Papas v Bianca Investments Pty Ltd No. Scciv-02-576

PAPAS v BIANCA INVESTMENTS PTY LTD
[2002] SASC 190
Magistrates Appeals: Civil

DOYLE CJ: This is an appeal against a decision given by the Magistrates Court, exercising civil jurisdiction under s 8 of the Magistrates Court Act 1991 (SA) and jurisdiction conferred on the court by s 11(8) of the Second-Hand Dealers and Pawnbrokers Act 1996 (SA) (“the SDP Act”).
In the Magistrates Court the appellant was plaintiff. Her claim was dismissed. She appeals against that dismissal. The Notice of Appeal does not indicate the orders sought. The effect of the submissions for the appellant is that judgment should have been entered for the plaintiff.
Facts
I will refer to the parties by their titles in the Magistrates Court.
The plaintiff’s husband trades in used cars. The plaintiff’s son advertised a motor car for sale. It was registered in the plaintiff ’s name, but was regarded by the family as the son’s car. Two men came to inspect the car on 18 December. They agreed with the plaintiff’s son to pay $12 500 for the car. They were told that they would have to pay in cash or by bank cheque. They went off to get a bank cheque. Later one of them returned with a bank cheque for $12 500. The man who was the purchaser identified himself as Jarrod Cherrington. He produced a temporary driver’s licence in that name. That licence did not have a photograph on it. The car was delivered in exchange for the cheque on 18 December. The cheque was banked on 19 December. Later that day, the bank advised Mr Papas that the cheque had been tampered with. On 20 December Mr Papas was informed that the cheque had been dishonoured.
The man who took the car, whom I will continue to call the purchaser, was not Mr Cherrington and was acting fraudulently.
The defendant is also a second-hand dealer and pawnbroker. On 19 December the purchaser approached the defendant for a loan of $7 000, offering as security the car obtained from the plaintiff. The purchaser produced the same temporary driver’s licence. This was not sufficient for the defendant. Later that day the purchaser came back with a statutory declaration to the effect that he was whom he purported to be, and with registration papers for the motor car. The defendant then made checks of certain registries to ensure that the motor car was not defected, wrecked or the subject of a stolen vehicle report. A loan contract was completed at about 5pm that day, the motor car being left with the defendant as security for a loan of $5 500.
The bank cheque was not a good cheque for the amount on its face. It had been a valid bank cheque for $20. It had been fraudulently altered.
The Magistrate’s decision
The Magistrate made findings along the above lines.
The Magistrate made a finding that the defendant acquired its interest in the motor car in good faith and for value.
The Magistrate records a concession that if a contract between the plaintiff and the purchaser came into existence, the contract was not rescinded until 20 December after notification from the bank of the dishonour of the cheque. Accordingly, the rescission came after the defendant had acquired its interest in the motor car.
Issues
The plaintiff claims that the contract with the purchaser is void, and that accordingly the purchaser and the defendant acquired no interest in the motor car. Alternatively, the plaintiff submits that the finding that the defendant acquired its interest bona fide is wrong. Finally, the plaintiff claims that she is entitled to relief under subsections (8) and (9) of s 11 of the SDP Act, which provide as follows:
“(8)   The Magistrates Court may, on application by a person entitled to the possession of stolen goods that are or have been in possession of a second-hand dealer, order-
(a)     that the goods be returned to the person; or
(b)     if the dealer has sold or parted with possession of the goods in contravention of subsection (7)-that the dealer pay to the person the value of the goods.
(9)    On an application under subsection (8), the Court may make such other orders as to compensation for damage to the goods or otherwise as it thinks fit.”
The case appears to have been argued before the Magistrate, and was argued on appeal, without reference to s 25(2) of the Sale of Goods Act 1895 (SA) dealing with the power of a buyer of goods, who obtains possession of the goods with consent of the owner, to confer a title to the goods by the delivery or transfer of the goods, even though the buyer has no title to the goods. The case was also argued without reference to the question of estoppel.
Is the contract void?
When the contract was entered into, Mr Papas and his son believed that they were dealing with Mr Cherrington, and that the bank cheque that was tendered in payment was a good cheque. They were mistaken in both respects.
The cases bearing on the effect of such a mistake are few in number, are difficult to reconcile, and do not yield a clear principle. The main cases are English cases. They are Phillips v Brooks Ltd [1919] 2 KB 243, Lake v Simmons [1927] AC 487, Ingram v Little [1961] 1 QB 31 and Lewis v Averay [1972] 1 QB 198.
On appeal counsel barely referred to the cases. Counsel for the plaintiff appeared to invoke the justice of the situation. Counsel for the defendant was content, in substance, to endorse the reasoning of the Magistrate. In the circumstances, this is clearly not the occasion on which to attempt to reconcile the case law, such as it is, or to make a definitive statement of principle.
For my purposes it suffices to refer only to the decision in Lewis. The facts are similar. The purchaser of a motor car represented himself to be a well-known actor. He obtained possession of the motor car under a contract of sale on the basis of payment by personal cheque. The vendor believed that he was dealing with a well-known and trustworthy person. In that sense the vendor was mistaken as to the identity of the purchaser, and as to the attributes of the purchaser. The vendor also thought that the cheque was from the well-known actor.
Lord Denning rejected the view that a mistake as to identity always meant that a contract was void. He rejected the view that Ingram v Little and Phillips v Brooks could be reconciled on the basis that in the latter case the contract was entered into before the fraudulent misrepresentation as to identity was made, and in the former case the fraudulent misrepresentation was made before the contract was concluded. His view was that in each case property did not pass until the fraudulent misrepresentation was made. He also rejected the distinction between a mistake as to identity and mistake as to attributes. He stated the relevant principle as follows (at 207):
“When two parties have come to a contract – or rather what appears, on the face of it, to be a contract – the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken person, so long as he does so before third parties have in good faith acquired rights under it.”
Phillimore LJ said that the issue was whether the prima facie presumption that the vendor was contracting with the physical person with whom he dealt had been rebutted. That was a question of fact, and in the instant case the presumption was not rebutted. Megaw LJ said that the vendor did not regard the identity of the purchaser “as a matter of vital importance”: at 209. The vendor was mistaken as to the creditworthiness of the man who was present, because he pretended to be the well-known actor. But the identity of the man was not a matter of vital importance.
To the extent that there is a difference between these approaches, I prefer that of Lord Denning. However, that is not to say that the relevant principle is as unqualified as his statement would suggest.
In the present case the identity of the purchaser was immaterial to Mr Papas and to his son. They were willing to sell the motor car to any person who provided cash or a good bank cheque. The enquiry as to the identity of the purchaser was probably made with a view to keeping an appropriate record of the transaction, with a view to complying with requirements of the Registrar of Motor Vehicles, and as some kind of protection against fraud. But there is no reason to think that it mattered to the plaintiff who the purchaser was. All that mattered was that the plaintiff would receive cash or what the plaintiff thought was equally good, a bank cheque. In the present case there was the appearance of a contract. The purchaser misrepresented his identity and knowingly tendered a bad cheque. The plaintiff was certainly entitled to rescind the contract on the basis of these misrepresentations, and possibly on the basis of the former alone. But, in my opinion, there is no reason to treat the plaintiff’s mistake as to the identity and creditworthiness of the purchaser as preventing any contract at all coming into existence. This was not a case in which the plaintiff was willing to sell only to Mr Cherrington.
I consider that all three judgments in Lewis v Averay support the Magistrate’s conclusion, even though the reasoning in each judgment is slightly different.
I agree generally with the approach taken to this issue by Carter and Harland, Contract Law in Australia (Fourth Edition, Butterworths, 2002) at [1244]:
“The cases are impossible to reconcile, but it is suggested that since it is the victim’s apparent intention to contract with the person physically present, there exists a sufficient element of assent on which a contract can come into being, albeit a contract voidable at the instance of the representee.
A starting point for analysis of these cases is the undoubted presumption that where parties appear to contract, there is a contract between the parties. In order for that presumption to be rebutted there must be admissible evidence that there was no such intention.”
In the present case there is no evidence that the plaintiff was not prepared to contract with any person willing to provide cash or a bank cheque to the appropriate amount, and no evidence that the plaintiff contracted with Mr Cherrington because of the plaintiff’s belief as to his identity, as distinct from the plaintiff’s belief that he was providing a bank cheque.
I note that the law is stated in terms somewhat more favourable to the plaintiff in Halsbury’s Laws of England Vol 9(1) (Fourth Edition Reissue, 1998) par 704 as follows:
“Where the person receiving the offer (C), even though identified as the offeree as a result of the objective test, is aware that the offeror (A) did not intend to contract with him, such a mistake will frequently have been induced by fraud on the part of C. At very least, the effect of that fraud is to give A a prima facie right to rescind; that is, there will only be a ‘voidable contract’ between A and C. However, if the mistake prevents any agreement between A and C ever coming into existence, there is then said to be a ‘void contract’ between A and C. As between A and C, it will not usually be important whether the contract is void, or merely voidable.
Plainly though, there may be circumstances where it is important to discover whether the contract is void rather than merely voidable. The contract is void only where A’s mistake is material to the formation of the contract; that is, where it is a mistake as to C’s identity, rather than merely as to his attributes. In practice, this distinction may be difficult to draw, because the object of the fraud will usually be to induce A to make an offer which is, in fact, internally contradictory; and the success of the fraud lies in the fact that A does not realise the contradiction. The court then has to decide, as a matter of interpretation, which of two contradictory intentions predominates, though in dealings between parties in each other’s presence (inter praesentes dealings) it is helped by a presumption.” (Footnotes omitted.)
In the following paragraph the editor makes the point that when the parties are dealing face to face,
“… there is a presumption that each party intends to deal with the person in front of him; but it is clear that this presumption may be rebutted.” (Footnotes omitted.)
Even applying this approach, I am not satisfied that the presumption that the plaintiff intended to deal with the person physically present has been rebutted. The plaintiff was willing to deal with that person. The plaintiff was misled as to that person’s identity, but that was not a material matter. The plaintiff was misled as to the bank cheque, but that does not mean that the plaintiff was not willing to deal with the person present.
I have examined a number of text books, both English and Australian. The writers generally comment on the difficulty of identifying a clear principle from the case law. But generally they focus on a presumed but rebuttable intention to deal with a person who is actually present when the contract is made, whoever that person may be. They also emphasise that a mistake as to creditworthiness of that person, or a mistake which arises from a representation about creditworthiness linked to identity, will not usually render a contract void.
In my own researches I did not find any Australian case which is of binding or persuasive authority. In Porter v Latec Finance (Qld) Pty Limited (1964) 111 CLR 177 Kitto J (194-195) and Windeyer J (200-201) made remarks in passing which might be seen as supporting a more subjective approach than I have taken. I mean an approach which gives more emphasis to the fact of a mistake as to identity, as distinct from an emphasis on an outward appearance of agreement on subject matter and terms, and on the absence of any reason to regard the identity of the party dealt with as material, except to the extent that that reflects an interest in creditworthiness. But these remarks were made in the context of a case dealing with interests in land, and in a context far removed from the present one. Pointing the other way are remarks made by Mason ACJ, Murphy and Deane JJ in Taylor v Johnson (1983) 151 CLR 422 at 428-430, where their Honours said that the clear trend of late has been towards an objective theory in relation to the impact of mistake on the formation of a contract. They refer to an approach under which the emphasis is on an outward appearance of agreement of terms and subject matter. In the present case there was an outward appearance of agreement on terms and subject matter, and there is nothing to suggest that the plaintiff was unwilling to deal with the purchaser, whoever the purchaser might be, as long as that purchaser paid by cash or bank cheque.
I recognise that the law in this area is in a somewhat unsatisfactory state, but my conclusion is that a contract did come into existence, although the plaintiff had a right to rescind.
What is the effect of the tender of the forged bank cheque, and the implied representation that it was a good cheque?
The cases do not suggest that this mistake by the plaintiff makes the contract void. In Lewis v Averay the plaintiff thought that the cheque was the cheque of a well-known actor, a person of substance. In Phillips v Brooks the plaintiff thought that the cheque tendered to him was the cheque of Sir George Bullough, a person of substance of whom the plaintiff was aware. In neither case was it suggested that this distinct mistake prevented a contract coming into existence.
For all those reasons I agree with the Magistrate that the contract was valid, liable to be rescinded for misrepresentation, but not rescinded until after the defendant acquired its interest in the motor car.
Did the defendant act bona fide?
On appeal it was submitted that the Magistrate erred in finding that the defendant had acquired its interest bona fide.
The first point made was that the temporary licence which was produced to the defendant had no photographic identification, and apparently had expired. But as to that, as the plaintiff was content to rely on that identification, it is difficult to criticise the defendant for doing so. As well, the defendant made a number of other checks in relation to the vehicle. The point was made that the defendant should have been suspicious about the purchaser’s story that he wanted a loan to travel to England to see his grandmother. It was also suggested that the defendant should have required the production of a passport.
I do not consider that there is any great force in these points. I note also that at trial there was no objection to the defendant providing its evidence by way of affidavit. The plaintiff did not seek to cross-examine.
Under the circumstances, I consider that there is no basis upon which I could interfere with the Magistrate’s finding.
The claim under the SDP Act
It is not disputed that the motor car answered the description of “stolen goods” for the purposes of s 11(8), because “stolen goods” are defined to include “goods obtained by any unlawful means”: s 3(1) of the SDP Act.
Despite that, this claim confronts an initial difficulty. If the contract between the plaintiff and the purchaser was valid until rescinded, the plaintiff was not a person entitled to the possession of the motor car as against the defendant. The defendant acquired an interest in the motor car before the contract was rescinded.
The plaintiff argued on appeal that s 11(8) should not be read in this way. The submission was that s 11(8) confers on the court power to award a remedy to the original owner of stolen goods, even though property in the goods or an interest in the goods has passed to the second-hand dealer in question. The submission is that the plaintiff was a person “entitled to the possession” of the motor car, in the sense that the plaintiff originally had possession of the motor car, and would have retained possession but for the fraud committed by the purchaser. Just how the section operates was never put with any particular clarity. I gather that the submission is that either the plaintiff is entitled as of course to the return of the goods or damages, even though the defendant has acquired a right in the goods, or alternatively that the provision confers a discretion on the court which enables the court, by adjusting the amount of compensation, to reflect the overall justice of the situation.
I am unable to accept this submission.
There is no apparent reason for Parliament having used the expression “entitled to the possession of stolen goods” if Parliament intended to confer a right and a remedy notwithstanding the loss of the entitlement to possession. If the provision was intended to operate as suggested, Parliament should have referred to “a person from whom goods were stolen.” I conclude that Parliament has expressed itself in a manner that indicates that it intends the provision to operate in the context of the existing law. If the provision gave the original owner of stolen goods a right as of course to damages, it would impose a significant burden on a second-hand dealer. It would require the dealer to pay damages, even if the dealer had become the owner of the goods under the general law. If the provision is intended to confer a discretion on the court to do what is just, it is surprising that no criteria are identified by reference to which the court is intended to allocate the loss which has been caused by the conduct of the person responsible for the stealing of the goods. I realise that the power to make such orders as the court “thinks fit” conferred by s 11(9) could be deployed here, but I would have expected Parliament to give some further guidance if the court was intended to apportion the loss in the manner suggested.
In short, the terms of the statutory provision do not appear consistent with the submission that is advanced.

Considering s 11 of the SDP Act as a whole, I consider that it is intended to give a person from whom goods were stolen procedural protection, by enabling that person or a member of the police force to require a second-hand dealer to retain goods alleged to have been stolen or suspected of been stolen. The purposes of the provision appear to be to enable a member of the police force to make appropriate enquiries, and to enable a person who claims to be entitled to possession of stolen goods to bring proceedings under s 11(8). But in my opinion the proceedings in s 11(8), while affording an expeditious remedy through the Magistrates Court, operate on the basis of the existing law as to ownership and possession.
I add that the second reading speech by the Attorney-General in relation to the legislation provides no support for the submission advanced by the plaintiff: see Hansard, Legislative Council, (1996) at 484. The emphasis is upon improved record keeping and procedures. In what appears to be a reference to the relevant provisions the Attorney-General refers to provisions “for persons claiming ownership of goods in a dealer’s possession”, to a right to apply to the Magistrates Court for return of the goods, and to the fact that that court “will hear these matters informally as minor statutory proceedings.” There is no suggestion that the general law as to ownership and possession is being displaced.
For all those reasons I reject the submission that the Magistrate erred in relation to the claim under the SDP Act.
Conclusion
In my opinion the Magistrate was correct. The appeal must be dismissed.

[2002] SASC 190

14 June 2002