Peters v Fiji Development Bank [2002] FJHC 227; HBA0005J.2002S (19 September 2002)

IN THE HIGH COURT OF FIJI
AT SUVA
CIVIL JURISDICTION

CIVIL APPEAL NO. HBA0005J OF 2002S

BETWEEN:

DAN PETERS and SERASEINI PETERS,
35 Ono Street, Samabula.
1ST APPELLANT
And
2ND APPELLANT

AND:

FIJI DEVELOPMENT BANK
RESPONDENT

Counsel for the Plaintiffs: In Person
Counsel for the Respondent: R. Patel & Co.

Date of Judgment: 19 September 2002
Time of Judgment: 9.30 a.m.

JUDGMENT

This is an Appeal from the Suva Magistrates Court in which judgment in the sum of $13,409.02 plus interest was entered against the Appellants/Defendants.

The Appellants would not seek Counsel and appeared on their own behalf. Consequently the grounds of their appeal are not exactly framed in any proper legal form or order. It is nevertheless clear from one=s reading of the grounds of appeal that the Appellants believe that the learned Magistrate erred in law and/or in fact in not giving sufficient weight to their argument that the Respondent/Plaintiff had not attempted to mitigate its loss by selling the vehicle at its proper market value. Furthermore, the Appellants claim, the learned Magistrate, had not given sufficient weight to their testimony that the Respondent had not taken into account the amount of money already paid by them to the Respondent for the repossessed vehicle. This included payment of insurance and other monthly fees added onto the principal sum by the Respondent.

The facts are these. The Appellants, being husband and wife, had applied for a loan from the Respondent to enable them to purchase a motor vehicle (Mitsubishi twin cab 4 x 4), a vacuum yellow jacket pump and a transarc 400 machine with accessories. The purpose of the loan was for the Appellants to establish a refrigeration and air conditioning repair business.

The total costs of the project was $49,420.00 of which the Appellants were required to contribute as indeed they did, the sum of $24,710.00, representing half of the projects= costs. The other half was provided by the Respondent by way of a loan. As security, the Respondent obtained a Bill of Sale over the vehicle as well as the pump and the transarc 400 machine and accessories.

Under the terms of the Bill of Sale, repayment was to be $960,00 per month over a period of 3 years. The first payment was to be made in July 1997 with the final payment due in June 2000. The interest on the loan was 8 per cent per annum.

The loan from the Respondent was only to be released after the Applicants had deposited their contribution of $24,710.00 with the Respondent, the production of valid driving licences, their completion of insurance/security formalities and proof of contracts Awith FNPF and FHL@ (presumably corporate clients with whom the Appellants were going to do business with).

A total of $49,419.92 was subsequently released in five payments between 20 May and 13 June 1997. All instalment disbursements were acknowledged by the Appellants.

It appeared that, according to the documentary evidence submitted by the Respondent, the Appellants soon after obtaining the loan, began to fall into arrears on their repayment, for barely after two (2) months of their first repayment, they received by letters dated 7 October 1997, their first reminder of arrears from the Respondent. This was followed by others of 11 November 1997, 10 June 1998, and 24 July 1998. Finally, on 7 August 1998 the Respondent, in the face of the Appellants persistent defaults in repayment, and pursuant to its rights under the Bill of Sale, called up the balance of the Appellants= loan which then stood at $19,093.82. At the same time it served notice that it will exercise its power to seize and sell the assets the subject of the Bill of Sale, if the balance of the loan was not paid in full.

The Respondent conceded that some money were paid in by the Appellants after their letter of demand of 7 August 1998 but they again quickly fell into arrears hence the Respondent=s second demand letter of 7 September 1998.

By the beginning of 2000, the Respondent, clearly worried with the non-performance of the Appellants and more so with their inability to meet their monthly repayments, was asking for their financial statements as well as their financial projection for the next 12 months, to enable it to assess their ability to meet their commitment. The evidence including letters from the Respondent to the Appellants of 17 August and 24 October 2000, clearly showed that the situation had not improved only deteriorated. Finally, the Respondent was forced to serve a third and final Demand Notice on the Appellants on 11 January 2001 and followed by Demand and Seizure Notice in favour of the Respondent=s Bailiff. According to the Respondent, the Bailiff was only able to seize the motor vehicle as the other chattels could not be located. The vehicle itself was in a bad state of disrepair, according to the Respondent=s Inspection Report. There were parts missing and the engine itself was dismantled. In its then current state, the Report concluded, that the estimated market value would be $4,000.00. As it turned out, the vehicle was sold by public tender for $5,000.00. This amount, less the $100 of the deposit of the successful tenderer, was credited to the Appellants account. As of 19 February 2001, the balance of the Appellants outstanding loan with the Respondent stood at $13,409.02.

I have gone into some length to describe in greater details the chronology of events and the transactions if only to assist the Appellants understand with some preciseness the extent of their obligations and as well as the Respondents rights under the law governing their relationship. As was the case with the learned Magistrate, this Court too had given the Appellants a great deal of latitude in their submissions in support of their appeal.

The legal relationship between the Appellants and the Respondent is one based on the law of contract. It is the law that governed the parties= behaviour towards each other and is specifically defined in two documents namely, the Letter of Offer dated 5 May 1997, followed by the Bill of Sale of 19 May 1997 and registered with the Registrar of Deeds (No. 97/1240) on 21 May 1997.

The contract documents stipulate that both parties had agreed to a loan of $24,710.00 by the Appellants for a term of 3 years beginning July 1997 with a monthly instalment payment of $960.00 per month and carrying an interest of 8 per cent per annum. The final monthly instalment payment was due on June 2000.

As outlined in the background facts above, it is normal procedure in similar types of loan made available by the Respondent to borrowers, the Applicants were required to contribute a portion or percentage of the total costs of the project to which the loan was sought, before the loan was released. In this instance, the Appellants were required to pay 50 per cent of project costs i.e. $24,710.00 to match the amount advanced by the Respondent. Such payment to be made to the Respondent prior to the release of the loan of the equivalent amount. Both parties agree that the Appellants had fulfilled this and other requirements when the first disbursement of the loan was released to them. It is from hereonafter that the problem of non-payment of monthly instalments of the loan began.

The Appellants do not dispute that they were in arrears of their payment to the Respondent. The Learned Magistrate found so.

What rights and obligations do the parties have at the point of the first default in payment by the Appellants? The Respondent, as the aggrieved party, is entitled under the terms of the agreement, to immediately call up the total sum or the balance of the outstanding loan, without serving notice on the Appellants. Specifically paragraph F.1(ii)(a) of the Bill of Sale states:

A(ii) The moneys hereby secured shall at the option of the Mortgagee and notwithstanding any delay or previous waiver of the right to exercise such option immediately become payable and this security shall immediately become enforceable without any demand or notice in each or any of the following events:-

(a) If the Mortgagor or Debtor makes default in the payment of the moneys hereby secured or any part thereof ....@

It is true that there had been interim arrangements entered into between the Appellants and the Respondent whereby the latter had deferred the call-up for the total sum owed, in favour of the Appellants paying the amount in arrears. But the fact remains that such arrangements do not constitute a waiver of the rights of the Respondent to demand full payment should default in payment continues, and the on-going obligation on the Appellants part to meet their instalment payments as well as the balance of the loan if demanded.

Furthermore, in addition to the Respondent demanding full payment of the balance of the loan, it is entitled to seize and sell the chattels. Again the Bill of Sale is very specific.

Paragraph F.2 states:

A2. If the Mortgagor shall make default in payment of any of the moneys hereby secured or in the observance or performance of any of the covenants conditions and agreements herein contained on the part of the Mortgagor to be observed or performed the Mortgagor may sell the mortgaged chattels or any of them by public auction or tender or private treaty and in one lot or several lots and separate sales may be so made to different persons or at different times without notice to the Debtor or the Mortgagor and the Mortgagee shall not be answerable or accountable for any involuntary losses which may happen in or about the exercise or execution of any of its rights powers or remedies hereunder.@

The legal rights of the Respondent and the obligations on the Appellants could not be any clearer.

The Appellants first argued that they were not given the opportunity to repay the loan including the arrears that had slowly accumulated. It is different to follow this argument in the light of evidence adduced by the Respondent, showing that between October 1997 and July 1998, the Appellants had been given extensions of time to pay up their arrears. It could very well be the case that the political turmoils of May 2000 had exacerbated the Appellants= financial ability to repay their loan, but the fact remains that they had fallen behind in their payment long before the events of May 2000 came along.

The Appellants then argued that they had not been informed of the sale of the chattels. But as the Court has already stated, notice of sale is not an obligation owed by the Respondent to them, as clearly spelled out under paragraph F.2 of the agreement. At the end, the seizure by the Respondent of the Appellants= chattels and the sale by tender are in total conformity with the law and in keeping with the terms of the Agreement entered into between the parties.

Much weight was placed by the Appellants to the submission that the Respondent had failed to sell the chattels, in this particular instance, the motor vehicle, at its proper value. In so doing, the Appellants argued, it had failed to mitigate its loss, as is required by law. As evidence, the Appellants referred to the fact that the vehicle was insured at the time for $20,000.00, whilst its sale realised only $5,000.00.

In the Magistrates= Court, the learned Magistrate heard both sides on this argument. The Appellants produced two individuals one of whom claimed that he was willing to purchase the vehicle from them for $18,000 whilst the other confirmed that the vehicle was in a good condition at the time he inspected it. The Respondent on the other hand through its investigating officer produced a report which stated that at the time of the seizure, the vehicle was being repaired with parts, including a tyre, missing. The Appellants confirmed according to the learned Magistrate, that the vehicle was undergoing repairs when it was seized. The fact is that, the vehicle had to be towed away after it was seized by the bailiff. A Vehicle Inspection report by one of the Respondent=s employees estimated the market value of the vehicle at $4,000.00.

In finding for the Respondent, the learned Magistrate considered that while the insurance of the vehicle was at $20,000.00, the material time was when it was seized by the bailiff. At page 2 of the judgment, the learned Magistrate concluded:

AIt is the condition of the vehicle at the time of the seizure that matters as it may have gone through changes or deterioration with lapse of time.@

It is a statement I totally endorse. The fact that certain individuals had offered $18,000.00 for the vehicle, would not of itself be sufficient ground to hold the value of the vehicle at the price it was insured for especially when the only firm offer by one of them was made a good few months before seizure or at any rate, before the vehicle began to undergo repairs. As the learned Magistrate, had correctly pointed out that, assuming that the two individuals were genuinely interested in purchasing the vehicle, the Appellants should have put them in touch with the Respondent, after the vehicle had been seized.

The Appellants argued that they were not notified of the sale of the vehicle and presumably therefore the learned Magistrate=s view that they should have referred the two prospective buyers of the vehicle to the Respondent, is irrelevant. But as already stated, the Respondent under the provisions of the Bill of Sale is not obliged to notify the Appellants of the sale or subsequent disposal of the chattels seized.

One would have assumed that the most prudent action expected of the Appellants and in fact of any one under similar circumstances, was to enquire of the Respondent from time to time, what the fate of the seized chattels were going to be . Certainly, it would have been commercially wise and advisable for the Appellants to be alert to the possibility of sale by tender and advertisement of such sale, as this is the general practice of disposal of seized chattels by the Respondent and recognised nation-wide. The Respondents were at liberty at anytime to make an offer as well as compete with other tenderers when the vehicle was offered to the public. As it happened the sale by tender was advertised in two of the local dailies on 18th and 23rd January 2001. The fact that the Appellants were not aware of the sale of the vehicle most certainly was not the fault of the Respondent. Nor was it

a failure of duty to inform on the part of the Respondent. It would most likely appear to an interested observer, to be careless behaviour by the Appellants.

The duty to mitigate one=s loss is one that is recognised in law. In respect of a Mortgagee being under a duty to obtain a fair market value when realising property sale, the authority had been laid down by Lindley L J in Farrar v. Farrar=s Limited 40 Ch. 411 where he said:

AIf in exercise of his power he acts bona fide and takes reasonable precautions to obtain a proper price, the mortgagor has no redress, even although more might have been obtained for the property if the sale had been postponed.@

As to what constitutes Areasonable precautions@ Lindley L J put it in Kennedy v. De Trafford [1897] UKLawRpAC 13; [1896] 1 Ch. 762 thus:

AA mortgagee is not a trustee of a power of sale for the mortgagor at all; his right is to look after himself first. But he is not at liberty to look after his own interests alone, and it is not right or proper, or legal, for him, either fraudulently, or wilfully, or recklessly, to sacrifice the property of the mortgagor .....@ (P. 772).

The formulation of the mortgagee=s duty as set out by Lindley L J was accepted and refined further in Cuckmere Brick Co. v. Mutual Finance [1971] EWCA Civ 9; [1971] 2 All ER 633 where Salmon L J stated:

AIt is well settled is not a trustee of the power of sale for the mortgagor. Once the power has accrued, the mortgagee is entitled to exercise it for his own purposes whenever he chooses to do so. It matters not that the moment may be unpropitious and that by waiting a higher price could be obtained. He has the right to realise his security by turning it into money when he likes. Nor, in my view, is there anything to prevent a mortgagee from accepting the best bid he can get at an auction, even though the auction is badly attended and the bidding exceptionally low. Providing none of those adverse factors is due to any fault of the mortgagee, he can do as he likes. If the mortgagee=s interests, as he sees them conflict with those of the mortgagor, the mortgagee can give preference to his own interests, which of course he could not do were he a trustee of the power of sale for the mortgagor.@ (P. 643).

Cross L J added, in the same Cuckmere Brick Co. (supra) the pre-requisite that:

Athe sale must be a genuine sale by the mortgagee to an independent purchaser at a price honestly arrived at@ (P 647).

The Fiji Court of Appeal in Jai Narayan v. Mohammed Samshu Dean & Ors. (Unreported CA No.56 of 1985) followed the English authorities above in recognising that the mortgagee is under a duty to obtain a fair market value tempered with the recognition of the rights of the mortgagee as detailed by Salmon L J in Cuckmere Brick Co. above.

The learned Magistrate in his judgment, had also referred to the case of Cuckmere Brick Co. and the obligations and rights of the Appellants and the Respondent. In assessing all the evidence adduced, the learned Magistrate concluded that taking everything into consideration, he found that the Respondent has acted reasonably in the seizure and subsequent sale of the vehicle.

I can find no grounds to differ from the conclusion of the learned Magistrate. The Respondent had done all it could to reach a satisfactory arrangement with the Appellants. In the face of continuing default of payments and accumulating arrears, the Respondent had little choice, but to seize and sell the chattels in accordance with its rights under the Bill of Sale. It did no wrong.

The Appellants finally argued that the Respondent had not taken into consideration that not only had they paid into the project, the sum of $24,710.00 from their FNPF shares as their contribution, they had also paid a total of $17,740.00 for the period between July 1997 to December 2000, towards the loan from the Respondent. The assumption, so the Appellants= argument goes, is that at the time of the seizure, the Respondent should have taken cognisant of the fact that the outstanding balance amounted to a mere $6980.00 being the difference between the total of repayments ($17,740.00) and the loan ($24,710.00). It is an argument and view frequently advanced by so many but sadly, not in accordance with commercial practices, let alone financial transactions of banking institutions.

The fact of the matter is that loans and other money transactions by themselves generate additional costs and charges which are added on to the principal sums. Quite apart from interests, there are nowadays such creatures as bank service fees, late repayment or arrears fees, insurance fees and ledger fees. It is no doubt a matter that has generated a lot of public debate on how equitable the banking practices especially the charges that are levied on customers. Be that as it may, the Courts can only pronounce on the rights and obligations as reflective of existing laws. For the moment and regretfully for the Appellants, they cannot avoid their legal duties and financial obligations expected of them under the Bill of Sale. This in turn means that they are required to pay the Respondent the total sum of the judgment debt entered against them in the Magistrates= Court together with interest at 8% per annum for the period as ordered.

The appeal is dismissed with costs of $200 to the Respondent.

F. Jitoko
Judge

At Suva
19 September 2002