pages.gif

Contract – Sale of chattel – Passing of property – Owner assigning chattel to bank as security for loan – Bank seizing chattel from bona fide purchaser upon owner’s default in repayment of loan – Whether seizure wrongful - Agricultural Development Bank Act 1965 (Act 286) s 13(4).

Statute - Repeal - Common law right - Onus on person relying on statute repealing common law right to come strictly within statute.

The appellant bank granted a loan to its customer for the purchase of farming equipment. By a deed of assignment, the customer assigned the equipment to the bank as security for the repayment of the loan and interest by instalments within two years. However the equipment remained insured and registered in the name of the customer. Upon default the bank, in the exercise of its right under the assignment, seized the equipment, then in the plaintiff’s possession, well after the repayment period and sold it. The plaintiff sued the defendant in the High Court contending that the assignment had lapsed and that he was a bona fide purchaser without notice. In its defence the bank argued that under s 13(4) of the Agricultural Development Bank Act 1965 (Act 286) it was entitled to seize the equipment even if the plaintiff was a bona fide purchaser for value without notice. The bank’s contention that repayment of the loan had been rescheduled was not proved and the trial judge concluded that the agreement lapsed after the two-year repayment period. Judgment was therefore given for the plaintiff for a declaration of title, recovery of the equipment and damages.

Held, Forster JA dissenting: (1) The bank’s right of seizure of the equipment under the deed of assignment could be barred by delay. The alleged waiver or variation of the terms of the assignment ought to have been documented in a fresh agreement as an omission to do so might have led to the loss of the assignee’s rights under the original assignment. In result the balance of the loan and the legal position regarding default were left to conjecture. In such situation the bona fide purchaser could not be said to have had notice of any interest in the equipment.

(2) Where a statute intended to take away protected rights under common law, in this case the rights of a bona fide purchaser for value without notice, the person relying on the provisions of such statute ought to establish his case strictly under that statute. The bank, relying on section 13(4) of Act 286, ought to show that there was a deed of assignment that created the charge and that the assignor had failed to repay the loan. Apart from the bare statement that the assignor had defaulted, the bank failed to establish its case. Besides the equipment remained insured and registered in the name of the customer only and the plaintiff was entitled to assume that it was unencumbered. The plaintiff was entitled to the equipment as he was a bona fide purchaser for value without notice of the charge.

Cases referred to:

Kugblenu v Republic [1969] CC 160, CA.

Williams v Moss’ Empires Limited [1915] 3 KB 242, 84 LJKB 1767, 113 LT 560, 31 TLR 463.

APPEAL against decision of the High Court, Tamale.

Saka (Mrs) for the appellants.

Mumuni for the respondent.

AMPIAH JSC. This is an appeal from the decision of the High Court, Tamale. On 8 May 1986 the plaintiff took action against the defendant claiming:

“(a) Declaration of title to Massey-Ferguson tractor with registration number ARA 8546 together with its plough, trailer and harrow.

(b) Recovery of possession of the said tractor, plough, harrow and trailer.

(c) A declaration that the seizure of the said tractor, plough, harrow and trailer by the defendants on 20 January 1986 is wrongful.

(d) General and special damages for detinue.

(e) An order of perpetual injunction restraining the defendants either by their assigns, agents and or servants or whomsoever otherwise from interfering with the ownership and possession of plaintiff’s tractor No ARA 8546.”

The defendant resisted the claim. On 16 September 1988 judgment was given for the plaintiff. He was awarded a total of ¢2,175,000 damages, inclusive of costs. Against this decision the defendant has appealed.

The defendant (hereinafter referred to simply as “the bank”) filed a number of grounds in this appeal. After hearing both counsel in the appeal, it became obvious however, that the success or otherwise of the appeal depended upon the interpretation of section 13(4) of the Agricultural Development Bank Act 1965 (Act 286) as amended. This section provides:

“13(4) Notwithstanding anything contained in any other law for the time being in force, any charge created on any property to secure the repayment of a loan granted by the bank, or to secure the performance of the stipulations of any bond executed in favour of the bank, shall be enforceable against such property in the hands of any person to whom it may have been transferred; including the person who has acquired the property for consideration and without notice of the charge.”

There cannot be any dispute that the transaction culminating in the execution of exhibit 1, the assignment, created a charge on the tractor and its accessories procured by Orlando Alhassan Yakubu, trading under the business name of Orlando Alhassan Yakubu and Co, within the meaning of section 13(4) of Act 286. The judge also found quite correctly, in my view, that the plaintiff was a purchaser for value without notice of the charge.

On the face of these findings if it was found that exhibit 1 (the assignment) was still subsisting, the plaintiff could not claim any title to the tractor and its accessories.

It has been contended in this appeal by the plaintiff that the assignment, exh 1, creating the charge had lapsed and that in the circumstances he was not affected by the statutory provisions of section 13(4) of Act 286 and that consequently, as a bona fide purchaser for value without notice, he was entitled to the tractor and its accessories at the time they were seized.

To appreciate the plaintiff’s point, it would be necessary to state briefly his case. According to him, he had purchased the tractor and its accessories from one Orlando Alhassan Yakubu for ¢640,000 some time in August 1984. He said, on 20 January 1986 while this tractor and its accessories were in his possession, the bank seized and sold them on the ground that Orlando Alhassan Yakubu and Co had purchased the items with a loan of ¢450,000 granted it by the bank and that there was an agreement whereby the items had been assigned to the bank as security for the repayment of the loan and interests thereon. The bank contended further that since Orlando Alhassan Yakubu had defaulted in the repayment of the loan and interest, the bank had exercised its rights under the agreement to seize and sell the items and that although the plaintiff might be a purchaser for value without notice of the charge, under section 13(4) of Act 286, his (the plaintiff’s) status as such could not avail him.

The most important question then is: was the assignment, exhibit 1, still operative at the time the items were seized? It had been submitted by counsel for the bank that as long as Orlando Alhassan Yakubu’s indebtedness to it remained unsettled, the items remained “charged” and that no purchaser, be he a purchaser for value without notice or not, could have any title in the items. Counsel seemed to be saying that once an assignment always an assignment.

I do not seem to share this view. The repayment of the loan together with the accrued interests were to be effected within 2 years and if not repaid within this period, the bank was entitled to exercise its rights under the assignment. Although I do not agree with the trial judge that the agreement came to an end after the two years, I think the assignee (the bank) was entitled then to take steps to enforce the terms of the assignment and this was to be done within a reasonable time after the date for the repayment had lapsed. The exercise of any of the rights under the assignment may be barred by time. Similarly, I think any waiver or variations in the terms under the assignment may have to be documented in a fresh agreement (assignment) as failure to do so may lead to the loss of the assignee’s rights under the original assignment.

By the terms of the assignment, exhibit 1, the bank was to seize and sell the tractor together with its accessories whenever there was failure of the assignor to repay the loan together with the interest accrued by April 1984. In paragraphs 5 and 7 of the statement of defence filed on 16 May 1986 the bank averred:

“5. The defendants aver further that Orlando Alhassan Yakubu and Co failed to honour their obligations under the said deed of assignment despite repeated demands made on them.

7. The defendants say further that in 1985 the said tractor No ARA 8546 was seized by the defendants but Messrs Orlando A Yakubu and Co negotiated for rescheduling of the credit facility extended to them, and the defendants granted the request and the said tractor was released.”

On 5 August 1988 the bank filed a “Notice of Amendment” with a view to withdrawing the whole of para 7 of the statement of defence. There is no evidence of any leave having been granted for the amendment and, even if there was such leave, no amended statement of defence has been filed. By the rules of court therefore, the statement of defence filed on 16 May 1986 remained unamended and became the defence upon which the bank depended.

The plaintiff led evidence on this issue and the bank was also challenged on that issue. It is therefore undeniable that the bank had exercised its right of seizure under the deed of assignment and that that assignment had lapsed. There is no evidence that there was any subsequent agreement in writing, rescheduling repayment of Orlando A Yakubu’s indebtedness to the bank and what the terms were. What the balance was and what should happen in the event of a subsequent default remained matters of conjecture.

It cannot be expected that a bona fide purchaser for value without notice would be bound by an oral assignment whose conditions remained unknown to anybody.

Further, it is my considered opinion that where a statute intends to take away a person’s protected rights under common law (in this case a bona fide purchaser for value without notice), the one relying on the provisions of such statute must strictly prove that the one has come under that statute.

The bank, relying on section 13(4) of Act 286, must show that there is a deed of assignment which created the charge. It must show that the assignor has failed to repay the loan. This it can establish by producing evidence of the indebtedness, how much remains unpaid and what demands it has made to recover the amount. Woefully the bank in the instant case failed to establish any of these. There was no evidence of any fresh assignment apart from the statement contained

in para 7 of the statement of defence. There was no evidence of how much Orlando A Yakubu owed upon which the tractor was seized. There was no evidence of any demands made on Orlando A Yakubu and there was no evidence as to how much the tractor and its accessories were sold for. The only evidence proffered by the bank was on exh 1 (the old assignment) and or the bare statement that Orlando A Yakubu owed the bank.

In my opinion this was not sufficient. The facts which the bank failed to establish were all capable of proof by documents. Since the plaintiff had challenged the bank’s right to seize and sell the items, there was a duty on the bank to establish the indebtedness of Orlando Alhassan Yakubu even if the old assignment, exh 1, still subsisted.

It is provided in the assignment, exh 1, that:

“The bank and the assignor further agree that if the bank seizes or takes possession of the tractor with implements and trailer in pursuance of these presents, the bank may, unless the whole of the balance together with interest thereon of the said loan then outstanding is sooner paid, sell the tractor with implements and trailer and retain the proceeds of the sale or so much thereof as may be equal to the amount of the loan together with interest thereon outstanding together with the expenses of the seizure or taking possession and sale.”

As stated previously, the indebtedness of Orlando A Yakubu which alone could have given rise to a seizure and sale has not been established. It is further provided under exhibit 1 that on the completion of repayment of the whole loan and interest the property shall cease to be the property of the bank and shall revert to the assignor.

The properties were insured and registered in the name only of Orlando A Yakubu. In the absence of any evidence of a valid assignment and Orlando A Yakubu’s indebtedness, the plaintiff was entitled to assume that the property belonged to Orlando A Yakubu and was not subject to any charge. The plaintiff as a purchaser for value without notice was entitled to the items.

The seizure and sale of the items were therefore wrongful and the plaintiff was entitled to his claim. I would accordingly dismiss the appeal and enter judgment for the plaintiff on all his claims.

ESSIEM JA. I agree that the appeal fails and should be dismissed.

FORSTER JA. I have had the benefit of reading the majority opinion just delivered by the president, and from which I dissent. On 15 April 1983, the Agricultural Development Bank, (hereinafter called the defendants), granted a loan of ¢450,000 at 8.5% interest to Orlando A Yakubu & Company (hereinafter called “the assignors”) for the purchase of a tractor and trailer and implements (hereinafter called “the machinery”). The company was engaged in agriculture.

Pursuant to the said loan, the parties executed a deed of assignment whereby the machinery was assigned to the defendants as security for the repayment of the loan and interest thereon. The deed of assignment was tendered in evidence as exhibit 1. The tractor was registered as No ARA 8546 and insured in the name of Orlando Yakubu & Co. Under the terms of the assignment the repayment was to be made by instalments commencing from April 1983 and completing on 15 April 1984.

The assignor, by April 1984 had failed to make any repayment of the loan. The defendants, exercising their rights under exhibit 1 seized the machinery but released them to the assignor upon extended terms of repayment.

On 15/8/84 the assignor sold the machinery to the plaintiff for ¢640,000 at a time when the assignor had not made any repayment of the loan to the defendants, as agreed in exhibit 1. On 20/1/86 the defendants seized the machinery from the possession of the plaintiff and subsequently sold them. The plaintiff therefore commenced action at the High Court, Tamale, claiming:

“The seizure was justified in terms of the assignment and that under section 13(4) of the Agricultural Development Bank Act 1965 (Act 286) they could exercise their right of seizure under the terms of the Deed of Assignment against an innocent purchaser for value without notice of the charge.”

On 16/9/88, Benin J entered judgment for the plaintiff for ¢2,175,000 inclusive of costs. It is from that judgment that the defendant now appeals to this court.

Mrs Saka, counsel for the defendants argued with brevity the grounds of appeal. The submissions in terms of the grounds may be summed up thus:

(a) that the judge erred in holding that April 1984 was the expiring date of the deed of assignment since April 1983 - April 1984 was rather the period of repayment of the loan.

(b) that by April 1984, the loan was still unpaid and the machinery therefore continued as security for the repayment of the loan.

(c) That section 13(4) of Act 286 protected the bank and thus the judge erred in holding that the assignment was no longer valid and therefore s 13(4) ceased to protect the bank.

(a) the bank could not have enforced the assignment any time after 15 April 1984, since there was no charge then in force.

(b) that s 13(4) of Act 286 could not apply because at the time the bank purported to impound the tractor from the plaintiff the deed of assignment had long since expired and the charge therefore was not enforceable.

(1) Whether the deed of assignment remained valid and enforceable after 15 April 1984 and,

(2) If so, whether the defendants could enforce their right of seizure against an innocent purchaser for value without notice, to whom the undischarged assignor had purported to transfer the machinery.

In his judgment the trial judge considered the provisions of section 13(4) of the Agricultural Development Bank Act 1965 (Act 286) and rightly concluded that:

“For the purpose of creating a charge within the meaning of s 13(4), the legislature did not intend it to be exclusionary to an assignment, pledge, hypothecation and mortgage. What matters is that the property must be secured for loan or advance… That being so, it is clear that as long as exhibit 1 is valid, any disposition made thereunder without the defendants’ knowledge and consent will not pass a good title.”

Having so held, the trial judge next concluded that exhibit 1 being for a year’s duration, i.e. from April 1983 to April 1984, the plaintiff acquired an unimpeachable title when he purchased the machinery from the undischarged assignor on 15 August 1984. In his view, s 13(4) only protected the defendants, the assignees, during the period when the charge was subsisting.

I think the trial judge erred in his reasoning for holding that the charge lapsed or expired on 15 August 1984. In exhibit 1 the assignor undertook to repay the loan from “the month of April 1983 to April 1984” in equal instalments.

But that was not all. In consideration of the facility granted to the assignor, he agreed, inter alia, “not to make any default in the payment of the said instalment” (clause 4b); and he shall not “without the previous written consent of the bank exercise the power of transfer of the charge or otherwise dispose of the said tractor with implements and trailer until the repayment had been fully made”.

“… not [to] seize or take possession of the said tractor with implements and trailer for any other than the following causes:

(a) if the assignor makes default in payment of the said loan together with interest thereon or any part thereof.”

The view I hold of the assignment is that the fundamental term required the assignor to commence repayment of the loan from April 1983 and to complete repayment by April 1984. The assignor further agreed not to dispose of or part with the machinery until he had completed repayment of the loan. The defendants also reserved the right to seize the machinery if the assignor “defaults in repayment of the said loan together with interest thereon or any part thereof”.

The assignment, contrary to the judge’s view, remained subsisting and valid until the dominant obligation of repayment of the loan had been discharged by the assignor. It is only then that: “the tractor with implements and trailer shall cease to be the property of the bank and ... revert to the assignor”, as provided in paragraph 5(ii) of the deed of assignment, exhibit 1.

Contrary to the view of the trial judge, April 1984 did not sound the death knell of the assignment. It rather signalled the dawn of the exercise of the defendants’ power of seizure, if the assignor had by that date defaulted.

The undisputed fact was that, by 15 April 1984 the assignor had defaulted in repayment of the loan, and in breach of his undertaking or obligation under the terms of the assignment. The defendants’ power of seizure therefore commenced and continued in force from that date. The deed of assignment did not therefore expire or lapse on 15 April 1984.

“At any rate nearly two years after exhibit 1 had expired was too long a time for the defendants to move against an innocent party. Since defendants chose not to renew or extend the duration of the assignment an innocent third party could obtain a valid title from their customer”. (Emphasis mine.)

In the light of my view that exhibit 1 remained valid and subsisting until the repayment was completed, the observation of the trial judge was completely erroneous and invalid. Whether or not the defendants extended the period of the repayment was without prejudice to the dominant obligation of the assignor to complete the repayment of the loan as agreed between the parties.

The deciding question was whether the assignor had discharged his obligation of repayment of the loan before the purported sale or transfer of the machinery to the plaintiff. He had not, and had therefore no title in the property which he could have in law transferred to the plaintiff. The assignment did not provide any period within which the defendants’ power of seizure could be exercised after 15 April when the assignor defaulted and thereby that power came into fruition.

The principle that an innocent purchaser without notice of any encumbrance or defect in a transferor’s title acquires good title to a res vendeta is well settled and the instant plaintiff could have acquired good title but for the abrogation of that rule by section 13(4) of the Agricultural Development Bank Act 1965 (Act 286). Under the provision

“Notwithstanding anything contained in any other law for the time being in force, any charge created on any property to secure the repayment of a loan granted by the bank, or to secure the performance of the stipulations of any bond executed in favour of the bank, shall be enforceable against such property in the hands of any person to whom it may have been transferred; including the person who has acquired the property for consideration and without notice of the charge.”

I find, as did the trial judge, that “as long as exhibit 1 is valid, any disposition made thereunder without the defendants’ knowledge and consent will not pass a good title”.

The defendants in their statement of defence averred in paragraph 7 that in 1985 that they seized the tractor from Messrs Orlando A Yakubu & Co who renegotiated for rescheduling of the credit facility and the machinery to be released to them. The defendants subsequently applied to amend their statement of defence by deletion of paragraph 7 and this was granted. Thus at the trial the alleged seizure and negotiated extension for repayment was not in issue and no evidence was led by the defendants on that issue.

In the course of the trial however it was the plaintiff who in cross-examination suggested to DW1, the defendants’ representative Victor Kojo Alotey, that when the defendants traced the tractor to the plaintiff the latter said he had purchased it from Orlando Yakubu and that when they contacted Orlando Yakubu he confirmed the sale to the plaintiff. Counsel further suggested that the defendants then accepted Orlando’s proposals for liquidating the debt and released the tractor to the plaintiff. The witness denied these suggestions.

It was significant to note that the plaintiff himself did not raise nor canvass these allegations in his evidence. Thus, the only evidence on the issue at the trial was the denial of the witness and the plaintiff cannot rely on that issue - see Kugblenu v Republic [1969] CC 160, CA.

There was thus no extrinsic evidence seeking to vary a fundamental term of the assignment. Even assuming that there was evidence that the assignor renegotiated for extension of the time for repayment, such evidence would not offend the parol evidence rule as now enacted in section 177 of the Evidence Decree 1975 (NRCD 323). To be inadmissible as extrinsic evidence it must be contradictory to the terms of the writing and must in addition be “evidence of any prior declaration of intention, of any prior agreement or of a contemporaneous oral agreement or declaration of intention”.

Thus, to be inadmissible under our law, the extrinsic evidence must not only contradict the terms of the written agreement, but it must also be evidence of a “prior agreement or of a contemporaneous oral agreement”. In the result to be inadmissible the extrinsic parol evidence in issue must have been made prior in time to the written agreement or contemporaneously therewith.

In the instant case therefore the extrinsic evidence of the subsequent extension of the period of repayment of the loan was not inadmissible because, firstly, it did not in its terms seek to contradict the intentions of the parties that the loan was to be repaid, and, secondly, it was not made prior to or contemporaneously with the terms of the written agreement i.e. the deed of assignment, as provided by section 177 of NRCD 323. If the rule, as enacted in section 177 is seen as a change or departure from the common law version, our rule “rather than leaving the law of Ghana dependent on the common law of evidence, or perhaps of contract, in this area section 177 formulates a simplified and modern approach to the problems addressed by the parol evidence rule”.

This, by the Commentary on the Evidence Decree, para 2 of page 130, is the essence of our rule as set forth in section 177. We have in this area of our law ceased to be tied to the apron strings of the English common law. No longer do we have to open our umbrellas when it rains in Oxford Street.

I do not also accept the proposition that the subsequent extension of the period of repayment amounted to a variation of the assignment. In Williams v Moss’ Empires Limited [1915] 3 KB 242 at 247 Sankey J explained that “the result of varying the terms of an existing contract is to produce, not the original contract with a variation, but a new and different contract”.

I do not think that if the defendants rescheduled the repayment in favour of Orlando, the parties intended to rescind or abrogate the assignment and substitute therefor “a new and different contract”.

For the above reasons, it is my view that at the time of the seizure of the machinery from the plaintiff the charge created by the assignment was still subsisting and valid. By reason therefore of the provisions of section 13(4) of the Agricultural Development Bank Act 1965 (Act 286) the purported disposition of the machinery by Orlando without the consent of the defendants did not pass on a valid title to the plaintiff.

In the circumstances, the seizure of the property from the plaintiff by the defendants was justified by law. The trial judge was therefore wrong in entering judgment for the plaintiff.

I would therefore allow the defendants’ appeal and set aside the judgment of the High Court, Tamale.

Cases referred to:

Kizito Beyuo, Legal Practitioner.