Manuofetoa v Fonua [1998] TOLawRp 12; [1998] Tonga LR 82 (5 June 1998)

IN THE SUPREME COURT OF TONGA
Supreme Court, Nuku’alofa

C 1208/96

Manuofetoa

v

Fonua

Finnigan J
1, 2 June 1998; 5 June 1998

Contract ⎯sale of goods ⎯ unpaid purchase price Sale of goods — bona fide purchaser for value without knowledge

On 11 July 1996, the plaintiffs sold goods to the first defendant for TOP23,620.90. The first defendant paid TOP10,000 and was to pay the balance within a short time. On that same day the first defendant sold the goods to the second defendants for TOP14,268.40. When the balance was not paid, the male plaintiff pressed the first defendant. At the end of July or beginning of August the first defendant took the male plaintiff to the second defendants to ask them to pay the balance. The plaintiff then lodged a complaint against the first defendant with the police. Thereafter he tried, with a degree of success, to have the unsold balance of the goods retained by the second defendants until the matter could be determined in court. There was said to be an agreement by the plaintiffs together with the police and one of the second defendants that the second defendants will keep under safe custody the goods as per an inventory and agreement. The plaintiffs seek the return of the goods or payment of TOP12,620.90 from the second defendants. The claim against the first defendant was not pursued at this hearing. The second defendants claim in the position of bona fide purchaser for value without knowledge of the relationship between the first defendant and the plaintiff. Issues to resolve were: was there any contractual basis on which the second defendants may be found liable to the plaintiffs, and if so, what was that contract, and what was their liability?

Held:

1. The plaintiffs passed title in the goods to the first defendant and thereafter had no security in the goods with which to enforce payment of the balance. They no longer owned the goods, they had only their contract to be paid the balance of their price.

2. The evidence was that there was a valid contract for sale, a price was paid, the goods were delivered and the second defendants had good title. There was no legal principle by which title could be claimed from the second defendants by the plaintiffs, so that the goods (or what remained of them) might be returned to the plaintiffs.

3. There was no legal principle whereby the second defendants, who had good title under a contract with the first defendant, could be required by the court to pay the first defendant’s debts.

4. Judgment was entered for the second defendant.

Cases considered:

Phillips v Brooks Ltd [1919] 2 KB 243; [1918-19] All ER Rep 246

Lewis v Averay [1971] EWCA Civ 4; [1972] 1 QB 198; [1971] 3 All ER 907 (CA)

Rules considered:

Supreme Court Rules 1991

Counsel for plaintiff: Mr Fakahua
Counsel for second defendant: Mr ‘Etika

Judgment

Introduction

This is a hearing of the plaintiffs’ claim against the second defendants. They seek judgment for the return of goods which the plaintiffs claim are (i) their property and (ii) worth $12,620.90 in value, and (iii) wrongfully in the possession of the second defendants. Alternatively they seek judgment for payment of $12,620.90. They also seek damages, which are not specified.

Their claim against the first defendant was not pursued at this hearing. At first I thought this was because judgment had been obtained against the first defendant by default on 21 January 1997, but that was an error. On that day judgment was originally entered against one of the second defendants. That judgment was later set aside, on 20 February 1997. The situation of the first defendant is that he has till now taken no part in this action. The plaintiffs have not proceeded against him. He has not participated in any of the interlocutory matters, nor in the setting down of the case for hearing. There is no record of any steps taken by him, or against him. He has not been served with the proceedings. The statement of claim, dated 8 November 1996, at paragraph 9, pleads as a fact that the first defendant was at that date serving a sentence in prison. On 11 November 1996 the plaintiff personally delivered the writ of summons and statement of claim to a warder at Hu’atolitoli prison. Service by the plaintiff himself, and service upon some person other than the party being sued, are both contrary to the provisions of O11, RR 1 and 2 of the Supreme Court Rules.

The first defendant was present for the hearing, and after both parties had closed their cases as to evidence, counsel for the plaintiff sought leave to call him in order to cross-examine him. I declined that application, on the ground that he had no status in which to give evidence-in-chief and, as a witness, was no longer available to the parties because they had closed their cases. At the close of the hearing, I advised the parties accordingly, the first defendant being by then not present. The plaintiffs are free to pursue the claim against the first defendant or not, as they choose, the first step being service of the proceedings upon him.

The Cause of Action against the Second Defendants

It is not easy to find in the statement of claim a clear statement of what the plaintiffs allege is their cause of action against the second defendants. There is a pleading that there was a contract with the first defendant and delivery to him on credit of certain goods, for which part payment was subsequently made. After that there was an agreement with the first defendant for payment of the balance, on which the first defendant is said to have defaulted. There follows (at paragraph 8) a pleading without explanation that the first defendant took one of the plaintiffs to the second defendants, and that that plaintiff told the second defendants to return his goods until they were fully paid for, and that the second defendants agreed to attend to it. At paragraph 9 the second defendants are alleged to have custody of all the goods and to have started selling them. There is said (at paragraph 12) to be an agreement by the plaintiffs together with the police and one of the second defendants that the second defendants will keep under safe custody the goods as per an inventory and agreement. Those are the plaintiffs’ pleadings.

The second defendants filed a statement of defence. They have put the plaintiffs to proof of all their main allegations, and they have claimed (at paragraphs 11 & 14) that the male second defendant bought the goods from the first defendant as a bona fide purchaser for value, without knowledge of the relationship or the arrangements between the first defendant and the plaintiff.

In their pleadings, the parties identified the goods sold, and bought, respectively. There is no dispute that what the second defendants bought from the first defendant was more or less what the plaintiff had sold to the first defendant. The record of what the plaintiff sold is the copies of the dockets issued by the plaintiff at the time of delivery to the first defendant. The contents of the dockets were reproduced in the statement of claim, and copies of the dockets were produced in evidence. The record of what the second defendants bought was a carbon copy of a docket, the contents of which were set out in the statement of defence. The docket (said in evidence to be also a receipt for the money paid by the second defendants) was produced in evidence. There are some minor discrepancies in the itemised list of goods, which may safely be ignored. There is a major discrepancy in the values of the items and thus in their total stated value. The plaintiffs claim a credit sale to the first defendant for TOP23,620.90 on 11 July 1996, and the second defendants claim to have purchased the goods the same day from the first defendant for TOP14,268.40.

The Issues and the Facts

Most of the essential facts of this case occurred on 11 July 1996. On that day contracts were concluded between the first defendant and each of the other parties. There was a certain amount of evidence about events after the contracts were concluded, evidence of attempts by the plaintiff to recover possession from the second defendants of some of the goods in question, including the intervention of the police at the urging of the male plaintiff and interlocutory orders made on his application in this court. There was a conflict of evidence about whether the female second defendant acknowledged in November 1996 that the goods in her possession were the property of the plaintiffs, and about how well the second defendants speak and/or understand English. There was a lot of hearsay evidence, particularly from the police officers called by the plaintiffs, which was not challenged by counsel for the second defendants. These other matters seem to me to contribute little to the issues that the court is required to decide, so, with one exception, I put them aside. The exception is the evidence of the police officer Lolu Ma’u, whose evidence of a formal statement made to him by the male plaintiff while lodging a complaint helps supply some detail to the plaintiffs’ evidence.

From the evidence of the male plaintiff and the male second defendant, what occurred is clear. Neither knew anything about the dealings of the first defendant with the other. Neither learned from the first defendant, until later, about the existence of the other. Neither knew of the agreement that the first defendant had with the other. Neither had direct knowledge of the facts stated in evidence by the other. They are strangers to each other. The plaintiffs imported the goods and, on 11 July 1996, sold them to the first defendant for an agreed price of TOP23,620.90. The first defendant paid TOP10,000 that day and took delivery of the goods. He was to pay the balance, ie TOP13,620.90, within a short time. The male plaintiff’s understanding when he gave the goods to the first defendant was that he was selling them to the first defendant: that the first defendant would quickly sell out the goods because he was working together with some Chinese people, and that he would therefore by selling the goods quickly obtain and pay the due balance. When that balance was not paid, the male plaintiff pressed the first defendant. On 14 July the first defendant paid a further TOP1,000. Then, in the last week of July or the first week of August, the first defendant took the male plaintiff to the second defendants to ask them to pay the balance. They asked how much was owed to the male plaintiff, and he told them. He asked to be shown the goods they had, and he was shown some of them, in a shipping container. On that day, as the first defendant had failed to pay any more, the male plaintiff lodged a complaint against the first defendant with the police. He did this, he said, because his dealings were with the first defendant, the money was owed to him by the first defendant, and he knew nothing of the relations between the first defendant and the second defendants. Thereafter he tried, with a degree of success, to have the unsold balance of the goods retained by the second defendants until the matter could be determined in court.

The male plaintiff said that the first defendant had showed him the carbon copy docket which was held by the second defendants and is said to have been signed by the first defendant. This docket stated the value of the goods, upon sale to the second defendants, to be TOP14,268.40. He said that the first defendant gave him an explanation for that, which I shall set out here, because the explanation was put to the male second defendant for comment. He said that the first defendant told him that the docket was a delivery docket, not a receipt, and that the value stated was actually half the price that the second defendants had paid him. According to the first defendant’s explanation, the actual total which he had agreed with the second defendants was made up of the TOP23,620.90 that he owed the plaintiffs plus his profit on the sale, which he called his commission. The male plaintiff said that he had no arrangement to pay the first defendant a commission, he had sold the goods to him. He said that the first defendant stated to him the reason why the docket stated only half the true payment due; this was so that the first defendant would be charged less tax.

The male second defendant said in evidence that he was approached on 11 July by the first defendant as a businessman, and the first defendant showed him the goods which he wished to sell. They discussed a sale and purchase, and he asked the first defendant for a good price. After discussion they settled on a price. The agreed price was TOP14,268.40 for the whole container, and after the goods had been delivered he paid that whole price to the first defendant in one sum. The first defendant then prepared and signed the docket, which was a receipt. It is dated 11 July 1996. The male second defendant said that this was a deal between himself and the first defendant, he had nothing to do with the plaintiff. He said he was told by the first defendant that the goods were from Australia, that he was the person in charge of them, and that they were his to sell. He said that he paid no commission, only the agreed price in a proper business deal, and the goods belonged to him. He said the money he paid was the full price, there was no balance owing.

Decision of the Claim

Counsel for the plaintiff Mr Fakahua and counsel for the second defendants Mr ‘Etika, made good submissions. The plaintiffs seem to rely on purported agreement by one or both second defendants that the goods in their possession belong to the plaintiff. However, if they did agree to that proposition, which I strongly doubt, they could not by agreeing alter the true legal position. It is clear that there is no claim of contract arising from the pleaded agreements said to have been made by the second defendants about returning and/or keeping safe the goods in their possession. The evidence for such a claim does not exist. No point was taken about a cause of action in the statement of claim, and the claim was argued on the merits. From the evidence I heard and from the submissions and from the statements of claim and defence, I find that the parties do join issue on the plaintiffs’ claim, and that the issues I have to resolve are the following:

(a) Is there any contractual basis on which the second defendants may be found liable to the plaintiffs?

(b) If so, what is that contract, and what is their liability?

For the plaintiffs, Mr Fakahua relied on the evidence of the male plaintiff, which, if accepted, shows a balance due, in the sale to the first defendant, of TOP 12,620.90. He relied then upon a document that I have heretofore not mentioned, a statement in Tongan, prepared by a police officer, and signed by the officer, the male plaintiff and the female second defendant. This document states as a fact that the goods at that date (7 November 1996) in the possession of the second defendants are the property of the plaintiffs. However, that is a question of law, depending on the facts of their earlier dealings. They had no earlier dealings, except for the July visit by the male plaintiff and no contract regarding ownership of the goods was formed between them on that occasion. Whether the goods are the property of the plaintiffs must depend on whether the plaintiffs passed title in them to the first defendant on 11 July 1996. If they did pass title, then they can no longer have title, unless somehow title has come back to them from the first defendant.

Did they pass title to the first defendant? Clearly that was their intention when they dealt with the first defendant. The agreed object of delivering them to the first defendant was that he would pay a price for them, ie that they would become his. In particular, it was agreed that immediately, before delivery, he would pay about half the agreed price and that then he would move to sell them quickly, so that from the proceeds of sale he would quickly pay the balance due. That was the deal which the plaintiffs chose and agreed. They passed title in the goods to the first defendant and thereafter had no security in the goods with which to enforce payment of the balance. They no longer owned the goods, they had only their contract to be paid the balance of their price.

Was there some principle of law, or something in their contract which allowed them to take back title from the first defendant if he should not pay the balance of the price? No such principle was suggested to me, nor do I know of one. They made no agreement that the goods would become the plaintiffs’ property again if the first defendant failed to pay the balance of the price.

For the second defendants, Mr ‘Etika relied upon Phillips v Brooks Ltd [1919] 2 KB 243; [1918-19] All ER Rep 246, and upon Lewis v Averay [1971] EWCA Civ 4; [1972] 1 QB 198; [1971] 3 All ER 907 (CA). These cases illustrate the principle of law that a fraudulent purchaser may misrepresent his identity to a seller and may obtain title by that deceit under a voidable contract and may, while that contract remains on foot, pass good title to a bona fide purchaser for value. That is not the situation in the present case, but they are of persuasive value because the second defendants plead that they are such purchasers. However, they do not illustrate the principle governing the case. This is because the first defendant did not misrepresent himself to the plaintiffs in order to induce them to sell the goods to him. There was no fraud at all. There is no claim in the pleadings or in the evidence that at the time of his agreement to purchase, the first defendant intended to defraud the plaintiffs in any way. The plaintiffs claim in their pleadings, only that upon taking title to the goods he failed to complete the agreed payment. No legal basis was advanced at the hearing for a judgment that requires the first defendant to return the goods to the plaintiffs.

What of the second defendants? Can they be required to return the goods to the plaintiffs? It is clear that the first defendant had good title. The evidence of the male 240 second defendant is that he made a contract with the first defendant to pass that title to him, upon payment of an agreed price. His evidence is that the agreed price was paid, and that he took possession, and that he began to sell the goods to other people. I do not accept that the first defendant and the male second defendant agreed on a total price of TOP14,268.40, clearly a sale at that price would have been a crushing loss to the first defendant. Perhaps there is more to be paid yet, perhaps more has been paid. There are matters to be cleared up here, but not in the present proceedings. For the present case the evidence is there was a valid contract for sale, a price was paid, the goods were delivered and the second defendants have good title. I know of no legal principle, and none was suggested to me, by which title may now be claimed from the second defendants by the plaintiffs, so that the goods (or what remains of them) may be returned to the plaintiffs.

I turn now to the plaintiffs’ claim against the second defendants for TOP12,620.90. This sum is the balance claimed as due from the first defendant, under the contract which he made with the plaintiffs to take the goods and pay for them TOP23,620.90. I know of no legal principle, and none has been suggested to me, whereby the second defendants, who have good title under a contract with the first defendant, can be required by the court to pay the first defendant’s debt.

Anything that I have said about the relations between the plaintiffs and the first defendant is not a finding of the court for the purposes of any court action between them. All of that must be subject to what is proved by the evidence brought by those parties if the claim between them should come to court. In the present case, for the reasons which I have stated, I must find against the plaintiffs, and enter judgment for the second defendants. Costs in their favour are to be agreed between counsel, otherwise taxed.