Kingsley v Sterling Industrial Securities Ltd
[1966] 2 All ER 414(Judgment by: Harman LJ)
Between: Kingsley
And: Sterling Industrial Securities Ltd
Judges:
Sellers LJ
Harman LJWinn 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:
Harman LJ
This action started by specially endorsed writ as a claim by the plaintiff customer in detinue in respect of his motor car said to have been wrongfully seized by the defendant finance company. The defence was that the finance company were the true owners of the car and had hired it to the customer in pursuance of a hire-purchase agreement on which the customer had made default thus entitling the finance company to retake possession, as they had done. There was a counterclaim for the balance of instalments due up to the date of possession. The main issue in the case was raised by the reply, which alleged that the so-called hire-purchase agreement was a mere sham and a cloak for the loan made by the finance company to the customer, the true transaction consisting of a loan by the finance company to the customer on the security of his car and void under the Bills of Sale Acts because not registered. Alternatively it was said that the hire-purchase agreement was void and unenforceable because of the absence of payment of a twenty per cent deposit under the statutory regulation in that behalf.
The judge, having seen the witnesses, came to the conclusion ([1966] 1 All ER at pp 40, 41) that the hire-purchase agreement and the accompanying documents were not a sham but must be taken as they stand. This conclusion was, it is true, an inference drawn by the judge from the primary facts and could therefore be a proper subject of attack in this court but I do not feel that we ought to reverse the judge on this point. It is clear enough that the customer, although his object was to raise a loan on the security of his motor car, thought he was doing it in some way which he did not trouble to understand, through the medium of a hire-purchase agreement. It seems to me also clear that the finance company had no reason to suppose that this was not a hire-purchase transaction. I am therefore of opinion that the attack on the validity of the document alleging it to be void as an unregistered bill of sale must fail.
The judge decided ([1966] 1 All ER at pp 41, 42) the question on the alternative point, and as I see it the question in this case is whether, before the hire-purchase agreement was made between the finance company and the customer, there was an "actual payment" by the customer of not less than twenty per cent of the purchase price as a deposit. It is admitted by the finance company that they never received such a sum. According to them the finance company never does, and that is perhaps true. The ordinary hire-purchase agreement is made on the basis that the dealer has received at least the required sum as a deposit by the customer and that is what in fact happens. The customer wishing to acquire a car from a dealer on hire-purchase terms pays the dealer the agreed deposit (which must at present be at least twenty per cent of the cash price) and requests the dealer to arrange hire-purchase terms for the balance. This the dealer does by selling the car to the finance company, which pays him the price of the car less the deposit which he has already received. The finance company then hires the car to the customer at a price representing the excess of the purchase price over the sum paid to the dealer plus interest charges based on the deferred terms. So here the hire-purchase figure, plus interest charges, was £1,569 and that was what the finance company would have received if the transaction had gone to its expected conclusion. The dealer would thus be satisfied by receiving the whole agreed price made up of the deposit paid by the customer plus the balance paid by the finance company, which was here £1,250.
In fact that was not the transaction here: it was what is apparently termed a "refinancing" transaction. This happens when the customer instead of buying the car starts by being its owner. He wants to raise money on it without parting with its possession and without executing a bill of sale. I do not see why this may not be done by a genuine sale by the owner to the finance house and a hiring back of the car to him on deferred terms; these, having regard to the regulations, must begin with a twenty per cent deposit. Thus here the customer could have sold the car to the finance company for £1,848 and they could have hired it back to him for £1,848 plus interest on payments spaced over three years. That however was not this transaction. This hire-purchase agreement was based on a sum of only £1,250. Here, to go by the documents, the customer sold his car to an intermediary (Saxon) for £1,848, of which he received £1,248, thus on the face of it leaving £600 still due to him. Saxon then represented to the finance company that Saxon had received the £600 and invoiced the car to the finance company on that footing. The finance company without any enquiry accepted that situation and hired the car to the customer for a sum based on the balance of £1,250, that is to say £1,569.
In these circumstances the question is whether the £600 was ever actually paid. It is said that Saxon, owing this sum to the customer, "applied it" in paying the like sum as a deposit. To whom? To the finance company? Admittedly not. To themselves? Again admittedly not. They were never £600 the richer by the transaction. If you looked in Saxon's books you would nowhere find this £600 as a credit to them. Their profit was £2 plus a commission on the hire-purchase charge amounting to £319. Nor was the customer £600 the poorer. He never paid that or any other like sum. It is said that he allowed Saxon to retain it out of the £1,848 being the price at which he sold the car to them of which he only received £1,248. This cannot be right: if it were, Saxon would either owe him £600 or be that much the richer, which no one suggests they were. The truth is that the £600 was a mere fiction. The only reason why that sum was arrived at seems to be that £1,248 was all the customer could induce the finance company to lend him on a car which Saxon valued at £1,848-that is to say two thirds of its cash price.
If I had been trying the case I think that I should have drawn from the facts the inference that there was a sale by the customer to Saxon for a consideration of £1,248 cash plus a promise of a hire-purchase agreement whereby some finance company would relet it to the customer on deferred terms based on that sum. There is no sign in the oral evidence that £600 was ever agreed as a deposit between the customer and Saxon. It might so far as I can see have been any other sum as long as it exceeded the fraction required to satisfy the Hire-Purchase and Credit Sale Agreements (Control) Order, 1960.
Was there then an "actual" payment? In my view no.
The judge found that the hire-purchase transaction was not a sham. In a sense this is right because the customer thought that he was entering into a hire-purchase transaction. He only wanted to raise the wind on the security of his car and he did not care how that result was brought about. He knew nothing about the Bills of Sale Acts or the Order of 1960 requiring the actual payment of a twenty per cent deposit. He was emphatic that he paid none and this did strike him as making this transaction different from hire-purchase agreements with which he was familiar; but he did think that he was getting the money on some hire-purchase terms: by this he meant that he could continue in possession of the car if he made the monthly payments which the agreement required. Accepting the judge's view ([1966] 1 All ER at p 41) that we must take the documents as we find them, the first shows an agreement by the customer to sell his car to Saxon for £1,848 payable on delivery. The second (on the back of the first) shows Saxon as the owner and a request to them by the customer to arrange a hiring by the finance company at a cash price of £1,850 together with hire-purchase charges. The third invoices the car to the finance company at that sum "less initial payment £600". It is here that fiction creeps in. There was no such payment, and Saxon knew it. Last comes the hire-purchase agreement, whereby the finance company hire the car to the customer for £1,250 plus charges, that sum being stated to be the cash price of £1,850 "less initial payment paid before signing agreement".
It is said that this payment was credit given to Saxon by the customer representing the £600 owed to the customer by Saxon on the original sale by the customer to Saxon. Saxon's representative appears to have thought that the true transaction was that there was a sale by the customer to Saxon for £1,848 and a resale by Saxon to the customer for £1,850, a profit to Saxon of £2, the £600 being the deposit constituted by a cross-credit. Everyone agrees that this was a mistake. Saxon in fact sold to the finance company, but for £1,250, and that company hired the car to the customer at a price based on that figure. The so-called deposit was a fiction brought into being because the Order of 1960 made a deposit necessary. I cannot agree that this was in any sense an "actual" payment.
The matter may perhaps be tested by seeing what would have happened if the whole transaction had run its appointed course. In that event the customer would have remained the owner of his car, having received £1,248 and having paid £1,569 for the accommodation; the finance company would have received the £1,569; while Saxon would have received the so-called "profit" of £2, the difference between what they paid the customer and what they received from the finance company plus commission on the £319 hire purchase charges. No one paid nor received £600. There was nothing dishonest about it, but it was contrary to the Order of 1960, which requires a twenty per cent deposit actually to be paid.
It was insisted by counsel for the finance company that this was contrary to the Stoneleigh Finance Ltd v Phillips decision of this court, but I do not agree, for that case preceded the Order of 1960 which requires an "actual" deposit. "Actual" here must mean "real", and is in contrast to what Davies LJ, in that case called ([1965] 1 All ER at p 523; [1965] 2 QB at p 570) a "notional" deposit.
What is the result of that view of the facts? Taking the documents at their face value they show a sale to Saxon and title passing to Saxon, and a further sale by Saxon to the finance company also passing title. Thus the finance company became the owners of the car and could rightly repossess it as such when the customer made default in the hiring terms. The claim therefore fails and the action should be dismissed: but when I turn to the counterclaim I find that the finance company, having neglected to see that a proper deposit had been paid, cannot enforce the hire-purchase agreement any further because the Order of 1960 has invalidated it. They cannot therefore enforce it further and their counterclaim fails. I do not agree with the submission of counsel for the customer that the Order of 1960 has a retroactive effect invalidating what has already been done: if that were right the customer would have to repay the £1,248 which he has had. The law in my judgment leaves things to stand as they fall and forbids further performance; and the counterclaim should be dismissed.