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Report No. 70

Chapter 8

Definition of "Actionable Claim"

Section 3

8.1. Analysis.-

The definition of "actionable claim" comprises several items which may be broadly enumerated as-(i) debt and (ii) a beneficial interest in movable property which is not in the actual or constructive possession of the claimant. Of course, in both the cases, the definition is framed in terms of a "claim"' and in both the cases, the claim must be one recognised by the Civil Courts as affording grounds for relief. There are other requirements which we shall keep aside for the presence.

8.2. In the case of a debt, the further condition is that the debt must not be secured by a mortgage of immovable property or by a hypothecation or pledge of movable property. In both the cases, it is immaterial whether the debt or interest is existent or accruing or conditional or contingent.

8.3. Essence.-

The essence of an actionable claim is the concept of action coupled with the element of incorporeal personal property. Previously the definition was as follows:

"A claim which the civil courts recognise as affording grounds for relief is actionable, whether a suit for its enforcement is or is not actually pending or likely to become necessary."

This definition led to certain conflicts of decisions and obscurity, chief amongst which were questions pertaining to secured debts, questions relating to mere right to sue and questions relating to cases where the cause of action had accrued before the assignment of the actionable claim. Although it often assumed that all the difficulties nave been removed by the amended definition which was transferred to section 3 and re-modelled in 1900, certain questions do still survive.

In particular, the position regarding benefits under contract is not evident from the definition as it now stands. We discuss this aspect in some detail below1. Statements2 that "all claims under contract are excluded except claims to the payment of a liquidated sum of money or debt or price" may require qualification in certain respects.

1. See infra.

2. Mulla, (1973), p. 805.

8.3A. English concept.-

It would be noted that in English law all personal property may be either in possession or in action. The former is called chose in possession, while the latter is called chose in action. Things of which the owner has the present possession and enjoyment and which he can deliver over to another are choses in possession. Things of which he has no actual possession or enjoyment to which he has only a right enforceable by suit are designated choses in action1. The latter includes, in England a debt, the benefit of a contract or damages for a wrong.

1. Colonial Bank v. Whinney, 30 Chancery Division 261 (285) (cited by Gour).

8.4. About the transferability of damages, the Indian law is different, but it is clear that in England, the benefit of contract is included in a chose in action. Whatever be the position as regards shares and patents, copyright and trade marks in Englan- a matter into which we need not go-it has never been doubted that the phrase "chose in action" includes many things whether a contract or not and contracts of every nature except contract for the sale of goods1-3.

1. Siphinston Chose in Action, 9 LQR 311.

2. Sweet Chose in Action, 10 LQR 303, 317.

3. T.C. Williams Chose in Action, 10 LQR 143.

8.5. English law.-

A brief but helpful statement of the English law is given as follows in a work on Mercantile law1:-

"Rights under a contract are called choses in action which is a legal expression used to denote all personal rights in property which can only be claimed or enforced by an action at law e.g. contract debts, shares in companies and negotiable instruments. They may be contrasted with choses in possession which are things capable of actual physical assignment, e.g. a watch, a piece of furniture, and so on. The common law does not recognise assignments of choses in action, but equity does and so does statute."

1. Smith & Koenan Mercantile Law, (1965), p. 57.

8.6. As common law1 choses in action could only be assigned with the assent of the debtor, or in accordance with the law merchant.2 So, unless the contract were one of a negotiable character, the rights given by it could not be assigned; to transfer these rights; a new contract of a trilateral nature, "a novation" was required, i.e. the creditor A agreed to release the debtor B from his liability to A in return for B agreeing to pay the debt to C. C could only enforce B's promise if he gave consideration for it.

The common law rule was altered by the Judicature Act, 1873, section 25(6), which was repealed and re-enacted by section 136 of the Law of Property Act, 1925. These Acts provided that a debt or other legal chose in action may be assigned so as to entitle the assignee to sue in his own name without joining the assignor as a party if:

(i) the assignment is absolute, and not by way of charge;

(ii) the assignment is in writing;

(iii) notice in writing of the assignment has been given to the person bound-the notice must actually reach the person bound3.

1. Stevens Mercantile Law, (1969), p. 69.

2. See remarks of Martin, B., in Liversidge v, Brosdbent, (1859) 4 H&M 403 (610).

3. Holt v. Hoatherfield Trust Ltd., (1942) 2 KB I: (1942) 1 All ER 404.

8.7. English law as to benefits of contract.-

Thus, in English law, a chose in action includes, inter alia, benefits of contract1. Under the Transfer of Property Act, it would appear that the right to claim the benefit of a contract is a beneficial interest in movable property not in possession2. That the benefit of a contract is assignable unless the contract is personal in its nature or the rights are incapable of assignment either under the law or under an agreement between the parties is also now fairly well settled3.

Of course, this assignment of rights under a contract is quite distinct from assignment of a claim for compensation which one party has against the other for breach of contract. The latter is a mere claim for damages which cannot be assigned in law; the former is a benefit under an agreement, which is capable of assignment. This much is clear from the discussion in the judgment of the Supreme Court in Khardah Company Ltd. v. Raymon & Co. Ltd., AIR 1962 SC 1810 (1817, 1819): (1963) 3 SCR 183 (202), covering AIR 1960 Cal 86.

1. Mulla, (1973), p. 804; Also para. 8.4, supra.

2. Jaffer Mehar Ali v. Budge Budge Jute Mills Co., 1906 ILR 33 Cal 702, affirmed in 1907 ILR 34 Cal 289.

3. Khardah Company Ltd. v. Raymon & Co. Ltd., AIR 1962 SC 1810: (1963) 3 SCR 183 (202).

8.8. The discussion in the Supreme Court judgment cited above1 was, in a sense, obiter, because in that case there was a statutory prohibition against assignment of the benefit of the contract. The contract in issue was for the purchase of foreign jute. Since the goods had to be imported under a nontransferable licence, and since the licence contained an express condition requiring the utilisation of the imported raw material only by the Bill in question, an assignment was regarded as prohibited.

But the discussion is fairly exhaustive, with respect, illuminating. The assignment of the benefit of a contract was a subject specifically discussed, the court observing that ordinarily, there is nothing personal about a contract for the sale of goods. It even referred to an English case2 holding that an arbitration clause does not take away the right of a party to assign the benefit if it is otherwise assignable.

1. Khardah Company Ltd. v. Raymon & Co. Ltd., AIR 1962 SC 1810 (1817), para. 19: (1963) 3 SCR 183 (202).

2. Shaylor v. Woolf, (1964) 2 All ER 54.

8.9. Apart from the cases already cited, it may be mentioned that in a Privy Council case1, it seems to have been assumed that the benefit of a contract of repurchase or resale of property could be assigned. In the Calcutta case of Champarun Sugar Co. v. Haridas, AIR 1966 Cal 134 (136, 137) (D.M. Sinha & A.C. Sen, JJ.), the question at issue was whether the right to purchase shares or option to do so could be attached, but the discussion is exhaustive and the court specifically held that such a right is a beneficial interest for movable property and is an actionable claim where the movable property is not in possession and that it was assignable and transferable. In the Bombay case of Vishweshwar v. Durgappa, AIR 1940 Born 339, the question was whether the option to purchase property is assignable. Beaumont C.J. observed:

"There can be no doubt that both under the common law and under section 23(b), Specified Relief Act, an option to repurchase property is prima facie assignable though it may be so worded as to show that it was to be personal to the guarantee and not assignable. Under section 23(b), Specific Relief Act, 1877, it is provided that a specific performance of a contract may be obtained by the representative-in-interest of the principal, or any party thereto; provided that, where the learning, skill, solvency of any personal quality of such party is a material ingredient in the contract, or where the contract provides that his interest shall not be assigned, his representative-ininterest or his principal shall not be entitled to specific performance of the contract, unless where his part thereof has already been performed."

1. Sakaleguna v. Munnuswamy, AIR 1928 PC 174 (175), on appeal from AIR 1926 Mad 699.

8.10. Contract Act.-

The Indian Contract Act has no section dealing generally with the assignability of contracts. A contract which, under section 40, is such that the promiser must perform it in person is not assignable by virtue of section 40-the section on which deals with the burden of the contract. Judicial decisions have applied the same principle to the benefit of the contract1. But there is no specific provision in that regard. Insertion of it would be useful.

The utility of the proposed clarification2 would be seen when one takes the case of contracts for the return of specific goods. The interest of the buyer of goods in a contract for future delivery, would be property within the meaning of the Transfer of Property Act and an actionable claim. It was so held in a Bombay case3. The following observations of Jenkins C.J. are pertinent:

"What was transferred was, in my opinion, property, and under section 6 of the Transfer of Property Act property of any kind may be transferred except as therein provided. None of the specified exception would have included what Shariffbhey (buyer) purported to transfer and I further hold that the subject of the transfer was an actionable claim, and so Chapter VIII of the Transfer of Property Act applies. That this view of the Transfer of Property Act does not involve any material change in the law as previously understood in Bombay is apparent from what was said by Westropp C.J. in Dayabhai Dipchand v. Bullabhram Davaram."

It may be noted that the decision was rendered after the extension of the Transfer of Property Act, to the then existing province of Bombay by a notification of 1st January, 1893.

1. Toomey v. Ramanahi, 1889 ILR 17 Cal 115 (121).

2. See para. 6.13, infra.

3. Hans Raj v. Nathu, (1907) 9 BLR 838.

The Transfer of Property Act, 1882 Back

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