUR REFERENCE S/25l/l/W
Mutual Building, Nairobi
REGISTERED
Theodore Wynand Potgeiter, Esq.,
P.O. Timau.
Dear Sir,
L.R. No. 9480 (Previously known as L.R. 9840; Timau.
We write formally on behalf of Mr. Louis Herbert Stumberg and Mr. Henry Edward Stumberg to advise you that they hereby exercise the option given to them under the terms of an Agreement bearing date 19th September, 1964 to purchase an undivided half share in the above property together with all buildings improvements and movables including improvements and movables including the livestock at the price of £3,000. The said purchase price will be paid in the manner provided in paragraph two of the above mentioned Agreement.
In as much as the overdraft has not been reduced in accordance with the provisions of Clause 3(a) of the Agreement Mr. L.H. Stumberg and Mr. L.E. Stumberg have power to appoint Mr. Gilfred Astley Powys as Manager for the farm but it is not their intention to exercise this right, at any rate for the time being.
We would, however, call for your assurance that you will not sell, charge or otherwise part with possession of the property or any of the movables including the livestock thereon without the prior approval of Messrs. Stumberg and will cause all proper statements of account concerning the operation of the farm to be submitted to them.
Yours faithfully,
Sgd. ARCHER & WILCOCK
"The appellant, during 1966, sold livestock from the ranch and paid the proceeds into his wife's bank account. Some time in March 1966 the mortgagees foreclosed on the ranch and sold it as the appellant had failed to keep up his installment payments. The respondents, in May 1966, filed an action in the High Court, claiming that as a result of their exercising the option on 26th October, 1965 they had become partners in the ranching business. They claimed dissolution of the partnership and an order for accounts.
The plaint was subsequently amended to include an alternate claim as joint owners in equal shares with the appellant in the land, livestock and movables of the ranch. The case went on trial, and the trial judge found that no partnership between the respondents and the appellant was constituted by the exercise of the option. However he found that on exercising their option the respondents became joint owners in equal shares with the appellant in the livestock and movables. He held that the contract was not frustrated by the disappearance of the ranch through sale as that occurred after the respondents had become joint owners of the stock and movables. He made an order that the appellant lido account to them (respondents) for the sale and disposal of all the livestock and movables which were on the ranch on 26th October, 1965 and to judgment against the defendant (appellant) for the sums found due in respect of the plaintiff's (respondents) one-half share".
From that decision the appellant appeals. The grounds of appeal can broadly be summarised under four heads.
1) that the option agreement was frustrated due to the sale of the ranch and had become impossible of performance.
2) there was no consensual act of the appellant to change the sole possession and ownership of the livestock into a joint one.
3) an account if to be taken must be an overall one and not confined to livestock only.
4) the order for costs was wrong.
Mr. Khanna for the appellant submitted that the option agreement was frustrated and impossible of performance because of the disappearance of the ranch as a running business. In terms of the said agreement the purchase price of £3,000 was to be from the profits to be earned from the operation of the ranch. It was payment in a qualified manner. That would have been impossible with the disappearance of the ranch.
However the ranch was sold because the appellant had failed to pay the installments due to the mortgagees. There was hardly any evidence adduced by the appellant to show why he defaulted in paying the installments resulting in the foreclosure and sale of the ranch. On the evidence, I am of the view that the sale of the ranch was due to the fault of the appellant himself.
Frustration can be successfully set up if after the formation of a contract, certain sets of circumstances arise, which owing to the fault of neither party, render the contract ... impossible
...” see C.A. Howard & Co. (Africa) Limited v. Burton [1964] E.A. 554.
Here the frustration was in a way induced by the appellant. In the circumstances I am of opinion that the defence of frustration fails. What was the effect of the exercise of the option by the respondents on 26th October, 1965?. In terms of the agreement of 19th September, 1964, the appellant granted to the respondents "the option to purchase at any time prior to 31st March, 1967 an undivided one half share in the farm at the price of £3,000 payable as provided in paragraph 2 hereinbelow".
The farm was to include "land, all buildings, improvements and movables including livestock now or hereaftor thereon". The respondents, by their advocates' letter of 26th October, 1965 exercised their option "to purchase an undivided half share in the above property with all buildings improvements and movables including the livestock at the price of £ 3,000".
The trial judge held that the exercise of the option did not constitute a partnership in itself.
He however held that "on exercising that option the plaintiffs became joint owners in equal shares with the defendant in the livestock and movables. No act of delivery was required and no prior payment. Such was clearly the intention or the parties".
He also said ''further steps were required to complete the purchase of an undivided half share of the land. Those steps wore not taken."
And again "Joint ownership of the stock and movables took effect from the exercise of the option, not from the payment of the price".
As I understand it, an option is no more than an offer, which given for consideration may be irrevocable, and if accepted becomes a complete contract which either party is entitled to enforce. In English law an option to have a right to call for a conveyance of land creates an interest in land, but it is not so in Kenya, see section 54 of the Indian Transfer of Property Act which applies to Kenya.
When the respondents exercised their option a complete contract came into existence which the respondents could enforce by action. So on 26th October1 1965 there was a complete contract between the respondents and the appellant for the purchase of a half share in the ranch.
In view of the judge's finding, I will restrict the purchase to a half share in the livestock and movables. The judge found that after the exercise of the option, the respondents did not by themselves or their agents, carryon the ranching business jointly with the appellant.
The appellant took no steps to carry out the contract of purchase. There was no act of transfer of the half interest in the livestock and movables. No steps or acts were taken by the respondents to indicate that they had acquired a half share in the livestock or movables. The appellant throughout had claimed that he was the sole owner of the animals.
The appellant had at no stage consented to the respondents being a joint or co-owner with him of the livestock and movables. In fact no transfer or vesting of the half interest In favour of the respondents took place. Even if the exercise of the option can be equated to a contract of sale on the peculiar facts of this case, did the property in the livestock pass to the respondents on 26th October, 1965 or at any subsequent date?
Mr. Salter for the respondents referred the Court to sections 19 and 20 of the Sale of Goods Act Cap.31. However, these sections refer to specific or ascertained goods and specific goods as defined in the said Act means goods identified and agreed upon at the time a contract of sale is made.
"'Ascertained' probably moans identified in accordance with the agreement after the time of a contract of sale is made”
Re Wait (1927_) 1 Ch. 606; per Lord Atkin, L.J. at p. 630. Here the livestock would not be specified or ascertained goods in terms of the Sale of Goods Act. There was nothing in the agreement, express or implied, to provide for the passing of the property in the livestock to the respondents automatically without somO:1ct of delivery or consent.
The respondents did not take physical or constructive delivery of the livestock, did not identify or list the animals, in fact did not know how many animals there were on the ranch on 26th October, 1965, or if there were any animals at all. Nothing happened subsequently to alter that state of affairs.
I am of the view that no property in the livestock passed to the respondents on 26th October, 1965 or on any subsequent date.
I believe all that the respondents had against the appellant was a claim for damages for broach of the contract to sell, since the appellant had put it out of his power to fulfill the terms of the contract.
Consequently they were not entitled to an account from the appellant. In view of this finding it will be unnecessary for me to deal with the other grounds of appeal.
I would therefore allow the appeal, set aside the judgment and decree of the High Court, and substitute therefore an order dismissing the respondents' claim.
I would award the appellant costs in the High Court as well as costs of this appeal.
I would certify for two advocates.
DUFFUS P.
This matter started out as a transaction between friends and perhaps largely due to this, the arrangements between the parties became involved and difficult to understand the facts have been fully set out by Mustafa, J.A in his judgment.
The plaint suffered many amendments but eventually the plaintiffs claimed under two alternatives: the first being a claim in partnership asking for the dissolution of the partnership and an order for the accounts; or in the alternative the plaintiffs claimed to be joint owners with the defendants in the land, livestock and movables as set out in the option agreement of the 19th September, 1964, and averred that the defendant had sold their joint property and not accounted for it and also asked for accounts. The option agreement was in respect of a farm which term included the land, buildings and movables on the farm and included all the livestock the learned trial judge found for the plaintiffs
on the alternative claim. He found against the existence of the partnership but held that by the exercise of the option by the plaintiffs on the 26th October, 1965, they became the joint owners in equal shares with the defendant of the livestock and movables on the farm and he ordered that the defendant do account for the sale and disposal of all the livestock and movables on the farm at the date of the exercise of the option and he decreed that the plaintiffs do have judgment for such sum as may be found due and awarded the plaintiffs the cost of the action.
He made no order with regard to the land as he found that no steps had been taken after the exercise of the option to complete the purchase and that the land was in fact sold by the mortgagees after the exercise of the option. The defendant now appeals against that order Mr. Khanna, for the defendant fully and ably argued various grounds of appeal but his main grounds were that the option agreement had been frustrated and could not be carried into effect and further that the ownership in the cattle and other movables on the farm had never been transferred. He also advanced several grounds of appeal on the matter of the order for costs.
The option agreement of the 19th September, 1964, was undoubtedly a legal and enforceable agreement made for valuable consideration. It set out what had been agreed between the parties at that stage of the various arrangements made between themes. The option was exercised by the
Letter of the 26th October, 1965. The defendant admitted receiving this letter and it is not in dispute that the firm of advocates, Messrs. Archer and Wilcock, had the necessary authority to act on behalf of the plaintiffs. The option having been exercised the agreement of the 19th September, 1964, then became a contract for the sale of the land and of the movables and livestock on the land. The sale of the land was never completed and the mortgagee sold the farm in March, 1966.
The contract for the sale of the land having been concluded the plaintiffs acquired an enforceable right but in fact the land was apparently sold at a price insufficient to cover the amount due on the mortgage. The following extract from the letter from Archer and Wilcock to the defendant dated 22nd March, 1966, is of relevance as showing the position on that date:
"I have received a copy of the registered letter sent by Kaplan & Stratton to you, confirming that the farm has been sold to P.G. Grattan for £15,000. You will see that, so soon as Land Board consent has been given, he will wish to take possession.
Since presumably, it will not be possible for you to move the livestock and movable assets to a neighboring farm, you will have to affect a complete sale in the very near future. As you will appreciate, all the movables, including livestock, are partnership property. Out of the proceeds of sale, there will have to be discharged the current bank overdraft, the shortfall on the mortgage in the sum of approximately shs. 36,000/and the current farm debts. Thereafter the balance of the proceeds of sale will be divided equally between you and the Stumberg brothers.
I have discussed this with you on various occasions when you have visited me and you have confirmed that you will ensure that very full details of every sale made by you are passed to John Story. I must emphasize that it is essential that this is done.”
The plaintiffs would appear to have had no further interest in the land and the only question that might arise is whether the "shortfall" of the mortgage debt is to be paid out of the proceeds of the sale of the movables and livestock but this is a matter that could be considered when the accounts are being settled. The judge dealt with the agreement of sale of the movab1esand livestock separately and I would here quote from that part of his judgment where he summarised his findings on this matter:
"I am however satisfied that on exercising their option the plaintiffs became joint owners in equal shares with the defendant in the livestock and movables. No act of delivery was required and no prior payment. Such was clearly the intention of the parties and the relationship between the parties prior to the exercise of the option is I think immaterial. Whatever the true relationship may have been the exercise of the option replaced any prior Agreement. The option agreement provided the plaintiffs with some security for their guarantee should the need arise and I see no reason to find that it did not contain all the terms agreed between the parties.
Further steps were required to complete the purchase of an undivided half share in the land. These steps were not taken because it became known that the mortgagees were contemplating foreclosure, the defendant having failed to meet his obligations and in fact they sold the ranch in March, 1966.
This sale effectively prevented further running of the farm but it did not, as submitted on behalf of the defendant, frustrate the contract since it occurred after the plaintiffs became joint owners of the stock and movables. In agreeing the consideration of £3,000 account was taken of the amount put into the farm by the defendant by way of development not of the value of the land. The fact that this sum had not been paid at the time of the sale of the farm by the mortgagees does not frustrate the agreement. Joint ownership of the stock and movables took effect from the exercise of the option not from payment of the price. Account will, of course; have to be taken of the non-payment of this amount in any final settlement between the parties.
I can see no reason for holding that the option agreement did not constitute a binding contract. The consideration may not have been stated with complete accuracy but was well understood by both parties to be the guarantee arranged by the plaintiffs which enables-the defendant to obtain overdraft facilities."
One of the main issues in the case was whether any property in the movables and livestock passed to the plaintiffs. Section 19 of the Sale of Goods Act (Cap.31) applies. This states:
"19. (1) where there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred. .
(2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case.”
"It is a question of fact in each particular case. In my view the movables and livestock in this instance were definitely ascertained and known goods. On the exercise of the option the plaintiffs obtained an undivided half-share in all the movables and livestock then on the farm belonging to the defendant. The plaintiffs themselves might not have known exactly, what these goods were but these were definite goods known to the defendant and could be proved by evidence. It was not a question of plaintiffs purchasing only some of the livestock and movables but the plaintiffs purchased.' an undivided half share in all the livestock and movables on the farm at the time of the exercise of the option. These were definite and ascertained goods and in my opinion the plaintiffs immediately on the option being exercised acquired a joint interest and the property passed to theme
The Court ascertains the intention of the parties from the terms of the contract, the conduct of the parties and the circumstances of the case. The option agreement of the 19th September? 1964, in effect provided that the farm should continue to be run as a going concern and the profits were to be applied in the manner shown. It was clear that the defendant should remain in charge of the farm but clause 4 provided that the plaintiffs could, in certain circumstances appoint another person as manager and to have complete control and operation of the farm. The letter of the 26th October, 1965, exercising the option also showed that it was the intention of the parties that the defendant should remain in physical control of the movables and livestock although the property, that is Plaintiffs joint ownership in the property, immediately vested in the plaintiffs.
There was evidence to show that in fact the defendant understood this to be the position and undertook to account for all sales The evidence of Mr. Wilcock, senior partner in Messrs Archer & Wilcock, the advocates dealing with the matter, is to this effect and this is borne out by the extract I have quoted from their letter of the 22nd March, 1966.
The learned judge was in my view fully justified in his finding that on the exercise of the option the plaintiffs became joint owners in equal shares in the livestock and movables.
I agree also with the trial judge that the doctrine of frustration cannot apply here. The defendant alleges frustration because with the sale of the land, the farm could no longer be run, and the running of the farm was required as the condition of the option agreement, but as the judge points out the option had already been exercised and the plaintiffs then became joint owners with the defendant.
There can be no doubt that the defendant sold off all the movables and the livestock and paid the amount realised into his wife's account and that he used these profits personally. He freely admits this in his evidence.
I quote
"Ever since August, 1965, ranch receipts were paid into my wife's account. That is possible. I paid my income tax out of these receipts from cattle, wool, etc. I paid school fees, everything, personal debts. All my money went into these accounts. Wilcock told me it had to be separate account. I took no notice. "
The plaintiffs were entitled to an order for an account and to judgment for any balance found to be due in respect of their interest in the property. Mr. Khanna also raised the question that the accounts should be overall and not be confined only to the livestock. The accounts are ordered as from the date of the exercise of the option and in my view correctly relate only to the disposal of the livestock and movables which were on the farm at that date. I can see that difficult questions may arise as to what debts or liabilities are a proper charge against any of the amounts realised but this question does not now arise. I note the trial judge reserved liberty to the parties to apply for directions as to how the account was to be taken.
There remains the question of costs. Both Mr. Khanna, for the defendant, and Mr. Morrison, for the plaintiffs, referred to the judgment of this Court in Raja vs Swaran Singh (1962) EA 288 at 299. In his judgment in this case Forbes, V-Po set out the principles which would equally well apply here
"Costs are a matter in the discretion of the court and this Court will not interfere unless satisfied that the lower court acted on a wrong principle. The proviso to sub-so (1) of s.27 of the Civil Procedure Ordinance (Cap.5) provides that: 'the costs of any action, cause or other matter or issue shall follow the event unless the court or judge shall for good reason otherwise order”
The reason "The reason given by the learned judge here for his order is that the appellant 'failed on four issues and succeeded on one' I have already mentioned the grounds advanced by the appellant in support of his motion to have the award set aside on which he failed. With respect to the learned judge, I feel bound to agree with Mr. Khanna that these grounds are not 'issues' within the meaning of the proviso to s.270 In Reid, Hewitt & Co. vs Joseph (7), (1918) A.C 717 at p.742 Viscount Haldane ,in relation to a similar provision in the English rules of court then in force, defined an issue within the meaning of the rule as 'an issue which has a direct and definite event in defeating the claim to judgment in whole or in parte'
I do not think the grounds on which the appellant failed fall within this definition. I therefore think that the learned judge erred in principle in ordering each party to pay his own costs of the motion to set aside the award on the ground that the appellant had failed on four 'issues' while succeeding on one."
Mr. Khanna's argument is that the main issue was the partnership and that the judge found against the plaintiffs on this issue. Mr. Morrison's answer was that the real issue was for an order for the defendant to account for the livestock and movables that he sold after the plaintiffs had acquired a joint interest. I think it clear in this case that the plaintiffs were seeking to recover their share as joint owners of the movables and livestock and it was for this purpose that they asked for an order for accounts. The judge made no order with regard to the land but this was due to the fact that the land had been sold by the mortgagees and the entire proceeds absorbed by the mortgagee
I agree that the main issue in this case was that the plaintiffs were seeking to recover what was due to them, and this could only be done by the taking of the accounts. Mr. Khanna also argued that when the accounts were taken, it may be found that after payments of such debts as may be properly deducted from the proceeds of the sales that there is nothing left for the plaintiffs. This is very doubtful, but even if it were so, the plaintiffs would still be entitled to the order for accounts and this order has been consistently resisted by the defendant.
In my view the plaintiffs were entitled to have the costs of the action and the judge was justified in the order he made.
I would therefore dismiss the appeal with costs and I would allow the respondent costs for two advocates.
As Lutta, J.A. also agrees it is so ordered..
LUTTA J.A.
The facts of this appeal are fully set out in the judgment of Mustafa, J.A., which together with the judgment of my Lord the President, I have had the advantage of reading in draft and I consider it unnecessary to restate them here.
One of the main questions here was whether on the exercise of the option the respondents acquired an undivided half share in the loose assets including livestock on the farm.
The letter of 22nd March, 1966 from Messrs Archer and Wilcock to the appellant states that "all the moveables, including livestock, are partnership property". The moveables, including livestock, on the farm, were specific goods and clearly known by the appellant, if not identifiable by him at the material time.
It is in respect of these that the respondents purchased an undivided half share when they exercised the option, and under section 19 of the Sale of Goods Act (Cap.31) property in them was transferred at such time as they intended it to be transferred.
If the intention is obscure, section 20 of Cap.31 contains rules which assist in discovering the same.
Thus rule (a) of section 20 provides that
"Where there is an unconditional contract for the sale of specific goods, in a deliverable state, the property in the Goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery or both be postponed;".
In my opinion, property in the moveables, includinG livestock,
passed to the respondents when they acquired an undivided half share and exercised the option as per the letter of 26th October, 1965 from Messrs Archer and Wilcock to the appellant and I agree with my Lord the President that the respondents were entitled to an order for an account, in view of the sale by the appellant of all the moveables and the livestock.
Accordingly I would dismiss this appeal, and I concur in the order proposed by my Lord the President.
