Law Report: Bank had no title to car sold on hire purchase

LAW REPORT: 1 December 1995; Barber v NWS Bank plc; Court of Appeal 17 November 1995

Barber v NWS Bank plc; Court of Appeal (Lord Justice Kennedy, Lord Justice Peter Gibson and Sir Roger Parker) 17 November 1995

It was a condition of a hire- purchase agreement that the bank financing the transaction had title to the goods and was able to pass it on to the purchaser once he had completed payment. If the goods were still subject to a prior finance agreement, so that title had not yet passed to the vendor, the purchaser was entitled to rescind the hire-purchase agreement, reclaim the money already paid and return the goods.

The Court of Appeal unanimously allowed an appeal by the plaintiff, Barry William Barber, reversed the decision of Sir Gervase Sheldon sitting as a deputy High Court judge on 23 April 1993, and restored the decision of Master Creightmore on 8 March 1993, ruling in the plaintiff's favour on questions of law raised by summons under Order 14A of the Rules of the Supreme Court, and awarding him judgment against the defendant bank for pounds 6,850.58 with damages and interest to be assessed.

Nicholas Strauss QC and David Walbank (Slaughter & May) for the plaintiff; Iain Milligan QC and Michael Wood (Kathryn Cook, Chester) for the defendant.

Sir Roger Parker said that in October 1989 the plaintiff bought from Kestrel Garages (Eastbourne) Ltd a Honda Accord motor car for pounds 7,995. A deposit of pounds 3,800 was satisfied by part exchange of his old Audi car. The remainder was to be paid through the familiar mechanism of a sale by Kestrel to a finance company, in this case the defendant bank, and the bank then agreeing to sell to the plaintiff under a conditional sale agreement regulated by the Consumer Credit Act 1974.

Clause 6 of the agreement provided:

Upon the customer duly paying to the company the said balance of the total cash price . . . 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.

The plaintiff paid the instalments until May 1989 but then decided to sell the Honda, buy a cheaper car, and pay off the bank out of the proceeds. He wished to accept an offer from Lewis Road Car Sales but was told there was a prior finance agreement with monies outstanding and that no dealer would touch it.

It transpired that another finance company, Mercantile Credit Co Ltd, had registered a prior interest in respect of the earlier hire purchase of the car by Car Comfort Hire Ltd, which operated from the same address as Kestrel and was owned by the same man. The plaintiff sought to rescind the agreement with the defendant bank on the ground that the bank had no title, and claimed repayment of instalments paid so far. The bank counterclaimed for arrears.

The bank now accepted that it was an express term of the agreement that it was at the date of the agreement the owner of the car, so that once the balance had been paid the property would pass to the plaintiff. The question was whether, as the plaintiff contended, this term was a condition, breach of which of which would give him the right to rescind, or merely a warranty or innominate term, breach of which would only give him the right to recover damages, as was contended by the bank.

In his Lordship's judgment, the term must be 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. Only on this basis could the agreement operate.

If the bank had no title, the plaintiff was therefore entitled to rescind and to recover all monies paid under the agreement, notwithstanding that he had use of the car for a considerable time.

It followed that the plaintiff's appeal should be allowed and the bank's counterclaim dismissed.

Lord Justice Peter Gibson and Lord Justice Kennedy agreed.

Paul Magrath, Barrister