United Motor Finance Co. Vs. Romer Dan and Company - Court Judgment

Venkatasubba Rao, J.

1. This is an appeal from the judgment of Wadsworth, J. dismissing the action brought by the plaintiffs. The nature of their business was to finance motor hire purchase transactions introduced to them by motor dealers. They complain in the suit that on certain false representations made by the defendants as such dealers, they were Induced to enter into the three contracts described in the plaint. Each of them consists of two parts: first, the plaintiffs buying from the defendants a motor vehicle, secondly, they letting it on hire to the customer introduced by the defendants. Various kinds of fraud are set out in the plaint, but the defendants' learned counsel Mr. V.V. Srinivasa Ayyangar says (and Wadsworth, J's. judgment lends support to this statement) that the learned Judge was invited to address his mind to one ground of fraud only, namely that relating to what is known as the initial one-third deposit. I have no doubt that the plaintiffs' counsel referred at the trial to the other grounds of complaint as well, but the only matter seriously discussed appears to have been the one to which I have adverted. I proceed upon this footing, but wish to add that in view of the conclusion at which I have arrived, this makes little difference. It is necessary in order to appreciate the contentions raised to grasp one central fact connected with these transactions. As the contracts are worded, the one-third initial deposit was to be received by the plaintiffs; but that was never observed, and in practice the customer paid, or was expected to pay, the amount to the dealers, who retained it towards the price payable by the plaintiffs. I may here quote the following sentence from the proposal form, which will make my meaning clear. The customer addressing the plaintiffs says, ' I herewith send you cheque for the following amount', meaning thereby that the initial payment is made to the plaintiffs. It is the departure from this strict letter of the contract that is the genesis of the trouble that has arisen. In the bills submitted by the dealers to the plaintiffs they demanded the remaining two-thirds of the price only and that amount alone was paid. In fact the dealers say-- though that attitude is not strictly legal-- that the one-third initial payment was their own look-out. The short question which this appeal raises is whether the dealers were justified in taking promissory notes for this one-third deposit instead of receiving cash. We understand that this is one of several suits of a similar kind filed by the plaintiffs, but the action being one for deceit, the facts or findings in them can hardly be helpful. The question to decide is whether on the contracts as they stand, if all that is proved is that the promissory notes were taken and nothing more, a case of fraud can be said to have been made out.

2. I may mention that Mrs. Palmer, on. behalf of the plaintiffs, rested her case in the trial Court upon an alleged interview with Mr. Ramalinga, the proprietor of the defendants' firm. The effect of her evidence is that he was made to understand definitely that the receipt of the one-third deposit in cash was an essential term of the business. Now, on Wadsworth J.'s finding, with which we intimated to the Bar we were not disposed to disagree, that interview completely disappears and the case thus depends not upon any explicit representation but upon what is merely implicit in the documents. I entirely agree with my learned brother, whose judgment I have had the advantage of reading, that strictly speaking the defendants must be deemed to have represented that what they received was a cheque for the one-third payment. I also agree that from the letter of 16th May 1929 (Ex. 1), it would be reasonable to infer, in view of the words ' one-third down ', that what was probably intended was payment in cash; but upon the evidence I cannot resist the conclusion that the defendants in taking the promissory notes honestly believed that they were adhering to the spirit of the bargain. As Lord Herschell observes in his classic judgment in Derry v. Peek (1889) 14 AC 337:

Making a false representation through want of care falls far short of and is a very different thing from fraud and the same may be said of a false representation honestly believed though on insufficient grounds: Derry v. Peek (1889) 14 AC 337 .

3. This qualifies and in a most material manner, as pointed out by Lindley, L.J., his earlier statement that fraud is proved when it is shown that a false representation has been made knowingly or without belief in its truth: Angus v. Clifford (1891) 2 Ch 449. Indeed, the two statements should be read in close proximity, if it is desired to comprehend the full effect of Lord Herschell's decision. The effect in Derry v. Peek (1889) 14 AC 337 has been to establish incontrovertibly that there is a vital difference between negligent and fraudulent misrepresentation, and as Lord Herschell forcibly observes, mischief is likely to result from blurring the distinction between carelessness and fraud (p. 376), I cannot do better than quote Bowen, L.J. who says:

I am satisfied that what Derry v. Peek (1889) 14 AC 337 did was to decide that there was no legal duty cast upon persons in such cases to take reasonable care in forming their belief, that is to say, that negligence in forming their belief need not give riae in such cases to a cause of action: Angus v. Clifford (1891) 2 Ch 449 .

4. The question in each case is, does the proof offered establish fraud or carelessness? If it is fraud, it is actionable; but if it is not fraud, but merely carelessness, it is not. Speaking of the prospectus in the case before his Lordship, Lindley, L.J. makes these observations, which I think are very pertinent to the case in hand:

The conclusion at which I have arrived from their evidence is this, that they (the Directors) really did not put the statement complained of into the prospectus with the idea that it was likely to mislead; it was a blundering statement and their attention was never specifically called to it. It was not that they shut their eyes and did not care whether it was true or false; but they did not see the effect of what they were saying, or the construction which would be put upon it when these words 'for the Directors' were passed by them: Angus v. Clifford (1891) 2 Ch 449 .

5. 'Some recklessness to truth, that is to say, some indifference to truth' may amount to dishonesty [Angus v. Clifford (1891) 2 Ch 449 , but in my opinion the evidence here falls far short of establishing this, for, it must be remembered that especially in an action of this sort, the plaintiffs cannot rely upon the defects in the defendants' evidence:

The burden of proof is on the plaintiff, he charges the defendant with fraud and he must prove it, the burden does not lie on the defendant of proving that he made the statement honestly: Per Cotton, L.J. in Glasier v. Rolls (1889) 42 Ch D 436 .

6. Turning to the facts, I think the answers given by Mirza Hasham Razai (the defendants' manager) in his cross-examination represent the essence of the transaction. That is to say, for the successful working of a hire-purchase transaction, there must be a bona fide sale and an honest hirer. And what is the test of honesty? His capacity to make the initial deposit and make further payments in due course. It seems to me that as the defendants were permitted to credit a third of the price, and the plaintiffs were to be responsible for the remaining two-thirds, only the former honestly believed, though perhaps negligently, that they were justified in taking for the sums payable to themselves, promissory notes instead of insisting on payment in cash or by cheque. For, I wish to repeat, the specific case of explicit oral arrangement having gone, the question is merely one of inference. Now, with these observations let me examine the three transactions.

7. As regards the first, I must own, to some surprise, that it was seriously made the subject of any controversy at all. There were several matters which obscured the position: first, the defendants' firm belonged to an absentee proprietor, and secondly, the suit was brought long after the dates of the transactions and the closing of the firm itself. The accounts of that firm were produced and although they were neither satisfactory nor clear, there is no gainsaying the fact that they were honestly kept. It was left to us in the appeal to discover that in respect of this transaction, the plaintiffs' charge in regard to She one-third deposit is unfounded. A hundi was taken from the customer, which was immediately discounted and this was tantamount to a cash receipt. I must hold that the plaintiffs' case to this extent fails.

8. In regard to the second transaction, the matter can be disposed of on one short ground. The defendants' books disclose that they allowed a substantial rebate to the customer. This amounts to a clear fraud under the decisions (no blame of course attaches to the partners who were absentee proprietors), for the contract was upon the basis that the price entered in the proposal form was to be the net price. Let me take an example. Supposing the price of the car to be Rs. 600, the amount which the plaintiffs were to pay would be Rs. 400. If the dealers allowed a discount of Rs. 150, the true price would then be Rs. 450 and the two-thirds which the plaintiffs would have to pay would be Rs. 300. But if on the basis of the price being Rs. 600 a sum of Rs. 400 was collected from the plaintiffs, there can be no doubt that the representation would be fraudulent, which would make the dealers liable for deceit. It is upon this ground that I agree with my learned brother's conclusion that the plaintiffs must succeed in this transaction.

9. In respect of the third also, I agree that the defendants are liable but upon the following ground. There can be no doubt that a promissory note was taken from Velu Mudaliar, the customer. But the. question is, did the defendants' manager believe he had a reasonable prospect of realizing the money due on the note? The answer must upon the evidence be decidedly in the negative. On the back of the proposal paper there are certain entries under the heading 'Reference Form' to be signed by the dealers and the following questions and answers are here relevant:

Column 5: Q. Has the dealer satisfiedhimself as to theapplicant's responsibilityand integrity?A. Yes.

10. Against Column 6 'Give reasons' was made the endorsement 'Personal knowledge'. I must also mention that there is a column relating to 'Guarantor' and the name of one Dhanapal Chetty was inserted. The evidence in the case shows that this Velu Mudaliar was a motor driver, who is alleged to have later blossomed into a bus owner and an improbable story is told that he suddenly and somewhat mysteriously came into some property. The representation that he was personally known to Mirza Hasham Razai, who on behalf of the defendants' firm affixed his signature to the Reference Form, has been shown to be substantially untrue. It is noteworthy that this witness admits that he made no inquiries regarding Dhanapal Chetty, although it must be mentioned that in the Reference Form no particulars are called for in respect of the Guarantor. Nor is this all; Razai was constrained to admit that there was no demand upon Velu Mudaliar for the payment of the amount due on the note, nor were any steps taken to enforce it. Indeed, the promissory note which admittedly was taken was not even forthcoming. From these facts the inference seems to be clear that it was not seriously believed that the promissory note was going to be realized, in other words the taking of the note amounts practically to a waiver of a third of the price. On this ground I hold that the defendants are liable in respect of the third transaction.

11. As regards the measure of damages the principle to be adopted is that laid down in the recent decision of the Judicial Committee in United Motor Finance Co. v. Addison Co., Ltd. . The case is referred to the Official Referee for the ascertainment of the damages in respect of the second and the third contracts. The appeal is accordingly allowed to the extent indicated above. There will be no order as to costs on the Original Side; but in the appeal the appellants will get their full costs.

Cornish, J.

12. I have come to the same conclusion as my learned brother. I think that the suit was wrongly dismissed upon the first issue. Proof of the terms on which the plaintiffs and defendants were transacting business did not depend upon the alleged interview asserted by Mrs. Palmer, denied by Mr. Ramalingam, and found by the learned Judge not to have taken place. There is ample proof of the terms to be found in the documents as well as in the evidence of the actual transactions which are the subject of this suit. I take as typical the relevant documents of the first of the questioned transactions. (His Lordship after stating in detail the facts and discussing the evidence of the witnesses proceeded.) I think it clear upon this evidence that the terms upon which the plaintiff company was to do business with the defendants were that the hirer was to make a payment, by cash or cheque, of not less than one-third of the price of car, plus the insurance, plus stamp charge for the agreement, and that the dealer had, before referring a proposal to plaintiffs, to satisfy himself by proper inquiry that the hirer was a person who would carry out the conditions of the hire-purchase. It is clear that in the three instances in question the defendants did not adhere to these terms. It becomes necessary therefore to decide the question, which the learned trial Judge left undecided, whether upon the evidence the plaintiffs have established their ease of fraud against the defendants. The allegations in the plaint are that defendants falsely reported in the three specified instances that the hirer had paid by cheque or cash the amount of the initial deposit, insurance premium and stamp, and that the hirers were persons who might be safely trusted with the vehicles to pay the instalments regularly and otherwise to fulfil the conditions of the hire purchase agreements; and that the price of the vehicle reported by the defendants was the actual net price.

13. The statement in each of the three proposal forms that the hirer had sent a cheque for the deposit amount was untrue. The man Ratnam had given a hundi to the defendants; the other two, who each took an Erskine motor, bus priced at Rs. 4,400, are said to have given a promissory note. The actual writing of the untrue statement was by the hirers; but there may be a representation by conduct, and in forwarding to the plaintiffs these proposal forms, which the defendants knew to contain this material untruth, the defendants wore making a false representation. There is no doubt that the defendants knew that the statements of the hirers that a cheque was sent were untrue. The hirers were introduced by the defendants, the reference form at the back of the proposal form was filled up by them, and the particulars of the 'first payment' stated in the schedule to the reference form could not have been filled in by defendants without seeing how much had been put down as the amount of the deposit paid by cheque in the proposed form. But to establish the action: able tort of fraud or deceit, the plaintiffs have to prove that defendants have made to the plaintiff a wilfully false representation of a fact with the intent that the plaintiffs should act on that representation, and that the plaintiffs having been induced to act upon it have suffered loss. Lord Herschell has said in Derry v. Peek (1889) 14 AC 337 that 'to prevent a false statement from being fraudulent, there must always be an honest belief in its truth', and he added 'one who knowingly alleges that which is false has obviously no such honest belief'. The burden of proof that a false statement was knowingly made by a defendant lies on the plaintiff. If a defendant has formed no belief whether the statement was true or false, and made it recklessly without learning whether it was true or false, an action will lie against him; but not so if he carelessly made the statement without appreciating the importance and significance of the words used, unless indifference to their truth is proved: see Glasier v. Rolls (1889) 42 Ch D 436 and Angus v. Clifford (1891) 2 Ch 449.

14. The evidence bearing on the plaintiffs' allegations of fraud must be considered in the light of these doctrines. I take Ratnam's transaction, the first in order of date. In their particulars the defendants have stated that the arrangement between them and Ratnam was that Ratnam should give hundis for Rs. 700 to be negotiated by defendants, and that this arrangement was known to the plaintiffs' agent. The plaintiffs' agent, as he is called, a man named Ponting, was examined oh commission on behalf of the defendants, and not a question was put to him for the purpose of substantiating this allegation. The proper inference, I think, is that it is untrue that plaintiffs had any knowledge of the arrangement made by defendants with Ratnam. The defendants' account with Ratnam shows that on the 23rd Ratnam is credited with Rs. 51 'by cash for 3 per cent. commission for finance' which was not, of course, a cash payment made by him but the amount of commission credited to the plaintiff company, and a cash payment of Rs. 6-12-0, and that on the 24th, the defendants negotiated a hundi for Rs. 700 debiting Ratnam with a sum of Rs. 10-11-0 for the discounting. It also appears that this hundi was subsequently dishonoured. The representation that Ratnam had given a cheque for Rs. 706 to cover deposit, insurance premium and stamp charge was not accurate. He had paid only Rs. 6.12-0 in cash and had given a hundi for Rs. 700 to secure the balance. But though not strictly true, I think that a case of fraud has not been made out on this transaction. The defendants got cash for the amount of the hundi, which represented a payment. I do not think that because defendants got somebody else's money on the hundi, they must be regarded as having practised a deceit.

15. I turn now to the other transactions of Velu and Mohanarajulu, which in my opinion stand on a different footing. In their particulars the defendants state in each case that with the knowledge of the plaintiffs' agent the arrangement was that the plaintiffs should pay Rs. 2,597-4-0 in the one case and Rs. 2,594-4.0 in the other towards the agreed price of the motor-bus, viz. RS. 4,400, and that defendants were to recover the balance from the hirers. Velu and Mohanarajulu have given evidence. They both describe an interview with the plaintiffs' man Ponting in which they explained to him their impecuniosity and inability to pay for the bus which each of them wanted. Their evidence is most vague on this point, but the inference which is expected to be drawn from it apparently is that Ponting acquiesced in the arrangements which the defendants made with them and. which have resulted in each of them obtaining a bus for nothing. But not a single question was put to Ponting by defendants' counsel, or to Razu, who was present at the interviews according to Velu and Mohanarajulu, to confirm their story of the interview or of plaintiffs' knowledge of the arrangement. I do not believe that any such interview with Ponting took place or that the arrangement made between defendants and Velu and Mohanarajulu was with the knowledge of the plaintiffs. Razu has said that promissory notes were taken from these two men for Rs. 1,143 and Rs. 1,812 respectively. These notes have not been produced. It is not pretended that they have been paid or that any attempt was made by the defendants to recover the money due on these notes. The representation made in the proposal forms by these two men that they had given cheques for the respective deposit amounts was false to the knowledge of the defendants. The defendants have attempted to justify what they did on the ground of an arrangement made with the knowledge and implied consent of the plaintiffs' agent Ponting. They have entirely failed to establish that ground, and I think that the presumption is this defendants did not have, and could not have had, any bona fide belief that the false representation was true. In my opinion these misrepresentations amounted to deceit. There is no doubt that they were made to the plaintiffs to induce the plaintiffs to act upon them and that as a consequence the plaintiffs have suffered damage.

16. In my judgment, therefore, the plaintiffs' appeal should be allowed and their suit should be decreed as regards the transactions with Velu and Mohanarajulu. The damages to which they are entitled is the measure of what they have lost by entering into the transactions: see United Motor Finance Co. v. Addison Co., Ltd. . In the result, I agree with the order proposed by my brother.