Helby v Matthews and Ors

[1895] A.C. 471

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(Judgment by: Lord Herschell LC (including background))

Between: Helby - Appellant
And: Matthews and Ors - Respondents

Court:

Judges:
Lord Herschell LCLord Watson
Lord MacNaghten
Lord Morris
Lord Shand

Subject References:
FACTOR
SALE OF GOODS
Agreement for
Possession of Goods under Agreement with option to buy
Hire and Purchase Agreement
Disposition of Goods by Person having option to Purchase
'Person having agreed to buy Goods'

Legislative References:
Factors Act 1889 (52 & 53 Vict. c. 45) - s. 9

Judgment date: 30 May 1895

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Judgment by:
Lord Herschell LC (including background)

The expression in the Factors Act 1889 s. 9 "a person having agreed to buy goods" means a person who has bound himself by agreement to buy, and does not include a person who has an option to buy, the owner being bound to sell if that option is exercised.

The owner of a piano agreed to let it on hire, the hirer to pay a rent by monthly instalments, on the terms that the hirer might terminate the hiring by delivering up the piano to the owner, he remaining liable for all arrears of hire; also that if the hirer should punctually pay all the monthly instalments, the piano should become his sole and absolute property, and that until such full payment the piano should continue the sole property of the owner. The hirer received the piano, paid a few of the instalments, and pledged it with a pawnbroker as security for an advance:-

Held, that upon the true construction of the agreement the hirer was under no legal obligation to buy, but had an option either to return the piano or to become its owner by payment in full; that by putting it out of his power to return the piano he had not become bound to buy; that he had therefore not "agreed to buy goods" within the meaning of the Factors Act 1889 s. 9, and that the owner was entitled to recover the piano from the pawnbroker.

Lee v. Butler ( [1893] 2 Q.B. 318 ) distinguished.

The decision of the Court of Appeal ( [1894] 2 Q.B. 262 ) reversed and the decision of Lord Coleridge C.J. and Day J. restored.

The appellant was the owner of a piano, of which he had given possession to one Brewster, under an agreement in writing of the 23rd of December, 1892. On the 22nd of April 1893 Brewster, improperly and without the consent of the appellant, pledged the piano with the respondents, who are pawnbrokers, as security for an advance. The appellant, upon discovering this, demanded the piano from the respondents, and on their refusing to deliver it, brought an action of trover. The defence set up by the respondents was that they had received the piano from Brewster in good faith, and without notice of any claim on the part of the appellant, and that Brewster having "bought or agreed to buy" it from him they were protected by sect. 9 of the Factors Act 1889.

The county court judge held that the defence was not proved, and his judgment was upheld by the Divisional Court (Lord Coleridge C.J. and Day J.). The Court of Appeal (Lord Esher M.R., A. L. Smith, and Davey L.JJ.) came to the conclusion that the defence had been established, and reversed the judgment of the Divisional Court upon the ground that Brewster had agreed to buy the piano within the meaning of the Factors Act. ^[F1] The only question was whether the respondents had made out that Brewster had bought or agreed to buy the piano. This depended upon the true effect of the agreement under which he obtained it.

The agreement was in the following terms:-

"This agreement made the 23rd day of December 1892 between Charles Helby of 22 Baker Street (hereinafter called the 'owner'), of the one part, and Charles Brewster of 24 Chester Street Kennington Road S.E. (hereinafter called the 'hirer'), of the other part witnesseth that the owner agrees at the request of the hirer to let on hire to the hirer a pianoforte No. 896 Maker Rass. And in consideration thereof the hirer agrees as follows:-

1.

To pay the owner, on the 23rd day of December 1892 a rent or hire instalment of ten shillings sixpence (10s. 6d.); and 10s. 6d. on 23 of each succeeding month.

2.

To keep and preserve the said instrument from injury (damage by fire included).

3.

To keep the said instrument in the hirer's own custody at the above-named address, and not to remove the same (or permit or suffer the same to be removed) without the owner's previous consent in writing.

4.

That if the hirer do not duly perform this agreement, the owner may (without prejudice to his rights under this agreement) terminate the hiring and retake possession of the said instrument. And for that purpose leave and licence is hereby given to the owner (or agent and servant, or any other person employed by owner) to enter any premises occupied by the hirer, or of which the hirer is tenant, to retake possession of the said instrument, without being liable to any suit, action, indictment, or other proceeding by the hirer, or any one claiming under said hirer.

5.

That if the hiring should be terminated by the hirer (under clause A below), and the said instrument be returned to the owner, the hirer shall remain liable to the owner for arrears of hire up to the date of such return, and shall not on any ground whatever be entitled to any allowance, credit, return, or set-off for payments previously made. The owner agrees:-

A.

That the hirer may terminate the hiring by delivering up to the owner the said instrument.

B.

If the hirer shall punctually pay the full sum of £18 18s. by 10s. 6d. at date of signing, and by 36 monthly instalments of 10s. 6d. in advance as aforesaid, the said instrument shall become the sole and absolute property of the hirer.

C.

Unless and until the full sum of £18 18s. be paid, the said instrument shall be and continue to be the sole property of the owner."

By the Factors Act 1889 s. 9:

"Where a person, having bought or agreed to buy goods, obtains with the consent of the seller possession of the goods or the documents of title to the goods, the delivery or transfer, by that person or by a mercantile agent acting for him, of the goods or documents of title, under any sale, pledge, or other disposition thereof, or under any agreement for sale, pledge, or other disposition thereof, to any person receiving the same in good faith and without notice of any lien or other right of the original seller in respect of the goods, shall have the same effect as if the person making the delivery or transfer were a mercantile agent in possession of the goods or documents of title with the consent of the owner."

April 30. Finlay Q.C. and Joseph Walton Q.C. (W. B. Hextall with them) for the appellant:-

The only question is, whether Brewster had "bought or agreed to buy" the piano within the Factors Act. There was no agreement to buy, though there was, on the payment of all the instalments, an agreement to sell. In other words, Brewster bargained for an option and nothing more. The hirer was not bound to become a purchaser. The distinction between an option or a "conditional offer" and an agreement to sell or buy is clearly explained by Lord Westbury in Weston v. Collins. ^[F2] There is here no obligation to buy, and only a conditional obligation to sell, and the option ceases if on the 23rd of any month the hirer fails to pay the half-guinea. In Lee v. Butler ^[F3] there was an absolute agreement to buy and to pay the instalments until the whole sum was made up. In this case the hirer may drop the payments at any time and return the chattel; and that liberty is the great inducement to persons who enter into contracts like this.

This is not an agreement subject to defeasance, or even a conditional agreement. There may be an agreement to buy which does not pass the property and yet may be within the Factors Act. Such a case was Lee v. Butler. ^[F3] But this case is wholly different, and there was no obligation on the hirer to go on paying these instalments, though there was an obligation on the owner to vest the property in the hirer when all the instalments should have been paid.

Jelf Q.C. and H. D. Greene Q.C. (C. L. Attenborough with them) for the respondents:-

The contract is one of sale, with power for the hirer under specified conditions to change it into one of hire only. There was an obligation to pay on the 23rd of each month. The whole language of the agreement is far more consonant with purchase than with hire, and the instrument is an agreement to buy. The word "instalment" can only be used of a portion of a larger sum, and points conclusively to purchase. Then the power to "terminate the hiring" points the same way. If the terminating act is not done, the thing goes on and is on the high road to purchase. Moreover, if there was originally an option to return, it is now gone, as Brewster put it out of his own power to exercise it. The agreement which was ripening into purchase could only be terminated by the return of the instrument. The case is virtually covered by Lee v. Butler. ^[F3] The case comes within the mischief of the Factors Act 1889, and that enactment should be construed broadly. [They also referred to Ex parte Wingfield.] ^[F4]

Finlay Q.C. in reply.

The House took time for consideration.

May 30. Lord Herschell L.C. (after stating the facts given above):-

My Lords, it is said that the substance of the transaction evidenced by the agreement must be looked at, and not its mere words. I quite agree. But the substance must, of course, be ascertained by a consideration of the rights and obligations of the parties, to be derived from a consideration of the whole of the agreement. If Brewster agreed to buy the piano, the parties cannot, by calling it a hiring, or by any mere juggling with words, escape from the consequences of the contract into which they entered. What, then, was the real nature of the transaction? The answer to this question is not, I think, involved in any difficulty. Brewster was to obtain possession of the piano, and to be entitled to its use so long as he paid the plaintiff the stipulated sum of 10s. 6d. a month, and he was bound to make these monthly payments so long as he retained possession of the piano. If he continued to make them at the appointed times for the period of three years, the piano was to become his property, but he might at any time return it, and, upon doing so, would no longer be liable to make any further payment beyond the monthly sum then due.

My Lords, I cannot, with all respect, concur in the view of the Court of Appeal, that upon the true construction of the agreement Brewster had "agreed to buy" the piano. An agreement to buy imports a legal obligation to buy. If there was no such legal obligation, there cannot, in my opinion, properly be said to have been an agreement to buy. Where is any such legal obligation to be found? Brewster might buy or not just as he pleased. He did not agree to make thirty-six or any number of monthly payments. All that he undertook was to make the monthly payment of 10s. 6d. so long as he kept the piano. He had an option no doubt to buy it by continuing the stipulated payments for a sufficient length of time. If he had exercised that option he would have become the purchaser. I cannot see under these circumstances how he can be said either to have bought or agreed to buy the piano. The terms of the contract did not upon its execution bind him to buy, but left him free to do so or not as he pleased, and nothing happened after the contract was made to impose that obligation.

The Master of the Rolls said: "It is a contract by the seller to sell, and a contract by the purchaser, if he does not change his mind, to buy; and if this agreement goes on to its end, it ends in a purchase. Therefore, it seems to me that the true and proper construction of this instrument, after all, is this: it is an agreement by the one to sell, and an agreement by the other to buy, but with an option on the part of the buyer if he changes his mind to put an end to the contract." I cannot think that an agreement to buy, "if he does not change his mind," is any agreement to buy at all in the eye of the law. If it rests with me to do or not to do a certain thing at a future time, according to the then state of my mind, I cannot be said to have contracted to do it. It appears to me that the contract in question was in reality a contract of hiring, and not in name or pretence only. But for the provision that if the hirer punctually paid the 10s. 6d. a month for thirty-six months, the piano should be his property, it could not be doubted that it was a mere agreement for its hire, and I cannot see how the fact that this provision was added made it any the less a contract of hiring until that condition had been fulfilled.

I think it very likely that both parties thought it would probably end in a purchase, but this is far from shewing that it was an agreement to buy. The monthly payments were no doubt somewhat higher than they would have been if the agreement had contained no such provision. One can well conceive cases, however, in which a person who had not made up his mind to continue the payments for three years would nevertheless enter into such an agreement. It might be worth his while to make somewhat larger monthly payments for the use of the piano in order that he might enjoy that option if he chose to exercise it. In such a case how could it be said that he had agreed to buy when he had not only come under no obligation to buy, but had not even made up his mind to do so? The agreement is, in its terms, just as applicable to such a case as to one where the hirer had resolved to continue the payments for the three years, and it must be construed upon a consideration of the obligations which its terms create, and not upon a mere speculation as to what was contemplated, or what would probably be done under it.

It was said in the Court of Appeal that there was an agreement by the appellant to sell, and that an agreement to sell connotes an agreement to buy. This is undoubtedly true if the words "agreement to sell" be used in their strict legal sense; but when a person has, for valuable consideration, bound himself to sell to another on certain terms, if the other chooses to avail himself of the binding offer, he may, in popular language, be said to have agreed to sell, though an agreement to sell in this sense, which is in truth merely an offer which cannot be withdrawn, certainly does not connote an agreement to buy, and it is only in this sense that there can be said to have been an agreement to sell in the present case.

It was argued for the respondents that the case came within the mischief intended to be provided against by sect. 9 of the Factors Act 1889, and that the enactment ought, therefore, to be so construed as to cover it. I can see no reason for thus straining the language of the enactment. A person who is in possession of a piano under such an agreement as that which existed in the present case is no more its apparent owner than if he had merely hired it, and in the latter case any one taking it as security would have no claim to hold it as against the owner.

Reliance was placed on the decision in Lee v. Butler, ^[F5] and it was said that the present case was not, in principle, distinguishable from it. There seems to me to be the broadest distinction between the two cases. There was there an agreement to buy. The purchase-money was to be paid in two instalments, but as soon as the agreement was entered into there was an absolute obligation to pay both of them, which might have been enforced by action. The person who obtained the goods could not insist upon returning them and so absolve himself from any obligation to make further payment. Unless there were a breach of contract by the party who engaged to make the payments the transaction necessarily resulted in a sale. That there was in that case an agreement to buy appears to me, as it did to the Court of Appeal, to be beyond question.

It was further urged for the respondents that when Brewster pledged the piano with them it became impossible for him to return it to the appellant, and he became, therefore, from that time bound to make the stipulated payments and to become the purchaser. I cannot accede to this argument. In my opinion, it is impossible to hold that Brewster, having only a right under the contract to buy, provided he complied with the prescribed conditions, could convert himself into a purchaser as against the owner by violating the conditions of the contract.

I think the judgment appealed from must be reversed. The respondents must pay the costs of this appeal, and in the Court below.