Australian Guarantee Corporation Ltd v Ross

[1983] 2 VR 319

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(Judgment by: Young CJ)

Between: Australian Guarantee Corporation Ltd
And: Ross

Court:

Judges:
Young CJMurray 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

Hearing date: 17-22 November 1982
Judgment date: 16 December 1982

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Judgment by:
Young CJ

In the proceedings in which this appeal is brought the plaintiff Ross claimed damages for the loss of use of a vehicle taken on hire-purchase from Australian Guarantee Corporation Ltd. (which I shall refer to as "AGC") and for the failure of AGC to repay the moneys paid by her. In the particulars of her demand the plaintiff alleged that by an agreement dated 1 February 1980, AGC had agreed to hire to the plaintiff a Ford Cortina motor vehicle registered number ARM 741 with an option to purchase the same. It was further alleged in para.3 of the particulars as follows:--

"(a)

It was an implied condition on the part of the Defendant in respect of the said agreement that it would have the right to sell the said vehicle at the time the property was to pass.

(aa)

Alternatively there was an implied or expressed condition on the part of the Defendant that at the time of the agreement and subsequent thereto it would have title to the said vehicle.

(b)

There was an implied warranty by the Defendant that the Plaintiff would have and enjoy quiet possession of the said vehicle.

(c)

Further, it was a term of the said agreement that the Plaintiff would have the entitlement to finalize the agreement at any time by paying or tendering to the Defendant the balance due to the Defendant pursuant to the Hire Purchase Agreement and thereby obtain property in the said vehicle."

It was further said that the said condition, warranty and term were implied by the provisions of s5 and s11 of the Hire-Purchase Act 1959. Then it was alleged that at the time possession was given to the plaintiff pursuant to the agreement, the vehicle was a stolen one and that the defendant did not then or at any other time have any right or title to the same. Next it was alleged that the plaintiff upon becoming aware of the fact that the vehicle was stolen gave notice to the defendant that she rescinded the agreement. Finally there were allegations that the defendant had failed to pay the moneys paid by the plaintiff totalling $3010 and she claimed damages. By way of defence AGC pleaded that on 31 October 1980 it obtained all right and title in the said vehicle and that the plaintiff was estopped from denying such right and title.

The defendant AGC joined a third party the appellant Duhig Ford Pty. Ltd. but since the defendant and the third party have made common cause on the appeal it is unnecessary to deal further with the third party proceedings.

The case was tried in the County Court upon an agreed statement of facts. Duhig Ford Pty. Ltd. bought the vehicle on 16 January 1980, in good faith and purported to sell it in good faith to AGC on 1 February 1980. The hire- purchase agreement between AGC and Ross was entered into on 5 February 1980, when Ross took possession of the vehicle. The Victoria Police, however, seized the car from Ross on 7 September 1980, and Ross purported to rescind the agreement on 11 September 1980. Title to the vehicle was transferred to Duhig Ford Pty. Ltd. on 31 October 1980, but the vehicle was not released by the police until 11 August 1981.

Since the plaintiff relied in her particulars upon s5 of the Hire-Purchase Act it will be as well to set out subs(1) of that section. It reads:

"(1)

In every hire-purchase agreement there shall be--

(a)

an implied warranty that the hirer shall have and enjoy quiet possession of the goods;

(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;

(c)

an implied warranty that the goods will be free from any charge or encumbrance in favour of any third party (other than a charge or encumbrance created by or with the consent of the hirer) at the time when the property is to pass."

It is plain that para.(b) of that sub-section is sufficient to imply the term alleged by the plaintiff in para.3(a) of her particulars but it is to no avail for the plaintiff because it was common ground that the time the property was to pass was upon the exercise of the option to purchase in the hire-purchase agreement. That time never arrived for the plaintiff never exercised her option to purchase.

The plaintiff was accordingly obliged to rely upon the condition alleged in para.3(a)(a). Unless she could find a condition with which AGC had not complied, she could not rescind the agreement. Breach of the other terms upon which she relied would only give her a right to damages.

The learned trial Judge found that the plaintiff was entitled to rescind. I quote two paragraphs from his Honour's reasons for judgment:

"Although in terms s5(1)(b) does not require the owner to have the right to sell the goods to the hirer at any time before the hirer is entitled to ownership in my opinion the section should not be interpreted so as to compel a hirer to continue to make payments under a hire-purchase agreement although the other party had and has no rights whatsoever in respect of the goods. In my view it is fundamental notwithstanding s5 that the owner is required to either be the owner of the goods or to be entitled to compulsorily acquire title to the goods."

A little later his Honour said:

"In other words in my view the effect of s5(1)(b) is to equate the positions of hirer and owner to the positions of purchaser and vendor of real estate under a terms contract and that therefore the hirer is entitled to rescind a hire-purchase agreement if the other party has neither right or title to the goods nor the right in law to compulsorily acquire ownership or the power to pass ownership to the hirer."

I take his Honour to mean by these passages that the allegation of an express or implied condition in para.3(a)(a) of the plaintiff's particulars was made out.

It is clear, however, that there was no express condition that AGC would have title to the vehicle at the time of the agreement as alleged in para.3(a)(a) (which I take to mean at the time of the making of the agreement). Nor did s5(1)(b) serve to imply such a condition until the time when the property in the vehicle was to pass. If the allegation is to be treated as made out therefore it must be upon the basis that there was an implied condition in the hire-purchase agreement that at the time of the agreement AGC would have title to the vehicle. S5(5) provides that nothing in the section is to 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.

There are, however, at least two reasons why in my opinion such a condition as the plaintiff alleges should not be implied into the hire-purchase agreement. The first is that it is not necessary to do so in order to give business efficacy to the agreement. There is no reason why the vendor under a hire- purchase agreement (called the "owner" in the Hire-Purchase Act and in the agreement) should have title to the goods let on hire-purchase at the time of the making of the agreement. It is sufficient that he has title at the time when the property is to pass as recognized by s5(1)(b) of the Hire-Purchase Act and in the light of that provision I think it is impossible to imply a more stringent condition. The second is that the hire-purchase agreement contains a clause reading:--

"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."

The second sentence of that clause seems to exclude the implication sought to be made. For these reasons I think that the plaintiff failed to make out the basis for an entitlement to rescind the contract on which she relied. The case is on all fours in this respect with Richards v Alliance Acceptance Co. Ltd., [1976] 2 NSWLR 96 in which the majority of the Court of Appeal of New South Wales held that the hirer could not recover the deposit paid upon a vehicle found to have been stolen when he purported to rescind the agreement. Samuels and Mahoney, JJA held that the hirer could not rely upon the implied condition as to title appearing in s5(1)(b) because the time for its fulfilment had not arrived and that an implied condition based upon Karflex Ltd. v Poole, [1933] 2 KB 251 , at p. 265 was excluded by CL8 of the hire-purchase agreement. Samuels, JA, in reasoning with which I respectfully agree also held that the description "owner" in the agreement could not be relied upon as having any contractual or representational force to mean that the person so described was indeed the owner. Mahoney, JA also held in the particular case that, even if the plaintiff had the right to rescind the transaction, he had not effectively done so. Although Richards' Case is not technically binding upon us, I do not see any reason why we should not follow it.

The plaintiff's particulars might also be taken to claim damages for breach of the warranty of quiet possession but as no evidence was called in the County Court upon which an assessment of the damages suffered could be made there is some difficulty in the plaintiff's now relying upon that claim.

It was suggested during argument that the plaintiff might be able to support the judgment upon the basis that there had been a total failure of consideration. It is a question however whether the respondent should be allowed to rely upon such a contention. The general rule is that a respondent can support a judgment appealed from upon any ground which was open to him in the court below. Now the case was not put in the County Court upon the basis of a total failure of consideration but in my opinion sufficient appeared in the plaintiff's particulars of demand to permit the case to be considered upon the basis of a total failure of consideration and it is clear that the appellant could have led no evidence relevant to that issue which was not already before the Court.

The question whether there was a total failure of consideration depends upon the nature of the rights sought to be conferred upon the hirer by the hire- purchase agreement. In Warman v Southern Counties Car Finance Corporation Ltd., [1949] 2 KB 576 , at p. 582; [1949] 1 All ER 711 , at pp. 712-13 Finnemore, J. 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 it is common knowledge--and I suppose, common sense--that when people enter into a hire-purchase agreement they enter into it not so much for the purpose of hiring, but for the purpose of purchasing, by a certain method, by what is, in effect, deferred payments, and that is done by this special kind of agreement known as a hire-purchase agreement, the whole object of which is to acquire the option to purchase the chattel when certain payments have been made."

It is not, however, possible or correct to treat a hire-purchase agreement as though it were two separate agreements. This is because the consideration payable by the hirer is in part payment for the hire and in part instalments of the purchase price. The question is what rights were conferred upon the hirer by the agreement. They can be summarized I think by saying that they were rights to possession of the vehicle for the duration of the agreement or until the prior exercise of the option to purchase. AGC was not obliged to have a right to sell the vehicle until the option to purchase was exercised (Hire-Purchase Act 1959, s5(1)(b) and s11) but the agreement provided in CL10 that until the exercise of the option the hirer should only be a bailee of the vehicle. The hirer is however a special sort of bailee for part of every payment which he makes is an instalment of the purchase price. Thus if it should turn out that the owner in unable to give to the hirer an indefeasible right to possession, indefeasible, that is to say, at the suit of a third party, the hirer cannot have had what he bargained for and there has been a total failure of consideration.

In Karflex Ltd. v Poole, [1933] 2 KB 251 , at pp. 265-6, Goddard, J. (as he then was) left open the question whether a hirer who had enjoyed the use of property the subject of a hire-purchase agreement, could recover all moneys paid as upon a total failure of consideration where the "owner" failed to make title or whether he was obliged to give some allowance for the use of the property hired.

In Rowland v Divall, [1923] 2 KB 500 the plaintiff bought a motor car from the defendant and used it for several months before he discovered that the defendant had no title to it. The plaintiff was compelled to surrender it to the true owner. The Court of Appeal held that the plaintiff could recover all that he had paid for the vehicle as upon a total failure of consideration. The Court said that the plaintiff had not received any portion of what he had agreed to buy and thus there was a total failure of consideration notwithstanding that the plaintiff had had some use of the vehicle.

Similarly in the present case I do not think that the plaintiff received any part of what she had agreed to take on hire-purchase. The instalments she paid were part of the purchase price and when the vehicle was seized by the police and taken from her she was entitled to rescind the agreement and to recover all that she had paid. Finnemore, J. in Warman's Case, from which I have already quoted, held that where a finance company had a defective title the hirer was entitled to recover the whole of the instalments paid as upon a total failure of consideration. It is true that that was a case of the owner's being unable to transfer title and it might be said that in the present case the time for transferring property in the vehicle had not arrived, but I think that the rights which the present plaintiff lost when the vehicle was seized by the police were just as fundamental to the hire-purchase agreement as the loss suffered by the hirers in Rowland v Divall and Warman's Case. I think that the decision in Yeoman Credit Ltd. v Apps, [1962] 2 QB 508 ; [1961] 2 All ER 281 is clearly distinguishable. In that case the vehicle in question was found not to be fit for the purpose for which it was hired and that there had accordingly been a breach of an implied condition of the agreement giving the hirer a right to repudiate it. It was further held, however, that there had not been a total failure of consideration because the hirer had not rescinded the agreement. Instead he had retained the vehicle for several months and approbated the agreement by paying three instalments. See also Richards v Alliance Co. Ltd., [1976] 2 NSWLR 96, at p. 100, where Hutley, JA, the dissenting member of the Court, expressed his concurrence with the judgment of Finnemore, J. in Warman's Case and added the pertinent comment from Paton on Bailment in the Common Law, p. 323: "Why should the hire-purchaser be forced to pay rent to the vendor for the use of a car belonging to a third party?"

I agree with Finnemore, J. that the real object of a hire-purchase agreement is usually purchase and not hire and as AGC was unable to give the hirer the right to possession against the true owner for the whole of the period of the agreement, there was a total failure of consideration. It is nothing to the point that the occasion had not arisen for the transfer of the property when under s5(1)(b) AGC would have been obliged to have a right to sell. It was essential to the agreement that the plaintiff have the right to exclude all comers from possession for the whole of the term of the agreement. The fact that she did not obtain such a right even at the outset means that there was more than a mere breach of the warranty of quiet possession implied by s5(1)(a): there was in my opinion a total failure of consideration. I agree, however, with Murray, J. whose judgment I have had the advantage of reading, that in the final analysis it is not significant in this case whether there was a breach of a fundamental condition or a total failure of consideration. Marks, J. in his judgment which I have also had the advantage of studying has drawn attention to what Bray, CJ said in Van Reesema v Giameos (No. 1) (1978) 17 SASR 353, at p. 374, an observation I would respectfully adopt.

I would dismiss the appeal.