N2142

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

WS NO. 510 OF 1999

LINDSAY INABI
Plaintiff

AND:

FLY RIVER PROVINCIAL GOVERNMENT
First Defendant

AND:

DEPARTMENT OF WESTERN PROVINCE,
DIVISION OF EDUCATION
Second Defendant

AND:

FLY RIVER PROVINCIAL GOVERNMENT
Cross Claimant

AND

LINDSAY INABI
Cross Defendant

Waigani	:	Gavara-Nanu J
2001		: 19th April, 08th June

WILLS PROBATE & ADMINISTRATION – Wills Probate & Administration Act, (Ch. No. 291) SS. 1, 44 & 79 – Deceased’s estate initially vested in the Public Curator – Personal representative – Powers of the personal representative to deal with the estate

MORTGAGE – Discharge of mortgage – No rights and obligations can accrue from the discharged mortgage – Rights of the guarantor of a loan under a mortgage – Land Registration Act (Ch. No.191) S.74 – Right of a mortgagee to enter and take possession of a mortgaged land cannot be exercised by a guarantor of a loan under a mortgage where mortgage is discharged – Mercantile Act (Ch. No.260) S.5 not applicable.

Cases cited:
Anton Johan Pinzger –v- Bougainville Copper Ltd – N418
Strong –v- Bird (1874) LR 18
Steward –v- McLaughlin [1908] 2 Ch.251.

Counsel:
S. Jubi for the Plaintiff
C. Coady for the Defendant

GAVARA-NANU, J.: The Plaintiff is claiming K145,500.00 in unpaid rents from the Defendants for the property described as ‘Osodai Theatre and Buildings’ which is situated at Section 25 Allotment 6, Vol. 29 Fol. 716 (‘the property’ hereon), Daru, Western Province. The amount claimed is at the rate of K1,500.00 per month and is for the period from 7th May 1991 to the date of judgement, which is today, the 8th June 2001. The property is registered in late Tabua Inabi’s name (‘the deceased’ hereon), who died on 25th June 1991. The Plaintiff is the second eldest son of the deceased and he is making this claim, as the representative and the Administrator of the deceased and the deceased’s estate.

The Defendants deny the Plaintiff’s claim and the First Defendant is cross claiming K196,280.60, from the Plaintiff.

Facts:

In about June 1982, the deceased took out a loan for K18,300.00, with the then Agricultural Bank (‘the Bank" hereon), to purchase the property and the property was mortgaged to the bank as the security for the loan, which was guaranteed by the First Defendant.

According to the Plaintiff, the bank discharged the mortgage on 7th May 1991 when the First Defendant satisfied its guarantee to the Bank. Upon the discharge of the mortgage, the First Defendant leased the property to the Second Defendant from 7th May 1991 without the knowledge and consent of the Plaintiff, for a monthly rent of K1,500.00. The property is being used by the Second Defendant as its stationery storage.

The Plaintiff has on numerous times since 7th May 1991, asked the Defendants to pay the monthly rent of K1,500.00 to him for the use of the property, but the Defendants have ignored those requests. The Plaintiff seems to have asked for this amount because the Second Defendant is paying that amount to the First Defendant.

The Plaintiff assumed authority over the property after the deceased died. He has in his possession the valid owner’s copy of the title to the property. The Department of Lands and Physical Planning sends the Annual Lease Rental Notices to the Plaintiff, who pays the rentals.

The Plaintiff claims that, as the result of the refusal by the Defendants to pay him the K1,500.00 monthly rent for the property since 7th May 1991, he has lost K145,500.00 in unpaid rents.

On 6th July 1999, the Plaintiff filed an amended Writ of Summons, claiming that, he had applied and was granted the Letters of Administration of the Estate of the deceased. A sealed copy of the Letters of Administration was tendered in evidence, it shows that the grant was made on 5th July 1999.

The final amount the First Defendant paid to the bank under its guarantee of the deceased’s loan was K58,810.00. The principal amount of K18,300.00 increased to this amount with interests and penalties.

The Plaintiff in his evidence said that since 7th May 1991, he had some meetings with a number of senior officers of the First and the Second Defendants including the Deputy Governor and the Legal Officer for the First Defendant during which he told them that the Defendants should lease the property from him, but he was told that the property belonged to the First Defendant. The property is still under the deceased’s name but the Plaintiff said, he will have the property transferred to his name some time in the future.

The Defendants conceded that the Plaintiff has standing to issue the Writ, they also conceded that the Plaintiff’s claim of K1,500.00 per month in rent for the property, from the date of the writ which is 21st May 1999 is reasonable. The Plaintiff has also conceded that the First Defendant is entitled to claim K58,810.00, being the amount it paid to the bank under its guarantee for the loan.

Reasons for decision

(i)	Amount due to the Plaintiff for the period from the date of the Writ to the date of judgement.

The Plaintiff’s claim for unpaid rents from the date of the Writ, which is 21st May 1999 to the date of judgement, which is 8th June 2001 is conceded by the Defendants, see also Anton Johan Pinzger –v- Bougainville Copper Ltd – N418. For this period, which is 2 years 1 month, the Plaintiff is entitled to claim K37,500.00 in unpaid rents, (25 months x K1,500.00) from the Defendants.

I allow interest of 8% on K37, 500.00 per annum which is K3,000.00. The interest for 2 years, is K3,000.00 x 2 = K6,000.00, and the interest for 1 month is K250.00. The total interest for the period is K6,000.00 + K250.00 = K6,250.00. Therefore the total amount due and payable to the Plaintiff in unpaid rents by the Defendants with interest for the period from 21st May 1999 to 8th June 2001 is K43,750.00. (K37,500.00 + K6,250.00).

(ii)	First Defendant’s Cross-Claim

The First Defendant is cross claiming the sum of K196,280.60, which is made up of the principal amount of K58,810.00 it paid to the bank under its loan guarantee and interests at commercial rates on the principal amount, for the period from 3rd April 1991 to 15th October 1999, the latter date being the date of the Cross-Claim and the former is the date when the mortgage was discharged according to the First Defendant. The Cross Claim by the First Defendant is to recover the money it paid to the bank under its guarantee together with interests from the Plaintiff. This claim is on top of the rents it has collected from the Second Defendant under their lease arrangement on the property since 7th May 1991 at the rate of K1,500.00 per month.

The First Defendant’s claim for K58,810.00 is not in issue because the Plaintiff has conceded that it is entitled to it. What is in issue is the balance of the claim, which is K137,470.60. This amount is comprised of interests for the period in the Cross Claim. These interests are based on commercial rates, but can the First Defendant claim such interests? I am of the view that, the First Defendant cannot claim the interests because the principal amount of K58,810.00 already includes those interests in that the amount of K58,810.00 is the compound sum of the interests and penalties imposed by the bank on the original loan amount of K18,300.00. Therefore, further claims of interests on K58,810.00 by the First Defendant at commercial rates can not be justified. I am of the view that, the fair rate of interest is 8%. I therefore, grant interest at 8% on K58,810.00 from the date of the Cross Claim which is 15th October 1999 to the date of the judgement, which is today the 8th June 2001. That is a period of 1 year 7 months 3 weeks or 19 months 3 weeks. The annual interest at that rate is K4,704.80. The interest for the 7 months is K2,744.47 (K4,704.80 ÷ 12 x 7) and the interest for the 3 weeks is K294.05 (K4,704.80 ÷ 12 ÷ 4 x 3). So the total interest is K4,704.80 + K2,744.47 + K294.05 = K7,743.32. Therefore the total amount due to the First Defendant together with interests is K66,553.32 (K58,810.00 + K7,743.32). I allow this amount under the First Defendant’s Cross Claim. The First Defendant is entitled to this amount.

(iii)	Claim by the Plaintiff for the unpaid rents for the period from 7th May 1991 to 21st May 1999.

Under the existing arrangement between the two Defendants, the First Defendant has already collected K174,000.00 in rents from the Second Defendant for the period from 7th May 1991 to 21st May 1999, which is a period of 9 years 8 months or 116 months, (116 x K1,500.00). The Plaintiff is claiming this amount. He contends that the First Defendant had no right to collect this amount from the Second Defendant in rents for the property. The Plaintiff further contends that he had the right to collect this rent because after his father died, he became the representative of the deceased’s estate. This he says was confirmed when he was granted the Letters of Administration for the deceased’s estate. So the issue to be determined is whether the Plaintiff or the First Defendant was entitled to receive the rents for that period? It is not disputed that the First Defendant leased the property and collected the rents from the Second Defendant in that period because, the First Defendant considered that, it had the rights of the mortgagee, when the deceased died and after it paid off the loan on behalf of the deceased as the guarantor. The Defendants do not dispute that the deceased is the registered proprietor of the property. This means that the property is part of the deceased’s estate. In my view, the mortgage on the property having been discharged, all rights and obligations under the mortgage were also discharged as at 7th May, 1991, so the First Defendant’s contention that it could exercise the rights of the mortgagee has no merits. The relationship between the First Defendant and the deceased’s estate at the time the mortgage was discharged was that of the creditor and the debtor. Therefore, the First Defendant as a creditor against the estate could only claim against the estate for K58,810.00, but had no right to assume authority over the estate. The First Defendant had nonetheless assumed authority over the property when it leased it to the Second Defendant. A recourse open for the First Defendant to reclaim the money it paid to the bank under its loan guarantee was to submit its claim as a creditor to the Public Curator in whom the control of the property was initially vested, see Wills, Probate and Administration Act, (Ch. No. 291), (‘the Act’ hereon), S.44. The Section reads:

"44.	Initial vesting in Public Curator.

Until probate or administration is granted, the property of a deceased person vests in the Public Curator, in the same manner and to the same extent as formerly personal estate in England vested in the Ordinary."

The other recourse is that if the First Defendant wanted to lease the property to recover the money it paid to the bank, it should have discussed it with the Plaintiff as the representative of the deceased, pursuant to S. 1 of the Act, for permission, to have the legal possession of the property then lease it, as it did, as provided under S. 79 (1) of the Act, and if the First Defendant was not able to obtain such permission from the Plaintiff then, it should have sought directions from the National Court under S. 79 (2) and (3).

Section 1 of the Act defines ‘personal representative’ as "the executor, whether original or by representation, or administrator of a deceased person". The Defendants have conceded that the Plaintiff as the representative of the deceased had the standing to issue these proceedings as at 21st May, 1999.
Section 79 of the Act is in these terms.

"79.	Giving of possession of land.

(1)	Before giving an assent or making a conveyance in favour of a person entitled, the personal representative may permit him to take possession of the land, but possession under any such permission does not prejudicially affect—

(a)	the right of the personal representative to take or resume possession; or
(b)	his power to convey the land as if he were in possession of the land,

subject to the interest of any lessee, tenant or occupier in possession or in actual occupation of the land.

(2)	A person who, as against the personal representative, claims—
(a)	possession of; or
(b)	the appointment of a receiver for; or
(c)	a conveyance of; or
(d)	an assent to the vesting of,
any real estate (including chattels real) may apply to the National Court for directions with reference to the matter.

(3)	On an application under Subsection (2), the National Court may make such vesting or other order as it thinks proper, and the provisions of the Trustees and Executors Act relating to vesting orders and to the appointment of a person to convey apply."

The Defendants also claimed that the First Defendant held possession of the property when the mortgage was discharged upon the First Defendant satisfying its guarantee to the bank for the loan, pursuant to Section 5 of the Mercantile Act, (Ch. No. 260), which provides:

"5.	Effect of discharge of liability by surety.

(1)	A person who—
(a)	being surety for the debt or duty of another; or
(b)	being liable with another for a debt or duty,
pays the debt or performs the duty is entitled to have assigned to him or to a trustee for him every judgement, specialty or other security that is held by the creditor in respect of the debt or duty, whether the judgement, specialty or other security is or is not deemed at law to have been satisfied by the payment of the debt or performance of the duty.

(2)	A person referred to in Subsection (1) is entitled—
(a)	to stand in the place of the creditor; and
(b)	to use all the remedies of the creditor; and
(c)	if need be and on a proper indemnity, to use the name of the creditor, in any proceedings in order to obtain from the principal debtor or any co-surety, co-contractor or co-debtor, as the case may be, indemnification for the advances made and loss sustained, by the person who has paid the debt or performed the duty.

(3)	A payment or performance made under Subsection (2) by a surety is not pleadable in bar of any proceeding by him referred to in that subsection.

(4)	A co-surety, co-contractor or co-debtor is not entitled to recover under this section from any other co-surety, co-contractor or co-debtor, more than the proportion for which, as between those parties, the last-mentioned person is justly liable."

I do not think this Section is helpful to the First Defendant, because the provision relates to assignment of judgement, specialty or other security by a creditor of a debt to the surety or a person liable with another for a debt, which in this case would have been the bank to make such assignments to the First Defendant. However, the bank was not a creditor, it was a mortgagee who had no outstanding claims against the deceased’s estate by reason of the fact that the mortgage had been discharged. There was therefore, nothing the bank could assign to the First Defendant.

The Defendants also contended that the First Defendant was in possession of the property because it was the mortgagee at law. I cannot see how this can be, because even if there was a claim of an equitable right by the First Defendant, such right could only exist, if there was a mortgage on foot, here, the mortgage had already been discharged, therefore, no such right could be available to the First Defendant. Perhaps the Defendants had S. 74 of the Land Registration Act, 1991, in mind, but that Section applies to a mortgagee. The Section is in these terms.

"74.	Mortgagee may enter and take possession, etc.

(1)	Where default is made in payment of any secured money, a creditor may—
(a)	enter into possession of the mortgaged or charged land by receiving the rents and profits of the land; or
(b)	distrain on the occupier or tenant of the land under the power to distrain conferred by Section 75; or
(c)	bring an action of ejectment to obtain possession of the land.
(2)	The creditor may bring an action under Subsection (1)(c) before or after exercising a remedy—
(a)	referred to in this section; or
(b)	conferred by Section 68.
(3)	A creditor is entitled by action or other proceedings in the Court to foreclose the right of the debtor to redeem the mortgaged or charged land." 

Again this Section is of no help to the first Defendant simply because it was not the mortgagee, furthermore, the rights under this Section can only be exercised by the mortgagee, if there was a default by the mortgagor. Here, there was no default by the mortgagor, but that is a non issue because, the mortgage was already discharged. The First Defendant therefore could not exercise any right of the mortgagee either in law or in equity over the property. For all these reasons, I find that the First Defendant had no right to lease the property to the Second Defendant and to collect the rents from 7th May 1991 to 21st May 1999.

The Plaintiff on the other hand was the personal representative of the deceased, who had the authority to deal with the estate, even before the grant of the Letters of Administration, pursuant to S.1 of the Act and furthermore, on the basis of paragraph 5 of his affidavit sworn on 21st May 1999, where he deposed that, he was the second eldest son of the deceased who was living at home with the deceased, when the deceased died and the rest of his family including the eldest son, who were all living in Port Moresby had agreed that, the Plaintiff would assume authority over the estate. That is also consistent with the well established Papua New Guinea tradition that the sons assume authority over the estate of a deceased father as the principal beneficiaries of such estate, for this reason also, the Plaintiff’s claim over the property or the estate could not be defeated by anyone, including the First Defendant even in equity, as the guarantor of the loan. See Strong –v- Bird (1874) LR 18 Eq. 315 at page 319, see also Steward –v- McLaughlin [1908] 2 Ch. 251 at 254.

The Plaintiff’s position as the representative of the estate was reaffirmed by the grant of the Letters of Administration to him. He not only had the right to assume authority over the estate but was a principal beneficiary of the estate as well, even before the grant of Letters of Administration to him on 5th July 1999. He therefore, had the right to deal with the property in a way he saw necessary including leasing the property.

Having determined that the First Defendant had not right either in law or equity to lease the property to the Second Defendant and to collect the rents, it follows, the First Defendant was not entitled to the rents it received from the Second Defendant from 7th May 1991 to 21st May 1999. On the other hand, the Plaintiff, for the reasons given above was entitled to receive the rents for the property for the same period. The Plaintiff is therefore entitled to claim unpaid rents from the Defendants from 7th May 1991 to 21st May 1999, which is a period of 9 years 8 months which amounts to K174,000.00 at the rate of K1,500.00 per month. I will deduct K66,553.32 which is the amount the First Defendant is entitled to claim under its Cross Claim. This leaves the balance of K107,446.68. This is the amount due and payable by the Defendants to the Plaintiff. The Defendants have benefited equally from the property from 7th May 1991 to this day. They are therefore each and severally liable to pay the amount of K107,446.68 to the Plaintiff. The Plaintiff has pleaded this claim for which he also claimed interest. I will therefore award interest on the amount but on the reduced rate of 4% from the date of the Writ to the date of the judgement, which is a period of 2 years 1 month. The annual interest is K4,297.87, therefore the interest for 2 years is K8,595.74 and the interest for 1 month is K358.16. The total amount of interest is K8,953.90. Therefore, the total amount due and payable with interest to the Plaintiff by the Defendants for this claim is K116,400.58. 

In total, the Defendants will pay the sum of K160,150.58, (K43,750.00 + K116,400.58) to the Plaintiff. The Second Defendant is ordered to vacate the property and give vacant possession of it to the Plaintiff forthwith. I award costs to the Plaintiff on the basis that he had tried persistently since 7th May 1991 to reach an amicable solution to his claim with the Defendants but to no avail. He was forced to institute these proceedings. The matter could have been resolved through negotiations, which is what the Plaintiff tried to do. In these circumstances, it is only fair that I award costs to him.

The Court’s Orders are as follows:-

1.	The Defendants to pay K160,150.58 to the Plaintiff.

2.	The Second Defendant is to vacate the property and give vacant possession of the same to the Plaintiff forthwith.

3.	The Defendants to pay the Plaintiff’s costs.

Lawyer for the Plaintiff:	Jubi Lawyers
Lawyer for the Defendants:	Henaos Lawyers