Australian Guarantee Corporation Ltd
v Balding

Judges: Isaacs J
Starke J

Dixon J

Subject References:
Contract
Hire purchase agreement
Assignment
Future debts
Non-registration
Invalidity of assignment

Legislative References:
Instruments Act 1915 (Vic) No 2672 - ss 127, 180, 181
Instruments Act 1928 (Vic) No 3706 - ss 27, 80, 81

Sydney

Judgment by:
Dixon J

DIXON J. Turner Bros. carried on a business in the course of which they disposed of motor-cycles upon hire-purchase agreements. They entered into an arrangement with the Australian Guarantee Corporation Ltd for a supply of ready money in advance of the instalments of hire which should be received under the hire-purchase agreements. The practice was for Turner Bros. to indorse these instruments for the purpose, as counsel agree, of assigning to the Corporation all their right, title and interest in and to the contract therein contained, and in exchange for the documents, so indorsed, the Corporation paid Turner Bros. a sum equal to 91 per cent of the instalments of hire receivable during the then next succeeding twelve months. The transactions were not registered under Part IX. of the Victorian Instruments Act 1915 (now 1928), which avoids unregistered assignments of book debts, and the question is whether registration was necessary. The answer depends upon the further question whether the instalments receivable under the hire-purchase agreements were "book debts" within the statutory definition contained in s. 180 (now s. 80). By this definition the phrase "book debts" means any debt due or to become due at some future time to any person on account of or in connection with any profession trade or business carried on by such person whether entered in any book or not and includes future debts of the same nature although not incurred or owing at the time of the assignment (subject to some exceptions not presently material).

The hire-purchase agreements all followed one form. This form commenced with an acknowledgment by the hirer that he had received the motor-cycle from the owner, Turner Bros., on hire, subject to the terms and conditions thereinafter mentioned. The first of these terms and conditions required the hirer forthwith to pay a specified sum for a stated term from the date of the agreement. The second said that if, on the expiration of that term, the hirer should desire to continue to have the further use of the motor-cycle for a similar term or terms, and should intimate such desire to the owner by payment on or before a specified day of a stated sum, being rent in advance, and should continue to pay a stated sum at specified times, then he might continue to have the use of the motor-cycle, while he should continue to make the periodical payments and comply with the conditions. The third of the terms and conditions enabled the hirer, after the expiration of the first term of hire, to determine the hiring by delivering up the vehicle and paying all rent then accrued due for the hiring up to the expiration of the current term of hiring. The fourth clause entitled the hirer at any time during the hiring to purchase the motor-cycle by paying the difference between a specified sum and the amount of hire which the hirer had already paid. The ninth of the terms and conditions said that if the hirer should make any default in payment of the sum payable upon delivery to him of the vehicle or in the due payment of any one of the (periodical) payments for rent therein provided for and in certain other events, the owner should be at liberty to retake the bicycle and to recover from the hirer all rents or moneys agreed to be paid for the hire thereof and (sic) which might be due and unpaid at the time of seizure. The tenth of the conditions contains a promise by the hirer to pay all moneys payable under the within (sic) agreement to the within-named (sic) owner in Melbourne.

Among the remaining clauses, one (the fifth) provides for promissory notes, which, however, in practice, were never given.

The first object of such a contract as this is to prevent the property in the goods passing to the hirer before he pays the specified sum in full. The next object is to avoid imposing any obligation upon the hirer to buy the goods and thus making him a person who has agreed to buy goods within the meaning of the provisions which stand in England as s. 9 of the Factors Act 1889; and s. 25 (2) of the Sale of Goods Act 1893, and in Victoria as s. 31 of the Goods Act 1928. To avoid making the hirer a person who has agreed to buy, it is necessary to abstain from expressing in the agreement a promise by him to pay future instalments of hire, because, in the aggregate, they amount to the sum which entitles the hirer to the property in the chattel and by promising to pay the price of the goods he would "agree to buy them" (Lee v Butler ^[F21] ; Suttons Pty Ltd v Richards ^[F22] ; and see Taylor v Thompson ^[F23] ). And it is none the less an agreement to buy if it is defeasible (Yule Bros. v Sims ^[F24] ). But a provision enabling the hirer to terminate the hiring at his will is no mere condition subsequent or resolutive condition, defeating an agreement. It is inconsistent with the existence of any agreement to buy at all (Helby v Matthews ^[F25] , particularly at p. 476; Yule Bros. v Sims).

When these considerations are applied in examining the hire-purchase agreement in the present case, it appears that the hirer took the chattel upon a continuous bailment terminable when he chose, after the expiration of the first period: that by paying instalments in advance he became entitled to retain the motor-cycle for each successive period, but that upon his failure to do so, the owner became in his turn entitled, if he chose, to terminate the bailment and recover the chattel. It further appears that the hirer did not contract in advance to pay the full specified sum, whether by way of hire or otherwise. On the other hand the language of clauses 3, 9 and 10, considered with the rest of the agreement, leaves no doubt that the hirer did contract to pay an instalment of hire for every separate period or term of hire during any part of which he retained the chattel and to pay it in advance. Thus as soon as he successively entered upon each of the periodical terms of hire he would become liable for the rent or hire for that term or period. But if the hire agreement were strictly performed, payment in advance would discharge this liability as and when it arose. The case may therefore be considered as if all that was assigned was a right to future periodical payments of hire due in advance by a bailiee at will. In such a case there would be no debitum in prcesenti, no "future debt incurred or owing at the time of the assignment." But why are not the instalments "future debts not incurred or owing at the time of assignment"? The agreement treats the sums as potential debts which may be recovered and in respect of which there may be default. The only answer available seems to be the contention that if payment were made in advance according to the tenor of the agreement no debts would arise. This answer is not accurate. As Lord Campbell said in Timmins v Gibbins ^[F26] , "it is difficult to say that there be any case in which the debt is not antecedent to the payment.

Even where the money is paid over the counter at the time of the sale, there must be a moment of time during which the purchaser is indebted to the vendor." The payment is made in advance to await application in discharge of an indebtedness which arises under the agreement eo instanti when enjoyment of the consideration commences. The substance of the matter is that the benefit of probable future debts is assigned whether they be paid in advance or arrear, and this is fairly within the words and the policy of the definition of "book debts." The assignment of the future payments of hire or purchase-money was therefore void.

A further question arose in the Court below. It appears that after the deed of arrangement was made the trustee, the respondent upon this appeal, took possession of some motor-cycles in the hands of persons who had received them from Turner Bros. under hire-purchase agreements but who were in default. The Corporation contended that it was entitled to the general property in motor-cycles so seized or alternatively to a charge or other equitable security thereover. The first of these alternatives is founded upon the suggestion that the assignment by Turner Bros. to the Corporation of a hire-purchase agreement involved a transfer of the ownership of the motor-cycles to which it related. This suggestion is erroneous in fact. The subject of the assignment was the contract; the benefit of rights arising from the engagement into which the hirer had entered with Turner Bros. and not the latter's proprietary rights in the goods which were in course of disposal under the agreement. It is true that each hire-purchase agreement contains a clause authorizing Turner Bros. to repossess the motor cycle upon the hirer's default. But this bare right of seizure is not assignable without the property in the goods, and an assignment of that property cannot be inferred or implied from an attempt to assign the right of seizure.

The second alternative upon which the Corporation relies depends upon the meaning and effect of a general agreement made between Turner Bros. and the Corporation on 3rd July 1925 incorporating the terms of an arrangement made with the Corporation's predecessor in title on 10th August 1922. This stipulates for an assignment by way of security of hire-purchase agreements and policies of insurance. It then provides that in the event of default by hire-purchasers Turner Bros. are to indemnify the Corporation "and if required by" the Corporation "so to do to take possession of the motor vehicle and to hold same on behalf of and generally to act as agents for" the Corporation "in connection with such vehicle." These provisions are purely contractual in their character and did not operate to create in the Corporation an equitable interest in the chattels. If before the deed of arrangement a request had been made, pursuant to the clause last stated, in respect of a specific motor-cycle or cycles, an equitable interest therein might have arisen. But no such request was made, and therefore, at the time of the deed of arrangement no equity existed which could affect the title of the trustee.

Whether registration as a bill of sale would have been necessary if an assignment of property in the motor-cycles which were on hire or the creation of some equitable interest therein had been in fact attempted, is a question which does not call for decision.

The decision below should be affirmed.

No point was taken either here or below as to the ambit of s. 206 of the Bankruptcy Act 1924-1929 under which the application was made to the Court in Bankruptcy, and we have not felt called upon to consider the extent of that section or the effect of In re Ellis ^[F27] .