Motor finance
companies are often faced with claims from individuals claiming to
be innocent private purchasers under section 27 of the Hire
Purchase Act 1964.
In Sitton v Porsche
Financial Services GB Limited (2012) Mr Palmer acquired a
Porsche from the defendant under a hire purchase
agreement.
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He failed to comply with the
agreement and eventually the defendant seized the car and sold it.
By that stage, Mr Sitton claimed that title in the car had passed
to him under s27.
Section 27 applies where a
car has been bailed or conditionally sold and, before title in the
car vests in the debtor, he disposes of it to a private purchaser
in good faith and without notice of the hire purchase or
conditional sale.
The section provides that
disposition shall have effect as if the creditor’s title had vested
in the debtor immediately before the disposition so enabling good
title to pass.
There was no question that
Sitton had acted in good faith and without notice of the
defendant’s interest. The question was whether there had been a
disposition by Palmer triggering the operation of s27.
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By GlobalDataThe evidence indicated that
Sitton had acquired the car from a company (Elite) owned by Palmer,
rather than from Palmer direct.
Sitton sought to argue either
that Palmer had first sold the vehicle to Elite or that Elite had
sold to him as Palmer’s agent, and that there had therefore been an
initial disposition by Palmer.
There was no evidence that
Palmer had transferred the car to Elite. It was not registered in
Elite’s books and Palmer had continued to pay the finance agreement
even after the sale to Sitton. Sitton argued that Palmer must have
sold to Elite as a matter of common sense. The defendant argued
that common sense was irrelevant when Palmer was involved in fraud
and criminal activity. Moreover, the continued payment of
instalments after the sale to Sitton would not have occurred if
title had already passed to Elite.
The court found there had
been no disposition to Elite. There was no evidence that the car
had been brought into Elite’s accounts as an asset or of Elite
claiming VAT.
This, together with Palmer’s
continued payment of the instalments, was inconsistent with the car
having been transferred to Elite. There was also no evidence that
Elite had acted as Palmer’s agent on the sale.
The protection of s27 was not
therefore available to Sitton. The defendant had retained good
title to the car and was entitled to repossess and sell
it.
Things to
consider
Had there been evidence of a
disposition between Palmer and Elite, then Sitton would have had
the protection of s27 as such scenarios are provided for. When
faced with claims under s27, finance companies should look very
closely at the chain of dispositions to determine whether the
private purchaser is an innocent purchaser within the meaning of
s27.
Wragge & Co acted for
Porsche Financial Services in this case.
Greg Standing is a
partner in Wragge & Co’s motor finance litigation
team
