Gilman & Co Ltd v. Yau Shun Printing Press (A Firm)

DCCJ004040/1977

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT KOWLOON

CIVIL JURISDICTION

ACTION NO. 4040 OF 1977

-----------------

-----------------

Coram: A.L. Leathlean, D.J.

Date of Judgment: 6th May, 1978.

-----------------

JUDGMENT

-----------------

1. In this action the plaintiff company sues upon what it pleads as an agreement for hire. The defendant firm, in its defence, refers to the agreement as a letting. However, Mr. Patrick Chan, a sales representative in the employ of the plaintiff company, describes the transaction as a sale, and Mr. Hung, an erstwhile partner in the defendant firm, says that he would not have bought the machine but for certain representations which he would have it were made to him by Mr. Chan, of which more hereafter. It transpires that the defendant firm contends that the agreement was one of hire-purchase.

2. At this juncture it is convenient to set out the written agreement Exhibit P.2 in extenso. It reads as follows:

3. Clearly, in my judgment, it is, ex facie, an agreement for hire. However, in accordance with a well-settled exception to the general rule, I admitted extrinsic evidence to prove the true nature of the agreement (vide Chitty on Contracts, 23rd (1968) edition, Volume I, paragraph 655). Such evidence consisted entirely of that given by Mr. Chan, and was as follows:

4. Upon that evidence it will, I trust, come as a surprise to no one if I hold, as I do hold, that the agreement between the parties was one of hire-purchase. Why the plaintiff company, which is both long-established and prominent, should have chosen to conduct this affair in (to put it neutrally) so exceedingly unbusinesslike a manner instead of by means of a proper self-contained hire-purchase agreement in writing must remain an open question. Perforce, I content myself with the observation that the manner in which, upon the evidence, it did choose to conduct this transaction (and, apparently, other similar transactions), does not commend itself to me one whit.

5. There being as yet no hire-purchase legislation in Hong Kong the law applicable to contracts of hire-purchase here is the common law of England. According to Benjamin's Sale of Goods, 1st (1974) edition, paragraph 46:

"At common law, a hire-purchase agreement may be defined as a contract for the hiring of goods under which there is conferred on the hirer an option to buy the goods. The salient features of such an agreement are : first, that during the currency of the agreement, the property in the goods remains in the owner, while the hirer is a mere bailee having no power to dispose of them; and, secondly, that the hirer has an option to buy the goods but not a binding obligation to do so. In practice, hire-purchase is a device used in order to give possession and the use of goods to an intending buyer over a period during which he pays the price, with interest, by instalments while the seller retains the title to the goods as security for the unpaid balance of the price."

As I say, in my judgment, the agreement in the instant case was just such an agreement.

6. According to Chitty, op. cit., volume II, paragraph 824:

"When a hire-purchase agreement is entered into upon the strength of an expressed undertaking given by the owner or his agent as to the fitness of the goods hired, the hirer will be entitled to damages for breach of this undertaking, and, if the defects are serious, to repudiate the agreement for breach of condition. But even when there is no express undertaking, the owner is under a duty to supply goods which are reasonably fit for the purpose for which they are hired except in those cases where the defect is apparent to the hirer and he does not rely on the skill and judgment of the owner."

This brings me to the second bone of contention in this case, i.e., whether, as Mr. Patrick Chan would have it, he told Mr. Hung that the photocopying machine in question would copy on only some ordinary plain paper, or whether, as Mr. Hung would have it, that Mr. Chan told him that it would copy on, in effect, any ordinary plain paper. Having considered the conflicting evidence upon the issue I am of opinion that the probability lies with Mr. Hung. He and Mr. Chan are agreed that he specifically enquired whether the machine would copy on ordinary plain paper before he agreed to take it, and I accept his evidence that he would not have agreed to take it had he not been assured that the machine would copy on, in effect, all ordinary plain paper. Acceptance of Mr. Chan's evidence that he told Mr. Hung that the machine would copy on only some ordinary plain paper would entail accepting that Mr. Hung, who quite obviously in my view was only interested in acquiring a machine which would copy on any ordinary plain paper, nevertheless accepted one which he knew full well would copy on only some ordinary plain paper. To me at least that makes no sort of sense whatever. The machine was delivered on November 2nd, 1976. That was followed by a series of complaints about its performance. According to Mr. Hung approximately 50% of the copies which he made on ordinary plain paper were defective. Mr. Chan opines that the defective copies, or some of them at least, which Mr. Hung has put in evidence are the results of under-exposure, the poor quality of the originals, etc., but I accept Mr. Hung's evidence that Mr. Chan's response to his complaints was that he was using the "wrong" paper. Some support for this may be derived from the fact that most of the plaintiff company's own service reports bear some such comment as "customer used the private paper".

7. According to Mr. Hung he first of all telephoned the plaintiff company to say that he wanted it to take the machine back. Exactly when that was is not altogether clear from his evidence, but it appears to have been later in the month in which it was delivered, i.e., November, 1976. He says that he agreed to keep the machine when Mr. Chan and another employee of the plaintiff company, a Mr. Ho, promised to put it to rights in December, 1976. He says that that promise was not kept, and that on two occasions he personally told Mr. Ho that he wanted the plaintiff company to take the machine back. I believe Mr. Hung in all this. It is common ground that he made no payment to the plaintiff company under the agreement exhibit P.2 in respect of the machine in December, 1976, or thereafter.

8. Having said all that, in my judgment Mr. Hung was entitled to repudiate the agreement. I accept his evidence that he did indeed repudiate it, on no fewer than three occasions altogether, but was ignored. However, Mr. Hung has been constrained to admit that he used the machine thereafter. Mr. Lucas for the plaintiff company submits that by his so doing the right to repudiate the agreement was lost, and that the defendant firm must be satisfied with the remedy of damages. He cites no authorities in support of his submission.

9. In Chapman et al. v. Morton⁽¹⁾ the plaintiffs had sold to the defendant a quantity of oil cake which was delivered to the defendant in December, 1841. The defendant, conceiving that the cargo did not answer the sample, landed a portion of it for the purpose of examination, and subsequently landed the whole, stored it in a public warehouse, and wrote to the plaintiffs informing them that it lay there at their risk and cost and requiring them to take it back, which the plaintiffs refused to do. After some correspondence and further negotiations, in May, 1842, the defendant gave the plaintiffs notice that the cargo was lying at the warehouse at their disposal and that if no directions were given by them it would be sold, and the proceeds applied in part payment of the defendant's damages. The plaintiffs answered that they considered the transaction at an end and demanded payment of the price. The defendant thereupon offered the cargo for sale in his own name and in July sold it in his own name to a third party. It was held by the Court of Exchequer that these facts sufficiently showed an acceptance of the goods by the defendant, after which he could not treat the contract as rescinded. In Breckwoldt v. Hanna⁽²⁾ pocket knives of a certain brand were sold by the plaintiff to the defendant. When the goods arrived the defendant discovered that the knives were of a different brand. He promptly wrote to the plaintiff rejecting the knives. Through an oversight a few of the knives were inadvertently sold by the defendant's clerk, and the plaintiff thereupon claimed the full price from the defendant, who disclaimed liability. The Court of Appeal, Jamaica, held that, there having been a clear and categorical rejection of the goods by the defendant, the contract had been rescinded and the property in the goods revested in the plaintiffs, that the defendant was in the position of an involuntary bailee in respect of those knives which were inadvertently sold, and that the sale of those knives had not operated to give new life to a contract which had already come to an end. Lewis, J.A., was of opinion (at page 357) that it mattered not whether the sale of those knives was made by mistake. He went on to say (at page 358) that while Hardy and Co. v. Hillerns and Fowler⁽³⁾ was not on all fours with the case before the court because it concerned a dealing with the goods by the purchaser before he purported to reject them, it was relevant to the consideration of what section 35 of the Sale of Goods Act, 1893, meant. In Hardy and Co. v. Hillerns and Fowler⁽³⁾ the Court of Appeal in England held that the material date for the purposes of the section was the date at which the rejection took place and not the date at which any subsequent sale may have taken place.

10. Section 35 of the Sale of Goods Act, 1893, is reproduced in section 37 of our Sale of Goods Ordinance which reads as follows:

"37. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or (except where section 36 otherwise provides) when the goods have been delivered to him, and he does nay act in relation to them which is inconsistent with the ownership of the seller, or when after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them."

Bankes, L.J., said (at page 496):

"I understand the section to refer to an act which is inconsistent with the seller being the owner at the material date; and the material date for the purpose of this case is not the date of the resale but the date of the notice of rejection, upon receipt of which the ownership revested in the sellers. It is with that revested ownership that, in my opinion, the act of resale was inconsistent. And it was inconsistent with it for this reason: where, under a contract of sale goods are delivered to the buyer which are not in accordance with the contract, so that the buyer has a right to reject them, the seller upon receipt of notice of rejection is entitled to have the goods placed at his disposal so as to allow of his resuming possession forthwith, and if the buyer has done any act that prevents him from so resuming possession that act is necessarily inconsistent with his right."

Atkin, L.J. gave judgment to the same effect.

11. In Breckwoldt v. Hanna⁽²⁾, Lewis, J.A., referring to the passage from the judgment of Bankes, L.J., in Hardy and Co. v. Hillerns and Fowler⁽³⁾ which I have just quoted said (at page 359):

"Learned counsel for the appellants has said that this may very well be so, but that even if there is an out and out rejection of the goods, nevertheless a subsequent act inconsistent with the owner-ship of the vendor is sufficient to constitute an acceptance."

The learned Justice of Appeal then continued:

"Now, a careful reading of Chapman v. Morton indicates that the view which the court took of the facts of that case was that the correspondence and subsequent negotiations and the final letter written by the purchaser in May, all considered together, showed that in fact he had never intended finally to repudiate the shipment, but that he intended to keep the goods."

With that, with respect, I entirely agree. Parke, B., in Chapman v. Morton⁽¹⁾ said (at page 920):

"The case in truth resolves itself into a question of fact."

In Breckwoldt v. Hanna⁽²⁾, Lewis, J.A., concluded (at page 360):

".......... once it is conceded that there was a categorical rejection by the defendant, it seems quite clear that that operated as a rescission of the contract, and that the property in the goods revested in the appellants. That being so, in my judgment, the respondent, at the time of the sale of the forty to fifty cards of knives was in the position of an involuntary bailee. While he might have been liable to the plaintiffs in an action of conversion, I do not think that the sale changed the contractual position and operated to give new life to a contract which had already come to an end."

Waddington, Ag. J.A., concurring, said (at the same page):

".......... there was ample evidence before the learned trial judge on which he could have found that the goods delivered, that is to say the knives, did not correspond with the goods ordered, and that the respondent had the right to reject these goods, and did in fact reject them. That being so, in my view, the principles expressed in Hardy and Co. v. Hillerns and Fowler are the principles to be applied, and that is, that the material date is the date at which the rejection took place and not the date at which any subsequent sale may have taken place, and that the respondent having categorically rejected the goods, the contract was at an end. Therefore, his position after that would merely be that of an involuntary bailee, and the subsequent sale of the goods would not, in my view, operate as an acceptance of the goods."

Moody, Ag. J.A., also concurred.

12. The case law may therefore be conveniently summarised as follows. If at the time at which a purchaser rejects goods for cause he has already acted in relation to them inconsistently with the vendor's ownership he is liable to the vendor for the purchase price: Hardy and Co. v. Hillerns and Fowler⁽³⁾; if at the time at which he rejects goods for cause he has not acted in relation to them inconsistently with the vendor's ownership but does so act subsequently it is a question of fact whether he really intended to reject them or whether he really intended to keep them: Chapman v. Morton⁽¹⁾, and if the fact be that he really intended to reject them then his subsequent action cannot operate as an acceptance of the goods revivifying the original contract: Breckwoldt v. Hanna⁽²⁾.

13. I will just mention that my researches have revealed a number of Scottish and Commonwealth cases which fell the same way as did Chapman v. Morton⁽¹⁾, though in none of them was that case considered, and they were all decided before Breckwoldt v. Hanna⁽²⁾. Like Lewis, J.A., in that case I apprehend that, as in the case of Chapman v. Morton⁽¹⁾, they all proceeded upon the basis that in fact the purchasers did not intend finally to repudiate the contracts, but intended to keep the goods.

14. Now, of course, the instant case is not one under the Sale of Goods Ordinance, but I believe that the principles enunciated in Breckwoldt v. Hanna⁽²⁾ are nevertheless applicable to it. The agreement in the instant case being, as I find, one of hire-purchase, upon the delivery of the machine the position of the defendant firm was that of a voluntary bailee, and, in my judgment, if and when it categorically repudiated the contract its position would become that of an involuntary bailee whose continued use of the machine could not operate so as to revivify a dead contract, but could only, perhaps found an action in conversion.

15. Like Parke, B., in Chapman v. Morton⁽¹⁾, I am of opinion that the instant case resolves itself into a question of fact, namely, whether Mr. Hung really intended to reject the machine or whether he really intended to keep it. Mr. Lucas, of course, urges me to infer from his continued use of it that he really intended to keep it. Mr. Chan's evidence that he took the machine to Mr. Hung, who said that he was familiar with it and declined a demonstration, is not in dispute. I doubt, however, whether Mr. Hung's alleged familiarity with the machine would have sufficed to show its long-term efficiency or otherwise in copying on all ordinary plain paper, for the varieties of ordinary plain paper which exist are doubtless infinite. As I say, upon Mr. Hung's evidence it would appear that he first repudiated the agreement within a month of the delivery of the machine. In my view to take a month to ascertain whether any machine, a fortiori one which performs less than satisfactorily from the outset, is by no means unreasonable. True, Mr. Hung admits that he withdrew his initial repudiation in exchange for a promise that the machine would be put to rights, but he says that when that promise was not kept he again repudiated the agreement not once, but twice. In my judgment he was entitled to do so. I am not persuaded that by using the machine thereafter he evinced an intention to keep it. The number of laymen who, faced with a vendor's refusal to accept a rejection of goods, would be alive to the complications which might ensue from, so to speak, making a virtue of necessity, must be very, very few indeed. Had Mr. Hung had the benefit of, and heeded, prudent legal advice doubtless he would not have laid a finger upon the machine after he had repudiated the agreement. Better still, he might have delivered it back to the plaintiff company, although, of course, he was under no obligation in law to do so. I believe, and find as a fact that he really intended to repudiate the agreement, and following the decision in Breckwoldt v. Hanna⁽²⁾ I hold that in all the circumstances Mr. Hung's continued use of the machine did not amount to an acceptance of the machine and revivify what was in truth and in fact a dead contract. The plaintiff company may, as I say, have a cause of action against the defendant firm in conversion arising out of Mr. Hung's continued use of the machine, but even if it has, having regard to the point-blank refusal of the plaintiff company to accede to Mr. Hung's request that it take the machine away on the one hand, and the principle of mitigation of damage on the other, I may say that I apprehend that the plaintiff company might well have some difficulty in making out a case for more than small, or perhaps even merely nominal damages.

16. The plaintiff company's claim is dismissed.

17. Dated this sixth day of May, 1978.

Representation:

(1) (1843) 152 E.R. 917

(2) (1963) 5 W.I.R. 356

(3) (1923) 2 K.B. 490, C.A.