Australian Guarantee Corporation Ltd v Ross
[1983] 2 VR 319(Judgment by: Marks J)
Between: Australian Guarantee Corporation Ltd
And: Ross
Judges:
Young CJ
Murray J
Marks J
Subject References:
HIRE PURCHASE
AGREEMENT
Defect in title of 'owner'
Repossession by true owner
Rescission of agreement by hirer
Subsequent acquisition of title by lessor
Total failure of consideration
Implied terms as to title and possession
Fundamental breach
Judgment date: 16 December 1982
Judgment by:
Marks J
On 1 February 1980 the appellant Duhig Ford Pty. Ltd. ("the dealer") negotiated the respondent's signature to a hire-purchase agreement ("the agreement") with the appellant Australian Guarantee Corporation Ltd. ("AGC") relating to a secondhand Ford Cortina registered number ARM 741 ("the Ford").
The agreement was constituted by an offer in common form provided by AGC signed by the respondent on 1 February and accepted by AGC on 5 February.
This is an appeal from the judgment of Judge Stabey delivered on 27 May 1982 in favour of the respondent to whom he awarded damages in an agreed sum for breach of the agreement which the respondent purported to rescind on learning that AGC had no title to the Ford nor any means of acquiring it.
Argument was presented before his Honour on agreed facts without viva voce evidence.
The Ford had been purchased on 16 January 1980 in good faith by the dealer who, on or about 1 February 1980, sold it to AGC In fact the vehicle had been stolen in late 1979 or early 1980 during the currency of a hire-purchase agreement between Associated Midland Corporation Ltd. who was the legal owner and one Peter Smith. On 7 September 1980 the Victoria Police took possession of the Ford from the respondent and on 11 September 1980 the respondent's solicitor wrote to AGC rescinding the agreement. AGC later acquired ownership in or about October 1980 but the vehicle was not released by the police to AGC until 11 August 1981. The Ford was then resold in March 1982. I do not regard the later acquisition by AGC as affecting the issues, the matter falling to be determined as at the date of purported rescission. At that date AGC had no legal rights in relation to the Ford and none at any previous relevant time.
The parties agreed before Judge Stabey that damages were $3010.
By the terms of the offer which were accepted by AGC the respondent offered:--
"...to hire from you (the owner) the goods described in the Schedule at the rent stated therein on the terms and conditions set out below and on the back hereof..."
CL8 of the terms and conditions was as follows:--
"If the goods are secondhand, and it is so stated in the Schedule all conditions and warranties as to quality and all conditions and warranties as to fitness and suitability are to the maximum extent that the law allows expressly negatived. So far as the law permits all other conditions and warranties which might be implied are also negatived and excluded. Nothing contained in this instrument shall be construed as an express condition or warranty on your part."
CL10 read:--
"I may exercise an option to become the owner of the goods by paying the total rent and fulfilling my other obligations hereunder or by compliance with S11 of the Act. Until then I shall only be a bailee and have no property in the goods."
By CL12 the agreement was to be governed by the law of the State of Victoria. Accordingly the provisions of the Victorian Hire-Purchase Act 1959 ("the Act") are relevant. By s2 "owner" is defined to mean:--
"the person letting hiring or agreeing to sell goods under a hire-purchase agreement and includes a person to whom the owner's property in the goods or any of the owner's rights or liabilities under the agreement have passed by assignment or operation of law."
It is to be noted that the definition makes no express provision that the owner should have title to the goods at any specific time. However, reference to the owner's "property in the goods" perhaps reflects an assumption that for a person to let hire or agree to sell goods he must have some proprietorial interest in them.
By s5 it is provided:--
- "(1)
- In every hire-purchase agreement there shall be-- ...
- (b)
- an implied condition on the part of the owner that he will have a right to sell the goods at the time when the property is to pass; ..."
S5(2) permits a hire-purchase agreement to negative all conditions and warranties as to quality where the goods the subject of the agreement are secondhand. Subs(3) similarly provides in respect of a condition that the goods shall be reasonably fit for a particular purpose.
S5(5) provides:--
"Nothing in this section shall prejudice in any way any other enactment or rule of law whereby any condition or warranty is to be implied in any hire-purchase agreement."
By s11(1) it is provided:--
"The hirer under a hire-purchase agreement may, if he has given notice in writing to the owner of his intention so to do, on or before the day specified for that purpose in the notice, complete the purchase of the goods by paying or tendering to the owner the net balance due to the owner under the agreement."
S28 provides:--
"Any provision in a hire-purchase agreement whereby-- ...
- (i)
- except as expressly provided by this Act the operation of any provision of this Act is excluded modified or restricted--shall be void and of no effect."
It was submitted on behalf of the appellants that any express or implied condition that AGC was the owner, in the common law sense, of the Ford was subject to the exemption contained in CL8 of the agreement. Accordingly it was argued that the decision of the Court of Appeal in Karflex Ltd. v Poole, [1933] 2 KB 251 to the effect that a hire-purchase agreement describing the parties as respectively the "owners" and the "hirer" expressly stipulated a condition as to ownership did not apply to the circumstances of an agreement governed by the Act and which, on its proper construction, permitted it to contain the exemptions of CL8.
Richards v Alliance Acceptance Co. Ltd., [1976] 2 NSWLR 96, a decision of the New South Wales Court of Appeal, supports this contention. There the Court understood the law to permit a hire-purchase agreement to contain conditions not rendered void by virtue of the statute. So far as is relevant, the New South Wales Act, like the Victorian, contained merely the provision corresponding to our s5(1)(b) and left open what conditions might be agreed or said to apply to title before the owner is called upon to pass any property.
Since the Karflex Case there have been other decisions in the United Kingdom bearing on the problem.
In Karsales (Harrow) Ltd. v Wallis, [1956] 2 All ER 866 the motor vehicle delivered pursuant to the hire-purchase agreement was in a radically different condition from when inspected by the hirer. There was an exemption clause in the agreement:--
"No condition or warranty that the vehicle is roadworthy or as to its age, condition or fitness for any purpose is given by the owner or implied herein."
The Court of Appeal held that the vehicle delivered was not the thing contracted to be taken on hire-purchase and there was a fundamental breach of the contract which disentitled the plaintiffs from relying on the exception clause.
Some of the statements made by members of the Court have been since disapproved by the House of Lords and the Privy Council but the decision itself has not been overruled and is capable of being supported by present law: see the speech of Viscount Dilhorne in Suisse Atlantique Societe D'Armement Maritime S.A. v N.V. Rotterdamsche Kolen Centrale, [1967] AC 361 , at p. 392.
In Yeoman Credit Ltd. v Apps, [1962] 2 QB 508 ; [1961] 2 All ER 281 , the motor vehicle the subject of a hire-purchase agreement was also delivered in a radically defective state. An exception clause in similar terms to that considered in Karsales v Wallis was sought to be relied upon by the finance company. The Court of Appeal held there was a breach of a fundamental condition to provide a functioning car which could be used on the roads and that the company was not protected by the exemption clause. Again, in the light of later decisions the Court probably stated the legal principle too broadly but the actual decision has not been impugned: again see Viscount Dilhorne in the Suisse Atlantique Case, at ([1967] AC) p. 392.
In the Yeoman Credit Case Holroyd Pearce, LJ said, at ([1962] 2 QB) p. 520; ([1961] 2 All ER) p. 289: "The hire-purchase agreement clearly contemplated a car that would be usable on the road. It provides for the vehicle being licensed and insured, and the whole tenor of the contract is consistent only with the hiring of a functioning car which could be used on the roads."
In Charterhouse Credit Co. Ltd. v Tolley, [1963] 2 QB 683 ; [1963] 2 All ER 432 , the Court of Appeal held that the defects in a motor vehicle the subject of a hire-purchase agreement constituted a fundamental breach, liability for which was not protected by the exemption clause. This case was also overruled by the House of Lords in Photo Production Ltd. v Securicor Transport Ltd., [1980] AC 827 ; [1980] 1 All ER 556 , but Lord Wilberforce, at ([1980] AC) p. 845, said the result might have been reached on construction of the contract.
In Astley Industrial Trust Ltd. v Grimley, [1963] 2 All ER 33 it was held that the hirer had not proved a breach of a fundamental term. However, the Court of Appeal observed that in general it is an implied fundamental term of an agreement between a hirer and a finance company for the hire-purchase of a motor vehicle that the vehicle hired shall correspond with the description of the vehicle contracted to be hired: see Pearson, LJ, at pp. 40, 44; Upjohn, LJ, at p. 46; Ormerod, LJ, at p. 48. Pearson, LJ said, at p. 40: "The decided cases show that normally in a hiring or hire-purchase agreement the person who lends goods on hire assumes some contractual responsibility for the fitness of the goods for the purpose for which the hirer requires them, but the existence and the extent of the obligation depend on the contractual intention of the parties, which is to be ascertained from the provisions of the particular agreement and from the relevant facts of the situation in relation to which the agreement was made."
In my view, this latter statement is consistent with the decisions of the House of Lords and Privy Council in the Suisse Atlantique Case and Photo Production Ltd. v Securicor Transport Ltd.
Counsel on both sides made submissions on whether it was a fundamental term of the agreement that AGC was the owner of the Ford. Thus Mr. Judd for AGC contended that Richards' Case is highly persuasive that there was no such condition express or implied. Richards' Case clearly supports him and as far as it goes I find no fault in the reasons there of the majority. In this case I do not think AGC's "ownership" of the Ford was an express or implied condition in the light of it not being required by the provisions of the Act, the existence of CL8 and it being in terms unnecessary for business efficacy. But Richards' Case was decided on rather narrow grounds in deference to the arguments presented and apparently in the light of the appellant in that case being unable to establish absence of title or failure of consideration or that rescission had been properly effected.
However, as I understand it, it is not "ownership" as such which is critical to the operation of the agreement but the power of AGC to do what it promised, namely give possessory rights over and an option to buy the Ford. It was fundamental to the operation of the agreement that AGC give to the respondent according to its terms the possessory rights of a bailee and pass to her the property in the Ford when duly called upon. I consider that a person who expressly hires out a chattel, as did AGC, inter alia, in this case, expressly agrees to confer on the hirer rights which a hirer normally enjoys such as exclusive use and control of the thing hired. The expressions "hire", "hirer" in the agreement compel such a meaning be given to the words. Further, there was, in my view, by CL10 an express agreement to confer on the respondent the possessory rights of a bailee. It imported the condition that AGC was legally competent to do so.
Palmer on Bailment, 1979, p. 65 says:--
"A bailment gives rise to a form of property because it creates a division of interests in rem within the compass of a single chattel. The division is chronological rather than geographical; as in the case of leaseholds, a bailment divides the ownership of the res 'on a plane of time'. The bailee obtains a legal interest in the form of possession, which is in many respects equivalent to an estate in land..."
See also Lawson, Introduction to the Law of Property, p. 118; Rich v Aldred (1705) 6 Mod 216; 87 ER 968; Franklin v Neate (1844) 13 M and W 481, at p. 486; 153 ER 200.
In The Province of the Law of Tort, 1981, p. 101, Professor Winfield wrote:--
"The salient feature of bailment is,...the element of possession. Bailment is not only one of the modes of transferring possession, but while the bailment lasts it connotes possession. As between bailor and bailee that was recognised very early in our law."
Professor Paton in Bailment in the Common Law, 1952, p. 5 adopts this proposition and adds the statement from Holmes, The Common Law p. 175: "All bailees from time immemorial have been regarded by the English law as possessors and entitled to the possessory remedies."
The creation of a possessory interest and a relationship founded upon a form of property are results of bailment whether the bailment is consensual or unilateral: see Palmer on Bailment, 1979, p. 24.
It follows in my view that the condition as to bailment in the agreement was that the respondent have physical control of the Ford (see Paton, Bailment in the Common Law, p. 9) whilst the bailment lasted. By the agreement the bailment was to last until exercise of the option to purchase or its other termination.
It was not necessary that AGC be the "owner" in order to confer these rights for it may have been able to do so pursuant to agreement with the "owner" on other legal right.
It is now clear that the operation of an exemption clause depends on the construction of the agreement as a whole. Statements in cases like Karsales (Harrow) Ltd. v Wallis, [1956] 2 All ER 866 ; Harbutts "Plasticine" Ltd. v Wayne Tank and Pump Co. Ltd., [1970] 1 QB 447 ; Wathes (Weston) Ltd. v Austin's (Menswear) Ltd., [1976] 1 Lloyd's Rep 14 and Charterhouse Credit Co. Ltd. v Tolly, [1963] 2 QB 683 ; [1962] 2 All ER 432 , which suggest that a breach of fundamental term puts an end to exception clauses are no longer law.
In the Suisse Atlantique Case, Pearson, LJ's statement of the law in UGS Finance Ltd. v National Mortgage Bank of Greece and National Bank of Greece S.A., [1964] 1 Lloyd's Rep 446 was more than once set out with approval. Pearson, LJ, at p. 453, said: "As to the question of 'fundamental breach', I think there is a rule of construction that normally an exception or exclusion clause or similar provision in a contract should be construed as not applying to a situation created by a fundamental breach of the contract. This is not an independent rule of law imposed by the Court on the parties willy-nilly in disregard of their contractual intention. On the contrary it is a rule of construction based on the presumed intention of the contracting parties. It involves the implication of a term to give to the contract that business efficacy which the parties as reasonable men must have intended it to have. This rule of construction is not new in principle but it has become prominent in recent years in consequence of the tendency to have standard forms of contract containing exceptions clauses drawn in extravagantly wide terms, which would produce absurd results if applied literally."
By CL10 of the agreement AGC expressly agreed to confer on the respondent the possessory rights of a bailee and the right to become the owner of the Ford at any time on compliance with her obligations under the agreement or s11 of the Act. According to the agreed facts those rights, as I understand it, were not or not entirely conferred and AGC was in breach of the agreement.
There can be little doubt, in my view, that CL10 contained essential terms of the agreement. In Associated Newspapers Ltd. v Bancks (1951) 83 CLR 322 , at p. 337, and DTR Nominees Pty. Ltd. v Mona Homes Pty. Ltd. (1978) 138 CLR 423 , at pp. 431 and 436 the High Court approved the statement of the law as to essentiality made by Jordan, CJ in Tramways Advertising Pty. Ltd. v Luna Park (NSW) Ltd. (1938) 38 SR (NSW) 632, at pp. 641-2 as follows: "The test of essentiality is whether it appears from the general nature of the contract considered as a whole, or from some particular term or terms, that the promise is of such importance to the promisee that he would not have entered into the contract unless he had been assured of a strict or a substantial performance of the promise, as the case may be, and this ought to have been apparent to the promisor... If the innocent party would not have entered into the contract unless assured of a strict and literal performance of the promise, he may in general treat himself as discharged from any breach of the promise, however slight. If he contracted in reliance upon a substantial performance of the promise, any substantial breach would ordinarily justify a discharge...in the absence of express provision the question is one of construction for the Court..."
There is little difficulty in affirming on the application of such a test that the capacity to confer possessory rights and rights of ownership on exercise of the option were essential terms of the agreement.
It remains to consider the effect to be given CL8. In this regard the English cases to which I have referred which contain statements of principle recently overruled are nevertheless strong pointers to construction of the agreement in favour of the respondent. In each case the decisions themselves have been held capable of support by application of the principles enunciated by modern authority which not only include the Suisse Atlantique and Securicor Transport Cases but the decisions of the High Court in Thomas National Transport (Melbourne) Pty. Ltd. v May and Baker (Australia) Pty. Ltd. (1966) 115 CLR 353 and Port Jackson Stevedoring Pty. Ltd. v Salmond and Spraggon (Australia) Pty. Ltd. (1978) 139 CLR 231 , at pp. 238-9, the Privy Council decision being reported in 54 ALJR 552.
CL8 is cas t in very wide terms without specific reference to the essential terms here under consideration. CL10 could not be wholly the subject of exemption for it incorporates the rights of the respondent under s11 which could not by the operation of s28 be excluded modified or restricted. There remains that an exemption clause should be construed strictly and against the "proferens", which in this case is AGC, and should not be applied if to do so would lead to an absurdity or defeat the main object of the agreement: see Barwick, CJ in Port Jackson Stevedoring, supra, at p. 238; also Metrotex Pty. Ltd. v Freight Investments Pty. Ltd. [1969] VR 9, at pp. 12, 13, 16 and 18 and the authorities cited on p. 12; Photo Production Ltd. v Securicor Transport Ltd., [1980] AC 827 , esp. at p. 850. In my view CL8 cannot avail the appellants. To permit otherwise would clearly lead to absurdity, if not, certainly defeat the main object of the agreement.
Mr. Heaton for the respondent also submitted that the respondent was entitled to treat the agreement as discharged for total failure of consideration. It may be that this is the more fundamental submission but I deal with it at this stage merely in deference to the order of the argument. I think it possible to regard some cases as involving alternatively a breach of a fundamental condition giving rise to a discharge of the agreement or a total failure of consideration with the same consequences. In Van Reesema v Giameos (No. 1) (1978) 17 SASR 353, at p. 374, Bray, CJ observed: "Nowadays we speak of essential and inessential terms rather than of a breach going to the whole or part of the consideration, but I think the principle is applicable to the altered terminology."
In Boone v Eyre (1779) 1 H B1 273n; 126 ER 160 Lord Mansfield spoke of "mutual covenants" which "go to the whole of the consideration on both sides, they are mutual conditions, the one precedent to the other". In her article Discharge of Contracts for Breach (1981) 13 MULR 69 Jane Swanton wrote:--
"Thus in practice non-performance which 'goes to the whole of the consideration' (Lord Mansfield's terminology) came to signify a breach of condition or essential term; whereas a breach which was altered only in a partial failure of consideration would be a breach of warranty or inessential term."
Mr. Judd for AGC conceded that if the respondent had never received delivery of the Ford there would have been a total failure of consideration giving rise to the discharge of the agreement. This concession I think flows clearly from Karflex Ltd. v Poole, [1933] 2 KB 251 but Goddard, J., at pp. 265-6, specifically left open the question whether a hirer in claiming the return of moneys paid would be obliged to make allowance for the use of the vehicle which a party to the agreement honestly believed was owned by him.
Mr. Judd submitted that the respondent was not entitled to rescind because she in fact had use of the Ford until its seizure by the police. In one sense therefore the concession by Mr. Judd left success for him hanging by the one thread--actual use by the respondent of the Ford. The question therefore is whether the use amounted to consideration under the agreement sounding against total failure.
When Goddard, J. made the above observation in the Karflex Case he did not refer to the previous Court of Appeal decision in Rowland v Divall, [1923] 2 KB 500 . There the plaintiff bought a motor car from the defendant and used it for several months before it became apparent that the defendant had no title. The plaintiff was compelled to surrender it to the true owner. It was held that notwithstanding the use of the car consideration had totally failed and the plaintiff was entitled to the return of his purchase money. At p. 504 Bankes, LJ said: "But in the present case it cannot possibly be said that the plaintiff received any portion of what he had agreed to buy. It is true that a motor car was delivered to him, but the person who sold it to him had no right to sell it, and therefore he did not get what he paid for--namely, a car to which he would have title..."
At p. 506 Atkin, LJ said:
"...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... Under those circumstances can it make any difference that the buyer has used the car before he found out, 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 the right to possession--and, that being so, there has been a total failure of consideration."
In my view, the agreement which is the subject of the present appeal may not involve title as such but it does, as I have already said, include conditions for the transfer of possessory rights and an option to purchase which might be regarded as analogous to the ownership rights considered by the Court of Appeal in Rowland v Divall. This was the view also taken by Finnemore, J. in Warman v Southern Counties Car Finance Corporation, [1949] 2 KB 576 ; [1949] 1 All ER 711 . That case also concerned a hire purchase agreement in respect of a motor vehicle to which the finance company had defective title. Finnemore, J. referred to the observations of Goddard, J. in the Karflex Case about the consequences of the hirer having use. Finnemore, J. did not refer to Rowland v Divall but treated the problem as one he then had to decide for himself. He held that notwithstanding the car having been used there had been a total failure of consideration. At ([1949] 2 KB) p. 582; ([1949] 1 All ER) pp. 713-4, he said: "A hire-purchase agreement is in law, an agreement in two parts. It is an agreement to rent a particular chattel for a certain length of time. If during the period or at the end of the period the hirer does not wish to buy the chattel he is not bound to do so. On the other hand, the essential part of the agreement is that the hirer has the option of purchase, and ...the whole object ...is to acquire the option to purchase the chattel when certain payments have been made... If he wanted to make an agreement merely to hire a car he would make it, but he enters into a hire-purchase agreement because he wants to have the right to purchase the car; that is the whole basis of the agreement , the very foundation of it... "I think there is another way of looking at it:... I do not think that the plaintiff in any circumstances could be called on to pay to the defendants hiring money for a car which belonged to somebody else."
At p. 583:
"I do not see here how the defendants, because they delivered to the plaintiff somebody else's car, can claim any kind of money from him for the use of that car."
In Yeoman Credit Ltd. v Apps, [1962] 2 QB 508 , at p. 521; [1961] 2 All ER 281 , at p. 290, Holroyd Pearce, LJ distinguished Warman's Case from Rowland v Divall but observed: "The defendant was plainly entitled to reject the car, to accept the plaintiff's repudiation of the contract by their delivery of such a car, and to rescind the contract. Had he done so, there would have been a total failure of consideration..."
His Lordship found the distinguishing feature in the plaintiff having approbated the contract by paying instalments and retaining the use of the vehicle after knowledge of its defects. In Richards v Alliance Acceptance, [1976] 2 NSWLR 96 on which heavy reliance was placed by Mr. Judd, Hutley, JA expressed the opinion that the judgment of Finnemore, J. in Warman's Case was correct and observed that no submission to the contrary had been put to the court. The other members of the Court of Appeal made no reference to Warman's Case, their decision making its consideration irrelevant.
I agree in the reasoning to which I have referred. It leads to the conclusion that the mere use by the respondent of the Ford over the period before seizure does not alter the circumstance that there has been a total failure of consideration.
It may be a nice point whether the claim of the respondent on a total failure of consideration is more properly one for money had and received than damages for breach of contract. This point was not made in argument and nothing of consequence turns on it for the amount to which the respondent is entitled on either view of the cause of action is, as I understand it, the same.
For these reasons the appeal should be dismissed.
Appeal dismissed.
James G. Judd, for the appellant, Australian Guarantee Corporation Ltd.
M. Heaton, for the respondent, Ross.
Solicitors for appellant, Australian Guarantee Corporation Ltd.: Joseph Lynch and Window.
Solicitor for respondent, Ross: G. C. Blenkiron.