Consolidated Auto Retailers & Svcs P/L v Alegna Pl No. DCCIV-99-479 Judgment No. D134

CONSOLIDATED AUTO RETAILERS PTY LTD V ALEGNA PTY LTD & STEPHEN FARTHING & JUDITH ANNE FARTHING
[1999] SADC134

Judge D. Bright
Civil

The plaintiff and first defendant are companies concerned in the second hand car trade. The second defendant, Mr. Farthing, is the person who “operates” the first defendant. The third defendant is his wife. The first defendant agreed with the plaintiff that the plaintiff would provide finance in respect of some of the cars in its yard on terms which I must set out more completely.
The agreement (exhibit P1.1) is dated 30 September 1997 and was expressed to run for a year.   Finance to a maximum of $50,000 was to be provided.   If the first defendant wished to buy a car to be put into stock, it could approach the plaintiff, which would pay to the first defendant the cost of acquiring that car.   Thereupon that car would become the property of the plaintiff.   In due course, if all went well, the car would be sold for a greater sum and the first defendant would repay the plaintiff, transfer the car to the new purchaser and would keep any profit on the deal.   The first defendant was to pay interest of 15%, calculated monthly, on the acquisition cost of cars subject to the agreement which were in stock at the end of a month.
I must set out a few conditions in full:-
3      [the plaintiff] shall provide finance to the maximum value of $50,000 at the request of Farthing Motor Co from time to time during the course of this agreement to enable Farthing Motor Co to acquire stock in trade for the purposes of the business of Farthing Motor Co.   All stock items (as defined in clause 1) shall be and remain the absolute property of [the plaintiff].
4      The obligations of Farthing Motor Co are as follows:-
4.6    ..........
4.7 At the expiry or earlier termination of this agreement unless this agreement is renewed to return to [the plaintiff] all stock items owned by [the plaintiff].
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4.11         Except by way of retail sale not to sell transfer or purport to sell or transfer any stock item nor to purport to let pledge mortgage charge encumber or part with possession or otherwise deal with any stock item or interest in any stock item nor create or allow to be created any lien on any stock item without the consent in writing of [the plaintiff].
............
4.13         To keep all stock items in the possession and control of Farthing Motor Co at the business premises and except upon retail sale not to remove or permit them to be removed from the business premises.
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5.      Farthing Motor Co agrees with [the plaintiff[:-
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5.4 That upon termination of this agreement [the plaintiff] may retake possession of all stock items and may enter the business premises for that purpose without let or hindrance and Farthing Motor Co shall hand to [the plaintiff] or its representatives all registration documents relating to each stock item in the possession of Farthing Motor Co
5.1 That Farthing Motor Co shall hold each stock item as a bailee for [the plaintiff].
............
6.      [the plaintiff] may terminate this agreement for any breach by Farthing Motor Co of any provision ......”
In the events which have occurred, the relationship between the parties has ended. The defendants have possession or control over four cars in respect of which money has been paid by the plaintiff. The plaintiff seeks their return, asserting ownership pursuant to clause 3. In essence, the defendants claim that the circumstances in which the relationship ended preclude the plaintiff from asserting that right and further that, the agreement was varied so that the plaintiff does not have absolute ownership. The plaintiff denies any such variation.
Things ran smoothly during the first year of the relationship. By letter of 10 June 1998 (P1.2), the plaintiff offered to increase the limit from $50,000 to $100,000. It also required payment of certain fees to be levied on each transaction. It required the first defendant to make “curtailment” payments in respect of cars which did not sell reasonably promptly, leading to payment out in full by the end of six months. There was an offer to permit the arrangement to be applied to stock not initially acquired by the first defendant pursuant to the agreement.
P1.2 was written after a number of discussions between the parties. It purported to embody what had been agreed by them. Insofar as anything new was contained in P1.2, it was accepted and acted upon from the 1st July 1998.
A further variation was discussed on a number of occasions. The plaintiff requested that the first defendant lodge a “security deposit” of $10,000 to cover any outstanding debts owed by the first defendant to the plaintiff on any termination of the agreement or in respect of any obligations the plaintiff might have to persons who had bought cars owned by it. At an earlier stage, a “security deposit” for the same purpose of $5,000 had been made.
There were various discussions about these payments. Mr. Farthing was unhappy that his money was tied up and tried to persuade Mr. Pazman of the plaintiff either to credit the deposit to the first defendant when calculating interest to be paid by the first defendant, or to allow interest on the deposit itself. Mr. Pazman refused. I find that there was no agreement reached that either interest, or a credit, would be allowed in respect of the deposit.
I find that Mr. Pazman insisted that the deposit was to be retained by the plaintiff until all liabilities of the plaintiff and defendant to each other had been resolved, after which it would be applied to any liability of the first defendant to the plaintiff, or by the plaintiff to purchasers of cars, and any balance would then be returned to the first defendant. It is to be noted that the plaintiff had warranty obligations in respect of cars it owned, should they not be met by the first defendant.
On the 30th September 1998, the agreement, as varied, was renewed orally, presumably, for a further twelve months.
It was Mr. Pazman’s habit to call at the defendant’s yard every week or two to check that cars in which the plaintiff was interested were on show and in a good state. Remember that, by clause 4.13 they were to be kept at the first defendant’s yard.
In January 1999, probably on the 15th, he noticed that four cars were missing. Mr. Farthing gave explanations, which Mr. Pazman accepted, to the effect that they were absent for reasons connected with repairing them, or demonstrating them to potential purchasers. A week later, a similar, though not identical, explanation was given for their continued absence.
The fact of the matter is that three of them were being used for private transport by Mr. Farthing, his mother, his wife and the wife of an employee of the first defendant. Mr. Farthing asserts that, on the 15th January, he told Mr. Pazman the truth about the use of these vehicles and that the fourth would be purchased and paid for by the end of March 1999. Mr. Farthing asserts that Mr. Pazman consented to those arrangements in respect of the four cars.
Mr. Pazman denies that he was told the truth about them, or that he consented to them being off the yard for those purposes. I prefer his evidence. He had no reason to agree. His subsequent actions, and the documents he created, are wholly inconsistent with that. Mr. Farthing points to certain negotiations to which he and Mr. Pazman were party in respect of another venture of Mr. Farthing’s, which, in the end, came to nothing. Mr. Farthing alleges that Mr. Pazman was put out by this and that, for revenge, has created and inflicted on the defendants a false series of claims, pursuant to which it has purported to exercise rights under its agreement (P1.1 and 1.2) fraudulently. I find Mr. Farthing’s allegations fanciful.
He has no written evidence to support him and no other corroboration for his belief. As things have turned out, he may well have persuaded himself that he has been harshly treated (and it would have been possible for the matter to have been resolved in ways less detrimental to him than by the plaintiff insisting on its rights). He may well believe that what he wanted Mr. Pazman to agree to was agreed to, but I am not satisfied that Mr. Pazman did anything to give rise to such a belief.
In my view, Mr. Farthing deliberately chose to ignore the rights and obligations created by the agreement, as varied, except insofar as it required him to receive and to make payments of money. With some minor exceptions, he did make all payments. However, the fact that he abided by the “money” side of the agreement in no way diminished or varied the binding nature of the various other rights and obligations it contained. In particular, nothing occurred to alter the fact that cars in respect of which the plaintiff paid money were the absolute property of the plaintiff.
I specifically reject the claim that, by making curtailment payments in respect of a car, the defendants acquired any title to that car. They became entitled to have those payments taken into account when paying off the money owed on a car, but they did not thereby become entitled to the car itself.
In February 1999, discussions about another venture took place. Mr. Pazman advanced $40,000 in respect of that venture. He went overseas. On his return on 7th March, his accountant informed him that the $40,000 had not been repaid. The evidence is not clear enough for me to be sure that it should have been, but I am satisfied that Mr. Pazman was concerned about it. On 15th March he inspected the yard. The cars were still missing and not paid for. He got a similar explanation. Again, he accepted the explanation, albeit with more hesitation. On 20th March he typed a notice (exhibit P1.9) which confirms that he had been told by then that the yard would be closing, that no further advances would be sought, that interest would henceforth be calculated on a daily basis and stating, in particular:
“We feel that it is necessary to bring your attention of (sic) Page 4 cl.4.13 of our agreement. Failure to do so could put you technically into a “conversion” situation. This should be avoided at all costs.”
It goes on to offer to assist in any reasonable manner in liquidating remaining stock. It does not look like the letter of a man already out for revenge because of failed business talks in February. Nor is it consistent with an understanding by Mr. Pazman that all business relations between the parties would be settled and concluded on 31st March.
On 22nd March the plaintiff attended at the yard and gave that letter to Mr. Farthing, who initialled a copy of it. Mr. Pazman also asked for payment of $2,000 in respect of a car which had been sold, but for which he had not been paid. Mr. Farthing gave him a cheque - but that cheque was not met when it was presented the following day.
Mr. Farthing claims that the meeting was on 23rd (not 22nd) March. The cheque is dated 22nd and I find it was on the 22nd. Mr. Farthing claims he told Mr. Pazman that the cheque would not be met, but offered to allow Mr. Pazman to take the cheque on the understanding that it would not be presented, but would be held in escrow until the wash-up of the whole relationship, which Mr. Farthing expected to take place on 31st March 1999. Alternatively, if Mr. Pazman preferred to wait for half an hour, Mr. Farthing would draw a cheque on another account which was in funds, but for which he did not have the cheque book with him.
Mr. Pazman denies taking the cheque on that basis. Given the tone of his letter (P1.9), I can see no reason why, if that had been arranged, he would at once present the cheque. I find that he took it in good faith, expecting it to be met.
Mr. Farthing says that he made it clear that his yard would close on 31st March, whereupon he would settle up with Mr. Pazman. Mr. Pazman denies this and asserts that, while he had been told the yard was winding up, he was not given a definite date. Once more, I think Mr. Farthing has confused what he would like to have arranged with what he actually did.
Mr. Farthing says that, on receipt of P1.9, he noted the reference to clause 4.13 and asked Mr. Pazman what that was. He says he was given an explanation, but now forgets what it was. He took no action to comply with that clause because, as he saw it, it would be very inconvenient to him to do so and he expected to settle up shortly on a basis that would enable him to keep the cars. He says he drew comfort from a reference in the first sentence of the letter to the daily calculation of interest commencing on 1st April, a date by which he intended to have settled. He says he somehow thought the whole letter did not have any effect until then. Therefore, he says, it could be ignored. This is, at best, mere wishful thinking.
Also on the 22nd March, Mr. Pazman was contacted by an acquaintance in a car yard which adjoined the defendant’s yard. It appeared that Mr. Farthing was negotiating to sell stock and to lease the yard to that business. There was an allegation that Mr. Farthing was talking of pledging to that dealer at least one car belonging to the plaintiff. Subsequently that dealer paid the plaintiff for that car.
On about 24th or 25th March, Mr. Pazman received notice of dishonour of the cheque. He was becoming worried. He made company searches to check on the defendant company and Mr. Farthing. He made enquiries at the Registrar of Motor Vehicles office and found that his cars were not registered in his name. Arguably, that was not strictly necessary - but it did nothing to lessen his concern.
He decided to take possession of the plaintiff’s cars. He prepared a notice of termination of the agreement (P1.14) dated 30th March 1999. He took it down and served it at the yard (as provided for in the agreement). There is dispute as to whether it was given to Mr. Farthing, or just left there. In either case it was valid service.
With some difficulty, Mr. Pazman removed all cars he was interested in, apart from the four cars which were not on the yard. There was an angry scene and memories differ about what happened - but I do not need to resolve that.
I have found that, pursuant to the agreement, as varied, the cars were always the property of the plaintiff. The plaintiff was not entitled to possession of them during the continuance of the agreement. They were to be kept at the yard. However, by its terms, on termination of the agreement the plaintiff was entitled to possession of them.
I have recited a lot of circumstances which, in the end, have little or no bearing. I did so to satisfy myself that there were breaches of the agreement sufficient to entitle the plaintiff to terminate it and that the plaintiff did terminate it validly. I am satisfied of those matters.
I reject Mr. Farthing’s claim that the termination was not valid, because consent had been given to the various breaches and that, accordingly, rather than being a valid termination, it was an improper repudiation by the plaintiff. Even if that were so, it would not necessarily follow that the plaintiff was not entitled to possession of the cars. The word “termination” in clause 4.7 of the agreement may not be limited to valid termination, other than repudiation. Termination may include repudiation. I suspect that it does, but I do not have to determine it.
I have also looked to see whether I can discern a basis on which the plaintiff might be estopped from asserting its rights. Estoppel was not pleaded, but, with the defendants being unrepresented, I felt bound to consider it. The basis might have been fraud in revenge for the failed business negotiation in February. It is my finding that the facts give no grounds for this claim.
Mr. Farthing believes that, if credit be given for his deposit of $10,000, little if anything is owed to the plaintiff, even if the cars are not returned. The plaintiff does not accept all of Mr. Farthing’s calculations. In any event, the plaintiff insists on the return of the cars, followed by an account, then payment by one to the other and, finally, return of any balance of the deposit. Unfortunately, the fact that Mr. Farthing might be better off if the plaintiff did not insist on its rights is no basis to prevent the plaintiff from asserting those rights, at least when I am not satisfied that they are being asserted in bad faith.
There will be an order for the return of the cars. Minutes have been submitted. I will hear the parties on those minutes.
I record that the claim is expressed to include a claim for interest in respect of money advanced for those cars. In his final address, counsel for the plaintiff suggested that interest could be better dealt with following the return and sale of the cars, should he be successful. I discussed this with Mr. Farthing. I allowed the plaintiff not to pursue the interest at present, without that being a bar to pursuing it in the future, should future action be necessary.

[1999] SADC 134

19 October 1999