Bridge v Campbell Discount Co Ltd

[1962] 1 All ER 385

---

(Judgment by: LORD DENNING)

Bridge
vCampbell Discount Co Ltd

Court:

Judges: VISCOUNT SIMONDS
LORD MORTON OF HENRYTON
LORD RADCLIFFE

LORD DENNINGLORD DEVLIN

Hearing date: 22, 23, 27, 28 NOVEMBER 1961
Judgment date: 25 January 1962

UK

---

Judgment by:
LORD DENNING

My Lords, in order to determine this case it is as well to remember what is the nature of a hire-purchase transaction. It is in effect, though not in law, a mortgage of goods. Just as a man who buys land may raise part of the price by a mortgage of it, so, also, a man who buys goods may raise part of the price by hire-purchase of them. And just as the old mortgage of land was not what it appeared to be, so, also, the modern hire-purchase of goods is not what it seems to be. One might well say of a hire-purchase transaction what Maitland said of a mortgage deed: "That is the worst of our mortgage deed ... it is one long suppressio veri and suggestio falsi": see his Lectures On Equity (2nd Edn) (1949), p 182. Take this present transaction. If you were able to strip off the legal trappings in which it has been dressed and see it in its native simplicity, you would discover that the appellant agreed to buy a car from a dealer for £405 but he could only find £105 towards it. So he borrowed the other £300 from a finance house and got them to pay it to the dealer, and he gave the finance house a charge on the car as security for repayment. But if you tried to express the transaction in those simple terms, you would soon fall into troubles of all sorts under the Bills of Sale Acts, the Sale of Goods Act, and the Moneylenders Acts. In order to avoid these legal obstacles, the finance house has to discard the role of a lender of money on security and it has to become an owner of goods who lets them out on hire: see Re Robertson, Ex p Crawcour , McEntire v Crossley Brothers, Ltd . So it buys the goods from the dealer and lets them out on hire to the appellant. The appellant has to discard the role of a man who has agreed to buy goods, and he has to become a man who takes them on hire with only an option to purchase: see Helby v Matthews . And when these new roles have been assumed, the finance house is not a moneylender but a hire-purchase company free of the trammels of the Moneylenders Acts: See Transport & General Credit Corpn, Ltd v Morgan ([1939] 2 All ER at p 28; [1939] Ch at p 551). So you arrive at the modern hire-purchase transaction whereby (i) the dealer sells the goods to a finance house for cash; and (ii) the finance house lets them out on hire to a hirer in return for rentals which are so calculated as to ensure that the finance house is eventually repaid the cash with interest; and (iii) when the finance house is repaid, the hirer has the option of purchasing the car for a nominal sum. The dealer is the intermediary who arranges it all. The finance house supplies him with the printed forms, and he gets them signed. In the result, the finance house buys a car it has never seen, and lets it to a hirer it has never met, and the dealer seemingly drops out.

When hire-purchase transactions were first validated by this House in 1895 in Helby v Matthews , the contract of hire had most of the features of an ordinary hiring. In particular, the hirer was at liberty to terminate the hiring at any time without paying any penalty. He could return the goods and not be liable to make any further payments beyond the monthly sum then due. There was no clog on his right to terminate. And this was one of the reasons why the House saw nothing wrong with the transaction. Lord Macnaghten in characteristic fashion pointed out what a benefit this was to the hirer ([1895] AC at p 482):

"... if a coveted treasure is becoming a burthen and an encumbrance it is something, surely, to know that the transaction may be closed at once without further liability and without the payment of any forfeit ."

Since that time, however, the finance houses have imposed a serious clog on the hirer's right to terminate the hiring. They have introduced into their printed forms a "minimum-payment" clause such as never appeared in Helby v Matthews . The clause in this case is a good example. The minimum payment is two-thirds of the hire-purchase price. The respondents stipulate that, if the hiring be terminated for any reason before the car has become the property of the hirer, then the hirer must deliver up the car in proper condition and also make up the payments to £321 13s 4d in all. Now the appellant only had this car for eight weeks. He has already paid £115 10s. He delivered it up in good condition. So the respondents have the car back. Yet they claim another £206 3s 4d from him, so as to make up £321 13s 4d altogether. In the result, it means that he must pay £321 13s 4d for eight weeks use of the car.

What possible justification have the finance houses for inserting this "minimum-payment" clause? They call it "agreed compensation for depreciation". But it is no such thing. It is not "agreed". Nor is it "compensation for depreciation". There is not the slightest evidence that the appellant ever agreed it, and I do not suppose for a moment that he did. He simply signed the printed form. And as for "depreciation", everyone knows that a car depreciates more and more as it gets older and older, but this sum gets less and less. It is obvious that the initial rental of £105 (which was one-quarter of the cash price) would compensate at once for a twenty-five per cent depreciation; and the monthly rentals covered any remaining depreciation over the next three years. The truth is that this minimum-payment is not so much compensation for depreciation but rather compensation for loss of the future instalments which the respondents expected to receive, but which they had no right to receive. It is a penal sum which they exact because the hiring is terminated before two-thirds has been paid. In cases when the hiring is terminated, as it was here, within a few weeks, it is beyond doubt oppressive and unjust. Is not, this, then, a classic case for equity to intervene? The contract is contained in a printed form. Not one hirer in a thousand reads it, let alone understands it. He takes it on trust and signs it. It is binding at law but, when it comes to be examined, it is found to contain a penalty which is oppressive and unjust. It seems to me that such a case comes within the very first principles on which equity intervenes to grant relief.

"The whole system of equity jurisprudence proceeds upon the ground that a party, having a legal right, shall not be permitted to avail himself of it for the purposes of injustice, or fraud, or oppression, or harsh and vindictive injury", see Story's Commentaries On Equity Jurisprudence (1839), Vol II, p 508.

The Court of Appeal acknowledge that, in some cases, there is room for the intervention of equity. They accept that, where the hiring is terminated because the hirer is in breach, equity will relieve him from payment of the penalty: see Cooden Engineering Co, Ltd v Stanford . But they say that, when it is terminated for any other reason, as, for instance, if the hirer gives notice of termination himself, or if he dies, there is no equity to relieve him or his executors from the rigours of the law: see Associated Distributors, Ltd v Hall . The jurisdiction of equity is confined, they say, to relief against penalties for breach of contract and does not extend further. Applied to this case it means this: If the appellant, after a few weeks, finds himself unable to keep up the instalments and, being a conscientious man, gives notice of termination and returns the car, without falling into arrear, he is liable to pay the penal sum of £206 3s 4d without relief of any kind; but if he is an unconscientious man who falls into arrear without saying a word, so that the respondents re-take the car for his default, he will be relieved from payment of the penalty. Let no one mistake the injustice of this. It means that equity commits itself to this absurd paradox: It will grant relief to a man who breaks his contract but will penalise the man who keeps it. If this be the state of equity today, then it is in sore need of an overhaul so as to restore its first principles. But I am quite satisfied that such is not the state of equity today. This case can be brought within long-established principles without recourse to any new equity. From the very earliest times, equity has relieved not only against penalties for breach of contract, but also against penalties for non-performance of a condition. And the stipulation for a "minimum-payment" was, it seems to me, a penalty which was payable on non-performance of a condition. The respondents said to the appellant: "If the hiring is terminated for any reason before you have paid £321 13s 4d, then you must make up the payments to that sum". The condition was designed to ensure that he should pay a minimum sum of £321 13s 4d. If he fulfilled that condition, he was not liable to pay any penalty; but, if he did not perform it, he had to pay the difference. The principal object was to secure a minimum payment of £321 13s 4d. The condition was the means of achieving it.

To prove this point, I need not dwell on the cases of penalties for breach of contract. Their name is legion, and no one disputed them before your Lordships. A good instance is Sloman v Walter , to which your Lordships were referred. But I must draw attention to the cases of penalties for non-performance of a condition. They, too, are legion. Take mortgages for instance. At law, the mortgagor was subject to a penalty for non-performance of this condition: "If you repay the money on this day six months, you shall have the land back: but if you do not repay it by that date, you shall lose it for ever", see Coke On Littleton, s 332. The court of equity always relieved the mortgagor in case of non-performance of this condition, and it did so, not by reason of any specialty about mortgages, but in pursuance of its general power to relieve against penalties: see Kreglinger v New Patagonia Meat & Cold Storage Co, Ltd ([1914] AC at p 35) by Viscount Haldane LC. Take next the common penalty bond. It was taken in order to secure that something should be done by the obligor, such as to be of good behaviour (or to pay an annuity, or anything else). The obligor bound himself by his bond to pay a specified sum, say £20, on some such condition as this: "If you are of good behaviour (or pay the annuity, or whatever else it might be), this obligation shall be void: but if you do not do so, then this obligation shall be of full force and effect." In many of those cases, there was no covenant by the obligor to perform the condition; no covenant by him to be of good behaviour (or to pay the annuity or to do anything else); no covenant on which he could be sued at law; but simply a bond that, if he did not perform the condition, he would pay the specified sum. There was thus no breach of contract for which he could be sued at law for damages, but only non-performance of a condition which exposed him to payment of the sum specified in the bond. Yet equity always granted relief in such cases if the sum was a penalty: see, for instance, Tall v Ryland ((1670), 1 Cas in Ch at p 184), Collins v Collins ((1759), 2 Burr at p 826) and the very learned note by Mr Evans in his appendix to Pothier On The Law Of Obligations (1806), p 92; and it did so not by reason of any specialty about penalty bonds, but in pursuance of its general power to relieve against penalties. It would restrain the obligee from suing at law on the bond so long as the obligor was ready to pay him the damage he had really sustained. Likewise, even when the sum had already been paid over in the shape of a deposit to secure performance, equity would be prepared to grant restitution if it was a penal sum: see Benson v Gibson by Lord Hardwicke LC, Steedman v Drinkle by Viscount Haldane.

In my judgment, therefore, the courts have power to grant relief against the penal sum contained in this "minimum-payment" clause, no matter for what reason the hiring is terminated. The "minimum-payment" clause is single and indivisible, and no just distinction can be drawn between the cases where the hirer is in breach and where he is not. I find myself in entire agreement with the judgment of Lord MacDermott CJ in Lombank, Ltd v Kennedy, Lombank, Ltd v Crossan from which I have profited much. I do not think that Associated Distributors, Ltd v Hall was rightly decided. This conclusion is not affected by the provision of the Hire-Purchase Act, 1938. The legislature deliberately left transactions above £300 to the existing rules of the common law and equity; and it is these that I have considered. If I am wrong about all this, however, and there is no jurisdiction to grant relief unless the hirer is in breach, then I would be prepared to hold that, in this case, the appellant was in breach. Not that I think the point is at all clear. The pleadings are ambiguous. The evidence is scanty. But I think that any ambiguity should be resolved in his favour. His conduct should be interpreted on the assumption that he would do that which is the least burdensome to him, rather than that which is the most profitable to the hire-purchase company; cf Withers v General Theatre Corpn, Ltd ([1933] All ER Rep at pp 389, 390; [1933] 2 KB at pp 548, 549) per Scrutton LJ. For this reason, I would be prepared, if necessary, to hold that the hiring was terminated by a repudiation which was accepted. If so, the appellant was in breach and will qualify for relief under the authority of Cooden v Stanford which all your Lordships hold to be rightly decided. In any case, however, when relief is given, it does not mean that the hire-purchase company will recover nothing. When equity granted relief against a penalty, it always required the recipient of its favours, as a condition of relief, to pay the damage which the other party had really sustained. A quantum damnificatus was issued to determine it. On payment of the damage, equity granted an injunction to restrain the other party from proceeding to enforce the penalty at law. Now that equity and law are one, the hire-purchase company should recover its actual damage, and such damage should be assessed according to the realities and not according to any fiction. The respondents should recover the money they have advanced with interest at a reasonable rate up to the time when the hiring was terminated, less the instalments already received and the sum which the car might reasonably be expected to realise when it was delivered up to them.

I would, therefore, allow this appeal, and remit the case to the county court judge so that he may determine the amount of damage, if any, which the respondents have sustained, and give judgment for that sum only.