national court of justice

peter kondowa

v

reuben elizah;
nambawan finance ltd; and
maureen ken

mount hagen: gavara-nanu j

13 December 2002

AGREEMENT - Commercial loan for a vehicle – A clause in the agreement providing that upon payment of the principal loan amount, liability of the customer under the agreement to cease – Vehicle repossessed by the bank and sold to the third party after the principal loan amount is fully paid – The bank has no right to repossess the vehicle and sell it to a third party – Customer has no obligation to the innocent third party.

Facts

The plaintiff entered into a lease agreement with the second defendant to purchase a Nissan UD Dump Truck, Reg. No. HAE 578, (hereinafter referred to as 'the Nissan') at the cost of about K134, 000.00. Under the agreement, the monthly repayment for the loan was about K5, 000.00. However, the plaintiff made some large lump sum payments and paid up the loan by 4 November 1999, which was well within the required period.

The plaintiff then entered into a subsequent lease agreement with the second defendant on 20 February 1998, to purchase a Hino Dump Truck Registration No. CAH. 341 (hereinafter referred to as 'the Hino') for about K100,000.00. The loan was for 2 years with monthly repayments at K5,138.80. The lease was rewritten on 27 July, 2002, as a commercial loan, for K124,626.72, for which a specific chattel mortgage was taken over the said Nissan. The plaintiff defaulted in his payment, but subsequently made large payments to bring his payments up to date. The 2nd defendant wrongly repossessed the vehicle for default and sold it by auction to the 3rd defendant. It then paid itself the amount outstanding on the loan and placed the balance of the purchase money in trust for the plaintiff who refused to uplift it.

Held
1.	The Nissan UD Dump Truck Reg. NO. HAE.578 is to remain in the custody of the Mt Hagen National Court until the plaintiff has fully paid all the outstanding amounts in interests, which were due and owing to the 2nd defendant up to 27 July 2002. 

2.	For the amount, which was due and owing to the 2nd defendant by 27 July 2002, the Court directs Mr. Yer to liaise with the Mt Hagen agent of the 2nd defendant to ascertain such amount.

3.	That upon payment of the outstanding amount to the 2nd defendant, the Nissan UD Dump Truck Reg. No. HAE.578 will be released to the plaintiff.

4.	The K70, 000.00 paid by the 3rd defendant to the 2nd defendant for the Nissan UD Dump Truck Reg No. HAE.578 is to be fully reimbursed to her.

5.	As part of the reimbursement of the K70,000.00 to the 3rd defendant, the Court Orders the 2nd defendant to release the sum of K33, 468.32, currently being held by the 2nd defendant in trust for the plaintiff to the 3rd defendant forthwith.

6.	The 2nd defendant is to reimburse the balance of K36,531.68 to the 3rd defendant as part of K70,000.00 the 3rd defendant paid for the Nissan UD Dump Truck Reg No. HAE.578, within 30 days from the date hereof.

Papua New Guinea cases cited
[No cases cited]

Counsel
P J Yer, for the plaintiff.
K J Peri, for the first & second defendants.
D Umba, for the third defendant.

13 December 2000

Gavara-nanu j. On or about 8 September 1997, the plaintiff entered into a lease agreement with the second defendant to purchase a Nissan UD Dump Truck, Reg. No. HAE 578, (hereinafter referred to as 'the Nissan') at the cost of about K134, 000.00. Under the agreement, the monthly repayment for the loan was about K5, 000.00. However, the plaintiff made some large lump sum payments and paid up the loan by 4 November 1999, which was well within the required period.

The plaintiff then entered into a subsequent lease agreement with the second defendant on 20 February 1998, to purchase a Hino Dump Truck Registration No. CAH. 341 (hereinafter referred to as 'the Hino') for about K100,000.00. The loan was for 2 years with monthly repayments at K5,138.80. The lease was rewritten on 27 July 2002, as a commercial loan, for K124,626.72, for which a specific chattel mortgage was taken over the said Nissan. It appears that the reason for rewriting the lease agreement for the Hino was because the plaintiff had defaulted in his loan repayments. 

The plaintiff says when he entered into the commercial lease agreement with the second defendant, he dealt with Mr. Ted Vere who was the Asset Manager for the second defendant based in Mt Hagen. He says, when he signed the lease, he signed on blank lease documents because Mr. Vere told him to just sign the documents and Mr. Vere would fill the particulars later. The plaintiff says, his understanding was that he was signing another ordinary lease agreement like the previous one. But, as it turned out, he had signed a commercial lease, for which he had the Nissan as the security.

The plaintiff concedes that after signing the commercial lease, he defaulted in his payments for the loan due to financial difficulties. He says, he contacted Mr. Vere about the defaults and Mr. Vere told him that, it was alright, but he had to make up for the months for which he failed to make payments. Although he did not make the monthly payments of K5,192.78 as required by the lease agreement, he made big lump sum payments in subsequent months to make up for the months he did not make any payments. Following his defaults, the second defendant sent a letter of demand to the plaintiff at his Ialibu postal address, which is P O Box 40. The plaintiff conceded that, that is his postal address in Ialibu, but he denied receiving the letter. The letter is dated 19 February 2002. When no response was received from the plaintiff, the second defendant in March 2002, arranged for the Nissan to be repossessed from the plaintiff. The Nissan was eventually repossessed on 27 April, 2002. After the Nissan was repossessed, the plaintiff made a further payment towards the loan, which the second defendant received. The second defendant said, it received the payment to offset the outstanding amount still owed by the plaintiff.

In the letter of demand, the second defendant advised the plaintiff that, amount of K40, 650.75 was owed in arrears and the plaintiff was told that unless the amount was paid within 14 days from the date of the letter, which was 19 February, 2002, action would be taken against him. So on 5 March 2002, when the plaintiff failed to pay the K40, 000.00, the second defendant wrote to its agent here in Mt Hagen to repossess the Nissan, which he did.

At the time the Nissan was repossessed, according to the plaintiff's calculations, he had K26,918.89 outstanding. But according to the second defendant, the outstanding amount was K36, 534.68. I think the latter amount would be right because, the plaintiff's figure of K26,918.89 was without the interests and penalties.

In May 2002, the Nissan was sold to a private bidder, who is the third defendant for K70,000.00.

The second defendant says after the Nissan was repossessed on 27 April, 2002, the plaintiff was given further period of up to the end of June, 2002, to clear the outstanding amount, but he did not. The second defendant says, had the plaintiff cleared the arrears, he would have recovered the Nissan.

According to the affidavit by the third defendant, sworn on 24 October, 2002, she paid for the Nissan on 22 July, 2002, by a bank cheque for K70,000.00. The second defendant through Mr. Richard Brusby, says, from the sale of the Nissan, the plaintiff's outstanding loan amount of K36,534.68 was cleared and the amount of K33, 468.32, is being held in trust for the plaintiff, because the plaintiff had refused to collect it.

One can understand why the plaintiff refused to collect the K33, 468.32. He says, he has already spent K186,558.00 for the Hino. According to him the Hino costed K126,000.00. So he says, he has paid extra K60,558.00 over and above the purchase price. The Nissan is now kept in the premises of the Mt Hagen Court house, pending the outcome of these proceedings.

The plaintiff has opted to seek relief by way of Originating Summons. His is asking the Court to order the release of the Nissan to him or alternatively that the second defendant pay him K156, 526.00, which he says, is made up of the deposit he paid of K 26,800.00 and the amount of K129, 723.00, he paid in installments towards the purchase of the Hino. The defendants have argued that the plaintiff has no cause of action and therefore, the proceedings should be struck out.

The issues are compounded by the fact that the third defendant is now involved. She was the innocent buyer of the Nissan. Her affidavit shows that, she won a contract to do road maintenance for K32,220.00 from the Department of Works in the Eastern Highlands in October 2002, for which it appears, she wants to use the Nissan. That contract was awarded to her just before the Court Ordered for the Nissan to be impounded on 10 October, 2002.

The plaintiff is bound by the terms of the agreement he signed with the second defendant on 27 July, 2000. If he did not read the agreement, as he says was the case before signing it, then it was the risk he took. He is a businessman, who I am sure knew that when he was signing the agreement, there were terms and conditions to which he was agreeing. He had signed at least two lease agreements before, and he should have known better.

The crucial term of the agreement is clause 2 (a) by which he agreed to pay monthly installments of K5,192.78, so when he defaulted, he was in breach of that term. But is the plaintiff liable under the agreement?

The plaintiff as I said has conceded that he had defaulted in his monthly payments, but he says, he made up for the months he did not pay by making big lump sum payments. He says that accords with the verbal agreement between him and Mr. Vere. Mr. Brusby, said, if there were agreements or concessions reached between the plaintiff and Mr. Vere in terms of late payments then, he would not know.

Item 7 of the Schedule to the agreement is headed "INSTALMENTS". The sentence next to this heading reads:"Principal and Interest is payable at the times and in the amounts hereinafter provided, the sum of K5,192.78, per month".

Item 6 of the Schedule to the agreement shows that the amount of Interest for the loan was K30,849.75. Then Item 8 of the Schedule to the agreement provides for Default Interest at 28.95 %.

Item 7 relates to the amount of installments to be paid towards the principal loan amount. The interest the plaintiff had to pay as shown in item 6 of the Schedule to the agreement was on top of the principal amount for which the loan was obtained or rewritten on 27 July, 2000. And according to Item 2 of the Schedule to the agreement, the principal amount was K93,776.97. The amounts for the principal and the interest add up to K124, 626.72. See paragraph 4 of Brusby's affidavit.

It is to be noted that, under Clause 2 (c) of the agreement, the plaintiff's liability under the agreement was deemed to have ended or ceased upon payment of the principal. This clause reads:

"The customer covenants (c) to pay to the Company (2nd defendant) the installments specified in Item 7 of the Schedule provided that the Customer's liability in respect of installments shall cease when the principal has been repaid and if the final installment does not suffice to repay the balance of the principal, the customer will pay to the company such balance along with the final installment". (my underlining).

Thus, it is clear that the customer's or the plaintiff's liability under the agreement could only arise if the principal was not yet paid. Similarly, the bank's power to repossess the Nissan could only be exercised if the principal was not paid. 

According to paragraph 4 of Mr. Brusby's affidavit, the total amount the plaintiff had to repay was K124,626.72. As noted, this amount is made up of the principal amount of K93,776.97 as stated in Item 2 of the Schedule to the agreement and the interest at K30, 849.75 as stated in Item 6 of the Schedule.

According to the plaintiff's affidavit sworn on 1 November, 2002, an amount of K95, 000.00 was paid by the plaintiff by 28 May, 2002, and by 3 June, 2002, a total amount of K 98,000.00 was paid by the plaintiff. This means the principal amount of K93, 776.97 was paid by the plaintiff by 28 May, 2002.

So by virtue of clause 2 (c) of the agreement, the plaintiff's liability under the agreement, ceased as at 28 May, 2002, when the principal was fully paid. And when the principal was paid, the plaintiff only had to pay the interest. But because the plaintiff had made extra payments of amounts totaling K98, 000.00, by 3 June, 2002, he had also paid part of the interest that was owing. Thus after 28 May, 2002, the plaintiff was only paying interests.

Mr. Brusby in paragraph 7 of his affidavit says, the plaintiff was given up to end of June, 2002, to clear the debt but because he did not, the second defendant was forced to sell the Nissan. But by June, 2002, the plaintiff's liability under the agreement had ceased by virtue of clause 2 (c) because he had paid the principal by 28 May, 2002.

According to paragraph 17 of the plaintiff's affidavit sworn on 10 October, 2002, the Nissan was first repossessed in January, 2002, but was returned to him. So the repossession of the Nissan on 27 April, 2002, was the second time, the Nissan was repossessed. He says following the repossession on 27 April, 2002, he went and saw the first defendant who is employed by the second defendant in its Mt Hagen branch to discuss the matter but he was told to go to the defendant's head office in Port Moresby and discuss it there. When he went to the defendant's head office in Port Moresby, he was told that the Nissan was already sold to a third party. 

According to paragraph 9 of the plaintiff's other affidavit sworn on 1 November, 2002, the plaintiff paid K 20,000.00 on 3 January, 2002, on 29 January, 2002, he paid K10, 000.00, on 28 May, 2002, he paid K5,000.00 then on 3 June, 2002, he made another payment, but that payment was made after the Nissan was already repossessed by the second defendant. 

There does not appear to be any proper notice given to the plaintiff by the second defendant before the Nissan was repossessed.

I do not see any good reason for the first defendant telling the plaintiff to travel to Port Moresby to discuss the matter there, because the first defendant could have discussed the matter with him in their Mt Hagen office. It may be that the reason why the first defendant did not want to discuss the matter with the plaintiff in Mt Hagen was because the Nissan was already sold to the third defendant and he did not want to disclose that to the plaintiff.

I am of the view that the effect of clause 2 (c) of the agreement is that, when the principal was paid, the right of the mortgagee to exercise its power over the mortgaged property cease to exist. Thus the second defendant had no right under the agreement to repossess the Nissan. However, it does not mean that the mortgagor who in this case is the plaintiff, is relieved from paying any outstanding interest and penalties under the loan because he still has to pay any such outstanding amounts.

I therefore make the following Orders: -

1.	The Nissan UD Dump Truck Reg. NO. HAE.578 is to remain in the custody of the Mt Hagen National Court until the plaintiff has fully paid all the outstanding amounts in interests, which were due and owing to the 2nd defendant up to 27 July, 2002. 

2.	For the amount, which was due and owing to the 2nd defendant by 27 July, 2002, the Court directs Mr. Yer to liaise with the Mt Hagen agent of the 2nd defendant to ascertain such amount.

3.	That upon payment of the outstanding amount to the 2nd defendant, the Nissan UD Dump Truck Reg. No. HAE.578 will be released to the plaintiff.

4.	The K70, 000.00 paid by the 3rd defendant to the 2nd defendant for the Nissan UD Dump Truck Reg No. HAE.578 is to be fully reimbursed to her.

5.	As part of the reimbursement of the K70, 000.00 to the 3rd defendant, the Court Orders the 2nd defendant to release the sum of K33, 468.32, currently being held by the 2nd defendant in trust for the plaintiff to the 3rd defendant forthwith.

6.	The 2nd defendant is to reimburse the balance of K36, 531.68 to the 3rd defendant as part of K70,000.00 the 3rd defendant paid for the Nissan UD Dump Truck Reg No. HAE.578, within 30 days from the date hereof.

7.	Each party to pay its own costs.

Lawyer for the plaintiff: Kopunye Lawyers.
Lawyer for the first and second defendants: Warner Shand Lawyers.
Lawyer for the thred defendant: Akanufa Lawyers.