Issa and Suleman v Micheol and Company (Civil Appeal No. 17 of 1948) [1948] EACA 55 (1 January 1948)

### APPELLATE CIVIL

### Before BOURKE, J.

### ISSA AND SULEMAN, Appellants (Original Plaintiffs)

# MICHEOL AND COMPANY, Respondents (Original Defendants)

## Civil Appeal No. 17 of 1948

Vendor and Purchaser—Claim to enforce contract of sale of motor vehicle—Plaint amended after adjournment—New cause of action—Claim to recover the ÷. property—Admission in plaint that agreement void "being contrary to certain provisions of law"—Credit Trade with Natives Ordinance, Cap. 130—Permit of Controller under Defence (Sale and Purchase of Motor Vehicles) Regulations, 1945, not obtained prior to sale—Admission by Plaintiffs that permit not obtained—Whether Plaintiffs entitled to maintain claim and recover property -Application of maxim in pari delicto potior est conditio defendentis-Contract ex facie illegal—Admission in proceedings from which illegality appears—Right and duty of trial Court.

The facts are fully set out in the judgment below.

Held $(8-12-48)$ .—(1) That it is the right and duty of a Court at any stage of the cause to consider, and, if it is sufficiently proved, to act upon, an illegality which may turn out to be fatal to the claim of either party to a litigation.

Connolly and Another v. Consumers' Cardage Co. 89 L. T. R. 347 cited and applied.

(2) That where a contract is ex facie illegal, and where though ex facie legal in the course of the proceedings an admission is made or evidence is given by which the<br>illegality clearly appears the Court is entitled and bound to consider the effect of the illegality upon the claim.

Lipton v. Powell (1920) 2 K. B. 51 applied.

(3) That in the present case as it was an admitted fact that the transaction was illegal as infringing the Defence (Sale and Purchase of Motor Vehicles) Regulations, 1945, and also illegal under the provisions of section 3, Credit Trade with Natives Ordinance (Cap. 130) the plaintiffs were not entitled to maintain their claim and recover the property and the maxim in pari delicto potior est conditio defendentis applied.

Appeal dismissed.

Cases referred to: Taylor v. Chester L. R. 4 Q. B. 309; Simpson v. Bloss 129 E. R. 99; Berg v. Sadler & Moore (1937) 2 K. B. 158; Bowmakers, Ltd. v. Barnet Instruments, Ltd. (1944) 2 A. E. R. 579; Holman v. Johnson (1775) 1 Cowp. 341; Lougher v. Molyneux (1916) 1 K. B. 718; Alexander v. Rayson (1936) 1 K. B. 169.

Khanna and Kapila for the Appellants.

#### Archer for the Respondents.

JUDGMENT.—The plaintiffs, who are Indian traders, brought an action in the Court of the Resident Magistrate, Nyeri, against the defendants as "Micheol and Company", which is apparently a partnership and is composed of Africans of the Kikuyu tribe. They claimed the amount of Sh. 2,000 as the purchase price alleged due in respect of the sale of a motor vehicle delivered to the defendants in pursuance of a written contract. It was alleged that the transaction of sale was completed on 30th June, 1947, and the lorry was then delivered, the defendants engaging themselves to pay the first monthly instalment of Sh. 300 of the Sh. 2,000 fixed purchase price on 31st July, 1947.

The defendants did not file a written defence. When the case came up for hearing on 23-1-48 the plaintiffs were represented by an advocate, Mr. Kapila, and the African, Micheol, appeared for the partnership. The Magistrate apparently by consent, took the course of questioning Micheol to ascertain if there was any defence being put forward to the claim. The defendant admitted purchase of the

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vehicle for Sh. 2,000 and denied agreement to pay by instalments. He averred that he had paid Sh. 1,000 at the time of sale and expended Sh. 832/70 on repairs to the lorry before taking delivery. The Magistrate then pointed out to the plaintiffs that they were in a difficulty having regard to the allegations made in the plaint in view of the provisions of the Credit Trade with Natives Ordinance (Cap. 130). Mr. Kapila denied the receipt of Sh. 1,000 and pressed for an adjournment to amend the plaint on payment of costs to date. This application was acceded to and the case stood adjourned to 19-2-48. On that day the defendant Micheol stated that he had not received the amended plaint whereupon Mr. Kapila sought leave to file it there and then. Such leave was granted and the defendant on instruction of the Court was supplied with a copy. The defendant was given to 27-2-48 to file a defence if he wished and in such event time was also fixed for the entering of a reply. It seems that the defendants did not file a formal written defence though there is upon the record of the lower Court an unsigned, typed document which purports to be a letter, or perhaps a copy or translation of a letter, addressed to the Magistrate through the Advocate representing the plaintiffs.

On the 12-3-48 the parties again attended in Court as before and what ensued would appear to have sprung from a closer examination by the Magistrate of the amended plaint. It is time to turn to that document under which it will be seen that the cause of action was entirely changed. It is expressly admitted that the sale transaction was "void" as "being contrary to certain provisions of law". It is alleged that the motor vehicle was delivered to the defendants in pursuance of such void transaction and is "still the property of the plaintiffs and has not been transferred in the name of the defendants". It is averred that the defendants have no right to retain or use the lorry, such use being wrongful. The plaintiffs pray for the return of the lorry or its value at Sh. 2,000 and also, and the impudence of this is magnificent, "damages for its use by the defendants from 30th June, 1947, to the date of its delivery to the plaintiffs".

The plaintiffs now appeal. It seems to me that the question comes to this—Are the plaintiffs entitled to maintain their claim in the circumstances and is it a case in which the Court will assist the plaintiffs to recover the property in view of the admitted facts that the transaction was illegal as infringing the Defence Regulations under reference, which is made a criminal offence under Regulation 11 of the same Regulations? The contract was also admittedly invalid and illegal under the provisions of S. 3 of Cap. 130 (and see now the Credit to Natives (Control) Ordinance, 1948). What the plaintiffs sought in the first instance was an enforcement of the contract and then by the amended plaint to recover the property delivered in pursuance of an illegal contract of sale. It has been submitted before this Court by the Advocate for the appellants that the Magistrate was premature in the course he took and that at least the case should go back for evidence to be heard upon which an issue as to legality or otherwise would fall to be determined.

But it is expressly alleged and admitted in paragraph 3 of the amended plaint that the contract is "contrary to certain provisions of the law" and is "void" Plainly from what had taken place before the lower Court the provisions of Cap. 130 were in mind and also, I would think, since the amended plaint was prepared by an Advocate, the prohibitory provisions of the well-known Defence Regulations devised to control the disposal of motor vehicles. In any event there is the further express admission by the Advocate before the lower Court that the plaintiffs as sellers did not obtain the necessary permit for the sale as required by Regulation 4(a). As was said by the Judicial Committee of the Privy Council in Connolly and another v. Consumers' Cardage Co. 89 L. T. R. 347, 349-"With reference to the question of fact, their Lordships entertain no doubt that it is the right and duty of the Court at any stage of the cause to consider, and, if it is sufficiently proved, to act upon, an illegality which may turn out to be fatal to the claim of either of the

parties to the litigation"; and in Lipton v. Powell (1920).2 K. B. 51 at page 58 Lush J. deals with two classes of cases where the Court is entitled and indeed bound to intervene and refuse to enforce the contract, namely, where the contract ex facie shows illegality, and where though the contract is ex facie legal, in the course of the proceedings an admission is made or evidence is given by which the illegality clearly appears. In my opinion, the learned Magistrate was, as the matter stood before him, entitled and indeed under a duty to consider the effect of the illegality upon the claim.

Now a party cannot set up a case in which he must necessarily disclose an illegal transaction as the groundwork of his claim—Taylor v. Chester, L. R. 4 Q. B. 309; Simpson v. Bloss, 129 E. R. 99. The rule is expressed in the maxim "in pari delicto potior est conditio defendentis". In such a case the defendant possessed the advantage over the plaintiff for if the plaintiff cannot substantiate his claim without proof of the illegal contract he has no right to the assistance of the Court-"If for instance, goods are sold and delivered under an illegal contract, the seller can sue neither for the price nor for return of the goods, since he is unable to make out his case except by the aid of the illegal contract to which he is a party" (Cheshire on "Law of Contract", 1945 edn. p. 247). A striking illustration of this rule is to be found in the case of Berg v. Sadler and Moore (1937) 2 K. B. 158. In Bowmakers, Ltd. v. Barnet Instruments, Ltd. (1944) 2 A. E. R. 579, 583, it is pointed out that the Latin maxim quoted above—".... must not be understood as meaning that where a transaction is vitiated by illegality the person left in possession of goods after its completion is always and of necessity entitled to keep them. Its true meaning is that where the circumstances are such that the Court will refuse to assist either party, the consequence must in fact follow that the party in possession will not be disturbed. As Lord Mansfield said in the case already cited (Holman v. Johnson (1775) 1 Cowp. 341), the defendant then obtains an advantage 'contrary to the real justice' and so to say 'by accident'". In the case just cited, however, the point of the decision is that the plaintiffs' claim was wholly independent of the alleged illegal contracts. I would refer also to Lougher v. Molyneux (1916) 1 K. B. 718: The Friendly Societies Act, 1896, by S. 46 provides that a registered society "shall not make any loan" to a member exceeding £50 and (s.84) makes it an offence to do "anything forbidden by this Act" subject to a penalty of £50 (s.89). It was held by Low J. that therefore a loan exceeding £50 by a registered society to a member is an illegal and void transaction and the money cannot be recovered. At page 153 of their work on the Indian Contract Acts (6th ed.) Pollock and Mulla give a number of instances of agreements being illegal and void owing to statutory prohibition, in which no suit lay to recover any money due or sum deposited under such agreement.

There are two further propositions to which I make reference and the first is that the parties must be assumed to know the law (and see Anson on Contract 18th edn. page 244). It further appears to be well established that the true rule is that at least where a part-performance of an illegal contract has taken place money paid or goods delivered in pursuance of it cannot be recovered—Alexander $v$ . Rayson (1936) 1 K. B. 169; 7 Halsbury 2nd edn. pp. 175-6. Pollock and Mulla (op. cit. page 372) refer to the application of the "English rule" under the Indian Contract Act and state the rule as follows—"according to that rule money paid in consideration of an executory contract or purpose which is illegal may be recovered back upon repudiation of the transaction as upon a failure of consideration. But if the illegal purpose or any material part of it has been performed, the money paid cannot be recovered back, for the parties are then equally in default, and in pari delicto melior est conditio defendentis".

There can be no doubt, I think, that the maxim must be held to apply in the present case. The contract both ex facie the pleadings and through admission in open Court was, on the plaintiffs' own showing, a void and illegal contract. The

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plaintiffs aver that in pursuance of the terms of the contract they delivered over possession of the vehicle to the defendants, and they are relying upon the illegality of the contract to establish that the defendants have no rights to ownership or possession of the vehicle. The contract is put forward as the groundwork of the claim and necessarily there must be and is disclosure of the illegal transaction. It is not an instance of repudiation of an illegal contract while it remains executory and an illegal object has not been carried out. Under the contract the price was fixed and the vehicle was, on the plaintiffs' own averments, delivered as the thing sold to the defendants. There was a performance or at least a part-performance. In my opinion on the authorities referred to the plaintiffs have left themselves without a remedy and in the circumstances have no right to the assistance of the Court to recover back the vehicle or its value at Sh. 2,000 as claimed. I hold that there is no merit in the appeal which is dismissed with costs. $\mathcal{L}^{(k)}$