Wamakulasooriya v. Transport <£> General Finance Go., Ltd.
1953Present: Gratiaen 3. and Weerasooriya J.
D. WARNAKULASO ORIYA, Appellant, and TRANSPORT &GENERAL FINANCE CO., LTD., Respondent
S. C. 105—D. C. Colombo, 18,213 M
Contract—Illegality—Effect as between the parties—Hire-purchase—Ownership ofgoods—Is it a material factor ?
A. transfer of property made in pursuance of an unlawful agreement cannotbe upset merely on the ground of illegality.
Quaere, whether a condition precedent to a hire -purchase agreement is thatthe person who lets goods on hire should be the lawful owner of such goodsat the time the agreement is entered into.
A^PPTCAT. from a judgment of the District Court, Colombo.
B. Wilcramanayake, Q.C., with N. Nadarasa and S. Canagarayar,for the second defendant appellant.—The plaintiff was at no stage theowner of the motor car. The evidence was that the first defendant “ wasbuying the car through the plaintiff company ”. It was the firstdefendant who bought the car-from Rajapakse. It is, besides, an impliedcondition of every hire-purchase agreement that the person who letsthe thing on hire is the owner—Karflex v. Poole1. That case was decidedbefore the English Hire-Purchase Act of 1938. Nor could the plaintiffcompany become owner of the vehicle in view of section 3 (1) ofthe Defence (Motor Cars) (Special Provisions) Regulations, 1943, whichprohibited any person from “ purchasing or otherwise acquiring ” anyregistered motor car without a permit, and a person who contravenesthese regulations was guilty of an offence punishable under regulation 52of the Defence (Miscellaneous) Regulations. The plaintiffs representedthey were the lawful owners which they were not and could not be. PIrefers to the plaintiff company as the " owners ” and expressly providesin art. 11, “The vehicle being the property of the owners shall not besubject to any lien, &c.” A contract founded on an illegal transactionwill not be enforced. The claim here is for the hire and the return ofthe car. Boissevain v. Weil*. The 2nd defendant is only a guarantorand is discharged if the creditor fails to acquire and preserve his rightsagainst the debtor. Wessels on Contract, paras. 4361, 4363.
H. V. Perera, Q.C., with P. Navaratnarajah and G. D. C. Weerasinghe,for the plaintiff respondent.—PI, the hire-purchase agreement, is notgoverned by the fDnglish law. It is not a simple contract of sale ofgoods. It is also a hire and as such is governed by the Roman-Dutch law.The transaction as a whole falls to be governed by the Roman-Dutch law.Under that law, a person other than the owner can hire goods. Thereis no warranty that the seller is the owner of the goods—;Diemont’s
1 (1933) 2 K.B. 251.a (1950) 1 All E.R. 728 at 734,
2J. N. B 30492-1,592 (10/53)
170 GRATIAEN J.—Wamakulasooriya v. Transport 43 Qen. Finance Go., Ltd.
Law of Hire-Purchase in South Africa, p. 54. Even under an illegalcontract property in the goods may pass—Benjamin cm Sale, 8th edn.,p. 494 ; The American Restatement of the Law of Contract, Vol. 2, section580. Eor the nature of the contract of hire-purchase in English lawsee Scammell v. Oustonx.
Counsel also cited Scarfe v. Morgan 2 and Benjamin on Sale, p. 498.
B, Wikramanayake, Q.C., in reply.—-The prohibition applies to allclaims connected with or directly founded on the prohibited transaction—Mackeurtan on Sale of Goods in South Africa, p. 123.
Cur. adv. vult.
August 31, 1953. Gkatiaen J.—
The plaintiff Company had, in terms of a hire-purchase agreementdated 24th April, 1946, let on hire to the first defendant a second-handmotor car, granting him at the same time the option of purchasing thevehicle provided that he duly complied with the conditions of the agree-ment. The appellant guaranteed the performance byethe first defendantof his obligations under the agreement, and in doing so waived certainprivileges to which a guarantor would normally be entitled. Con-temporaneously -with the signing of the agreement, the first defendanttook delivery of the vehicle as hirer.
The motor car previously belonged to a man named Rajapakse, andthe first defendant had been anxious to purchase it, but did not possessthe necessary funds to do so. He accordingly approached the plaintiffCompany, which is a finance corporation, and it was in these circumstancesthat the Company purchased the vehicle from Rajapakse. As betweenthe parties to the hire-purchase agreement dated 24th April, 1946,the transaction was “ a contract of hiring coupled with a conditionalcontract or undertaking to sell ”—Helby v. Matthews 3. As Lord Wrightexplained in Scammel v. Ouston 4, “ the property in the chattel does notpass while the agreement is current, but the hirer merely gets the use ofit ”, and, in the event of his due compliance with the various terms of theagreement, he has the option (which he is under no obligation, however,to exercise) to buy the chattel on payment of a sum ascertained byreference to the relevant terms of the agreement. The grant of thisoption constitutes “ a binding offer to sell which remains open duringthe stipulated period ”, and it is not unless and until the offer is accepted-before the period has elapsed that a binding contract of sale is con-cluded between the parties—Van Pletsen v. Henning5.
The first defendant defaulted in the payment of hire,after a few months.In addition, he sold it to a third party, taking dishonest advantage of thefact that he alone, as the “ person entitled to the possession of ” thevehicle had been registered as its “ owner ” under the Motor Car Ordinance,No. 45 of J938, which was in force at the relevant time. In the meantime,
1 (1941) A.C. 271.3 (1895) A.C. 471.
? (1838) 4 M. 43 W. 270 at 281.4 (1941) A.C. 271,
? (1913) S.A.A.D. 82 at 98,
GRATIAEN J.—Warnaku lasooriya v. Transport & Gen. Finance Go., Ltd. 171
the Company had given due notice terminating the agreement, andeventually sued both defendants (a) for arrears of hire, (b) for the returnof the vehicle or in the alternative for damages. After trial the learnedDistrict Judge entered judgment against both defendants for arrears ofhire and damages, amounting in the aggregate to a sum of Rs. 1,319 ■ 85.
The appellant disputes his liability as guarantor under the agreementsued on for the following reasons :—
that, upon a true construction of the document, there was an
express as well as an implied condition that the Company was itsowner at the time when the transaction was entered into—Karflex v.Pooled ; and.
that, although the Company had purported to purchase thevehicle from Rajapakse, that transaction was an illegal contractwhich had taken place in contravention of the Defence (Motor Cars)(Special Provisions) Regulations, 1943, which were then in force ; inconsequence, Rajapakse continued to be the lawful owner at and afterthe hire-purchase agreement was entered into, so that the Companyhad no right to give the first defendant an option to purchase it.
It will be convenient in the first instance to discuss the validity of thesecond ground of appeal to which I have referred, because, if that fails,there is no need to decide the interesting question whether the principleof English Law laid down in Karflex v. Poole (supra) (and subsequentlyprescribed by statute) applies to hire-purchase agreements entered intoin Ceylon.
The Defence Regulations in question were without doubt in operationat the time when the Company purchased the vehicle from Rajapaksein order to place it at the first defendant’s disposal under the terms ofthe hire-purchase agreement sued on. Section 3 (1) expressly prohibitedany person from “ purchasing or otherwise acquiring ” any registeredmotor car except under the authority of a permit issued to him by theproper authority. Similarly, section 4 prohibited the sale of a registeredmotor car to any person except upon the surrender by him of the permitcontemplated in section 3 (1).
The Company had admittedly obtained no permit in its own favourfor the purchase of the vehicle at the relevant time. On the other hand,the first defendant, for whose benefit the purchase had in fact been made,did possess such a permit which was duly surrendered before the vehiclewas handed over by Rajapakse. The Regulations were introduced toensure an equitable distribution of motor cars under war conditions, andit might well have been argued in criminal proceedings that a “ purchase ”by a hire-purchase finance Company, not for its own use but for use by apermit-holder, did jiot contravene the spirit of the Regulations. I amcontent, however, to assume for the purpose of my decision that thepurchase, as between the Company and Rajapakse, was illegal. Butdoes it follow that the transaction was for that reason void in the sensethat, after Rajapakse had parted with the vehicle which he had pur-ported to sell, he nevertheless retained legal ownership of it so as to
1 (1933) 2 K.B. 251.
172 GRATIAEN J. — Warnakulaaooriya v. Transport <£ Gen. Finance Co., Ltd.
disentitle the Company from selling it to the first defendant if and whenhe exercised the option granted to him in terms of the hire-purchaseagreement 1
“ The general principle of our law is that a Court will not come to theassistance of either party where the object of the obligation is unlawfulor immoral … If money is paid or if something is delivered,under an illegal or immoral contract, it cannot as a rule be recoveredbach ”.—Weasels : Contract Vol. 1, para. 665. If, therefore, performanceof the allegedly illegal contract between the Company and Rajapaksehad not been complete, neither party could have sued the other for theenforcement of an unfulfilled obligation under it, as none of the exceptionsspecified by Wessels (paras. 666—681) would have applied. But we arehere concerned with a transaction in which both parties had fulfilledtheir obligations, so that there was nothing left to be performed whichrequired the aid of a Court of Justice for its enforcement. The EnglishLaw is to the same effect. “ If there has been a completely executedtransfer of property made in pursuance of an unlawful agreement… the transfer cannot be upset merely on the ground of
illegality ”—Cheshire & Fifoot: Contracts (IstEdn.) p. 240. The positionwould have been different if, for instance, Rajapakse had been inducedby misrepresentation to sell the car to the Company. 0
The decision in Elder v. Kelly1 illustrates the effect of an illegal, butconcluded, contract of sale in contravention of the Sunday ObservanceAct, 1667, of England. “ What I understand to have happened ” saidBray J., “ was that the purchaser came to the shop, asked for somemilk, paid for it, and took it away. In my opinion that transactionclearly operated to pass the property in the milk from the seller to thepurchaser, and it was to that extent an effective sale Similarly, thecontract of sale between Rajapakse and the Company was completedby delivery and payment, and, notwithstanding the imputation ofillegality, ownership of the vehicle passed to the Company before thehire-purchase agreement sued on was entered into with the defendantsand the appellant. In the result, the appellant’s defence fails in limine,and the applicability of the principle laid down in Karflex v. Poole (supra)to hire-purchase agreements in Ceylon does not call for a final decisionin this case.
I would dismiss the appeal with costs. With regard to the Company’scross-objection in which it contends that the sum awarded under thedecree should be increased, Mr. Perera has conceded that this issue,affecting as it does the obligations of the first defendant as well, couldonly be raised upon a properly constituted appeal to which both thehirer and the guarantor were made parties. The cross-objections musttherefore be rejected, but without costs.
Weerasooriya J.—I agree.
i (1919) 2 K.B. 179.