Innocent purchaser claims are an occupational hazard for motor finance companies. An innocent third party who purchases
a vehicle without notice of the finance agreement can "trump" a finance company’s claim to title under the Hire Purchase Act 1964 (HPA) where the requirements of s27 HPA have been fulfilled. One such requirement is that there must be a "disposition" from
the hirer to the third party. A recent case has confirmed that such a "disposition" must involve a money transaction.
In VFS Financial Services Ltd v JF Plant Tyres Ltd [2013], the claimant let a truck on hire purchase terms to a firm (Slingsby) and subsequently to its related company (Doncaster). The claimant terminated the HP agreement following non-payment, but could not repossess the truck which was in the defendant’s possession. The defendant asserted title to the truck, alleging that both Slingsby
and Doncaster had been indebted to it in excess of £45,000 and had offered the truck in settlement of the debts.
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Doncaster had issued an invoice to the defendant for the sale of the truck for more than £89,000. The claimant brought an action for wrongful detention and conversion.
Section 27 HPA provides that where a disposition is to a private purchaser in good faith and without notice of the hire purchase agreement or conditional sale agreement, the disposition takes effect as if the title to the vehicle had passed to the debtor immediately before the sale. In this way, the innocent purchaser obtains good title.
The issue was whether there had been a "disposition". Did taking property in lieu of a debt amount to a sale or contract for sale, so as to come within the definition of "disposition" under s29 HPA? That section defines "disposition" as including a "sale" or "contract of
sale". On the defendant’s own case, no money had passed between it and Doncaster.
The defendant argued there had been two transactions. The first had been the provision of services by it to Slingsby and Doncaster, for which it issued an invoice, but which remained unpaid. Secondly, the truck was sold to the defendant with the sum payable being set-off against the debt owed pursuant to the defendant’s unpaid invoice. The defendant argued these transactions evidenced a
"disposition", despite neither transaction involving the physical transfer of money.
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By GlobalDataThe High Court held the concept of sale has long been associated (both at common law and in statute) with a money transaction. It held that "disposition" under the HPA requires the vehicle in to have been transferred in return for money.
There was no suggestion the truck was sold for a price, and payment subsequently agreed to be made by offsetting the debt.
Also, the debt owed to the defendant was only half the value of the invoice. It an odd barter! Judgment was given for the claimant.
Comment
This case confirms that some monetary consideration must pass from the third party to the hirer. Where no money passes, in
the battle of the innocent parties, the finance company will win.
Greg Standing is a partner in Wragge & Co’s motor finance litigation team
