Cheng Yip Wah t/a Hong Ping Company v. Marvin Lebowitz t/a Le Bow Creations
Read the full judgment text of HCA 3638/1985 on BabelCite. This High Court CFI judgment.
1. This is an action for damages and return of deposit on a breach of contract.
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HCA003638/1985 --------------------- HEADNOTE --------------------- Contract - Waiver and mutual consent to vary time of performance - Contract remained alive for benefit of parties - Unless otherwise agreed, delivery of goods and payment of the price are concurrent conditions (Sales of Goods Ordinance) - Valid tender of payment by buyer - Seller's inability to deliver goods - Buyer entitled to treat himself as being discharged from contract - Breach of contract by seller - Buyer's right to damages and refund of deposit - Damages based on available market for contracted goods - 1985, No. A3638 IN THE SUPREME COURT OF HONG KONG HIGH COURT __________ BETWEEN
_______________ Coram: Deputy Judge H. Wong in Court Date of Hearing: 23-24/4/86, 30/6/86, 1-4/7/86, 21/7/86, 28-31/7/86, 1/8/86 Date of Delivery of Judgment: 27th August 1986 __________ JUDGMENT __________ 1. This is an action for damages and return of deposit on a breach of contract. 2. Plaintiff operates Hong Ping Co., a local trading house which has a branch at Fuzhou, Fujian province, China. He commutes between that city and Hong Kong and leaves the day-to-day running of his two offices to his managers, Henry K. P. Fu (Fu) in Hong Kong, and a Mr. Chan in Fuzhou. 3. During Plaintiff's stay in Fuzhou in late April and early May 1985 he agreed to supply Fujian Electronic Import Export Corporation (referred to as Fujian Corp.) with goods stated in the following contracts:
4. Plaintiff explained that the combination of each unit of the goods in Contracts 2 and 3 would form a complete watch and that Contract 3 was erroneously. given the same number of 023CK as Contract 1. He had delegated power to sign Contracts 2 and 3 to his Fuzhou manager, Mr. Chan, who omitted to put the date on those documents but nevertheless had forwarded copies thereof to Plaintiff before the end of the third week of May 1985. According to Plaintiff, payment of Contract 1 would be made by the purchaser against receipt of shipping documents (D/P) and of Contracts 2 and 3 by Letters of Credit (L/C). 5. While Plaintiff conducted negotiations in Fuzhou in relation to those contracts he maintained communications with the Hong Kong head office through long distance calls, as a result of which Fu got in touch with Defendant, a merchant whom he had known before, on the question of Defendant supplying the required goods. Fu had further given a photocopy of a sketch of a watch to Defendant and after some discussion the two of them had been able to reach an agreement in principle on a purchase and sale of module, which is a watch without a case and a strap. The formal signing of that agreement took place on 15/5/1985 at Defendant's office and since Plaintiff spoke no English and Defendant no Chinese, Fu served as their interpreter. The parties first signed a "sales contract" prepared by Defendant and after Fu had filled Plaintiff's printed contract form, also signed on that document. All that was followed by the payment of a deposit of $65,600 by Plaintiff to Defendant. There are thus two contracts on the same subject and both sides agree that they should be read together, because some details are found in one documentary component and not in the other. It is therefore pertinent that the contents of those 2 short contracts be set out in full, so that their meaning can be appreciated. Contract Prepared by Defendant 6. This is a sales contract entered into this day 15th of May, 1985 between Le Bow Creations herein referred as Seller and Hong Ping Company of 30-36 Shaukiwan Road, Rm. 901, 9/F, Chit Lee Commercial Bldg., Hong Kong herein referred to as Buyer. 7. Buyer is purchasing from Seller 100,000 pcs. of watch modulars size 14MM for a price of $3.28 H.K. dollars per pc. The Buyer will give a 20% Bank draft deposit to Seller on May 15, 1985. The merchandise will be picked-up by the Buyer on May 21st, 1985 at the location the Seller informs the Buyer to do so. The Buyer must give the Seller Cash or Bank Draft from eighter Chase Bank or Standard Charter Bank on the morning of the May 21st, 1985 or the 20% deposit will be forfeited as a default charge. 8. This agreement is fully understood and agreed upon all parties.
Contract prepared by Plaintiff CONTRACT No: HP85/163 Date 15th May, 1985 9. This serves to confirm that we HONG PING COMPANY (the buyer) have this day bought from Messrs: Le Bow Creations Pacific Centre, 10th floor, Bank of America Building, 1 Kowloon Park Drive, Tsim Sha Tsui, Kln. K-7225058 (the sellers) on the terms contained herein and stated at the back hereof. Attn: Mr. Marvin. _________________________________________________________________________
- END - 10. It was Plaintiff's case that the reason for the excess between 100,000 modules ordered from Defendant and 80,000 modules stated in Contract 1 was twofold, (a) to be partly used in Contract 2 on account of the then shortage of that type of goods and (b) to replace damaged or defective goods, if any, of Contracts 1 and 2. 11. In order to meet Plaintiff's contract, Defendant in turn entered into agreement with his own suppliers on the following terms:
12. Fu gave evidence that he ordered modules only from Defendant because the ultimate buyer in Contract 1 would obtain the watch case and bracelet elsewhere to combine those 3 items to form a complete watch. He was in agreement with Defendant that a module has as many as 11 components including Liquid Crystal Display (LCD), battery, circuit board etc. However, he did not agree to Defendant's suggestion that Contract 1 merely consisted of a piece of LCD or a kind of plate and a battery. Between the interpretations of Fu and Defendant, I prefer Fu's and find support thereof from Plaintiff's testimony that in China the term LCD had the same meaning as Digital Display or module, which is a watch in itself but without an outer case. 13. Fu went on saying that in spite of repeated requests he failed to be supplied with particulars of the dimension and weight of parking cases of the contracted goods from Defendant. He therefore decided, on 20/51985, to fill up a shipping order with those particulars on an estimated basis when he booked shipping space with Fujian Shipping Enterprises Ltd. on its boat Min Hai, which was scheduled to sail from Hong Kong on 21/5/1985 at about 4.00 p. m. This booking was confirmed by HUI Kei-nam, Fujian Shipping Co.'s assistant manager. Both he and Fu shared the view that exact details of packing cases would be amended, if necessary, on the shipping order by the wharf's staff at the time of loading of goods. They also were of the same mind that a shipper could ask the shipping company to wait beyond departure time for justifiable reasons, such as on account of late delivery, the large quantity of goods involved etc. The evidence of Fu and HUI Kei-nom on the shipping aspect leaves me with no doubt that it is truthful. 14. On 21/5/1985 at about 10.00 a. m. Fu asked Mm. CHENG Lai-hop, Plaintiff's wife to have a Chartered Bank draft of $262,400 ready for payment to Defendant. As Mm. Cheng had a saving account with Bank of Communications which was at four tram-stops away from her office, and wished to save the trouble of getting cash from it and then going to the nearest Chartered Bank to purchase a draft, she wanted to know if Defendant would accept a draft from Nanyang Bank instead. That is due to an existing arrangement whereby a holder of an account with a bank of Mainland China could obtain a draft within the limit of the credit of his funds from any bank of the same group. According to Fu he telephoned Defendant in that regard and conveyed to Mm. Cheng Defendant's consent to her wish to issue a Nanyang Bank draft. For his part Defendant denied having received that call. 0n this aspect I believe that Fu well knew Defendant's insistence on the terms of Defendant's sales contract, i.e., payment by a draft from Chase Bank or Chartered Bank with which Defendant had an account or alternatively payment by cash but somehow had not asked Mm. Cheng to have such draft ready by 11.00 a. m. of 21/5/1985. I am further of the view that Fu might have misunderstood Defendant on his suggested payment by Nanyang Bank draft during their telephone conversation on 21/5/1985 morning, but since time was running short, inadvertently misled Mm. Cheng on that matter. 15. In the event Mm. Cheng got a Nanyang Bank draft of $262,400 and gave it to Fu who also took along Miss Kwan, his colleague, to go with him to Defendant's office. Fu and Miss Kwan reached destination, I believe, at about 11.50 a. m. but had to wait for Defendant and therefore did not see him until a little past 12 noon. Their presentation of Nanyang Bank draft was naturally rejected by Defendant who expressed his wish to be paid by cash. Fu had no alternative but to send Miss Kwan back to the office to get and bring the money, while he remained behind with an intention to inspect goods. It was then around 12.30 p. m. and although the time and mode of payment stated in the contract had not been complied with, Defendant agreed to waive them and wait for payment in cash. Likewise, since the contracted goods were not present and ready at Defendant's office to be handed over, Fu, Plaintiff's representative, had not insisted on delivery at that point of time either. Thus, it can be said that as Defendant and Fu had elected to go with the contract in spite of the said breaches, the contract, with all its terms and conditions, remained alive for the benefit of both parties. A case in point is "Suisse Atlantique Societe d' Armement Maritime S. A. v. N. V. Rotterdamsche Kolen Centrale" (1967) 1 AC 361. 16. On his return to Defendant's office after lunch Fu rang Mm. Cheng and was told to help her to fetch the cash involved. He rushed to join her and together. with Plaintiff's clerk, WONG Kam-po, they went to pay in the Nanyang Bank draft and withdraw cash of the same amount. YUEN Tak-po, teller of Bank of Communications in Quarry Bay confirmed (a) Mm. Cheng's purchase of a draft from Nanyang Bank on the strength of a credit balance of her account with his bank (b) her subsequent cancellation of that draft and finally (c) her withdrawal of the identical sum of $262,400 in cash. Upon receipt of that money, Fu and WONG Kam-po dashed to Defendant's office by taxi and arrived there by 4.00 p. m. I accept evidence of activities relating to the draft and the encashment of $262,400. as being reliable. 17. What happened next at Defendant's office is in dispute. Plaintiff's case is that Fu was ready to pay cash to Defendant but Defendant had no goods to deliver in exchange, whereas Defendant's story is that Fu then had no money and Defendant agreed to hold up the goods for 2 more days but Fu never came back for them. I will fully deal with this point later. There was thus a deadlock which led Fu and Defendant to part company at about 5.00 p. m. Fu immediately informed Mm. Cheng of the situation and proceeded to request Plaintiff's solicitor to issue a letter to Defendant saying that Defendant was in breach and gave time to Defendant up to 24/5/1985 to deliver the contracted goods. There is evidence from that solicitor and his messenger, which I believe, that a copy of the letter in question was delivered by hand to Defendant on 22/5/1985 and another copy sent to Defendant by post which reached him on 23/5/1985. In this connection, Defendant said that he wrote to Plaintiff on 21/5/1985 evening, pointing out Plaintiff's default in carrying his contractual obligation but allowing Plaintiff up to 23/5/1985 to perform the contract. I accept Defendant's evidence in this regard as being true. In this respect, both sides admitted having received the said correspondence one from the other. 18. Reverting to the evidence on the events of 21/5/1985 afternoon which are crucial to this case, my findings are these. Fu and WONG Kam-po arrived at Defendant's office at 4.00 p. m. Fu then showed cash of $262,400 in his brief-case to Defendant and sought immediate delivery of goods from Defendant, because loading time was due. Defendant then had no goods at his address to hand over to Fu. In fact Defendant admitted that he never had the contracted goods at his office and blamed his lawyer for having wrongly stated at para. 7 of the Defence that "the said modules were available for delivery at the Defendant's office on or before 12 noon on 21st May 1985……………… ” 19. From the evidence, I have the feeling that the contract between Defendant and Asia Pacific did not exist in the manner that it was made out to be. In other words, I suspect that it was a sham contract devised after the event to show that Defendant had an intention to perform his side of the bargain vis-a-vis Plaintiff. I am reinforced in this view by the fact that (a) Plaintiff and Defendant signed a contract face to face in Hong Kong on 15/5/1985 and Asia Pacific signed a contract on the same subject in Taiwan on the next day, 16/5/1985, (b) Asia Pacific said in a letter of 16/5/1985 that they were shipping the contracted goods to Hong Kong and in spite of the distance between Taiwan and Hong Kong, those goods were in Tsuenwan godown on 20/5/1985, (c) Defendant did not attempt to get in contact with Asia Pacific on the delay in picking up goods from them on 21/5/1985 at 4.00 p. m. as he did to Fujitec and (d) in spite of the high-sounding term in the contract between Asia Pacific and Defendant concerning "40% default charge if merchandise is not paid for and taken on delivery date" no complaint, a fortiori claim, has been heard from Asia Pacific on Defendant's default. 20. In my view Defendant only contracted to purchase 20,000 modules from Fujitec, so that when Fu tendered payment in cash on 21/5/1985 at 4.00 p. m. Defendant became panicky and telephoned Fujitec for additional supply to make up 100,000 modules to hand over to Plaintiff. As it was then past-delivery time in relation to the contract between Defendant and Fujitec, the latter insisted on an increase of $0.18 in price per module but promised to provide Defendant 100,000 in instalments of 10,000 or 20,000 modules at a few days' intervals each. Fujitec's said offer was conveyed to Fu who rejected it. Of course if Asia Pacific had 80,000 modules ready to be picked up, as alleged by Defendant, the impasse could have been solved by Fu and Defendant going together to collect those goods upon payment by cash. However, as I have earlier said, Asia Pacific's said goods were non-existent so that Defendant had to get himself out of an embarrassing situation. So, at that juncture he made up the story that Fu then had no money or cash to pay him. And to lend credence to his untruthful version Defendant secured his brother-in-law, Jerry Tang, to come up with the same fabrication in support. 21. It is not denied that Defendant possessed little capital and operated his business in a small cubicle with two desks and a few chairs. He had no employees and shared a reception area and a receptionist there with other similar small companies. He was fully aware of (a) his shortage of funds and the absence of Plaintiff's trust in him in first lending him the balance of $262,400 - by no means a small sum for a one-man firm like Defendant's - to pay to his own suppliers and (b) the impossibility of clearly spelling that lending condition in his contract with Plaintiff, lest that agreement be aborted. He thus resorted to the expression of payment by Plaintiff on the morning of 21/5/1985 which be subsequently tried to explain it to mean that Plaintiff must pay him in advance in the morning, so that he could make use of that money to obtain delivery of goods from his own suppliers and later to transmit those goods to Plaintiff. In other words he expected Plaintiff to finance his business which, without express agreement, is not the usual course of commercial practice either. Section 30 of Sales of Goods Ordinance makes provision on the obligation of buyer and seller on the point and says:
22. To recapitulate, I find that the time fixed for the concurrent act of delivery of goods and payment therefor was postponed by Plaintiff and Defendant by agreed waiver and subsequent variation from 12 noon to 4.00 p.m. of 21/5/1985. I further find that at 4.00 p. m. Plaintiff made a valid and proper tender of payment to Defendant and naturally would not hand over a large amount of cash to Defendant without even seeing the goods. Plaintiff was thus ready to perform his obligation under the contract but by reason of Defendant's inability to deliver goods, which is a fundamental breach, Plaintiff was entitled to treat himself as discharged from that contract. I would add that there was no need for Plaintiff to continue to tender payment until 23/5/1985 because it was always Defendant's case, which I reject, that he must be paid by Plaintiff well in advance of, and not simultaneously to, delivery of are contracted goods. It was held that where the innocent party is entitled to, and does treat himself as discharged by the other's breach, he is thereby released from future performance of his obligation under the contract ("Heyman v. Darwin Ltd" (1942) AC 356, 399). Defendant's said contention of the right to be paid beforehand is obviously not a condition of the two component contracts that he and Plaintiff had signed. It is therefore not open to him to provide extrinsic evidence, whether from prior negotiation or subsequent conducts, to alter what is clearly set down in those contracts. ("Schuler v. Wickman Machine Tool Sales Ltd" (1973) 2 All ER 39, 53, 57 and 61). There will therefore be judgment to Plaintiff against Defendant for breach of contract. 23. It can be said that the breach of a fundamental term gives rise, not merely to a claim for damages, but to a right to receive all money paid as upon a consideration which has totally failed ("Rowland v. Divall" (1923) 2 KB 500). Lord Upjohn at p.422 of "Suisse Atlantique Societe d' Armement Maritime S.A. v. N.V. Rotterdamsche Kolen Centrale" (1967) 1 AC 361 defined the expression "fundamental term" in language which clearly indicated that he regarded it as an alternative way of referring to a condition, i.e., a term which went to the root of the contract so that any breach of it entitled the innocent party to be discharged. 24. It is well established that an innocent party in a breach of contract should imitigate his loss. In the present case Plaintiff stated that he was able to obtain an extension of 14 days from 7/6/1985 to 21/6/1985 to deliver part of the goods of Contracts 2 and 3 to the China buyer, because payment was by Letter of Credit. There is therefore reason to believe that if he had taken the same steps he might have obtained for Contract 1, which concerns the proposed shipment of goods bought from Defendant, an extension of delivery time by a shorter period of 10 days from 25/5/1985 to 5/6/1985 on the ground that payment was against documents. There was an available market for modules at the time of the breach of contract and that was manifested by the following purchases for Contracts 2 and 3 which Plaintiff, in view of the priority in time of Contract 1 over the Contracts 2 and 3, could have applied them to meet the demands of Contract 1:
25. It can be seen from the above table that Plaintiff could only procure 94,000 modules up to 5/6/1985, which was within 10 days of the originally agreed delivery date of 25/5/1985, The balance of 6,000 modules is consequently calculated at the sale price in Contract 1 of US$0.96 or HK$7.488 each. In the event, the measure of damages should be the difference between what Plaintiff should have paid for 100,000 modules and the price charged by Defendant, i.e. $403,284 - $355,828 = $47,456. 26. Judgment to Plaintiff will be in the sum of $47,456 for damages and refund of deposit of $65,600. However, I make no order on Plaintiff's claim for a declaration that he should be entitled to recover from Defendant such damages as he may be liable to the China buyer for non-delivery of goods of Contract 1. 27. In the light of the foregoing Defendant's counterclaim is dismissed.
Representation: Mr. Thomas Ng and later Mr. Sammy Lee,. instructed by Messrs. M. K. Lam & Co. for Plaintiff Miss Cherry Bridges, instructed by Messrs. Denton, Hall, Burgin & Warrens for Defendant |