Kingsley v Sterling Industrial Securities Ltd
[1966] 2 All ER 414(Judgment by: Sellers LJ)
Between: Kingsley
And: Sterling Industrial Securities Ltd
Judges:
Sellers LJHarman LJ
Winn LJ
Subject References:
Hire-Purchase
Re-financing arrangements
Loan desired by borrower on security of own car
Payment of amount of first deposit by cancellation of indebtedness
Borrower sold car to A Ltd which re-sold it to finance company, which let the car on hire-purchase to borrower
First deposit met by set-off allowed by A Ltd of its amount from price paid to borrower and by finance company deducting amount from price paid to A Ltd
Whether hire-purchase agreement void as unregistered bill of sale
Whether there was actual payment of the amount of the first deposit before entering into the hire-purchase agreement
Whether title would pass notwithstanding illegality
Money borrowed or otherwise "acquired"
Legislative References:
Hire-Purchase and Credit Sale Agreements (Control) Order, 1960 (SI 1960 No 762) - art 1(1), Sch 2, Pt 1, para 3, Pt 2
Case References:
Eastern Distributors v Goldring (Murphy, Third Party) - [1957] 2 All ER 525; [1957] 2 QB 600; [1957] 3 WLR 237; 26 Digest (Repl) 675, 77
Sajan Singh v Sardara Ali - [1960] 1 All ER 269; [1960] AC 167; [1960] 2 WLR 180; 39 Digest (Repl) 597, 1146
Stoneleigh Finance v Phillips - [1965] 1 All ER 513; [1965] 2 QB 537; [1965] 2 WLR 508
Yorkshire Railway Wagon Co v Maclure - (1882), 21 ChD 309; 51 LJCh 857; 47 LT 290; 26 Digest (Repl) 17, 55
Judgment date: 31 March 1966
Judgment by:
Sellers LJ
The defendants, who appeal to this court, are a hire-purchase finance company. They are in close business relationship with A Saxon who carry on business as the Saxon Finance Agency and whose trade is that of financing transactions for customers. They do not hold a stock of motor vehicles for sale. In this-in so far as it relates to transactions on motor vehicles-their trade differs from the ordinary trade of motor dealers who hold a stock of vehicles which they offer for sale and who frequently take a motor vehicle belonging to a customer in part-exchange for a newly acquired vehicle. If hire-purchase terms are desired by the customer, the dealer sells the selected vehicle to a hire-purchase company who hire it out to the customer. Such a transaction has to comply with the Hire-Purchase Acts and in particular requires a minimum deposit against the agreed price. This deposit or initial payment is customarily made to the dealer either by a cash payment or by a credit for a vehicle taken in part-exchange and it is the balance of the agreed purchase price plus the hire-purchase charges which the customer has to pay to the hire-purchase company. In this way the customer provides the deposit. The statutory deposit material to the present case was a minimum of twenty per cent of the price.
There are two other types of transactions in motor vehicles, perhaps less common than those through a motor dealer holding stock for sale. In these two types Saxon are interested. What have been described as "private transactions" arise where an owner, A, of a motor vehicle finds a private buyer, B, who wishes to acquire A.'s car but wishes to pay by instalments by a hire-purchase agreement. Saxon would finance such a transaction by buying the car from A and selling it to the defendants, who would hire it out to B on hire-purchase terms, and provision would be made for at least the minimum statutory deposit to be made by B. In such a case B would acquire possession of a car which was not previously his and the transaction in that respect resembles the ordinary transaction.
The third type, described as "refinancing transactions", arises where A wishes to raise money on his own motor vehicle but wishes at the same time to retain possession of it and make use of it. The present case falls into that category. If the vehicle owner retains possession of the vehicle and raises money on it by a document transferring the ownership of the vehicle as security for a loan, the transaction would have to be in a prescribed form and registered under the Bills of Sale Acts in order to be effective. It is one of the pitfalls which confront parties to "refinancing transactions". So as to avoid evasion of the Bills of Sale Acts the court looks behind the apparent bargain to ascertain what the parties truly intended in their transaction.
In Stoneleigh Finance v Phillips such an investigation took place in a "refinancing transaction". The documents were inappropriate to the transaction and produced, as all the court held, inaccuracies and artificial statements, but the majority of the Court of Appeal upheld them as being a genuine and not a fictitious or sham presentation of the bargain there involved. If parties use documents which are inappropriate to the transaction in hand and involve statements which are inaccurate, the court may rightly be suspicious that the parties are trying to make the transaction appear to be something other than it really is. McNair J took the view in the Stoneleigh case that the documents did not reflect the true transactions but in the present case, no doubt influenced by the majority view in Stoneleigh , the same learned judge has taken the contrary view ([1966] 1 All ER 37 at p 40). I think that must be accepted. We had much argument from the Bar, not suprisingly distinguishing or applying Stoneleigh as it suited the party, but I do not find the comparisons profitable. Stoneleigh is an illustration of how far the court will go in overlooking inconsistencies and inaccuracies in documents in relation to the bargain which they are relied on to establish. The present case has to be looked at on its own facts and on the court's view of them. The detailed facts of this case are carefully found by the learned judge (See [1966] 1 All ER at pp 38-40) and fully stated in the judgment of Winn LJ and I do not restate them.
It appears that, although Mr Dobney of Saxon was far from revealing any exact knowledge of the law, he at least knew of the pitfalls in a "refinancing transaction". When Mr Kingsley, the plaintiff customer, approached him in order to raise as much money as he could by borrowing it on the car's security and not selling it outright, Mr Dobney explained that they were not moneylenders and could not arrange it that way. He explained that Saxon could purchase the vehicle and then sell the vehicle to a finance company (they had the defendants in mind) who would hire it back to the customer and that if he entered into the transaction he would lose the title to the vehicle, he would part with it to Saxon and Saxon in turn would sell it to the hire-purchase company. Once that conversation was accepted, as it was by the learned judge, that threw light on the nature of the transaction and, I think, distinguishes Stoneleigh .
There followed an agreement in writing dated 13 February 1964, by which the customer sold to Saxon his Rover 3-litre coupe at a price of £1,848. On the back of the same form the customer signed a printed form requesting Saxon as owners of the Rover 3-litre coupe to arrange to sell the vehicle to Sterling (the defendant finance-company) on hire-purchase terms for a cash price of £1,850 with their usual charges payable by a first deposit of £600 and by thirty-six monthly instalments of £43 11s8d. That document was dated 14 February 1964, although the evidence was that it was signed on 13 February at the same time as the contract of sale. Clause 4 of the request states that "the hirer [the customer] declares that he has inspected, tried and approved the vehicle", a declaration hardly appropriate to the circumstances, as its implication is that he is taking over a vehicle with which he was previously unfamiliar.
After that the plaintiff customer and Mr Dobney went to the car and there was some "by-play", as the judgment describes it, which was to effect a delivery of the car by the customer to Saxon and a re-delivery by Saxon in anticipation of the hire-purchase arrangement which was in contemplation. As soon as the finance company had agreed to the transaction Saxon sent to the customer a cheque for £1,248, which was the purchase price less £600 which was the amount of the "first deposit" which the request document required and which was agreed when both the customer and Saxon signed it. On 14 February 1964, Saxon sold the Rover car to the defendant finance company for £1,850 as "cash price of goods" and the invoice evidencing the sale showed an initial payment of £600 and a balance due of £1,250. This sum of £1,250 the finance company duly paid to Saxon.
Once it was accepted-as I think on the whole rightly accepted-that there had been a genuine sale to Saxon, their position became similar to that of the motor dealer in the ordinary transaction. Saxon owned the car, the plaintiff customer desired to buy it back on hire-purchase terms; this involved an initial payment or a deposit. Saxon, the dealers, required £600 (which was in excess of the statutory minimum of £370) and this Saxon retained and obtained the balance from the defendants, the hire-purchase company. Saxon retained the customer's deposit against the price and obtained the hire-purchase terms for the customer for the balance only. The £2 difference does not affect the nature of the transactions. If the transactions had gone through precisely to their tenor Saxon would have paid the customer £1,848 and the customer would immediately have paid back £600 in compliance with the request for hire-purchase. The fact that those motions were not actually gone through can make no difference to the transaction. As I see it the deposit became a real or actual payment. It was a credit by Saxon to the customer which went to extinguish the like indebtedness of the customer to Saxon. It might have been unreal or fictitious if the price of the car, fixed at £1,848, had been much greater than its value. On the evidence, however, £1,848 was a fair and reasonable value and the customer had to forgo or put up £600 of the £1,848 in order to buy his car back. The £600 was a real loss to the customer because he had paid some £2,100 for the car three months earlier and the car was worth the £1,848. He had the money in the value of the car and the transaction was in no sense one where a man acquired a car when he had nothing with which to acquire it and was unable to find the deposit.
On 17 February 1964, the customer and the finance company entered into the hire-purchase agreement in a common form on the terms which had been stated in the customer's request to Saxon. It showed the £600 "initial payment paid before signing agreement" (which Saxon had retained and therefore reduced the balance of the purchase price of £1,850 due from the finance company to Saxon to £1,250). Saxon received from the finance company £1,250 and that sum, together with charges of £319, a total of £1,569, had to be repaid by the customer. Again a common form for "ordinary transactions" was used and it contained statements which were inappropriate and inaccurate. In particular the customer appended his signature to a certificate that"he had never had prior title to the goods". He had in fact owned the car for some three months.
I think that the courts which have the task of ensuring that the requirements of the Bills of Sale Acts and the Hire-Purchase Acts are complied with might with strictness require the parties to transactions of this character to use documents which unequivocally depict the intended transaction and which are wholly suited to the purpose. Endless time was taken up in the Stoneleigh case and in this case in both courts in an endeavour to discover the true nature of the arrangement. In Stoneleigh , of the four judges who heard the case there was an equal division of opinion and in the present case the position is the same on one issue. If the transactions are genuine and within the law I can see no reason why there should be use of documents which give rise to suspicion and permit allegations that they are sham or fictitious or a "charade". However, I take less exception in this case than I did to the documents in the Stoneleigh case, where the views of the trial judge and mine did not prevail.
There was a second point on which the customer relied and this found favour with the trial judge ([1966] 1 All ER at pp 41, 42). It was that there had been no actual payment of the deposit. If the transactions, found to be genuine, are rightly to be viewed in the way that I have stated above I hardly think that the second point can be maintained. The customer was foregoing £600 in money's worth in his car and only obtaining £1,248 of its worth or price in order to obtain hire-purchase.
There came into operation after the transactions the subject of the Stoneleigh case the Hire-Purchase and Credit Sale Agreements (Control) Order, 1960, [Fc] . Article 1 of that Order provided:
"A person shall not dispose of any goods to which this Order applies in pursuance of a hire-purchase or credit sale agreement entered into after Apr. 28, 1960 ... unless the requirements specified in Pt. 1 of Sch. 2 hereto are or have been complied with in relation to that agreement."
Part 1 of Sch 2 is as follows, as far as is material for the purposes of this judgment:
- "1.
- The agreement is in writing.
- 2.
- The agreement contains in respect of each description of goods a statement of the cash price of the goods of that description comprised in the agreement and of any amount payable by instalments under the agreement for the installation or maintenance of those goods."
Those two provisions have clearly been complied with.
- "3.
- Before the agreement was entered into actual payment was made in respect of each description of goods comprised in the agreement of not less than an amount equal to the percentage specified in column 2 of Pt. 1 of Sch. 1 hereto in relation to that description of goods ... "
As I have already said, the appropriate percentage here was twenty per cent
The £600 is greatly in excess of twenty per cent of £1,850, but it was found by the judge ([1966] 1 All ER at pp 41, 42) and it has been submitted on behalf of the plaintiff customer before us that it was not in the circumstances an actual payment. That it was not handed over in cash or paid by cheque is clear, but if the dealer (Saxon) allocated a credit which the customer (the plaintiff) had with him I feel no doubt that in a commercial transaction that is real and genuine payment and equivalent to cash or cheque and would comply with the requirements of the Order. The Order expressly provided, by para 3 of Pt 1 of Sch 2,
"In computing ... the total amount to be paid before any agreement is entered into account may be taken of any allowance for any goods taken in part exchange for goods comprised in that agreement, being an allowance which is reasonable in relation to the value of the goods so taken in part exchange."
McNair J stated ([1966] 1 All ER at p 42):
"That is the only exception from the requirement of actual payment, and it makes this plain to my mind, that the exception being one relating to a part exchange allowance, it relates to an allowance granted by the hire-purchase company itself and not to an allowance which may have been given by a motor dealer, nor to anything of that kind."
With respect, I think not, in the way I understand it to be put by the judge.
In practice over many years it has been the motor dealer who has made the allowance to the customer for the car taken in exchange and the customer has placed the allowance so made towards the deposit or initial payment required by law and by the hire-purchase company and the customer has only received the hire-purchase finance in respect of the balance of the price. This practice has long been recognised in the administration of the law relating to hire-purchase and the Order of 1960 did not intend a departure from it. As Mr Smith of the finance company said:
"I agree we never looked to receiving the deposit. No hire-purchase company ever does."
By the credit for the car in part exchange the dealer receives a part payment from the customer and the hire-purchase company pays him, the dealer, the balance only and gives to the customer hire-purchase terms for the balance only. That is, the customer pays the deposit or "initial payment".
It is true that para 3 is the only exception in Pt 1 of Sch 2 to the Order. It may be because it recognises the practice and it became necessary to stipulate that the allowance should be at a reasonable value. If the exchange vehicle were worth £100 and the allowance shown in the document was £300, being the required deposit, the customer would clearly not have complied with the Order. but if the dealer already owed the customer £300 due from some wholly distinct transaction and he extinguished the indebtedness by crediting the £300 to the deposit required from the customer, I cannot think that the Order requires the £300 to be paid in cash or by cheque and forthwith to be returned by the customer to the dealer. The debit to the customer against his credit would be actual payment. It is real and of equal substance and it is not the manner of payment which the regulation effects but its reality.
I am in agreement with what Winn LJ has said more fully on this topic in his judgment. I cannot see that Pt 2 of Sch 2 has any bearing on this case, when the plaintiff customer owned at the outset the car in question worth £1,848. He had no need to borrow or acquire funds for a deposit. He had them in the car and realised them.
Harman LJ views the matter differently and would support the judge in finding that there was no actual payment of a deposit. I differ from them with deference. Harman LJ regards the £600 as a mere fiction and would prefer to draw the inference that there was a sale of the car by the plaintiff customer to Saxon for £1,248 cash plus a promise of a hire-purchase agreement. Whatever sympathy one may have for that view, it runs counter to the three documents involved in the transactions, which have been accepted as genuine. It is said that Saxon never had the £600 and were never richer by that sum; but Saxon acquired the car worth £1,848 for a cash payment of £1,248 and whilst Saxon held the car as owners they were richer by that precise sum. The customer was poorer by the same sum because he had parted with an article worth £1,848 and only received £1,248 for it. Likewise the finance company obtained from Saxon the car worth £1,850 and only paid £1,250 for it, because Saxon, the vendors, already had £600. That is not inequitable because the customer, having paid £600, the deposit, only had to pay the balance plus charges for the financial facilities in order to receive it back again. The factor of progressive depreciation on the car's value would have arisen whether the car had belonged throughout to the customer or, as here, where the ownership changed to the finance company through Saxon.
I would hold that the ownership of the car passed to the finance company and that the hire-purchase agreement was valid and that the finance company were entitled to seize the car by reason of the customer's default under the hire-purchase agreement, and therefore the plaintiff customer's claim in the action that the defendant finance company wrongfully seized and detained his car fails. The hire-purchase agreement entitled the defendant finance company to the amount claimed for arrears of hire by their counterclaim.
I would allow the appeal accordingly.