Barber v NWS Bank plc

[1996] 1 All ER 906

---

(Decision by: Sir Roger Parker)

Between: NWS Bank plc
And: Barber

Court:

Judges: Kennedy LJ
Peter Gibson LJ

Sir Roger Parker

Subject References:
sale of goods
Conditional sale agreement
Agreement for sale of car
Agreement including clause that seller was owner
Purchaser discovering existence of prior finance agreement in name of a third party with moneys outstanding
Seller aware of prior interest
Whether term in agreement that seller was owner of car a condition entitling purchaser to rescind agreement and recover moneys paid
Whether purchaser took good title

Legislative References:
Hire Purchase Act 1964 - s 27

Case References:
Bunge Corp v Tradax SA - [1981] 2 All ER 513; [1981] 1 WLR 711, HL
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd - [1962] 1 All ER 474; [1962] 2 QB 26; [1962] 2 WLR 474, CA
Karflex Ltd v Poole - [1933] 2 KB 251; [1933] All ER Rep 46, DC
Warman v Southern Counties Car Finance Corp Ltd (W J Ameris Car Sales, third party) - [1949] 1 All ER 711; [1949] 2 KB 576
Butterworth v Kingsway Motors Ltd, Hayton (third party), Kennedy (fourth party), Rudolph (fifth party) - [1954] 2 All ER 694; [1954] 1 WLR 1286, Assizes
Heaysman's and Tweedy's Contract, Re - (1893) 69 LT 89, CA
Lipkin Gorman (a firm) v Karpnale Ltd - [1992] 4 All ER 512; [1991] 2 AC 548, HL
Mercantile Union Guarantee Corp Ltd v Wheatley - [1937] 4 All ER 713; [1938] 1 KB 490
Rowland v Divall - [1923] 2 KB 500; [1923] All ER Rep 270, CA
Stirrup's Contract, Re - [1961] 1 All ER 805; [1961] 1 WLR 449
Universal Cargo Carriers Corp v Citati - [1957] 3 All ER 234; [1957] 2 QB 401, CA

Hearing date: 10, 11 October 1995
Judgment date: 17 November 1995

---

Decision by:
Sir Roger Parker

SIR ROGER PARKER (giving the first judgment at the invitation of Kennedy LJ). On or shortly before 10 October 1989 Mr Barber, the appellant, saw and test-drove a Honda Accord car, registration E320 WHC, then in the possession of and apparently owned by Kestrel Garages (Eastbourne) Ltd (Kestrel). He decided to buy it.

A cash price of £7,995 was agreed, of which an initial deposit of £3,800 was to be satisfied by the acceptance of Mr Barber's Audi car in part exchange. The transaction was to be and was carried out by the familiar mechanism of a sale by Kestrel to a finance company, in this case the respondent, NWS Bank plc (the bank), and the bank then agreeing to sell to Mr Barber on the terms of a conditional sale agreement regulated by the Consumer Credit Act 1974 (the agreement). This provided, inter alia, that Mr Barber should pay the balance of the cash price within ten days of the making of the agreement, whereupon the property in the car would pass to him, but that he should have the option of deferring payment. If the balance was not paid within that time Mr Barber would be deemed to have exercised the option and the passing of the property in the goods would then be subject to cl 6 of the agreement, which provided:

'Upon the Customer duly paying to the Company the said Balance of the Total Cash Price and all other sums (if any) payable by the Customer hereunder the property in the Goods shall pass to the Customer but until such time the property in the Goods shall remain vested in the Company.'

Mr Barber did not pay the balance of the cash price within ten days but duly paid the instalments of purchase price and interest provided for by the agreement until 2 May 1991. He was then in difficulty meeting the instalments and decided that he would like to sell the Honda, purchase a cheaper car and pay off the bank out of the proceeds. He asserts, but it is not accepted, that he inquired of the bank whether he could do this and was told it was in order.

On 25 May Mr Barber was made an offer for the Honda by a garage called Lewis Road Car Sales. Having thought it over he decided to accept it. On 28 May he telephoned the garage with the intention of accepting it only to be told that there was a prior finance agreement with moneys outstanding and that no dealer would touch it.

Mr Barber then left it to his wife to make inquiries. After ascertaining that the prior agreement appeared to be with Mercantile Credit Co Ltd, she handed the matter over to solicitors, Messrs Slaughter & May, who, by letter to the bank dated 10 June 1991, sought clarification. After considerable delay the bank replied on 10 July in the following terms:

'... Notification was received from HPI Plc as to registration of a prior interest in the vehicle by Mercantile Credit Company Limited and I am awaiting clarification from them as to their interest but to date, they have failed to reply to my letter of 12th February 1991 in relation thereto.

The vehicle was supplied to my client by Kestrel Garages (Eastbourne) Limited but the copy Hire Purchase agreement provided by Mercantile Credit Company Limited is in the name of Car Comfort Hire Limited and no explanation has been provided therefor.

The number of the agreement at Mercantile Credit is 03/5806 9345-6 and their reference SD/ SB90111443SB.CAD2 is dealing with this matter.

I note that there are arrears under the agreement with your client in the sum of £769·33 and I must request his reasonable proposals for settlement thereof failing which, I will have no alternative but to enforce the agreement against him without further reference ...'

This letter is revealing. It makes it clear that the bank already knew by 12 February 1991 of the fact that Mercantile Credit had registered a prior interest but had apparently done nothing about it. It also makes it clear that, prior to 12 February, it had obtained from Mercantile Credit a copy of the prior hire purchase agreement from which it would have known from whom Mercantile Credit had acquired the car and that the hirer under that agreement was Car Comfort Hire Ltd (Car Comfort).

In these circumstances the last paragraph is, to say the least, surprising.

At this point I interrupt the chronology to mention that it later emerged that the first registered keeper of the Honda was a Mr Williams, that Mr Williams owned and controlled both Car Comfort and Kestrel and that both these companies operated from the same address. Whether the bank was aware of any of these facts is not known but it could not have been difficult to find them out.

Slaughter & May sought further explanation from the bank and, when none was forthcoming, wrote on 16 August 1991 rescinding the conditional sale agreement. The relevant paragraph reads:

'On the grounds that you do not have title to the vehicle today, we rescind this contract on behalf of our client, as there has been a total failure of consideration. We ask that you return all the instalments paid by Mr. Barber to date. He will put the car at the disposal of the true owner.'

On 21 August the bank replied saying, inter alia, that the rescission was not accepted and that the claim for a refund of the deposit and instalments would be strenuously defended.

Further correspondence ensued in which, on 2 September, the bank stated that, without admitting the claim of Mercantile Credit, they had paid it in full.

On 25 September the bank served on Mr Barber a default notice under s 87(1) of the 1974 Act. This concludes the essential background.

On 9 October 1991 Slaughter & May issued a writ on behalf of Mr Barber claiming, inter alia, a declaration that the conditional sale agreement had been validly rescinded by their letter of 16 August and the return of all moneys paid thereunder as moneys paid upon a consideration which had wholly failed.

Pleadings followed in which the bank counterclaimed delivery of the Honda, arrears of £1,522·17 and interest. Thereafter, by summons under RSC Ord 14A issued on 16 July 1992, Mr Barber sought the determination of five questions of law and construction.

They were as follows:

'1.

Whether it was an express and/or implied condition of the agreement that the Defendant was at the date of the agreement the owner of the motor car the subject of the said agreement.

2.

Whether it was an implied condition of the agreement that the Defendant was at the date of the agreement entitled to give the Plaintiff an option to purchase the said motor car. [We gave leave to amend this question so that the option was described as "an option to complete the purchase of the said motor car at any time."]

3.

Whether the Defendant's inability at the date of the agreement to say with certainty that it would have the right to sell the motor car at the date when property in the motor car was to pass to the Plaintiff was a breach of the condition implied under section 12(1) of the Sale of Goods Act 1979 that "NWS bank PLC will have a right to sell the motor car at the time when the property is to pass".

4.

Whether in the events that have happened the Plaintiff was entitled, as he purported to do by letter dated 16th August, 1991, to rescind the agreement and to demand repayment of all monies paid to the Defendant thereunder.

5.

Whether in the events that have happened the default notice referred to at paragraph 15 of the Amended Defence and Counterclaim herein had its intended or any effect.'

The summons was heard by Master Creightmore who, by order dated 8 March 1993, ordered that questions 1, 2 and 4 be answered in the affirmative, that question 5 be answered in the negative, that Mr Barber be at liberty to sign judgment for £6,850·58 (being the total of deposit and instalments paid) and for damages and interest to be assessed and that the bank pay Mr Barber's costs in any event.

The bank appealed and the appeal was heard by Sir Gervase Sheldon, sitting as a deputy judge of the High Court, on 23 April 1993. He ordered that the appeal be allowed, that the master's order and any judgment pursuant thereto be set aside, that all moneys paid by the bank thereunder be refunded forthwith, that Mr Barber's claim be dismissed, and that the bank be at liberty to enter judgment for £1,522·17 arrears and interest and their costs of the claim, counterclaim and appeal.

The judge did not in his order answer any of the five questions, but in his judgment he, in effect, answered questions 1, 2, 3 and 4 in the negative and question 5 in the affirmative.

Leave to appeal to this court was refused but was later granted by Evans LJ.

Before us the dispute was narrowed in the course of argument when Mr Milligan QC for the bank accepted that the term set out in question 1 was an express term of the agreement. I regard this acceptance as being both correct and unavoidable and not only by virtue of the express wording of cl 6 of the contract. In addition Mr Barber was, as I have said, under the primary obligation to pay the balance of the purchase price within ten days of the making of the 10 October agreement. He could thus have tendered the balance immediately after the agreement was made, upon which the property was to pass to him. Furthermore, Kestrel's declaration, which is addressed to the bank and is on the same page as and immediately below Mr Barber's signature to the agreement, contains the following:

'On your acceptance of the Agreement, title shall pass to you º

I/We warrant that: 1. The Goods are my/our sole property free of any encumbrance ...'

This declaration was initially, but mistakenly, signed by Mr Barber. There can be no doubt, therefore, that its terms were known to the bank, Mr Barber and Kestrel and form part of the factual matrix.

Although the express term is accepted, before an answer can be given to question 1 it has to be determined whether the term was a condition, breach of which would give a right to rescind, as Mr Strauss QC for Mr Barber contends, or only a warranty or innominate term, breach of which would give only a right to recover proved damages, as Mr Milligan contends.

In my judgment there can be no doubt but that the term was a condition. It was fundamental to the transaction that the bank had the property in the Honda at the time of the agreement and would retain it until paid in full the moneys due under the agreement. Only on this basis could the agreement operate. My conclusion follows the decisions in Karflex Ltd v Poole [1933] 2 KB 251, [1933] All ER Rep 46 and Warman v Southern Counties Car Finance Corp Ltd (W J Ameris Car Sales, third party) [1949] 1 All ER 711, [1949] 2 KB 576. These cases are not binding on us but in my view are plainly right. For the bank Mr Milligan relies principally on certain passages in the judgments in Bunge Corp v Tradax SA [1981] 2 All ER 513, [1981] 1 WLR 711 and Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 1 All ER 474, [1962] 2 QB 26 but in my view they do not avail him. This term is not one which admits of different breaches, some of which are trivial, for which damages are an adequate remedy, and others of which are sufficiently serious to warrant rescission. There is here one breach only. In truth the express term, in my view, puts the parties in the same position as if this was a sale rather than an agreement to sell. Upon a sale it is an implied condition that the seller has a right to sell the goods (s 12 of the Sale of Goods Act 1979) and I can see no reason why, if there is an express term that the seller has and will retain the property in the goods, it should not have the same quality.

I would thus answer question 1, with the omission of the words 'and/or implied', in the affirmative. This has the immediate consequence that questions 2 and 3 do not arise and require no answer. I turn therefore to question 4.

If in fact the bank had no title it must follow that Mr Barber was entitled to rescind and that the answer to the first part of the question must be in the affirmative. Mr Milligan contends that the question whether the bank had or had not title requires investigation at trial and cannot be answered at this stage. It is, says he, neither proved nor admitted. However, it has been known to the bank since 12 February 1991 if not before that Mercantile Credit were asserting title, that the hirer from them was Car Comfort and that Mercantile Credit's interest was registered with HPI plc. The identity of the seller to Mercantile Credit was also known. In addition the bank have, they say, albeit after the letter of rescission, paid Mercantile Credit in full. In the absence of evidence to the contrary the inescapable inference from these facts is that the bank did not have title to the car either at the date of the agreement or at any time thereafter prior to Mr Barber's letter of rescission. The bank had from 12 February 1991 to August 1991 to investigate Mercantile Credit's claim before they paid it. They have had, since then, four years in which to investigate that claim with Car Comfort, Mercantile Credit, Kestrel and the seller to Mercantile Credit. They have produced no evidence to show or even suggest that it was invalid. However, Mr Milligan made a number of suggestions as to how it might be found invalid, including a suggestion that the figures showing Car Comfort's outstanding indebtedness might be due to typing or accounting error. I fear I regard these suggestions as fanciful. He further stressed that under Ord 14A the bank had no obligation to file evidence. This is, of course, true, but I fail to see how it helps him. The bank is at liberty to file evidence and indeed have in limited and cautious terms done so, but nothing has appeared to impugn the clear inference from the known facts. If they choose to produce no evidence they must take the consequences. I can only conclude that the inference from those facts cannot be displaced. I am reinforced in this conclusion by the fact that, on behalf of the bank, Mr Milligan declined to produce the copy of the Mercantile Credit agreement held by the bank and said that to do so would 'open the door' or be 'the thin end of the wedge'. In the result I conclude that the bank were in breach of the fundamental term and, subject to one point, that Mr Barber was entitled to rescind the agreement.

I should perhaps mention that a contention, advanced by the bank in their skeleton argument, that s 25(1) of the 1979 Act afforded a defence to the alleged breach was abandoned during the hearing before us.

For an answer to the second part of question 4 it is then necessary to determine whether Mr Barber is entitled to recover all moneys paid under the agreement notwithstanding that he had the use of the car for a considerable time without let or hindrance. On the established authorities he is so entitled but, for the first time before us, it was submitted that Mr Barber was not in any event entitled to recover the deposit of £3,800 on the ground that it had not been paid to the bank but to Kestrel and that any claim lay against Kestrel; alternatively that Mr Barber could only recover a like amount to that which the bank could recover against Kestrel (which is insolvent); further that the bank had changed its position and it would be inequitable for Mr Barber to recover any more than that. I reject all of these contentions. It is in my view plain on the documents that Kestrel received the deposit as agent for the bank. It is not inequitable in all the circumstances for Mr Barber to recover the full amount of the deposit and instalments from the bank.

In the light of my above conclusions question 4 should be answered in the affirmative and question 5 in the negative.

The outstanding point, to which I have earlier referred, is a last minute contention on behalf of the bank that they have a complete or partial answer to the claim by virtue of the provisions of s 27(3) of the Hire Purchase Act 1964. This point, owing to the lateness with which it was advanced, was not the subject of more than a cursory response on behalf of Mr Barber. However, on studying the section in full it appeared to us that it might be without substance by virtue of sub-s (6) of the section. We therefore invited further argument. The parties agreed that the matter be dealt with by way of written submissions. These were duly provided.

Section 27(1) provides that the provisions of the section shall have effect where a motor vehicle has been let under a hire purchase agreement or has been agreed to be sold under a conditional sale agreement, and before the property in the vehicle has become vested in the hirer or buyer, he disposes of the vehicle to another person.

It appears that in this case Car Comfort disposed of the vehicle to Kestrel before the property had passed. The section therefore applies.

Section 27(2) applies only where such disposition is to a private purchaser and is not therefore relevant.

Subsection (3) provides:

'Where the person to whom the disposition referred to in subsection (1) above is made (the "original purchaser") is a trade or finance purchaser, then if the person who is the first private purchaser of the motor vehicle after that disposition (the "first private purchaser") is a purchaser of the vehicle in good faith and without notice of the [hire purchase agreement or conditional sale agreement], the disposition of the vehicle to the first private purchaser shall have effect as if the title of the [owner or seller] to the vehicle had been vested in the [hirer or buyer] immediately before he disposed of it to the original purchaser.'

On the face of it this appears to apply to the facts of the case but sub-s (6) provides:

'Nothing in this section shall exonerate the [hirer or buyer] from any liability (whether criminal or civil) to which he would be subject apart from this section; and, in a case where the [hirer or buyer] disposes of the motor vehicle to a trade or finance purchaser, nothing in this section shall exonerate-

(a)

that trade or finance purchaser; or

(b)

any other trade or finance purchaser who becomes a purchaser of the vehicle and is not a person claiming under the first private purchaser,

from any liability (whether criminal or civil) to which he would be subject apart from this section.'

In the present case the hirer referred to is Car Comfort. The section is therefore not to exonerate it from any criminal or civil liability to which it would be subject apart from the section. Car Comfort's disposition was to Kestrel, a trade or finance purchaser. Accordingly, nothing in the section is to exonerate it or any other trade or finance purchaser, in this case the bank, from any liability that it would have been under apart from the section.

In my judgment the clear meaning of this is that if, apart from the section, the bank is liable to refund all the moneys paid to Mr Barber, the section does not avail it. Its liability is unaffected. This accords with the clear object of the section, which is designed to protect private purchasers and those claiming under them, but not either the original hirer or buyer or any intervening trade or finance company from their full civil or criminal liabilities.

For the above reasons I would allow the appeal, set aside the judgment of the judge and restore the order of Master Creightmore. It would appear to follow that the counterclaim should be dismissed even if it were not the case that it has now transpired that the bank, on any view, owes Mr Barber some £600 on the entire transaction.