Supreme Court of Ireland Decisions

 
THE SUPREME COURT

No. l477

O'Higgins C.J.

Henchy J.

Griffin J.

BETWEEN

UNITED DOMINIONS TRUST (IRELAND) LIMITED

PLAINTIFF

AND SHANNON CARAVANS LIMITED

DEFENDANT

JUDGMENT of GRIFFIN J. delivered on the 18th day of March 1976 [Nem Diss]

The business of Shannon Foods Ltd. was mobile catering. They sold ready-to-eat food from caravans. In 1971 they bought a mobile caravan from an English firm but needed some £3,300 to pay for that caravan and for the cost of fitting it out; they approached the plaintiffs, who are a hire-purchase finance company, to obtain such a sum. The plaintiffs' representative, Mr. Hanley, on learning that Shannon Foods were already the owners of the caravan, pointed out that the plaintiffs could not provide hire-purchase financing for a purchase that had already taken place. However, on his own initiative and without reference to his superiors, he decided to circumvent that difficulty in the following way. He informed Shannon Foods that to obtain a sum of £3,300 from the plaintiffs it would be necessary to have a hire-purchase agreement, to put a "cash price" of £5,000 on the caravan, to provide for a deposit of £1,670, and to have the transaction processed through a dealer in caravans.

The defendants are a company that equips and sells caravans and Mr. Hanley arranged with them that they would become a party to the transaction, and that they would invoice the caravan to the plaintiffs and thus represent to the plaintiffs that the defendants were the owners of this mobile caravan. This was quite false as the owners were Shannon Foods. It was a collusive arrangement between Shannon Foods, the defendants, and Mr. Hanley for the purpose of enabling Shannon Foods to obtain the finance required by them. Mr. Hanley, who was not authorised to accept or reject new business, did not disclose the truth about the ownership of the caravan or the nature of the transaction to those in the plaintiff company who were charged with accepting or rejecting new business and, if he had done so, his superiors would not have authorised or approved of the transaction and the plaintiffs' involvement would never have arisen.

In pursuance of Mr. Hanley's arrangements the defendants invoiced the caravan to the plaintiffs. The price stated on the invoice was £3,330, being a cost price of £5,000 less a deposit of £1,670. This invoice was a false representation in every respect. It falsely conveyed the impression that the defendants were the owners of the caravan, that they were selling it for £5,000, and that they had got a deposit of £1,670 leaving a balance of £3,330. The truth was that at no time had the defendants any ownership in, or possession of, or anything whatever to do with the caravan. They were merely sending this invoice to the plaintiffs at Mr. Hanley's request so that a hire-purchase agreement could be arranged and entered into between the plaintiffs and Shannon Foods.

The executives who dealt with new business on behalf of the plaintiffs, believing the invoice to be genuine, sent a cheque for £3,330 to the defendants in payment of the price of the caravan. The defendants paid over the entire of this sum to Shannon Foods so that there was no gain for the defendants in the transaction. Doubtless they then considered that that was the end of the matter as far as they were concerned. The plaintiffs, believing that the defendants had given them a good title to the caravan, entered into a hire-purchase agreement with Shannon Foods whereby they were to buy the caravan from the plaintiffs by paying 36 monthly instalments of £114.70 and a final payment of £2 under the " option to purchase" clause. Despite the fact that the plaintiffs were unaware that Shannon Foods were already the owners of the caravan, things would probably have worked out to the financial satisfaction of all concerned but for the fact that Shannon Foods went into liquidation after paying 8 monthly instalments amounting to £917.60, leaving a balance due by them for instalments and interest. No further payments were forthcoming from the liquidator, nor was he prepared to deliver the caravan to the plaintiffs on demand by them as he took the stand that the caravan had been purchased by Shannon Foods and was not at any time the subject of a bona fide hire-purchase agreement.

When the plaintiffs ascertained the true position they accepted the liquidator's contention and looked to the defendants to recover their loss; they sued the defendants for the £3,330 paid to the defendants on foot of the invoice for the caravan. The plaintiffs laid the claim in quasi-contract, contending that it was money paid on a consideration that had wholly failed. In the High Court Mr. Justice Hamilton upheld the claim and gave judgment to the plaintiffs for £2,383, being the £3,330 claimed less the £917 obtained by the plaintiffs from Shannon Foods in hire-purchase instalments. From that decision the defendants now appeal to this Court.

The questions which arise for decision on this appeal are (1) whether the knowledge of the plaintiffs' agent, Mr. Hanley, is to be imputed to them and (2), if not, whether there was a total failure of consideration so as to enable the plaintiffs to succeed on the claim as laid in the action.

On the first question counsel for the defendants submitted that, as Mr. Hanley was employed to obtain business for the plaintiffs and in the course of such employment became fully aware of all the facts and circumstances material thereto and of the true nature of the transaction. Mr. Hanley had a duty to communicate such knowledge to his principals who are deemed to have notice thereof as from the time when they would have received such notice if Mr. Hanley had performed his duty and taken such steps to communicate his knowledge as he ought reasonably to have taken; and that, therefore, Mr. Hanley's knowledge must be imputed to the plaintiffs. In my opinion, this submission is not well founded. Whilst it is substantially what is stated as the general proposition in Bowstead on Agency (13th ed., art. 112 at p. 355), the learned author has a proviso that "where an agent is party or privy to the commission of a fraud upon or misfeasance against his principal, his knowledge of such fraud or misfeasance, and of the facts and circumstances connected therewith, is not imputed to the principal." This proviso is therefore, on the facts of this case, applicable.

However, the matter is put beyond doubt by the decision of this Court in Wall v. New Ireland Assurance Co. Ltd. [1965] IR 386 where the circumstances in which the knowledge of an agent is to he imputed to his principal was considered by this Court. In that case Mr. Justice Walsh in delivering the decision of the full Court, said at p.408 of the report:- "In my view the case where an agent is a party or privy to the commission of a fraud or of an act of deceit upon his principal is different from the one where the agent, though being neither a party nor privy to the commission of the fraud, is, nevertheless, aware of it but for the , sake of his own interests does not reveal that situation to his principal. In the latter case the knowledge of the agent when he is under a duty to communicate such knowledge to his principal is deemed to be the knowledge of his principal even though in fact it has not been communicated to him. But in the former case I am of opinion that even when there is a similar duty on the part of the agent the fact that he is a party or privy to the commission of a fraud or misfeasance upon his principal precludes his knowledge from being imputed to his principal because his participation requires the suppression of his knowledge—a circumstance which is a negation of the basis of the general rule that the knowledge of the agent is to be imputed to the principal."

In the present case, not only was Mr. Hanley privy to the commission of an act of deceit (to put it at its lowest) upon his principals but he it was who engineered and arranged it, and so his knowledge cannot be imputed to the plaintiffs for the reason set out by Mr. Justice Walsh in the passage cited.

As to the second question, where a plaintiff has paid money in pursuance of his obligations under a contract and the consideration for which he entered into the contract totally fails, he may bring an action for the return of the money so paid (as money had and received to his use) or he may sue for damages for breach of contract. Where, however, the failure of consideration is not total but merely partial, the plaintiff cannot bring an action for money had and received to his use but is restricted to his action for damages for breach of contract. Therefore, the net question for decision is whether there has been a total failure of consideration in this case.

The contract between the plaintiffs and the defendants was for the sale by the defendants to the plaintiffs of the caravan in question for the sum of £3,330 which was duly paid by the plaintiffs to the defendants. Section 12 of the Sale of Goods Act, 1893, provides that in a contract of sale, unless the circumstances of the contract are such as to show a different intention, there is an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods, and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass. At no time had the defendants any property in or the right to sell this caravan. It was never the intention of Shannon Foods or the defendants that the property in the caravan should pass to the defendants and from the defendants to the plaintiffs, and no property in the goods passed or was capable of passing from the defendants to the plaintiffs.

In these circumstances. can it be said that there was not a total failure of consideration and that the benefit obtained by the plaintiffs from the hire to Shannon Foods prevents the failure from being total?

This question is well covered by authority; the case most frequently cited in relation to failure of consideration in the sale of goods is Rowland v. Divall [1923] 2 KB 500. In that case, the plaintiff bought a motor car from the defendant and used it for several months. It then appeared that the defendant had no title to it as it had been stolen by the person from whom the defendant acquired it. The police took possession of the car from the plaintiff, who then brought an action against the defendant to recover, as money paid on a consideration which had totally failed, the price paid for the car. Lord Justice Atkin said at p.506 of the report: — "It seems to me that in this case there has been a total failure of consideration, that is to say that the buyer has not got any part of that for which he paid the purchase money. He paid the money in order that he might get the property, and he has not got it. It is true that the seller delivered to him the de facto possession, but the seller had not got the right to possession and consequently could not give it to the buyer ... there can be no sale at all of goods which the seller has no right to sell. The whole object of a sale is to transfer property from one person to another ... can it make any difference that the buyer had used the car before he found out that there was a breach of the condition? To my mind it makes no difference at all. The buyer accepted the car on the representation of the seller that he had a right to sell it, and inasmuch as the seller had no such right he is not entitled to say that the buyer has enjoyed a benefit under the contract. In fact the buyer has not received any part of that which he contracted to receive — namely, the property and right to possession — and, that being so, there has been a total failure of consideration."

In the present case, the plaintiffs were purchasing the caravan so as to enable them, as owners, to enter into a hire-purchase agreement with Shannon Foods. As the defendants had no right to sell the caravan, there was a total failure of consideration for they completely failed to give what they contracted to give, i.e., the ownership of the caravan. The fact that an incidental benefit has come to the hands of the plaintiffs under the purported hire-purchase agreement is irrelevant, and the plaintiffs are entitled to recover the purchase money paid to the defendants. Therefore, the plaintiffs would be entitled to recover the entire of the £3,330 paid by them to the defendants. In the High Court the learned trial judge gave judgment for the sum of £2,383, being the sum of £3,330 claimed less the £917 received by them by way of instalments paid by Shannon Foods. This deduction of £917 is not justified as the defendants are not entitled to credit for the sums paid by Shannon Foods under the purported hire-purchase agreement. I would dismiss this appeal and vary the amount of the judgment to £3,330. In doing so, I would point out that this case does not call for any ruling as to the rights of the plaintiffs and Shannon Foods following on the collapse of the purported hire-purchase agreement and after the plaintiffs had been paid £917.60 in instalments on foot of that purported agreement.