Westpac Bank of Samoa Ltd v Alexander Coolstore Ltd [2007] WSSC 89 (28 November 2007)

IN THE SUPREME COURT OF SAMOA
HELD AT APIA

BETWEEN:

WESTPAC BANK OF SAMOA LIMITED
formerly known as PACIFIC COMMERCIAL
BANK LIMITED a duly incorporated company
having its registered office in Apia.
Plaintiff

AND:

ALEXANDER COOLSTORE LIMITED
a duly incorporated company located at Vaitele.
First Defendant

AND:

FARREL CRAIG Businessman and
LUAPO CRAIG his wife, both of Vaoala.
Second Defendants

AND:

ALEXANDER & MARIE MEATS LIMITED
a duly incorporated company having its
registered officer in Apia
Third Defendant

Counsel: Ms Stowers for plaintiff
Mr Fepuleai for defendants

Hearing: 30 and 31 August 2007

Judgment: 28 November 2007

JUDGMENT OF VAAI J

Defendants Farrel and Luapo Craig

Mr and Mrs Craig borrowed $256,000 from the plaintiff in March 2002 at 13.5% interest per annum with monthly repayment of $13,200 per quarter for a period of 7 years and 6 months. The loan was secured by a first mortgage over the defendants’ residential property at Vaoala. As a result of serious defaults the plaintiff exercised its power of sale and sold the mortgaged property for $430,000 of which $293,964.54 was credited to the defendant’s loan account and after payment of disbursements, fees and commissions the balance was credited to the loan accounts of the other two defendants. The plaintiff claims from the defendants the balance of $117,812.60 owing plus accrued interest.

Defendant Alexander Cool Store Limited

The plaintiff also advanced to this defendant, a private family company, in March 2002 the sum of $726,000. Mr and Mrs Craig are the director and secretary of the company respectively. The other director Francis Craig is the brother of Farrel Craig.
Securities for the loan included:

(a) Mortgage debenture over all the assets and uncalled capital of the company.

(b) Registered mortgage over the company’s commercial property at Vaitele.

(c) Unlimited guarantees by Mr and Mrs Craig (supported by).

Registered Mortgage by Mr and Mrs Craig over their residential property at Vaoala, and

(d) (Other securities not relevant for the purpose of this judgment).

As a result of the company’s inability to service its loan commitments the plaintiff bank in November 2003 sold the company’s commercial property at Vaitele for $900,000 and after payment of legal costs of $108,631.18 and real estate agents commissions of $50,625 the balance of $740,43.83 was credited to the company’s loan account. Sale of other securities totalling $6,472.95 was also credited to the company’s loan account leaving a balance of $242,728.37.

The defendant Alexander and Marie Meats Limited

This defendant is another family company of the Craig family which also in March of 2002 was granted an advance of $124,000 by the plaintiff bank secured by guarantees by Francis and Sandy Craig, a mortgage of land by Sandy Craig, mortgage debenture and guarantee by Alexander Cool Store Ltd. Like the other two loans the repayments for this advance also fell into arrears and the plaintiff bank allocated to this account $87,867.69 from the proceeds of the sale of the house of the defendants Farrel and Luapo Craig leaving a balance of $88,615.

The plaintiff’s claim

The plaintiff bank claim that all the three defendants should pay the balance owing together with accruing interests at 18% being the default interest stipulated in the mortgage documents. Solicitor client costs of 15% of the total debts inclusive of 12.5% VAGST plus disbursement are also claimed.

Defence by the defendants Farrel and Luapo Craig

Mr and Mrs Craig mortgaged property was sold for $430,000 and Mr and Mrs Craig contended that the proceeds from the sale of their property should have been sufficient to clear their personal loan with the plaintiff bank. But the proceeds of the sale were distributed by the bank as follows:

Farrel & Luapo Craig Loan	$293,964.54
Alexander Cool Store Ltd	$ 4,730.07
Alexander & Marie Meats Ltd	$ 87,867.89
Samoa Realty (real estate agent)	$ 24,187.50
Total:	$430,000.00

The plaintiff bank argued that it had the discretion under clause 10 of the mortgage document to appropriate funds and to distribute the funds as it did after the sale of the defendants’ mortgaged property. Clause 10 provides:

10 Combination of Accounts and Appropriation of Balances.

The Bank may at any time at its discretion and without notice to the Borrower combine any account which the Borrower at any time has with the Bank, including the Loan Account, with any other of the Borrower’s accounts with the Bank and may appropriate any credit balance at any time standing in any of the borrowers accounts with the Bank in or towards payment of the indebtedness in any other account including the loan account.

I agree with counsel for the defendants that clause 10 did not entitle the plaintiff to transfer $4,730.07 to the loan account of Alexander Cool Store Limited, and $87,867.89 to the loan account of Alexander and Marie Meats Limited. In the first place the two companies are separate legal entities, each with a particular loan account with the plaintiff bank. More importantly Farrel and Luapo Craig had no personal involvement either by way of guarantor or mortgagor in respect of the loan granted to Alexander and Marie Meats Limited. The principal debtors or borrowers in each of the three loans granted by the plaintiff bank are distinct separate entities. Indeed the plaintiff bank has not combined the loan account of Farrel and Luapo Craig with the accounts of Alexander Cool Store Limited, and of Alexander and Marie Meats Limited. It cannot do so under clause 10. It could only appropriate any credit balance from their loan account to pay for their indebtedness as guarantors of the loan to Alexander Coolstore Limited.

In my interim order of the 30th August 2006 I ordered the plaintiff to apply all the proceeds of the sale to the defendants loan account and then appropriate the balance, if any, to the other loan accounts and submit statements for the balances owing. The statement now produced and which I accept show that a balance of $10,594.32 was still outstanding after all of the proceeds (less disbursements) were paid to the loan account of the defendants.

I accordingly enter judgment against the defendants Farrel and Luapo Craig in the sum of $17,068.67 inclusive of interest as at the 31st August 2007.

Defence by the defendant Alexander Cool Store Limited

The defendant filed a statement of defence and counterclaim. But at the commencement of trial counsel for the defendant advised that the counterclaim will not be pursued. It is contended by the defendant that at the time the plaintiff accepted the offer of $900,000 for the sale of the mortgagor’s commercial property there was a better offer from S.V. Mackenzie & Co. Ltd, a local wholesale and retail company to take the defendants land in exchange for the defendant’s indebtedness with the plaintiff bank. The plaintiff denied knowledge of the offer. In fact there was no evidence to suggest that the plaintiff received such an offer from S.V. Mackenzie & Co. Ltd.

Neither was there any suggestion that the plaintiff did not act in good when it decided to exercise it right as mortgagee to sell or it failed to take reasonable care to obtain a fair value for the land.

Judgment is accordingly entered for the plaintiff in the sum of $364,822.18 inclusive of interest to the 31st August 2007.

Defence by Alexander & Marie Meats Limited

Simple denials, or lack of knowledge, or putting the plaintiff to proof of the matters alleged in the statement of claim affords no defence for this defendant.

I enter judgment for plaintiff in the sum of $337,288.65 inclusive of interest to the 31st August 2007.

Costs

The plaintiff under the mortgage documents is entitled to recover legal costs against the defendants. If costs are not agreed to, plaintiff’s counsel is to file memorandum within 21 days.

JUSTICE VAAI