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Hire-Purchase Hardships and Hopes

Published online by Cambridge University Press:  16 January 2009

J. W. A. Thornely
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Extract

Hire-purchase is no longer the preserve of the poor. Since the Second World War it has become respectable and has helped much to raise industrial production and the standard of living. The social importance of the law of hire-purchase has increased proportionately to the leap in the national hire-purchase and instalment debt from some £461,000,000 in 1955 to £950,000,000 in 1961. Public and judicial dissatisfaction with the law has become increasingly apparent. During and since 1961, the centenary of (probably) the first finance company in the world, a vintage crop of cases of major importance has illustrated some of the main defects of the present system and demonstrated the still unsatisfactory position of the hirer. Numerous recent articles in legal and other periodicals harshly criticise the law and urge reforms, some of which were proposed in two abortive Private Member's Bills. Mr. F. Montgomery's Hire-Purchase of Motor-Vehicles Bill failed to get beyond first reading in February 1961 and Mr. W. T. Williams’ Hire-Purchase Bill, designed to extend and supplement the Hire-Purchase Acts of 1938 and 1954, was talked out on second reading in December 1961, after the Parliamentary Secretary to the Board of Trade had recommended the House to await the report of the Molony Committee on Consumer Protection.

Type
Research Article
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The Cambridge Law Journal , Volume 20 , Issue 1 , April 1962 , pp. 39 - 68
Copyright
Copyright © Cambridge Law Journal and Contributors 1962

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References

1 See Harris, Naylor & Seldon, Hire-Purchase in a Free Society, 3rd ed., 39, a most informative book.

2 The North Central Wagon and Finance Co., Ltd.

3 Regrettably “hirer” is sometimes used to denote either the person letting or the person taking the goods on hire-purchase. In what follows “hirer” means the person who takes, and “owner” means the person who lets, goods on hire-purchase.

4 I am particularly indebted to the penetrating articles of Mr. J. S. Ziegel in 104 S.J. 996–1001, 105 S.J. 394–395, 814–816, 838–840. I also owe some of the ideas in this article to Professors E. C. S. Wade and C. J. Hamson and Messrs. T. C. Thomas and F. J. Odgers, my colleagues on a committee of the Cambridge Law Faculty which submitted a memorandum to the Molony Committee on Consumer Protection.

5 See Lowe v. Lombank, Ltd. [1960] 1 W.L.R. 196, 199, 206 (C.A.).Google Scholar

6 See Harris, etc., op. cit., 19–37.

7 Ibid. 38–45.

8 I was told at one multiple store that when the hirer hands in their form of agreement for household goods, duly completed, the name of a subsidiary finance company is inserted in the space left blank for the owner's name. Thus the hirer may not know with whom he is contracting until he later receives a copy of the agreement.

9 [1893] 2 Q.B. 318 (C.A.).

10 [1895] A.C. 471 (H.L.).

11 Where a credit sale is often used, the property passing at once, the price being payable by instalments usually for up to nine months, all instalments becoming immediately payable on any default. See W.D.P., 104 S.J 280–281.

12 s. 9. See also Sale of Goods Act, 1893, s. 25 (2).

13 The Bills of Sale Acts, 1854 and 1866, were repealed and replaced by the Bills of Sale Act, 1878, and, as regards mortgage bills, by the Bills of Sale Act (1878) Amendment Act, 1882. See generally Waldock, Mortgages, 2nd ed., Chap. 5.

14 Including “goods, furniture, and other articles capable of complete transfer by delivery, and (when separately assigned or charged) fixtures…”; Act of 1878, s. 4. Trade machinery is included in the definition by s. 5.

15 Act of 1882, s. 9.

16 Ibid. s. 8.

17 Ibid. s. 7.

18 Ex p. Crawcour (1878) 9 Ch.D. 419 (C.A.); McEntire v. Crossley Brothers, Ltd. [1895] A.C. 457 (H.L.). Both cases concerned conditional sales with postponed transfer of title, but the principle applies equally to hire-purchase.

19 Olds Discount Co., Ltd. v. Cohen [1938] 3 All E.R. 281n.Google Scholar; Olds Discount Co., Ltd. v. John Playfair, Ltd. [1938] 3 All E.R. 275.Google Scholar See also North Central Wagon and Finance Co., Ltd. v. Brailsford [1962] 1 All E.R. 502.Google Scholar An unlicensed moneylender cannot recover money lent. On the points in this paragraph see Bridge v. Campbell Discount Co., Ltd. [1962] 2 W.L.R. 439, 456–457Google Scholar, per Lord Denning.

20 Parl.Deb. (Commons), Vol. 330, cols. 729–770; on report, Vol. 335, cols. 1194–1208.

21 s. 1. The £500 for livestock resulted from Mr. Turton's plea that £100 was too low for farmers, who buy several beasts at a time; Parl.Deb. (Commons), Vol. 335, col. 1197. The £50 limit for vehicles etc. arose from an abortive attempt to fix that limit for a “single article,” Miss Wilkinson admitting that a car was not such; ibid. col. 1198.

22 Also, to prevent evasion of the Act, credit sale agreements if the total price exceeds £5 and is payable by five or more instalments, ss. 3, 21.

23 Ibid. s. 2.

24 Ibid. s. 4.

25 Ibid. s. 5.

26 Ibid. s. 8; see further, Section E, post.

27 Ibid. ss. 9, 15.

28 Ibid. ss. 11–14; Act of 1954, s. 2.

29 See Section D, 2, post.

30 e.g., Kelly v. Lombard Banking Co., Ltd. [1959] 1 W.L.R. 41 (C.A.).Google Scholar

31 See Section C, post.

32 See Section E, post.

33 See e.g., Hire Purchase and Credit Buying (1957), 6, 8–11, published by The National Council of Social ServiceGoogle Scholar (Incorporated) for the National Citizens' Advice Bureaux Committee; The Times, July 1, 1961, p. 6Google Scholar; Credit, Vol. 2, No. 4 (Dec. 1961), published for the Finance Houses Association, Ltd.Google Scholar, passim.

34 [1895] A.C. 471 (H.L.).

35 Such transactions fall outside the scope of this article, but see A. L. Diamond, “Hire-Purchase Agreements as Bills of Sale,” 23 M.L.R. 399–409, 516–536.

36 e.g. the Hire-Purchase Act, 1959 (No. 6531), of Victoria, which will be used in this article as representing the Australian legislation generally. The other States and the Capital Territory adopted similar legislation between 1959 and 1961.

37 In this, as in much else, I am glad to follow the lead of J. S. Ziegel; see his “Hire-Purchase Agreements: A Plea for Greater Realism,” 104 S.J. 996–1001.

38 Cf. Scammell v. Ouston [1941] A.C. 251 (H.L.)Google Scholar; (agreement to supply goods on “hire-purchase terms” held void for uncertainty).

39 See Harris, etc., op. cit., 296–298. The proposed merger of four such London bureaux was recently announced: the Observer, December 3, 1961.

40 See Harris, etc., op. cit., 294–295. Intending hirers or buyers may obtain similar information on applying through a motoring organisation or a Citizens’ Advice Bureau. In over 50 per cent. of inquiries through such bureaux the vehicles concerned proved to be subject to an earlier agreement at the time: London Council of Social Service, Annual Report 1960–1961, 12.

41 See Section E, post.

42 The deposit, if payable in consideration of the option to purchase, is irre-coverable on premature termination: Kelly v. Lombard Banking Co., Ltd. [1959] 1 W.L.R. 41 (C.A.). Interest on overdue payments is usually fixed at 10 per cent., but in one company's form at 12 per cent.

43 The repairer must be previously approved by the owner. Such a prohibition does not prevent a repairer who is ignorant of it from asserting a lien: Albemarle Supply Co., Ltd. v. Hind & Co. [1928] 1 K.B. 307 (C.A.)Google Scholar; unless the agreement has already been terminated: Bowmaker, Ltd. v. Wycombe Motors, Ltd. [1946] K.B. 505.Google Scholar One company provides for automatic termination if the hirer even agrees to deliver the vehicle to a repairer not previously approved in writing, which seems unfair if the owner allows the hirer's name, and not his own, to appear in the vehicle registration book.

44 To safeguard the goods against distress. Some agreements for goods other than vehicles require hirers to give six weeks’ notice before mortgaging their premises and permit repossession in such case. How many hirers realise this?

45 How can this undertaking be literally observed as regards cars?

46 See Section E, post.

47 But not the whole agreement, unless the Hire-Purchase Acts apply.

48 But only by consent or court order if the Acts apply and the hirer has paid at least one-third of the hire-purchase price; Act of 1938, s. 11 (1).

49 Currently refrigerators, washing-machines, wireless and television sets have only a nominal resale value unless traded in for a new model. Mechanical tests for motor-vehicles over 10, and now over 7, years old contributed to a sharp fall in secondhand prices. All too often dealers artificially inflate the cash price, which inevitably accentuates the “depreciation.”

50 But the loss may be due to the owner's decision to terminate rather than to the hirer's actual breach, if slight. See p. 56, post.

51 Act of 1938, ss. 4 (1), 5 (c).

52 Or 50 per cent. for goods other than motor-vehicles.

53 See generally, Cheshire and Fifoot, The Law of Contract, 5th ed., 512–515.

54 [1915] A.C. 79, 86–88.

55 Elsey & Co., Ltd. v. Hyde (1926)Google Scholar; Chester & Cole, Ltd. v. Avon (1929)Google Scholar; Roadways Transport Development, Ltd. v. Browne and Gray (1927)Google Scholar; Chester & Cole, Ltd. v. Wright (1930)Google Scholar; cited in Jones and Proudfoot, Notes on Hire Purchase Law, 2nd ed., 107, 115, 118 and 124 respectively. See also Re Apex Supply Co., Ltd. [1942] Ch. 108.Google Scholar Of these cases the first two involved termination on the hirer's breach; the third, voluntary termination by the hirer; the last two, termination by the owner on the hirer's death and liquidation respectively.

56 See especially Elsey & Co., Ltd. v. Hyde, supra, at p. 113. per Salter, J., cited in Cooden Engineering Co., Ltd. v. Stanford [1953] 1 Q.B. 86. 99.Google Scholar

57 [1938] 2 K.B. 83 (C.A.).

58 Supra.

59 [1955] 1 W.L.R. 391. The owners claimed £122 despite having received more than the full hire-purchase price by resale.

60 [1961] 1 W.L.R. 1379 (C.A.). Lombank, Ltd., the finance company, were joined as co-plaintiffs with the dealers.

61 Ibid. 1385–86.

62 [1962] 2 W.L.R. 439 (H.L.), reversing the Court of Appeal.

63 [1961] 1 Q.B. 445. For comment see [1961] C.L.J. 156–159; 24 M.L.R. 502–510; The Listener, September 21, 1961, 415–417.Google Scholar

64 [1938] 2 K.B. 83 (C.A.), supra.

65 [1953] 1 Q.B. 86 (C.A.), supra.

66 [1962] 2 W.L.R. 439, 447, 457.

67 Ibid. 452–453, per Lord Radcliffe.

68 Only Lord Denning (pp. 460–461) expressed any view as to how the loss should be calculated, i.e., the amount of the money lent (cash price less deposit?) with interest at a reasonable rate up to date of termination of the hiring, less instalments paid and the resale value of the goods. This differs from the basis of calculation where the owner sues for unliquidated damages for breach of contract: see Overstone, Ltd. v. Shipway [1962] 1 W.L.R. 117, post.Google Scholar

69 [1962] 2 W.L.R. at pp. 441–442, 445–446 respectively.

70 Ibid. 455.

71 Ibid. 458.

72 Ibid. 462–463.

73 Lord Morton (p. 447) rejected an argument based on the Hire-Purchase Act, 1938, s. 4 (1), which obliges a hirer who terminates the agreement to make up the sums paid or payable to half the hire-purchase price (unless a smaller amount is agreed), on the ground that s. 4 (1) grants the hirer an option, which can never be penal. Yet s. 5 (c) appears to legalise by implication minimum payments up to half the hire-purchase price where the owner terminates.

74 [1961] 1 W.L.R. 1379 (C.A.), supra; and see Radcliffe, Lord reference to “more elaborate provisions for adjustment according to the circumstances in which the claim falls due,” in [1962] 2 W.L.R. at p. 455.Google Scholar

75 See Clause 8 (iii) of the agreement in Yeoman Credit, Ltd. v. Odgers; Vospers Motor House (Plymouth), Ltd. (Third Party) [1962] 1 W.L.R. 215Google Scholar, where the question of penalties was not raised.

76 [1961] 1 W.L.R. 1124 (C.A.). For comment see 24 M.L.R. 792; 105 S.J. 904–905.

77 Overstone, Ltd. v. Shipway [1962] 1 W.L.R. 117, 125Google Scholar, per Willmer L.J.

78 Ibid. 122–123, 130.

79 [1962] 1 W.L.R. 131. Cf. the method of calculating the rebate with that proposed by J. S. Ziegel, 105 S.J. 394–395.

80 supra.

81 Cf. Alder v. Moore [1961] 2 Q.B. 57 (C.A.).Google Scholar

82 Cf. the Victoria Hire-Purchase Act, 1959, s. 24.Google Scholar

83 Ibid. s. 15 (1) (b), (c).

84 Ibid. s. 13 (1), (2) and Sched. III.

85 Ibid. ss. 13 (3), (4), 14–16 and Sched. IV.

86 Ibid. s. 9 (3).

87 See further, Section F, 3, post.

88 e.g., W. F. Harrison & Co., Ltd. v. Burke [1956] 2 All E.R. 169Google Scholar; Phonographic Equipment (1958), Ltd. v. Muslu [1961] 1 W.L.R. 1379.Google Scholar

89 See, generally, Atiyah, P. S., “Injustices and Anomalies in the Law of Hire-Purchase,” 5 Business Law Review 24–38.Google Scholar

90 Whiteley, Ltd. v. Hilt [1918] 2 K.B. 808 (C.A.).Google Scholar

91 McNair, J. held it inoperative in United Dominions Trust (Commercial), Ltd. v. Parkway Motors, Ltd. [1955] 1 W.L.R. 719.Google Scholar In Spellman v. Spellman [1961] 1 W.L.R. 921Google Scholar Ormerod and Danckwerts L.JJ. thought it would be effective; Willmer L.J. contra. For comment, see [1961] C.L.J. 163; 78 L.Q.R. 30; 24 M.L.R. 789.

92 Except a sale in market overt; Sale of Goods Act, 1893, s. 22.

93 Spellman v. Spellman, supra.

94 supra.

95 The Times, March 22, 1961.

96 For such a scheme see Q.C. in 17 M.L.R. 238 and the abortive Hire-Purchase of Motor Vehicles Bill, 1961, which was not so satisfactory in detail. See also J. S. Ziegel in 106 S.J. 168–169. The Minister of Transport is reported to have instigated an inquiry as to the number of cars fraudulently sold whilst held on hire-purchase; the Daily Telegraph, February 26, 1962, p. 1.Google Scholar

97 See per Master Jacob in Yeoman Credit, Ltd. v. McLean [1962] 1 W.L.R. 131, 133.

98 Cf. the Victoria Hire-Purchase Act, 1959, s. 11.

99 Ibid. s. 9. No further deposit should be payable under any Hire-Purchase and Credit Sale (Control) Order operative at the time.

1 See text and n. 86, ante.

2 Act of 1938, s. 8 (1), (3).

3 Ibid. s. 8 (2), (3).

4 Karflex, Ltd. v. Poole [1933] 2 K.B. 251Google Scholar; explained in Mercantile Union Guarantee Corporation, Ltd. v. Wheatley [1938] 1 K.B. 490.Google Scholar See also Warman v. Southern Counties Car Finance Corporation, Ltd. [1949] 2 K.B. 576Google Scholar, and J. S. Ziegel, 104 S.J. at p. 997.

5 Yeoman Credit, Ltd. v. Apps [1961] 3 W.L.R. 94 (C.A.).Google Scholar

6 [1960] 1 W.L.R. 196 (C.A.).

7 See generally, A. G. Guest, 77 L.Q.R. 98–118; C. Grunfeld, 24 M.L.R. 62–80.

8 Warman v. Southern Counties Car Finance Corporation, Ltd., supra.

9 [1956] 1 W.L.R. 936 (C.A.).

10 [1961] 3 W.L.R. 94 (C.A.), a difficult case; see [1961] C.L.J. 159; 24 M.L.R. 648.

11 The hirer may however have to pay any instalments falling due before he repudiates the agreement and returns the goods.

12 See Guest, A. G., “The Black Sheep of Hire Purchase,” The Lawyer, Vol. 4, No. 3, 35–40.Google Scholar In reply, see ibid., Vol. 5, No. 1, 15–19.

13 Drury v. Victor Buckland, Ltd. [1941] 1 All E.R. 269 (C.A.).Google Scholar But the dealer may be liable in tort for fraudulent misrepresentations, or for negligence on the principle in Donoghue v. Stevenson [1932] A.C. 562Google Scholar, if defects of which he should have known cause injury to the hirer; Andrews v. Hopkinson [1957]Google Scholar 1 Q.B. 229.

14 The Times, September 28, 1960, p. 3.Google Scholar

15 See text and n. 88, ante.

16 See Samuels, A. “New Angles in the Eternal Hire-Purchase Triangle,” 25 M.L.R. 25–35.Google Scholar

17 [1961] 1 Q.B. 431, where, however, substantial justice was done; see [1961] C.L.J. 154. But see Bentworth Finance, Ltd. v. White (1962) 112 L.J. 140.Google Scholar

18 supra. For collateral contracts, see Wedderburn [1959] C.L.J. 58–85.

19 [1962] 1 W.L.R. 215 (C.A.).

20 This sum was claimed “pursuant to the hire-purchase agreement” which, however, specified half the hire-purchase price less instalments paid or due. Since neither hirer nor dealer took this point at first instance, and since the sum claimed differed only by about £2 from that for which the third party was properly liable, the Court of Appeal upheld the award. No question of penalties was raised.

21 Presumably voluntary termination by the hirer would be an equally direct result of the breach of warranty, carrying liability for all instalments paid and any “minimum payment” recoverable by the company.

22 See e.g. Long v. Lloyd [1958] 1 W.L.R. 753Google Scholar (a sale); see [1958] C.L.J. 166.

23 Cf. the Victoria Hire-Purchase Act, 1959, s. 6.Google Scholar

24 See the Finance Houses Association, Ltd.'s press-release of December 7, 1961.Google Scholar

25 See “The Law Relating to Hire-Purchase,” 58 Law Soc.Gaz. 612–614, replying to Williams, E. A., “The Problem of Hire-PurchaseGoogle Scholar,” ibid. 545–547.

26 Dr. L. S. Sealy tells me that this method is widely used in New Zealand and seems to cause less difficulty.

27 See especially Ziegel, J. S., “Hire-Purchase Beform,” I and II, 105 S.J. 814–816, 838–840, and the symposium in Credit, Vol. 2, No. 4 (Dec. 1961).Google Scholar

28 See text and notes 97, 98, ante.

29 See the Financial Times, “New Thinking in Hire Purchase,” December 21, 1961, p. 8Google Scholar, and Hirsch, F., “Finance Houses and the public,” Credit, Vol. 2, No. 4. 94–98.Google Scholar

30 See Which?, Spring 1958, 7–13; ibid. May 1961, 103–107; J. S. Ziegel, 105 S.J. 815–816.

31 In August 1961 the Finance Houses Association, Ltd.'s Code of Practice bound members to reduce discounts from 15 per cent. to 10 per cent. of the hire charges. This restriction has now been abandoned due to the unilateral decision of the most powerful member to give discounts of up to 20 per cent. depending on the amount of business introduced by a dealer and of bad debts resulting from such introductions; the Financial Times, March 7, 1962, pp. 1, 3, 10Google Scholar; the Guardian, March 7, 1962, p. 20.Google Scholar Thus the dealer, not the hirer, benefits from the latter's creditworthiness.

32 Campbell Discount Co., Ltd. v. Gall [1961] 1 Q.B. 431Google Scholar illustrates the possible consequences.

33 Cf. the Victoria Hire-Purchase Act, 1959, s. 38.Google Scholar

34 See the Finance Houses Association, Ltd.'s press-release of December 7, 1961.Google Scholar