Although rare, motor finance companies enter into bills of sale for a purpose – to retain security over the vehicle that is the subject of the loan. Thankfully, the Court of Appeal has recently confirmed the sanctity of that security.
In Evans and Evans v Finance-U-Limited, the Evanses entered into a loan agreement with the defendant for the purchase of a car. A bill of sale was also entered into giving the defendant security over the car. The loan agreement typically provided that failure to pay instalments or the bankruptcy of one or both of the Evanses entitled the defendant to demand early repayment. The bill of sale entitled the defendant to take possession of the car on similar specified events.
Mr Evans was made bankrupt. The defendant proved in his bankruptcy for the total amount outstanding. The defendant received a small dividend which was credited against the outstanding loan amount.
Mrs Evans continued to pay the instalments but was also subsequently made bankrupt. The defendant served a default notice under Section 87 of the Consumer Credit Act 1974 (CCA). The Evanses argued that the defendant no longer had any right to enforce its security over the car as their contractual liability had been discharged by their respective bankruptcies and the defendant had already proved in Mr Evans’s bankruptcy. At first instance, the court agreed. It found the Evans jointly, not jointly and severally, liable. It held the defendant’s failure to enforce its security following the first bankruptcy disentitled it from thereafter seeking to enforce the loan on the basis the loan agreement continued to apply and an instalment had been missed.
In a favourable judgment for finance companies, the Court of Appeal disagreed. It held the defendant’s contractual right to enforce repayment was replaced by a right to prove for the debt in the bankruptcy. Although his bankruptcy released Mr Evans from any personal claim against him, the defendant did not lose the right to enforce its security as the price for proving in the bankruptcy. It retained that right but chose, on payments being made by Mrs Evans, not to enforce it.
Further, Mrs Evans had not been released from the debt by Mr Evans’s bankruptcy as the court found them to be jointly and severally liable, not simply jointly liable, under the loan agreement. Following Mr Evans’ bankruptcy, the debt continued against Mrs Evans. Following her bankruptcy, she also was released from further personal claims.
At the time of the trial, the term of the loan agreement had expired and the defendant was no longer required to give statutory notice of possession under the CCA. The defendant could rely upon the bankruptcies themselves as a basis for recovering the car under the bill of sale. That right had not been waived by subsequent events. The defendant was entitled to an order for delivery up.
Had the Court of Appeal found otherwise, the security provided by the bill of sale would, in effect, have been worthless.
Greg Standing is a partner in Wragge & Co’s motor finance litigation team