Singh v Ghai and Sons (C.A. 13/1936.) [1936] EACA 55 (1 January 1936)

#### COURT OF APPEAL FOR EASTERN AFRICA.

# Before Law, C. J. (Zanzibar); LUCIE-SMITH and WEBB, J. J. (Kenya).

### KARAM SINGH, Appellant (Original Defendant)

## M. R. GHAI & SONS, Respondents (Original Plaintiffs). C. A. $13/1936$ .

### Hire-purchase Agreement—Bill of Sale—Inference of fact.

One R. P. G. wished to buy a motor-lorry: as he had not the money the respondents bought it from a firm of dealers and. paid the price by two bills at ninety days. The lorry was delivered to R. P. G., and some days later he entered into a hirepurchase agreement with the respondents by which he hired the lorry at a rent of Sh. 300 per month with an option to purchase it for the same price as the respondents had paid. Default having been made in the payment of the instalments, the respondents seized the lorry under the terms of the agreement. Shortly afterwards the appellant also attached it in execution of a judgment obtained by him against R. P. G., and, upon its being claimed by the respondents, took out an Originating Summons under O. 19 r. 58, alleging that the hire-purchase agreement was really a bill of sale and void for want of registration. SHERIDAN C. J. held that the sale of the lorry to the respondents was not a sham and that R. P. G. had no title to it prior to the execution of the hire-purchase agreement.

Held (18-8-36).—That the Court had not drawn a wrong inference = from the facts. Beckett v. Tower Assets Co. (60 L. J. Q. B. 493), Maas v. Pepper (1905 A. C. 102), and Johnson v. Rees (84 L. J. K. B. Pt. 2, 1276) distinguished.

Schwartze for the Appellant.

The transaction between the respondents and the Patel Garage was a sham: there was really a loan by them to $R.$ P. Ghai on the security of the lorry. The hire-purchase agreement is therefore a bill of sale and void for want of registration. The evidence does not support a finding that there was a real sale to the respondents: they made no profit on the transaction, the hire-purchase agreement contains no provision for the payment of interest, and the lorry was delivered direct to R. P. Ghai. Further, the entries in the respondents' books show that they treated the transaction as a loan; when they seized the lorry they debited him with the balance of the price, after giving credit for the instalments paid, whereas, if there were really a hire-purchase, the seizure brought it to an end and left him owing them nothing. The ledger account says: "Bought of ...". It is the intention of the parties, not the form of the

doubt have terminated the agreement and entitled the respondents to retain any moneys theretofore paid thereunder and also the truck, but it cannot be assumed that by permitting R. P. Ghai to use the truck thereafter they transferred their property in it to him. Certainly, no authority was put before us in support of such a proposition.

It is observed that the learned Chief Justice ordered the attachment on the truck to be raised. This of course was a matter not involved under the Summons, and in this respect it does not appear to have been a competent order. The removal of the attachment would have followed as a matter of course. The point, however, is of no importance and does not affect the merits of this appeal.

In the circumstances, I would dismiss the appeal with costs.

LUCIE-SMITH, J.—I agree and have nothing to add.

WEBB, J.—This is an appeal from a decision of His Honour the Chief Justice of Kenya on an Originating Summons taken out by the respondents under Order 19 r. 58 for the determination of the question whether the respondents had a valid claim to a motor truck T3721, which was seized by the appellant in execution of a judgment obtained by him against the judgmentdebtor R. P. Ghai.

The truck chassis was bought from the Patel Garage, Thika, who are agents for the Motor Mart, by the respondents, about the 3rd January, 1936, for Sh. 3,810, and was let by them to the judgment-debtor under a hire-purchase agreement. dated the 3rd January, but apparently executed some ten days later. The agreement is in the usual form and its effect is that the respondents (therein called "the owner") acknowledge the receipt of Sh. 600 paid by the judgment-debtor (therein called "the hirer") and let to hirer the truck, T3721, at a rent of Sh. 300 per month, and it is provided that the hirer shall be entitled to purchase the said truck at any time on payment of the total sum of Sh. 3,810, credit being given for all sums that have been paid for hire and also for the sum paid on the signing of the<br>agreement, i.e. Sh. 600. There is the usual provision that if the hirer makes default in punctually paying any of the hire instalments the owner may immediately put an end to the hiring and may seize and take away the truck. The truck was delivered to the judgment-debtor from the Motor Mart in Nairobi, apparently about the 16th January, and he fitted it with a body at his own expense. On the 17th February he paid the respondents Sh. 90 and on the 19th February Sh. 100. No other payments under the agreement were made. On the 18th April the respondents, it is said, seized the truck, but, in response to a plea by the judgment-debtor, agreed to give him a few days more. As 'he could not pay, the truck was finally seized, and on the 29th

or 30th April the judgment-debtor gave authority to have the $\mu$ $\mathbf{f}$ registration transferred into the name of the respondents. This **I** was done on or about the 2nd May. After the seizure the truck continued to be driven by the same driver but had the respondents' name-board on it. Meantime the appellant had brought a: case against the judgment-debtor. No. 336/1936; judgment was. reserved on the 30th April and delivered early in May and on. 15th May the truck was attached in execution of this judgment. Thereupon the respondents claimed it, and the present proceedings were taken.

"A hire-purchase agreement does not require registration as a bill of sale, because no property is conveyed thereby to the person in possession of the chattel during its effective existence". (Hals. I s. 1124), but the case for the appellant was and is that the transaction between the respondents and the judgment-debtor was really a loan and that consequently the agreement dated the 3rd January is a bill of sale and is void for want of. registration. The learned Chief Justice held that the transaction. was not a sham: that the respondents had an independent title to the truck, having bought it from a third party, and that the judgment-debtor had no title to it prior to the execution of the hire-purchase agreement.

It should be observed firstly that there is an important. difference between this case and cases like Beckett v. Tower Assets Co. (60 L. J. Q. B. 493), where the property forming the subject of the hire-purchase agreement originally belonged to the transferee thereunder and had been first transferred to the transferor simply for the purpose of the hire-purchase agreementbeing executed and in such cicums@tnces that a refusal by him. to carry out the agreement would have amounted to a breach of trust; and, secondly, that transactions of this type are not uncommon, in which a person, often a financier or banker, who is. finding the money and is quite a different person from either thedealer or the purchaser, makes himself the owner of the property. and then hires it out on a hire-purchase agreement to the person. who is going to use it, and who has an option to purchase it: see for example, Karflex Ltd. v. Poole (1933 2 K. B. 251).

At the hearing before this Court, Mr. Schwartze relied on two cases, Maas v. Pepper, in the H. of L. (192 L. T. R. 371)and Johnson v. Rees (84 L. J. K. B. Pt. 2 1276), and, as I. understand him, his submission was that these two cases decidethat where A. buys goods for B. (as, in the present case, the partner in the respondent firm said: "I bought a lorry for R. P. Ghai") and then transfers the goods, which have so become his property, to B. under a hire-purchase agreement, one of the terms of which is a licence to seize them, then the hire-purchase agreement is a bill of sale and will be void unless it is duly registered as such.

In my opinion these cases are very far from being authority for so wide a proposition. In Maas v. Pepper cited in the Court below, as Mellor's Trustee v. Maas (1903 1 K. B. 226) the facts were that Mellor had entered into a written contract with one Sykes to buy a hotel and its furniture for £30,000, of which $£27,000$ was to remain out on mortgage, and as he had only £1,000 available, he applied to Maas to lend him £2,000 on a fourth mortgage of the hotel. Maas declined to do so, and Mellor was unwilling to give a bill of sale on the furniture. Thereupon the following arrangement was come to. On the day of the completion of the sale Maas went to Sykes and offered to buy the furniture for £2,000, saying that otherwise the purchase of the property by Mellor could not be completed. Sykes agreed that, notwithstanding his contract with Mellor, he would sell the furniture to Mass for £2,000. A hire-purchase agreement was then entered into between Maas and Mellor by which Mellor became the person in possession of the furniture. On these facts Wright J. came to the conclusion that Maas was really a trustee of the furniture for Mellor, who was the real owner, and that the transaction, though under the guise of an independent purchase by Maas from Sykes, followed by an equally independent hire-purchase agreement between Maas and Mellor, was in reality a loan from Maas to Mellor on the security of the hire-purchase agreement. Here there had first been an attempt to get Maas to lend the money. The decision of Wright J. was affirmed by the Court of Appeal. In the House of Lords, Lord Halsbury said: "I think that Wright J. came to the right conclusion as a matter of fact. It seems to me that the whole of the evidence points in one direction. The only thing that might have induced me to alter my view would have been if Mr. Maas himself had been called, and had established clearly that what appears to have been a sham sale was a real and bona fide one. I do not think that it was a reality. I think that the obvious purpose was that Mr. Maas was to lend £2,000 and get the security of the furniture and yet not be within the Bills of Sale Act". That decision amounts to no more than this, that the House of Lords, with hesitation on the part of Lords Macnaghten and James of Hereford, held that Wright J. had drawn the right inference from the facts of that particular case, the inference being, as was pointed out by Lush J. in Johnson v. Rees (84 L. J. K. B. Pt. 2, 1276) that "there existed a tripartite agreement between Sykes, Mellor and Maas, under which the real owner of the furniture, Mellor, obtained goods, which in equity belonged to him, not by himself paying the purchase money to Sykes, but through the agency of Maas, and that the effect of that agreement was that, while apparently quite a different transaction had taken place, the parties occupied exactly the same position as if the agreement of sale between Mellor

and Sykes had been carried out as originally arranged and Mellor had then assigned the property to Maas as security for a loan.'

The facts in Johnson v. Rees (84 L. J. K. B. Pt. 2, 1276) were similar. One Samuel wished to buy certain goods at an auction. He asked claimant in the proceedings, a money-lender, to lend him the money for that purpose. This the claimant refused to do, but subsequently himself bought the goods at the auction. A hire-purchase agreement was then entered into by which the claimant transferred the goods to Samuel in consideration of a larger sum than that paid by the claimant repayable by instalments, the claimant having the right to seize the goods in default of payment of any instalment. The case came before a County Court Judge who, not being satisfied with the evidence of the claimant that there was no previous agreement between him and Samuel, held that the transaction was merely a loan, and that the purported hire-purchase agreement was really a bill of sale and void for want of registration. On appeal to a Divisional Court the judges differed and accordingly the decision of the County Court stood. Lush J., who thought that the appeal should be allowed, said: "The goods never belonged to Samuel, and therefore I fail to see how it can be right to say that, by reason of the provisions of the Bills of Sale Acts, a perfectly proper title from an auctioneer is in some way defeated", and ATKIN J., said: "The only question, therefore, as it seems to me, is whether or not there was evidence upon which the Judge could find that the understanding between the parties was that found by Lord Justice Bowen in Beckett v. Tower Assets Co. (60 L. J. Q. B. 493) as "a transaction which may stand at law and equity apart from the document". There had been preliminary negotiations to borrow the money here. . . At the end of the transaction you find the parties in exactly the same position as if the claimant had lent Samuel the money, and Samuel had bought the goods and given the claimant a bill of sale on them. as security for his loan".

These two decisions seem to me to leave the question still whether the learned Chief Justice in deciding that the respondents had an independent title to the truck, drew a wrong inference from the facts.

The facts relied upon by the appellant are that the respondent's made, apparently, no profit on the transaction; that the entries in their books, showing that after they had seized the lorry they debited R. P. Ghai with a sum of Sh. 3,320, whereas if this was a true hire-purchase agreement the seizure would have brought the transaction to an end leaving him owing nothing in respect of it: that the ledger entry commences with the words: "Bought of", rather than "Hired to", or some similar expression; and the fact that they claimed to be entitled to seize the body which had been fitted to the truck by R. P. Ghai.

Speaking for myself I am not disposed in a case like the present to attach very great importance to formal inaccuracies in book-keeping or to the fact that the respondents asserted a. right to seize the body as well as the truck to which it was attached and without which it was of no particular value. The fact, if it be correct, that the respondents stood to make no profit is explicable by the relationship between them and the judgment-debtor; apparently in other similar transactions they did make a profit by reason of a commission allowed to them by the sellers.

On the other hand the immediate payment of Sh. 600 by the judgment-debtor, which is a usual but not an invariable or essential feature of a hire-purchase agreement, is hardly consistent with the transaction having been a loan; why should a man borrow Sh. $3,800$ if he is in a position to repay Sh. $600$ immediately?

Another, point was taken in this Court, which does not. appear to have been taken in the Court below. B. R. Ghai, a partner in the respondent firm, said in evidence: "After two or three warnings I seized the lorry on 18th April. He (i.e. the judgment-debtor) came to me after this and asked for a few days more. I gave him a few days more and he could not pay me. Then I seized the lorry and got it transferred to our own firm's name". It is argued that the seizure on 18th April brought the hire-purchase agreement to an end, and that, when the respondents relented and gave it back into the possession of the judgment-debtor, from that moment, he was the owner of it and the respondents were merely unsecured creditors for the balance of its price. It is a somewhat startling proposition that the default of the judgment-debtor in paying the instalments. combined with an act of kindness by the respondents should have the effect of putting the former in a better position than if he had punctually paid every instalment, and of depriving the latter of their security. Even if the witness, when he said that he seized the truck on the 18th April, meant that there was an actual seizure, and not that he announced his intention of seizing or something of that kind, I am of opinion that it was open to him to undo what he had done and relegate the parties. to their original position.

In the result, I am not prepared to say that the inference drawn by the learned Chief Justice from the facts proved was wrong, and I agree that the appeal should be dismissed with $costs.$