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Kondowa v Elizah [2002] PGNC 7; N2406 (13 December 2002)

N2406

PAPUA NEW GUINEA

[IN THE NATIONAL COURT OF JUSTICE]

OS No. 622 of 2000

BETWEEN:

PETER KONDOWA

-Plaintiff -

AND:

REUBEN ELIZAH
-First Defendant -

AND:

NAMBAWAN FINANCE LTD
-Second Defendant -

AND:

MAUREEN KEN
-Third Defendant -

MT HAGEN: GAVARA – NANU, J
2002: 13th 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.

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

GAVARA-NANU J : On or about 8th 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 K 134,000.00. Under the agreement, the monthly repayment for the loan was about K 5,000.00. However, the plaintiff made some large lump sum payments and paid up the loan by 4th November, 1999, which was well within the required period.

The plaintiff then entered into a subsequent lease agreement with the second defendant on 20th February, 1998, to purchase a Hino Dump Truck Registration No. CAH. 341 (hereinafter referred to as ‘the Hino’) for about K 100,000.00. The loan was for 2 years with monthly repayments at K 5,138.80. The lease was rewritten on 27th July, 2002, as a commercial loan, for K 124,626.72, 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 K 5,192.78 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 19th 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 27th 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 K 40,650.75 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 19th February, 2002, action would be taken against him. So on 5th 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 K 26,918.89 outstanding. But according to the second defendant, the outstanding amount was K 36,534.68. 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 K 70,000.00.

The second defendant says after the Nissan was repossessed on 27th 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 24th October, 2002, she paid for the Nissan on 22nd July, 2002, by a bank cheque for K 70,000.00. 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 K 33,468.32, 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 K 186,558.00 for the Hino. According to him the Hino costed K 126,000.00. So he says, he has paid extra K 60,558.00 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 K 156,526.00, which he says, is made up of the deposit he paid of K 26,800.00 and the amount of K 129,723.00, he paid in instalments 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 K 32,220.00 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 10th October, 2002.

The plaintiff is bound by the terms of the agreement he signed with the second defendant on 27th 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 instalments of K 5,192.78, 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 this heading reads: "Principal and Interest is payable at the times and in the amounts hereinafter provided, the sum of K 5,192.78, per month".

Item 6 of the Schedule to the agreement shows that the amount of Interest for the loan was K 30,849.75

Then Item 8 of the Schedule to the agreement provides for Default Interest at 28.95 %.

Item 7 relates to the amount of instalments 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 27th July, 2000. And according to Item 2 of the Schedule to the agreement, the principal amount was K 93,776.97. The amounts for the principal and the interest add up to K 124,626.72. 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 instalments specified in Item 7 of the Schedule provided that the Customer’s liability in respect of instalments shall cease when the principal has been repaid and if the final instalment does not suffice to repay the balance of the principal, the customer will pay to the company such balance along with the final instalment". (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 K 124,626.72. As noted, this amount is made up of the principal amount of K 93,776.97 as stated in Item 2 of the Schedule to the agreement and the interest at K 30,849.75 as stated in Item 6 of the Schedule.

According to the plaintiff’s affidavit sworn on 1st November, 2002, amount of K 95,000.00 was paid by the plaintiff by 28th May, 2002, and by 3rd June, 2002, total amount of K 98,000.00 was paid by the plaintiff. This means the principal amount of K 93,776.97 was paid by the plaintiff by 28th May, 2002.

So by virtue of clause 2 (c) of the agreement, the plaintiff’s liability under the agreement, ceased as at 28th 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 totalling K 98,000.00, by 3rd June, 2002, he had also paid part of the interest that was owing. Thus after 28th 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 28th May, 2002.

According to paragraph 17 of the plaintiff’s affidavit sworn on 10th October, 2002, the Nissan was first repossessed in January, 2002, but was returned to him. So the repossession of the Nissan on 27th April, 2002, was the second time, the Nissan was repossessed. He says following the repossession on 27th 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 1st November, 2002, the plaintiff paid K 20,000.00 on 3rd January, 2002, on 29th January, 2002, he paid K 10,000.00, on 28th May, 2002, he paid K5,000.00 then on 3rd 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 27th July, 2002.
   
2. For the amount which was due and owing to the 2nd defendant by 27th 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 K 70,000.00 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 K 70,000.00 to the 3rd defendant, the Court Orders the 2nd defendant to release the sum of K 33,468.32, 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 K 36,531.68 to the 3rd defendant as part of K 70,000.00 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 1st & 2nd Defendants : Warner Shand Lawyers
Lawyer for the 3rd Defendant : Akanufa Lawyers