By Martin Ward, Shoosmiths
At common law, a person who does not own an asset cannot pass good title to a third party. However, Part III of the Hire Purchase Act 1964 (HPA 1964) reverses this common law principle for dispositions of motor vehicles in specific circumstances.
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An innocent private purchaser for value gains title to a motor vehicle where he purchases it from a customer in possession of the vehicle under an unsatisfied hire purchase or a conditional sale agreement.
In such circumstances, it appears the finance company will lose title to the vehicle, and will only be left a claim against the customer for the outstanding sum on the hire purchase or conditional sale agreement.
However, this is not necessarily the case. Each innocent purchaser case should be reviewed carefully as Part III HPA 1964 sets out very specific criteria for an innocent purchaser to meet before he can trump the finance companies’ title. By way of example, Part III HPA 1964 only protects the private purchaser. A person who is a motor-dealer is not deemed to be a private purchaser even if he purchases a vehicle in a private capacity.
Another criteria to be met is that the disposition of the motor vehicle from the rogue to the innocent purchaser must be a valid disposition within the meaning of s29(1) HPA 1964. This was the point that was decided in the recent case of VFS Financial Services Limited v J F Plant Tyres Limited (2013).
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By GlobalDataVFS Financial Services Limited had let a Volvo FM420 8×4 truck on hire purchase terms first to Slingsby Plant Hire Limited and then, by way of novation, to another related company, Doncaster Aggregates Limited. VFS subsequently terminated the agreement for non-payment of rental instalments. It then transpired that Doncaster had parted with possession of the vehicle to JF Plant Tyres Limited, which refused to return the vehicle.
JF Plant contended that Doncaster gave the vehicle to it in satisfaction of debts owed by Slingsby and Doncaster, alleged to amount to c£45,000, entitling it to the innocent purchaser protections under the HPA 1964. To formalise the arrangement, Doncaster issued a purported invoice for the sale of the vehicle to JF Plant for £89,896.79 (including VAT).
VFS subsequently issued a claim for conversion and applied for an injunction against JF Plant for the immediate delivery of the vehicle. Prior to the injunction application being heard, JF Plant agreed to deliver up the vehicle to VFS, with the vehicle to be sold by VFS and the proceeds of sale held on trust until the outcome of the legal proceedings.
Once the vehicle was secured and sold, VFS applied for summary judgment against JF Plant on the basis that its taking of the vehicle in settlement of the debts of Doncaster and Slingsby did not amount to a ‘disposition’ within the meaning of s.29(1) HPA 1964.
S29(1) HPA 1964 defines a disposition as "any sale or contract of sale, any bailment…and includes any transaction purporting to be a disposition (as so defined) and ‘dispose of’ shall be construed accordingly."
There is no definition of ‘sale’ or ‘contract of sale’ in the HPA 1964, but such a definition can be found in s.2, Sale of Goods Act 1979: "A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price."
This definition was recognised by Nourse J in Re Westminster Property Group plc (1984), where he held that: "The authorities establish that in legislative usage…the word ‘sale’ denotes an exchange of property for cash and not for other property."
In granting VFS’ application for summary judgment, the Court held, without there being an element of money consideration, an agreement whereby a vehicle is transferred cannot amount to a sale or a disposition for the purposes of the HPA 1964. It is for this reason that gifts, contracts of exchange or barter are not contracts of sale – fatally to JF Plant’s case, nor are arrangements whereby property is taken in settlement of a debt.
Analysis
This is a decision of note for motor financiers. An innocent purchaser can only claim the protections of the HPA 1964 where the disposition of the vehicle constitutes a sale or an analogous transaction.
Where a vehicle is given as a gift, exchanged for other goods (or another vehicle), or given to settle a debt, the third party will not be entitled to the protections of the HPA 1964, and the finance company will retain title to the vehicle. However, if the vehicle is part-exchanged for another vehicle with some cash element, the third party will be entitled to claim title to the vehicle under the HPA 1964.
Martin Ward is an associate at Shoosmiths who acted for VFS in this matter
