MERCANTILE CREDIT LTD., Appellant, and B. H. SILVA and 2 others, Respondents

039-NLR-NLR-V-76-MERCANTILE-CREDIT-LTD.-Appellant-and-B.-H.-SILVA-and-2-others-Respondents.pdf


H. N. G. FEEKANDO, C.J.—Mercantile Credit Ltd. v. Silva
193
Present: H. N. G. Fernando, C.J., and Tennekoon, J.
MERCANTILE CREDIT LTD., Appellant, and B. H. SILVA and2 others, Respondents
S. C. 20/66 (F)—D. C. Colombo, 53113/M
Hire-purchase agreement—Action instituted by owner—Defence byhirer that he did not understand the contents of the memorandumof agreement—Burden of proof—Proof of ownership of article let—Default by hirer in payment of monthly rentals—Right ofowner to re-take possession of article let—Liability of theguarantor.
In an action upon a hire-purchase agreement the defence of noilest factum, that the contents of the memorandum of agreement werenot read and explained to the hirer, is usually taken in conjunctionwith, the plea that the hirer was induced to sign a document byfraud or duress. Alternatively, the defence may be based on mistake,namely misapprehension as to the nature and substance of thetransaction.
An averment made by the hirer that he did not understand thecontents of the memorandum of agreement is a question of factwhich may be determined by the Court upon the evidence led.
The ownership of the article when it was let is not negativedby the fact that the owner,, although he had bought it earlier froma third party, had not paid the purchase price fully at the time ofthe hire-purchase agreement.
When there is a valid agreement of hire-purchase, and the hireris in default in payment of the monthly, rentals, the owner is inlaw entitled to re-take possession of the article let and to disposeof it as he pleases.
When the hire-purchase agreement contains a clause stating thatthe guarantor renounced the benefits to which sureties are entitled,the guarantor and the hirer are jointly and severally liable to theowner. In such a case the guarantor, if he does not give evidence,is presumed to have ‘ understood the meaning of the declarationwhich he signed..
-Appeal from a judgment of the District Court, Colombo.
H. W. Jayewardene, Q.C., with A. N. U. Jayewardena andNeville de Alwis, for the plaintiff-appellant.
Ranganathan, Q.C., with Lakshman Kadirgamar, L. Bartlettand C. Ganesh, for the 1st defendant-respondent.
Cur. adv. vult.
June 20, 1970. H. N. G. Fernando, C.J:—
The plaintiff in this action sued the 1st defendant for theenforcement of a hire-purchase Agreement which was signed bythe 1st defendant on 14th April 1960. The Agreement itself is inthe usual form and.contains recitals that it is a Memorandum of
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Agreement for Hire with option for “ the Hirer ” (the defendant)to purchase a “ Taos 26 Mechanised Fishing Boat ” from “ theOwners ” (the plaintiff).
The defences to the action which arose upon the pleadings ofthe 1st defendant are apparent from the issues which were framedon his behalf at the trial : —
(a) Did the 1st defendant read and/or understand the
contents of the memorandum of agreement referredto in paragraph 3 of the amended answer ?
If issue 2 (a) is answered in favour of the 1st defend-ant is the said memorandum of agreement null andvoid and of no force or effect in law ?
(a) Was the plaintiff the absolute owner of the fishing
boat at the date of the said agreement ?
If issue 3 (a) is answered in the negative was theplaintiff entitled in law to re-take possession of thesaid boat and/or to sell the said boat ?
In any event is the plaintiff entitled in law in terms
of the said memorandum of agreement to re-takepossession of the said boat ?
The learned trial Judge has answered these issues in favour ofthe 1st defendant, and he accordingly dismissed the plaintiff’saction. The present appeal by the plaintiff is against thatdismissal.
The finding of fact of the learned trial Judge on issue No. (2)was that the contents of the Hire Purchase Agreement were notread and explained to the 1st defendant, and that he was unawareof its terms. On this basis the Judge held that the defence ofnon est factum 'was established.
This defence is usually taken in conjunction with the plea thata party was induced to sign a document by fraud or duress ; butno such plea was taken in the instant case. Alternatively, thedefence may be based on mistake, namely misapprehension asto the nature and substance of the transaction (Pollock on Con-tracts, 13th Edition, p. 383). But neither in the issue nor in thepleadings was there involved any suggestion of misapprehension,
e., of a mistaken belief that the 1st defendant was signing adocument which was not a hire-purchase agreement.
The equivalent in the Roman-Dutch law is the plea of iustUserror. The term explicitly carries the connotation of mistake ormisapprehension, and the plea is not available in the presentcase for the reason which has just been stated.
H. X. (1. FERNANDO, C.J.—Mercantile Credit Ltd. v. Silva
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The 1st defendant did however state in evidence at the trialthat he acted under a misapprehension, in that he thought hewas signing a mortgage and not an agreement of hire-purchase.This evidence could have been accepted and acted upon by theCourt only if in fact the 1st defendant was the owner of thefishing boat at the time when he signed the Agreement. Thequestion whether the 1st defendant succeeded in establishingthat fact or was entitled to give evidence of that fact will bedealt with in my consideration of issue No. (3).
In his consideration of issue No. (3), the learned trial judgereached two findings of fact. The first of these was that theplaintiff had not purchased the boat on or before 14th April1960, and the second that title to the boat passed to the 1stdefendant and not to the plaintiff. In examining the correctnessof these findings it is necessary to consider the history of thetransaction which led to the signing of the Agreement.
The 1st defendant’s eivdence was that he wanted to start afishing business and had been to four yards where boats weremanufactured and had ascertained that the cost of a boat of thetype which he desired to obtain was Rs. 17,000. Thereafter hevisited the office of the plaintiff-company where he inquiredfrom one Mr. Beddewela, the business Manager of the plaintiff-company, whether the Company could give him a loan to buya boat ; Mr. Beddewela had replied that if Mr. Jeganathan, abusiness man in Trincomalee, would recommend a loan it wouldbe granted up to an amount of 2/3 of the value of the boat. The1st defendant on 20th February 1960 went to Messrs Taos Ltd.,a Firm of boat builders, and placed an order for a boat whichwas then being constructed at the Trincomalee ship-yard, payinga sum of Rs. 4,500 as an advance payment. He obtained fromTaos Ltd. a receipt (1D2) in the following terms: —
“ Received from B. Hector Silva Esq., of 28, 3rd CrossStreet, Trincomalee the sum of Rupees Four Thousand fivehundred only being part payment for Boat T 172.
Rs. 4,500.Sgd. ”
In April the 1st defendant learned that the boat warn ready forsale in the Trincomalee Ship-yard, and he came to Colombo andon the morning of 14th April 1960 went to the plaintiff’s officewith a letter from Mr. Jeganathan. Mr. Eeddewela then askedthe 1st defendant “ to go to Taos, and get the accounts ”. The1st defendant went to Taos Ltd. and brought the accounts, andBeddewela then informed him that the Company would payRs. 10,500 and asked him to deposit the balance at Taos. He thenpaid Rs. 1,638.62 to Taos Ltd., who gave him the receipt 1D3.
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H. N. G. FERNANDO. C.J'.—Mercantile Credit Ltd. v. Sitoa
After being questioned concerning the matters I have nowmentioned, the 1st defendant was examined with regard to thedocuments which he signed on 14th April. According to him thememorandum of Agreement was signed by him and a guarantorduring the afternoon of April 14 in the presence of Mr. Bedde-wela and a clerk. Counsel then showed him the proposal Form1D1 which the 1st defendant said he had signed on the same day.This proposal form he said was given to him by Beddewela tobe taken to Taos Ltd. in order to obtain their signature.
The 1st defendant’s evidence concerning the signing of theproposal form is not clear, but there was nothing in the evidenceto counter the probability that in ordinary course the proposalform was filled up and signed both by the 1st defendant and byTaos Ltd. before and as a condition precedent to the signing ofthe Hire Purchase Agreement.
According to the particulars in the Agreement, the cash priceof the boat is stated to be Rs. 16,129 and hiring and other chargesto be Rs. 1,576.12. The total sum of Rs. 17,705.12 was to be paid bymeans of an initial payment of Rs. 5,629 on 14th April, and thebalance to be paid in 18 monthly rentals of Rs. 670 per month.What the 1st defendant actually paid to Taos on that day wasonly Rs. 1,638 which fell short of the Rs. 5,629 by a sum ofRs. 3,991. It was assumed on all sides at the trial that when thispayment was made to Taos Ltd., credit was given to the 1stdefendant by Taos for the previous payment of Rs. 4,500 made byhim on 20th February. (Although there is no explanation whyhe was given credit only for a sum of Rs. 3,991 it must be takenthat the assumption was correct.)
In regard both to the Proposal Form and the Agreement itselfthe 1st defendant’s position in evidence was that although hesigned these forms, he neither read nor understood their condi-tions, nor were the conditions explained to him in Sinhalese.His position at the trial was that (presumably because of whathad been said to him by Beddewela in February) he thoughtthat the plaintiff was giving him a loan, and that what he signedwas a mortgage of the boat and not an agreement to take it onhire from the plaintiff.
In deciding that the title to the boat was in the 1st defendantand that accordingly he thought he was signing a mortgage, thelearned trial Judge has accepted the evidence which I havesummarised above. The Judge placed much reliance on the factthat the first receipt of Rs. 4,500 was in the name of the 1stdefendant, that when the second payment was made to TaosLtd. on 14th April 1960 the receipt was again in his name, andthat the plaintiff did not produce any document to show thathe was the owner of the boat.
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Mr. Jayewardene for the plaintiff made two main submissionsregarding the finding that the 1st defendant was the owner of the.boat at the time when the Agreement was signed, the first sub-mission being that the claim of the 1st defendant that he was theowner of the boat was not put forward either in the pleadings orin the issues framed at the trial. In paragraph 3 of his answer the1st defendant’s position only was that he did not understand thecontents of the agreement which he signed. Then in paragraph 4he admitted that a Taos Mechanised fishing boat was financed bythe plaintiff, and that he paid to the-plaintiff a sum of Rs. 5,629 on14th April 1960 and thereafter several sums for and on accountof the said fishing boat. I cannot but agree that in this paragraphof his answer the defendant admitted that he had made paymentsto the plaintiff in terms of the Hire Purchase Agreement, firstlyof the initial payment of Rs. 5,629 for which the Agreementprovides, and. secondly, of the rentals payable under the Agree-ment for the hire of the boat. If, as he thus admitted, he paid theinitial sum of Rs. 5,629 to the plaintiff", and thereafter commencedto pay the balance cost of the boat to the plaintiff, it is at the leastdifficult to appreciate his attitude that he thought he was buyinga boat from Taos Ltd.
In paragraph 5 of the answer, the first defendant firstly averredthat the plaintiff had no right in law to seize the boat. No groundwas here mentioned for this averment, except the ground thatthe seizure took place during the pendency of the action. Thedefendant further averred that the agreement was contrary topublic policy and/or to law and that the agreement was deter-mined without due notice. The other matters referred to in the1st defendant’s answer related to the value of the boat and tothe propriety of the circumstances in which the plaintiff sold theboat after seizure. Again, it is impossible to find in any of theaverments which followed paragraph 4 of the answer any impli-cation of a position that the defendant had been the owner of theboat.
The relevant issues framed for the 1st defendant have alreadybeen reproduced in this judgment. Even if it could have beenproper for the 1st defendant to frame issues which did notproperly arise upon the pleadings, I much doubt whether issueNo. (3) could reasonably convey to the plaintiff any impressionof an intention to put forward a case that the defendant was theowner of the boat and that his only intention had been tomortgage his boat to the plaintiff.c
The trial commenced with the leading of evidence on behalfof the plaintiff, and the principal witness for the plaintiff wasBeddewela. A great part of the lengthy examination of Bedde-wela related to the circumstances in which the Hire Purchase
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Agreement was signed by the 1st defendant, that is to say, tomatters relevant to the second issue whether the defendantunderstood the contents of the Agreement. There were alsoquestions directed to the point whether the plaintiff had becomethe owner of the boat on 14th April 1960. This point (with whichI will presently deal) could have been of importance as a matterof law in view of English decisions holding that there cannot be avalid Hire Purchase Agreement in respect of an article notowned by the bailor at the time of the hire. But there was literallyno question put to Beddewela which even suggested thepossibility that the plaintiff had represented to the 1st defendantthat he would be or was being given a loan on the security of aboat. A careful reading of the cross-examination of Beddewelashows that neither the word “ loan ” nor the word “ mortgage ”was even once uttered by cross-examining Counsel. It thusappears that even 1st defendant’s Counsel was not aware, untilhis client gave evidence, of the version that the client thoughthe was getting a loan on the security of his boat.
In these circumstances, although there was open for decisionby the Court on issue No. (3) the question whether the plaintiffwas the owner of the boat at the time of the agreement, that is tosay, whether title had then passed from Taos Ltd. to the plain-tiff, there was nothing in the pleadings or in the issues, or in therecord of the cross-examination of the plaintiff’s witness, whichrequired the plaintiff to meet a case that the 1st defendant ownedthe boat and intended to mortgage it as security for a loan. I holdthat it was not open for the 1st defendant to set up such a case,of which the plaintiff had no warning whatsoever until the latestage when the 1st defendant gave evidence. The correspondingfinding of the trial Judge cannot therefore be sustained. Thisdisposes also of the possibility of a finding for the 1st defendanton issue No. (2).
Mr. Jayewardene’s second submission was that in any eventthe evidence did not justify the finding that the 1st defendantbecame the owner of the boat. What is implied in the finding isthat Taos Ltd. delivered the boat to the 1st defendant as thepurchaser thereof. An inference that such was the position nodoubt arose from the fact that he had placed an order for a boatand made the advance payment of Rs. 4,500 for it in February1960, and from the fact that even the receipt given by Taos Ltd.on 14th April was in his name. But these are not the only mattersrelevant to the question whether in fact there was a completedtransaction of sale between Taos Ltd. and the 1st defendant. TaosLtd, was a signatory to the proposed form, and the particulars inthat form concerning the 1st defendant were filled in by a Taosemployee at the Taos office. In that form the 1st defendant is
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described as “ the hirer ”, and it is made perfectly clear that tothe knowledge of Taos Ltd., the 1st defendant desired to take theboat on hire from the plaintiff. Again, Taos Ltd. was a party asguarantor to the Agreement itself, which- clearly refers to theplaintiff as “ the owners ” and to the 1st defendant as “ hirer ”.Taos Ltd. delivered the boat to the 1st defendant only becausethe plaintiff issued a delivery order in the name of the 1st defen-dant ; that order required Taos to collect Rs. 6,113.62 before deli-very, an amount which represented the total of Rs. 5,629 (beingthe initial payment payable to the plaintiff under the Agreement,plus Rs. 484.12 being insurance charges, plus an additional chargeof 50 cents also referred to in the Agreement. In his answer, the1st defendant clearly stated that he paid the sum of Rs. 5,629 tothe plaintiff on 14th April 1960. Moreover, there was no evidenceto contradict the statement of the plaintiff’s witness that it isnormal practice for the dealer to collect the initial payment onbehalf of the party letting an article on hire-purchase. Havingrecovered tliis payment from the 1st defendant by appropriatingan earlier payment in its hands and taking cash for the balance,Taos Ltd. informed the plaintiff of the delivery of the boat andsent its invoice for the balance due to itself on the sale price.This balance was paid by the plaintiff to Taos Ltd. before the endof April.
In these circumstances, it is manifest that Taos Ltd. intendedthat ownership of the boat should vest in the plaintiff, and itwould have been absurd for Taos to contend subsequently thatthe boat was sold to the 1st defendant as purchaser. When the1st defendant undertook the burden of proving as a fact thatTaos Ltd. sold the boat to him, that burden was no different fromand no lighter than it would be if Taos Ltd. itself sought to provethe same fact; Taos Ltd. filled up the proposal form on behalf ofthe 1st defendant. The position could have been different only ifthe 1st defendant claimed that the Agreement was a sham, andTaos Ltd. had deceived him by purporting to sell the boat to theplaintiff, when in reality the true intention was that Taos wouldsell the boat to him. Indeed it appears that the 1st defendant’sadvisers did at one stage consider such a claim. Leave of theCourt was obtained on 21st August 1963 to amend his answer “ toinclude an averment of fraud between the plaintiff and Taos Ltd.in regard to the sale of the boat. ” But no such averment wasmade in the amended answer, nor did the 1st defendant say inevidence that Taos had deceived him.
In fairness to the witness Beddewela, it must be said that thedisbelief of his evidence that he did explain the nature of thetransaction to the 1st defendant was quite unjustified. In theabsence of any allegation of fraud or deceit on his part, Badde-'wela’s statement that he explained this to be a, hire-purchase
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transaction was perfectly credible. He knew that the1st defendant did not understand English, and every conversationwhich he had regarding this matter with the 1st defendant mustnecessarily have been in Sinhala. If he did not intend to bedeceitful (no one says that he did), it was normal and natural forhim to explain that the plaintiff would buy the boat from Taosand let it on hire-purchase to the 1st defendant. Even if he onlyused the English expression “ hire-purchase ”, there is no evi-dence to suggest that the defendant was unaware of the natureof the transaction, which is quite commonly entered into bypeople who do not speak the English language. The 1st defendantreceived several letters from the plaintiff which referred to the“ Hire Purchase Agreement ”, to “ hiring rentals ” and to himselfas “ the hirer ”, and he signed replies in which the first two ofthese expressions occur. These replies, according to the 1stdefendant, were written on his behalf by some other person. Butthis agent admitted in these replies that the transaction was oneof hire-purchase and it was very nearly absurd for the1st defendant to claim belatedly that he was unaware of thecontent and meaning of the replies which he signed. The plaintiffwas in my opinion entitled to a positive finding that the 1stdefendant did know the nature of the transaction into which heentered.
I must hold for these reasons that the finding that title to theboat passed from Taos Ltd. to the 1st defendant is unsupportedby the evidence.
The learned trial Judge has also held that the plaintiff had notitle to the boat on 14th April 1960 when the Agreement wassigned. This finding was independent of the question whethertitle then passed to the 1st defendant, and depended on the factthat the balance of the purchase price was paid by the plaintiffto Taos Ltd. only on 25th April. Indeed, it appears that issueNo. (3) was framed originally for the purpose of raising this verymatter, and not the question of the 1st defendant’s title.
In certain English cases such as Karflex v. Poole1 (1933,A. E. B. 46) it has been held that a hire-purchase agreement isconditional upon the party letting an article being in fact theowner of the article at the time of the letting. But in the instantcase, the circumstance that the plaintiff paid the balance of thepurchase price only two weeks after the date of the hiring hadnot the effect that title to the boat remained in Taos Ltd. untilthat payment was made. The learned Judge fell into a surprisingerror, in thinking that title to goods delivered by a vendor under
1 1933, A. E. B. 48.
H. N. G. FERNANDO, C.J.—Mercantile Credit Ltd. v. Silva
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a contract of sale cannot pass to the purchaser until payment ismade; on his reasoning, the bread which I consume today willbecome my bread only when I pay the baker’s bill next month.There was obviously in this case a sale to the plaintiff on credit,on his implied promise to pay the balance of the purchaseprice.
On no ground could issue No. (4) have been answered infavour of the 1st defendant. There haying been a validAgreement of hire-purchase, and default on the part of the 1stdefendant in payment of the monthly rentals, the plaintiff wasin law entitled to re-take possession of its property, the boat,and to dispose of it as the plaintiff pleased. The 1st defendant’scounter-claim should therefore have been dismissed.
For the reasons now stated, the judgment and decree of theDistrict Court are set aside. Decree will be entered for the plaiii-tiff in the sum prayed for in the plaint, less a sum of Rs. 700 paidafter the institution of this action, i.e. Rs. 7,922.28, and for costs inboth Courts.
June 23, 1970.—
After the delivery on 20th June 1970 of judgment in this appealit was brought to my notice that the judgment omitted to dealwith the liability of the 2nd defendant, who signed the hirepurchase agreement as guarantor. The learned District Judgeheld that the 2nd defendant will not be liable to the plaintiff,because there was no default on the part of the 1st defendant.This ground is however not available to the 2nd defendant,because of my finding in the judgment already delivered that the1st defendant is liable under his contract.
The 2nd defendant also pleaded in his answer that he did notknow that he was expressly renouncing the benefits to whichsureties are entitled, and if this plea is to succeed, there cannot berecourse against the 2nd defendant except if recourseagainst the 1st defendant does not satisfy the plaintiff’s claim.The learned district judge does not reach a finding onthis plea, but the context on which he cites from the judgmentin Wijeyewardene v. Jayawardenet, 19 N. L. R. 449, indicates thathe might have been inclined to uphold this plea. In that case deSampayo J. referred to an argument that a surety must bepresumed to have known the effect of his declaration in a bond,as the Notary who drew up the Bond must be taken to explainthese things, and then observed “ this even if it happened wouldnot satisfy the condition which seems to require that the suretyshould actually understand the matter and make a declaration tothat effect ”.
1 19 N. L. R. 449.
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The Agreement in the instant case contains the followingdeclaration : —
“ The Guarantor hereby renounces the rights to claim thatthe Hirer should be excussed in the first instance and allother benefits to which sureties are by law entitled, it beingagreed that he is liable, in all respects under this Agreement,to the same extent and in the same manner as the Hirerincluding the liability to be sued before recourse is had tothe Hirer. ”
But there is no declaration in the Agreement to the effect thatthe 2nd defendant actually understood the nature of the rightwhich he purported to renounce. To that extent the Agreementdoes not appear to satisfy the test laid down by de Sampayo J.Nevertheless the same Judge, only a short while after theprevious decision, considered the terms of a guarantee in a hire-purchase contract (Singer Sewing Machine Co. v. Silva15 C. W. R. 205). Having referred to the full discussion of thesubject in the earlier decision, de Sampayo J. in the later casepointed out that the contract contained a clause by which thedefendant agrees “ that the owners are at liberty to sue at theiroption either the hirer or guarantor jointly or severally for theirdues ”, and he proceeded to hold that this was an express andspecific renunciation of the beneficium ordinis seu excussionis.
It seems to me that the later decision distinguished the earliercase of Wijeyewardena v. Jayawardena. In the earlier case therewas no clause in the bond corresponding to that which wascontained in the hire-purchase agreement in the Singer SewingMachine Co. case. In the instant case, the 2nd defendant did notgive evidence, and there was no ground upon which to counterthe natural inference that he understood the meaning of thedeclaration which he signed. Moreover, the renunciation clauseis in clearer terms than the clause in the Singer Sewing MachineCo. case. As at present advised therefore, I think we shouldapply the later decision of de Sampayo J.
Accordingly the decree in this appeal will order the paymentof the decreed sum jointly and severally by the 1st and 2nddefendants. The present judgment will be supplementary to thatdelivered on 20th June, 1970.
Tennrkoon, J.—I agree.
Appeal allowed..
i s o. w. R. 20S.