Kingsley v Sterling Industrial Securities Ltd

[1966] 2 All ER 414

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(Judgment by: Winn LJ)

Between: Kingsley
And: Sterling Industrial Securities Ltd

Court:

Judges: Sellers LJ
Harman 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

Hearing date: 15, 16, 17, 18 February 1966
Judgment date: 31 March 1966

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Judgment by:
Winn LJ

In October, 1963, the plaintiff customer bought a new 3-litre Rover coupe and paid for it, including certain accessories, £2,112, taking delivery on 6 November 1963. Between that date and the beginning of February, 1964, he made very little use of the car, partly because he made a trip to the West Indies. The value stated in the January issue of Glass's Guide for such a car in a new state was a little over £1,900: it follows that a figure of £1,850, ie, £262 less than had been paid some three months before-a figure which is of significance in the circumstances of the present case-does not on the face of the matter appear to be unreal or an unduly inflated estimate of its value. In my judgment this fact is of great significance and a dominant feature of this case.

On 13 February 1964, the plaintiff customer went with his car to see a Mr Dobney, the manager of A Saxon ("Saxon"), who traded as Saxon Finance Agency, and told him that he wished to raise as much money as possible "by financing the car". The customer said expressly in evidence that what he wanted to do was to borrow money on the security of his car. The learned judge found ([1966] 1 All ER at pp 40, 41) as a fact that Mr Dobney told the customer "we are not moneylenders and it cannot be arranged that way", and that Mr Dobney explained to the customer that what he could do was to buy the car and sell it to a finance company who would hire it back on hire-purchase to the customer. The judge accepted ([1966] 1 All ER at pp 40, 41), on the evidence of Mr Dobney and of the customer, that in substance Mr Dobney made it clear that if he entered into such a transaction the customer would part with the ownership of the car, but would be able to recover this by completing the hire-purchase of it from the finance company. Mr Dobney also said in evidence that he told the customer that he was prepared to buy the car at "round about Glass's Guide figure" and gave an approximate value subject to inspection of the car of £1,800 to £1,850. The learned judge did not find specifically whether or not these two statements were made. Manifestly Mr Dobney and his firm were minded to buy the customer's car only if it could be sold on at once to the finance company with which they did all their business, the defendants in the action. Although certain documents were filled in whilst the customer was with Mr Dobney and signed by the customer, and thereafter Mr Dobney visually inspected the car and, having been shown the key by the customer, took possession of the log book, the transaction was not then completed; the customer drove away in his car and continued to keep it in his possession, as it was intended that he should, whatever dealings took place with respect to the ownership of it.

The same afternoon Mr Dobney telephoned to a Mr Smith, the general manager of the defendant finance company, and told him that the customer, whose employment status he described, wished to hire-purchase the Rover from the finance company. Mr Dobney said in evidence, and the judge accepted, that he did not disclose to Mr Smith that the real nature of the transaction was that the customer was selling his own car and then seeking to re-purchase it from the finance company. It seems to me that the learned judge accurately described Mr Smith's attitude when he said ([1966] 1 All ER at p 40):

"... he did not know that this particular transaction which had been put before him was in fact a re-financing operation, and, indeed, he did not care provided that the terms of the hire-purchase agreement were satisfactory in other respects ... "

Mr Smith told Mr Dobney to go ahead; the same afternoon Mr Dobney telephoned to the customer and told him that the matter could go ahead and he was putting a cheque in the post for him straight away. All these matters took place on 13 February though one of the two documents signed by the customer on that day, which appears on the back of the other of those documents, is dated 14 February. The cheque mentioned was dated 13 February and was for the sum of £1,248, drawn to "bearer"; on the back of it was a receipt form signed by the customer, dated 14 February.

The two documents signed by the customer on 13 February consisted of forms appropriate for the conduct of a transaction between a customer and a motor car dealer whereby the customer sells a car to the dealer, or barters it in part exchange, and the dealer supplies to the customer a different car, taking from him either part of the agreed purchase price of the second car or the value of the customer's former car by way of part exchange, and arranges for the balance of the purchase price to be obtained by hire-purchase of the second car from a hire-purchase finance company, to whom the dealer will sell that car for the outstanding balance of the purchase price agreed between him and the customer. Naturally if forms designed to effect such a transaction are used to carry out a refinancing transaction in which the customer sells his own car with a view to re-acquiring it by hire-purchase, they will ill fit the real terms of such a transaction.

In my judgment the time of this court in hearing this appeal has been largely consumed to no good purpose in meticulous semantic discussions of the verbal peculiarities of the documents in question, the only relevance of which-and it is a remote one-would depend on their being shown to be evidentiary of an intent of the parties to the transaction differing in substance from the record thereof which the documents purport to provide. I do not propose to embark on any discussion of such matters.

The judge declared his view ([1966] 1 All ER at p 41) that although Mr Dobney may well have been confused about the meaning of the documents and, indeed, of the true legal analysis of the deal he made with the customer, he, the judge, was ([1966] 1 All ER at p 41) "not prepared to hold that this was a sham. I think that one has to give effect to the documents as they stand". For myself I regard that decision of the judge as one of fact; I am unable to accept the submission that it is a ruling of law founded, inter alia, on the construction of the documents or a mere inference from primary facts. Even if this view be not correct it is nevertheless clear that this court would still be bound to give weight to the judge's ruling or inference: on either footing I am myself of the opinion that the judge's view was sound and I would uphold it.

It is, I think, reasonably clear, though not specifically so stated by the judge, that he intended no less to give effect "as it stood" to another document of which mention has not yet been made. This is a document described as "hire-purchase agreement made between Sterling Industrial Securities, Ltd" (the finance company) and the customer in which the finance company are referred to as "the owner" and the customer as "the hirer". This document was signed by the customer on 13 February and witnessed by Mr Dobney, and by Mr Smith on behalf of the finance company on 17 February. In form this agreement was the same as that of any usual hire-purchase agreement used in transactions where a customer is acquiring a car from a dealer by paying part of its purchase price to the dealer and, after a sale of the car by the dealer to a hire-purchase finance company, undertaking to pay the balance of the purchase price plus interest by instalments to the hire-purchase finance company. I see no indication in the judge's judgment that he drew any distinction between this "hire-purchase agreement" and the other two documents already mentioned in this judgment in respect of the effect which he thought it right to give respectively to them. The judge clearly appreciated, as one would expect of a judge of his great experience and familiarity with commercial affairs, what was the essential question or issue for him to determine for the purposes of the present action with regard to the two transactions, intimately interconnected, which were entered into between the customer and Saxon, and between Saxon and the finance company. He stated it, in my view correctly, as follows ([1966] 1 All ER at p 40): "The material question which may be a matter of difficulty to decide is what was the common intention of the parties." He stated ([1966] 1 All ER at p 40) (as I think, after hearing the arguments in this court, correctly) that this became a question of fact. He proceeded to make what in my view are essential findings of primary facts by saying ([1966] 1 All ER at p 40):

"I, having heard the evidence here, am quite certain of one thing: that the only thing which matters to the [customer] was to get the money, and he did not concern himself at all whether he got it as a straight loan or by some other means. I am also satisfied that when he signed these documents, although he did not read them, he thought that they were, as he said, ordinary hire-purchase documents: I am also satisfied that Mr. Dobney ... did in fact go through the process ... of explaining what the documents meant ... "

The main attack made by the customer in this court on the transactions and the several documents brought into existence to give effect to them or provide evidence of their terms, was on the ground that, as the customer by the most able submission of his counsel, contended, they amounted to bills of sale. It would not have availed the customer to establish that they were, or that either of them amounted to an absolute bill of sale, since notwithstanding any technical objection partially invalidating them or it, such a bill of sale would have remained binding on the customer vis-à-vis the other party to it. Accordingly, the contention necessarily concentrated on establishing a bill of sale by way of security, void if not in accordance with the statutory form; none of these documents was, of course, in accordance with that form.

In my definite view the sole or entirely dominant question on that part of the appeal to which I have so far adverted is whether in reality and on a true analysis of the transactions and each of them, and having regard in particular to the intention of the parties, they constituted loans or sales. It is clear on the authorities that if a transaction is in reality a loan of money intended to be secured by, for example, a sale and hiring agreement, the document or documents embodying the arrangement will be within the Bills of Sale Acts: it is equally clear that each case must be determined according to the proper inference to be drawn from the facts and whatever form the transaction may take the court will decide according to its real substance.

I find a clear and helpful exposition of the matter in two passages in the judgments of this court in Stoneleigh Finance v Phillips . One, where Davies LJ said ([1965] 1 All ER at p 522; [1965] 2 QB at pp 569, 570):

"A sale of goods by A to B followed by a hiring back of the goods by B to A is not, if the parties genuinely intend the transactions to be effective, a bill of sale or otherwise invalid (see Yorkshire Railway Wagon Co. v. Maclure; Eastern Distributors, Ltd. v. Goldring (Murphy, Third Party) ). Still less it is so if the transaction takes the form of a sale by A to B, a sale by B to C and a subsequent hiring by C to A."

Russell LJ also said ([1965] 1 All ER at p 528; [1965] 2 QB at p 579):

"It was pointed out by SIR GEORGE JESSEL, M.R., in Yorkshire Railway Wagon Co. v. Maclure [(1882), 21 ChD at p 314], that both parties to the transaction must intend to mask a mere loan. He there said 'But even if the wagon company understood it as a loan, in order to set aside the deed, that is to treat it as a nullity, you must show that the railway company were parties to the understanding'."

Russell LJ for himself said ([1965] 1 All ER at p 529; [1965] 2 QB at p 580):

"The statutory disability in this case can attach if it is shown that the transaction is on both sides, contrary to the tenor of the documents, intended to create only the relationship of secured creditor and debtor."

In the light of the evidence in this action which I have set out and of the findings of the judge, it is impossible for this court to hold that the customer at the time when he signed the documents intended only to borrow money, or to hold that all the parties to the transaction did not intend that they should have in reality the effect of divesting the customer of ownership of his car and vesting it in Saxon and through Saxon in the finance company. This seems to me to be the end of any discussion of the effect in law of the transactions on the ownership of or title to the customer's car.

It was contended for the customer that apart altogether from the provisions of the Bills of Sale Acts the transactions were rendered illegal by the provisions of a statutory Order to which I am about to turn my attention; but it does not seem to me to follow, from a finding that any particular contract of sale by which the parties intended-as they clearly did in the present case on the findings of the learned judge-to pass property in the article sold by force of the contract itself was illegal, that the property in the article did not pass from vendor to purchaser. In the course of the argument I myself referred to the opinion of the Privy Council in Sajan Singh v Sardara Ali , and I am bound to say that I do not think that that case was satisfactorily distinguished from the present case: although it is true to say that there were two grounds for it, the second of which would have been sufficient alone to sustain it, it is the first ground which is relevant in the circumstances of the case now before this court. In my opinion that does not make the first ground a mere obiter dictum and I think that this court must give due weight to it. In Singh's case the Privy Council was concerned with regulations made in Malaya at the end of the last war, which provided inter alia that no one could lawfully sell any motor vehicle for the carriage of goods without a haulage permit. The plaintiff in the action bought from the defendant one of six motor vehicles which the defendant had acquired from the British Military Disposals Board. Although the plaintiff acquired "ownership" of the lorry from the defendant and operated it for the carriage of goods on his own account, the defendant obtained and held the only haulage permit for that lorry, thereby deceiving the public administration of Malaya and doing so pursuant to an agreement with the plaintiff, to whom no haulage permit would have been issued. Subsequently the defendant took the lorry from the plaintiff and refused to return it. The Privy Council held that notwithstanding that the contract for the sale of the lorry was unlawful, yet when in pursuance of the contract the lorry was sold and delivered to the plaintiff the property in it passed to him and he was entitled to sue the defendant in detinue. I have not, of course, overlooked the fact that in the present case there was no real delivery of the car by the customer to either Saxon or the finance company, but in my opinion it is clear that the parties intended property to pass without delivery, and it is clear from the Sale of Goods Act, 1893, that delivery is not an essential condition of the passing of property unless the parties intend that it should be such a condition.

The ground on which the interrelated transactions to which I have referred are said to have been illegal is that, as it was contended for the customer, they contravened the provisions of the Hire-Purchase and Credit Sale Agreements (Control) Order, 1960. By art 1(1) and art 2(b) respectively of that Order it was enacted that it should be unlawful for any person

(a)

to dispose of any article by hire-purchase or credit sale,

(b)

to be in possession of any article by virtue of a hire-purchase or credit sale agreement, unless the requirements set out in a schedule had been complied with. So far as relevant it was thus required ^[Fd] that:

"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 ... "

Which in the instant case would have been twenty per cent of the aggregate of the cash price. The cash price stated in the hire-purchase agreement of 17 February was £1,850: twenty per cent thereof would be £370. The hire-purchase agreement purported to show that before it was signed an initial payment had been made of £600.

As I have already said, the judge, if, as I think, I have rightly understood his judgment in this respect, held that "one has got to give effect to" this recital in the agreement as well as to the statement to be found in an invoice of 14 February sent by Saxon to the finance company in respect of the car which set out its cash price payable by the finance company to Saxon as £1,850 less "initial payment £600", and thus showed a balance due of £1,250. Equally, in the view of the judge ([1966] 1 All ER at p 41), and in my own view, effect must be given to the two agreements made on 13 February on the front and back respectively of the same piece of paper, reciting that Saxon agreed to pay to the customer for his car £1,848 and that Saxon were to endeavour to arrange to sell the car to the finance company and arrange for the finance company to hire-purchase it to the customer for £1,850 payable by a first deposit of £600 and as to the balance by thirty-six instalments, and to the receipt on the back of the cheque for £1,248 received by the customer from Saxon reciting that that sum was the balance of the purchase price of the car. The relevant effects are, first, that Saxon retained £600 which as purchaser of the customer's car at the price of £1,848 the dealer owned to the customer; second, that Saxon stated to the finance company that the value of the car to Saxon was £1,850 but that Saxon, having received £600 part thereof, required only £1,250 from the finance company for the purchase of the car by the finance company from Saxon. The finance company did pay £1,250 to Saxon as one of the items to which a cheque dated 17 February for £2,430 related.

Two questions then arise:

(a)

was there payment of £600 by the customer to Saxon;

(b)

was such payment "actual payment" within the meaning of the Order of 1960?

I do not myself think it relevant to consider whether there was either payment or actual payment of £600 to the finance company, despite the contrary view expressed by McNair J ([1966] 1 All ER at pp 41, 42) from which I differ with deference.

In my view money may be paid, and in everyday usage constantly is paid, without any currency passing. An obvious instance is where A, being indebted to B in the sum of, say, £10, offers 10 £1-notes to B, who, being himself indebted to the extent of £5 to C, requests A to retain £5 of the notes and hand them to C in discharge of B's indebtedness to C. If this is done B has paid his debt to C though no currency has passed from B to C. In practice in the modern commercial world the mechanism more usually adopted is that of account entries; and I think it is equally true that where X, being a customer of the Y bank with a credit balance on his account, draws a cheque in favour of Z which on presentation to the Y bank is met, and there results a debit entry in X's account, X thereby pays the amount of that debit entry to his bank, the Y bank, in reimbursement of the Y bank for the payment by them of the same amount to Z. Incidentally, if Z also happens to be a customer of the Y bank, payment to him will have been effected by a credit entry in his account with that bank.

It seems to me quite clear that when Saxon, with the consent of the customer, retained £600 part of the £1,848, which Saxon agreed to pay the customer for his car, Saxon thereafter held that sum at the customer's disposal; and that on acceptance by the finance company of the proposal put to them, Saxon applied the £600 on the customer's behalf as part-payment to Saxon of the price of the car, by then Saxon's property, which Saxon were selling to the finance Company: it does not seem to me to be material whether, on a true analysis, Saxon are to be regarded as crediting the finance company with that amount or as taking it for themselves.

The question remains whether the £600 referred to was actually paid, ie whether within the terms of the Order of 1960 "actual payment" was made to the extent of that sum in respect of the car to Saxon and/or the finance company before the hire-purchase agreement was entered into. In my opinion that question should be answered in the affirmative, since I do not think that the Order of 1960 requires payment to be made in currency. Its purpose, in my judgment, is to restrain the mischief of inflating credit by means of what has been called in this appeal "a charade" of payment, and to prohibit bogus pretences of payment designed to present a false picture of the price element of the purchase, in order to conceal the fact that no payment, or no such payment as the Order of 1960 requires, has been made by the customer to the dealer or the finance company before the signing of the agreement.

The final sentence ^[Fe] of para 3 of Pt 1 of Sch 2 to the Order of 1960 recognises that the giving of value may constitute payment within the meaning of the Order and fortifies my view that the provisions of Pt 2 of that schedule have no impact on the facts of the present case.

In my judgment the operative word in those provisions is the word "acquired". This word, used there in association with the word "borrowed" and in relation to the three several situations referred to under (a), (b) and (c) of the Order of 1960, ^[Ff] , does not seem to me capable, on the proper construction of criminal provisions imposing sanctions, of so wide a connotation as such a general word as for example "received" or "obtained". In my view its proper meaning for the purposes of those provisions is synonymous with: obtained otherwise than by exchange or provision of commensurate value. By way of comment I would add that to my mind, apart from any rule of construction which requires any ambiguity in a criminal provision to be resolved in favour of the subject, the word "acquired" generally connotes: getting something for nothing or getting something without giving for it any barter or services constituting a comparable return.

For the reasons which I have endeavoured to express I would allow this appeal both as to the plaintiff customer's claim for the return of the car and as to the defendant finance company's counterclaim.

Appeal allowed on the counterclaim, judgment for the defendant finance company for £174 6s 8d, cross-appeal by the plaintiff customer dismissed. Leave to appeal to the House of Lords refused.