Cheung Kowk Sun t/a Golden Tex Trading Co and Another v. Ho Wing Sun t/a Fu Wo Plastic Fty

DCCJ 776/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 776 OF 2005

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BETWEEN

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Coram: H.H. Judge Chow in Chambers

Hearing date: 10^th January 2006

Date of handing down Decision: 12^th April, 2006

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Decision

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1.This is an application of the 2^nd Plaintiff for an order to be made, pursuant to Order 14 r.1 of the Rules of the District Court, that judgment be entered in its favour in the sum of US$70,860.94 together with interest and costs of this action against the Defendant.

Background

2.The Plaintiffs were the vendors of waste plastic materials and the Defendant was the purchaser of waste plastic materials since about 1995.  The 1^st and 2^nd Plaintiffs sold and delivered to the Defendant waste plastic materials ordered by the Defendant.  The 1^st Plaintiff issued 2 invoices for a total price of US$31,400.89 and the 2^nd Plaintiff issued 3 invoices for a total price of US$44,460.05.  The Defendant paid a total sum of US$5,000 for these 5 invoices as deposits.  The Defendant drew out 5 cheques all payable to the 2^nd Plaintiff to settle the balance, namely, US$70,860.94.  The 2^nd Plaintiff presented the 5 cheques for payment, but they were all dishonoured.

3.The Defendant alleged that the Plaintiffs were not entitled to presenting the cheques for payment on the ground that there is a total failure of considerations and the presentation of the cheques by the Plaintiffs was in breach of an established course of dealing between the Plaintiffs and the Defendant, and in particular an oral collateral agreement between the 1^st Plaintiff and the Defendant in relation to the conditions of presenting the cheques for payment.  Alternatively, the Defendant claims to set off against the Plaintiffs’ claim the Defendant’s counterclaim against the Plaintiffs.  In his counterclaim the Defendant claims for prices it overpaid to the Plaintiff, and for loss of profits.

4.The contractual payment terms are stated in the invoices as “deposit pre-paid”, “remaining price for the goods payable upon arrival of the goods”, “payment must be made in cash or crossed cheques made to Goldyue Company”, and “goods mentioned in this invoice will remain our property until full payment for them has been received in cash or if by cheque, until clearance of cheque”.

5.The Defendant argued that cheques must be payable to the 2^nd Plaintiff even if the contracting is the 1^st Plaintiff.  As such, prima facie the 2^nd Plaintiff has not provided any consideration vis-à-vis the Defendant for the 2 cheques drawn for the payment to the 2 invoices (Nos. 14988 and 14989) issued by the 1^st Plaintiff.  In so far as these 2 cheques are concerned, the 2^nd Plaintiff is not entitled to present the same for payment on the ground that there is a total failure of consideration on the part of the 2^nd Plaintiff (being a gratuitous payee).  Alternatively, there is a collateral contract which imposes a condition precedent upon the presentation of the 2 cheques for payment, namely, that the 1^st Plaintiff has performed his part of the contract, which included the passing of the property in the goods to the Defendant.

6.As for the 3 invoices (Nos. 121289, 12186, 12187), the contracting party is the 2^nd Plaintiff.  Prima facie, the 2^nd Plaintiff has performed its part of the contract and has provided consideration for the 3 cheques drawn by the Defendant for payment once the goods were delivered to the Defendant.  But the property of the goods delivered remained the property of the 2^nd Plaintiffs until full payment is made, and there is a total failure of consideration on the part of the 2^nd Plaintiff for the 3 cheques in question.

7.The Defendant submitted that if the goods delivered under the 5 invoices did not fit the descriptions of the goods ordered and being worthless and useless, no matter the goods were ordered from the 1^st Plaintiff or the 2^nd Plaintiff, there was a total failure of consideration on the part of the Plaintiffs. 

8.Apparently the Defendant relied on paragraph 29 of the Defence as a “collateral contract” on payment.  Paragraph 29 reads:-

‘However the 1^st Plaintiff requested the Defendant to wait pending a satisfactory resolution of the dispute and/or pending the delivery of a consignment of “desirable materials” which he would deliver to the Defendant (as pleaded in paragraph 17(3) hereof).  In consideration of the Defendant’s forbearance, the 1^st Plaintiff agreed not to present the cheques for payment until a satisfactory resolution had been agreed upon and worked out between the parties and/or until the delivery of the consignment of “desirable materials” to the Defendant.’

9.The term “desirable materials” is not defined.  It is simply unknown what constitutes “desirable materials”.  This term is vague, and therefore whatever is pleaded in paragraph 29 cannot constitute an enforceable agreement.  Even if the matters pleaded in paragraph 29 constitute an agreement, it is only an agreement between the 1^st Plaintiff and the Defendant, and not an agreement between the 2^nd Plaintiff and the Defendant.  The agreement does not bind the 2^nd Plaintiff.  Therefore the defence of the existence of a collateral agreement must fail.

10.The Defendant argued that the property in the goods had not passed to him because the goods would remain the Plaintiff’s property until clearance of the cheque.  Since the Defendant countermanded the cheques, so the cheques were not cleared, and thus the waste materials in question remained the Plaintiff’s property.  As a matter of fact, the Defendant sold out the goods to scrap dealers in China at various times.  By doing so he intended to pass and did pass the property in the goods to the scrap dealers.  Before he passed the property in the goods he must have accepted the goods in question, in order to have the property in the goods, so that he could pass the same to scrap dealers, despite the fact that he was not satisfied with the quality of the goods.  The property in the goods must have passed to the Defendant before it could be passed to the scrap dealers.  When did the property in the goods pass to him?  This happened when he sold the goods to the scrap dealers in China.  This constitutes consideration for the cheques drawn out by him in favour of the 2^nd Plaintiff.  They alleged defence of a total failure of consideration simply cannot stand.

11.The Defendant has a counter-claim against the 2^nd Plaintiff, which he alleges can be used to set off the 2^nd Plaintiff’s claims, but that is not a bar to judgment to be entered against him.  There cannot be any defence in this case.  I therefore enter judgment in favour of the 2^nd Plaintiff against the Defendant for the sum of US$70,860.94 together with interest, commencing from 22^nd February, 2005, at judgment rate, until satisfaction.

Costs

12.I make an order nisi, to be made absolution in 14 days’ time, that the Defendant is to pay to the 2^nd Plaintiff costs of this action, and the costs of and incidental to this application, to be taxed, if not agreed, with certificate for Counsel.

2^nd Plaintiff : represented by Miss Barbara Wong, instructed by Messrs. Rowland Chow, Chan & Co., Solicitors.

Defendant: represented by Mr. Tommy K.K. Ho, instructed by Messrs. Rene Hont & Co., Solicitors.