Cars, Hire-Purchase, Sale and the Passing of Property

The decision of the Court of Appeal in Kulkarni v Manor Credit (Davenham) Ltd [2010] EWCA Civ 69, dealt with the issue of the passing of property under s 18, r 5 of the Sale of Goods Act 1979, in order to decide whether the purchaser, who had been the subject of fraud, could avail himself of s 27 of the Hire-Purchase Act 1964, which, as the Court points out [para 1], constitutes an exception to the nemo dat rule.

Facts

Dr K wished to buy a new Mercedes Benz car.  He ordered the car through GFM Ltd, who indicated they could obtain such a car at a discount.  The purchase price was approximately £39,000, and the car was to be delivered in March, 2008.

MC Ltd, which was “a finance company”, bought such a car from Mercedes Benz.  The purchase price was approximately £40, 225.00.  The date the car was to be delivered was 11th March, 2008, but it was to be delivered to GFM Ltd: not MC Ltd.  Under the invoice from Mercedes Benz, dated 11th March, 2008, the car had a registration number, plus a date of registration (10th March, 2008).

On 11th March, Dr K’s insurers sent him and GFM Ltd an email effecting a cover note for the car.

Two days later, “a Master Assignment agreement” between MC Ltd and GFM Ltd was effected, pursuant to which GFM Ltd would sub-lease vehicles supplied to it, by MC Ltd (“on hire or hire purchase terms”) [para 5].  The next day, a three year hire-purchase agreement, between MC Ltd and GFM Ltd, concerning the Mercedes Benz car, was signed.  This agreement provided that the price of the car was £40, 255.63, with a first instalment of £5,000 upon execution, and with monthly payments to continue until 14th March, 2001.  Clearly, if GFM Ltd were taking the car on hire-purchase terms, they could not sell it to Dr K: they were simply hirers pursuant to a hire-purchase agreement  [see paras 6 and 40 and 42]

Late on 14th March, there was delivery, to Dr K, of the car, by GFM Ltd.  However, the car was delivered minus its number plates.

GFM Ltd’s deception was discovered, and MC Ltd took possession of the Mercedes Benz car on 6th July, 2008, and subsequently sold the car for £24,000.  Dr K sued MC Ltd, in conversion, under English law (spuilzie under Scots law), and, in doing so, relied on s 27 of the Hire-Purchase Act 1964, which required the issue of when “property” in the car had passed to be decided. 

Legislation

Under s 27 of the 1964 Act, it is provided that:

“(1) This section applies where a motor vehicle has been bailed or (in Scotland) hired under a hire-purchase agreement, or has been agreed to be sold under a conditional sale agreement, and, before the property in the vehicle has become vested in the debtor, he disposes of the vehicle to another person.

(2) Where the disposition referred to in subsection (1) above is to a private purchaser, and he is a purchaser of the motor vehicle in good faith without notice of the hire-purchase or conditional sale agreement (the “relevant agreement”) that disposition shall have effect as if the creditor's title to the vehicle has been vested in the debtor immediately before that disposition.”

A ‘“disposition”’ is defined under the 1964 Act as being:
“ … any sale or contract of sale (including a conditional sale agreement), any bailment or (in Scotland) hiring under a hire-purchase agreement and any transfer of the property in goods in pursuance of a provision in that behalf contained in a hire-purchase agreement, and includes any transaction purporting to be a disposition (as so defined) and “dispose of” shall be construed accordingly”.

The importance of this was that for Dr K, to bring his claim within s 27 of the 1964 Act he had to not only be a bona fide “private purchaser … with out notice”, but also that there had been “a ‘disposition”’ by GFM Ltd (as “debtor”) to Dr K, when GFM Ltd was “a debtor”, i.e., “a hirer under its hire-purchase agreement with [MC Ltd]” [see para 13]. 

Hence, the crux of the action was this: if property had passed to Dr K, or there had been a “purported passing of property … when [GFM Ltd] was a hirer of the car from [MC Ltd], then Dr [K] would obtain good title” pursuant to s 27 of the 1964 Act [para 16].  However, “if property had purportedly been transferred to Dr K before that time, … then” Dr K could not avail himself of s 27 of the 1964 Act.  [para 16].

So, was title in the car transferred before the car was delivered, or was the intention that title would transfer when delivered?

Passing of Title – s 18 r 5 of Sale of Goods Act 1979

This required s 18 r 5 of the Sale of Goods Act 1979 (“SOGA”), to be looked at, as the Mercedes Benz car was “an unascertained or future good by description”.  This legislation provides as follows:

“(1) Where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the property in the goods then passes to the buyer; and the assent may be express or implied, and may be given either before or after the appropriation is made.

(2) Where, in pursuance of the contract, the seller delivers the goods to the buyer or to a carrier or other bailee or custodier (whether named by the buyer or not) for the purpose of transmission to the buyer, and does not reserve the right of disposal, he is to be taken to have unconditionally appropriated the goods to the contract.

In relation to s 18, r 5(1), Rix LJ, a most experienced commercial judge, who delivered the leading judgement (with which Wilson LJ and Sir Scott Baker agreed), set out four criteria, as follows:
“ … (i) ‘goods of that [ie the contractual] description’; (ii) ‘in a deliverable state’; (iii) which have been ‘unconditionally appropriated to the contract’ by the seller; (iv) ‘with the assent of the buyer’, which assent may be given either before or after the appropriation.”  [para 21]

As the car complied with the “description”, it was only the second, third and fourth matters which needed to be considered. 

In relation to s 18, r 2, his Lordship said it:
“ … represent[ed] a form of long stop prima facie rule, which is that, save where the seller reserves a right of disposal, delivery to the buyer (or to a carrier or other bailee or custodier for transmission to the buyer) amounts to an unconditional appropriation of the goods.  For these purposes there is no need for there to be any assent by the buyer, the rule presupposes that the goods are in a deliverable state without making that a condition of the intention to transfer property, and the goods are deemed to have been unconditionally appropriated, whether they have been or not.”  [para 22]

Held

The Court of Appeal overturned the trial judge, who had held that Dr K did not come within s 27 of the 1964 Act, as title to the car passed prior to it being delivered, pursuant to s 18, r 5 of SOGA: namely when Dr K had “assented to its appropriation to the contract on learning of the registration number and insuring it, at latest on 11th March, 2008”. [para 10].  The car was, thus, ‘“no longer unascertained goods; they were ascertained goods and they were in a deliverable state”’, pursuant to s 18, r 5 of SOGA.  [quoted in para 10] 

“Deliverable State”

The Court took the contrary view, and held that the car was not “in a deliverable state”, and so title could not have passed at the earlier time (i.e., prior to GFM Ltd’s hire-purchase agreement with MC Ltd) when Dr K learnt what the car’s registration number was and insured it.  This was because the registration plates had, seemingly, not been put on the car when it was delivered to Dr K, and so “Dr [K] would not have been bound to have taken delivery of the car without registration plates attached”, as the car could not be driven if it did not have the plates. [para 25].  Thus, as the number plates had not been attached, at the relevant time, and so the car could not be driven by Dr K, it could not be said to be “in a deliverable state”.  Hence, Dr K was able to show there had been a disposition when GFM Ltd was “a debtor” under its hire-purchase contract with MC Ltd, and not before, and so came within the wording of s 27 of the 1964 Act.  [para 26].

“Assent”

Secondly, the Court of Appeal went on to consider the issue of “assent”, regarding the “appropriation of the goods to the contract”, and held, after a review of the authorities, that, there could not be “assent by Dr K owing to GFM Ltd’s misrepresentation regarding their ability to transfer ownership of the car.  This was because, “if Dr [K]’s insurance of the car” constituted “an assent to [GFM Ltd]’s appropriation”, then “it [could] be said that such an assent was given on the basis of the implied representation and understanding that at the time [GFM Ltd] had the property in the car which it would need to have if it was to transfer at a time when the agreement to sell matured into a sale.” [para 34].  In essence, applying Wilkins v Bromhead and Hutton (1844) 6 M & G 963, 974, per Tindal CJ, there is “‘no assent’” where the assent has “‘been obtained by misrepresentation”’.  [para 34]

Hence, GFM Ltd acted as if they were owners of the car, when in fact and law, they were hirers under a hire-purchase agreement, and had not title to it (contrary to s 12 of the Sale of Goods Act 1979).  [see paras 2, 6, 40 and 42]

The Court went on to say that it needed stronger evidence of intention that property would be transferred before the goods were delivered.  [para 39]

Conclusion

The case provides useful guidance both on s 27 of the Hire-Purchase Act 1964, but, more importantly, on s 18, r 5 of the Sale of Goods Act 1979, as well as other provisions of the 1979 Act, such as s 17, which Rix LJ notes, “in practice” is also “applied to contracts for the sale of unascertained good … once they have become ascertained”.  [para 20]. 

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