The information contained in this publication is for guidance only. No responsibility can be accepted by Lester Aldridge LLP, the author, or by external contributors, for action taken as a result of the information contained in this publication. It is not intended to be an exhaustive statement of the law or a substitute for seeking specific advice.
Title to Goods
When we talk about “title” to goods, we ask the question: “who is the owner?”
In some cases you will be the owner, but you will not be entitled to possession. For example, you have agreed that your customer may have possession under a hire agreement. While the hire agreement persists, you cannot take back possession
Insolvency does not “rob” you of your ownership
Nemo Dat Quod Non Habet
This is the guiding principle. It means that you cannot give what you do not have, i.e. if you don’t own it you can’t sell it.
How do we prove ownership? This is difficult. The following are not documents of title and nor are they proof of title:
Registered keeper search
These documents may be ‘evidence’ of title but nothing more.
A useful voluntary register. BUT NOTE: registration is not proof that the person registered is owner and failure to register does not result in loss of title: Moorgate Mercantile –v- Twitchings .
An Exception to Nemo Dat
There are situations when the law overrides the principle of nemo dat. This means that in some circumstances, a person who does not have title to goods, can pass title on to a third party. The Hire Purchase Act 1964 is one of the exceptions to this general rule.
Others (not dealt with today):
Estoppel (section 21, Sale of Goods Act 1979) – owner holds out another as being the owner or having the right to sell
Sale by seller in possession (section 24, Sale of Goods Act 1979)
Sale by buyer in possession (section 25, Sale of Goods Act 1979)(Note: not applicable to hire purchase, or regulated conditional sale)
Sale by mercantile agent in possession (section 2, Factors Act 1889)
“ Motor Vehicle” Is your asset a motor vehicle? If not, HP Act doesn’t apply. The Act only applies to motor vehicles. A motor vehicle is defined as: “ a mechanically propelled vehicle intended or adapted for use on roads to which the public has access” [s.29(1)] The definition covers more than just cars, and could cover motorbikes, motor homes, and possibly some agricultural machinery. But, unless it’s a motor vehicle the Act doesn’t apply and the claim doesn’t get off the ground.
Hire Purchase or Conditional Sale Agreement Is your agreement an HP or Conditional Sale agreement? If not, HP Act doesn’t apply. The Act only applies: “… where a motor vehicle has been bailed or (in Scotland) hired under a hire-purchase agreement , or has been agreed to be sold under a conditional sale agreement , and, before the property in the vehicle has become vested in the debtor, he disposed of the vehicle to another person.” [s.27(1)] So, if your agreement with your hirer is a lease or contract hire agreement, or anything that is not a hire purchase agreement, or conditional sale agreement, the Act cannot apply, and no one can get title to your vehicle under the Act, no matter how innocent they are.
Private Purchaser The Act defines a private purchaser as someone who is not a trade or finance purchaser. A trade or finance purchaser is defined as someone who: “ at the time of the disposition made to him, carries on a business which consists, wholly or partly, - (a) of purchasing motor vehicles for the purpose of offering or exposing them for sale, or (b) of providing finance by purchasing motor vehicles for the purpose of bailing or (in Scotland) hiring them under hire-purchase agreements or agreeing to sell them under conditional sale agreements. and “private purchaser” means a purchaser who, at the time of the disposition made to him, does not carry on any such business.” [s.29(2)]
Private Purchaser A private purchaser is an individual or a company who is not in the trade . A company can be a private purchaser for the purpose of this Act if they are nothing to do with the trade. The definition of a trade purchaser includes dealers and finance companies, but bear in mind that an individual who appears to be a private purchaser may be a “trade or finance purchaser” even if it is not his main trade. The definition says “wholly or partly”.
Barker v Bell [1971 2AER 867]
- if your hirer tells the innocent purchaser that the finance has been settled, when in fact it hasn’t, and the purchaser believes him, the purchaser can still get good title.
this doesn’t apply if your hirer says he is “about to” pay off the finance.
Moorgate Mercantile v Twitchings [1977 AC 890]
- failure to register your interest at HPI doesn’t matter.
In Good Faith Good faith is equated with honesty and bad faith with dishonesty. Jones v Gordon 1877 - an abnormally low price was held to put a purchaser on enquiry. Mercantile Credit Company Limited v Rainham Metal Transport - where an innocent purchaser has any suspicion as to the title, his failure to ask the obvious questions is clear evidence of lack of good faith. Dodds v Yorkshire Bank Finance Ltd [1992 CCLR 84] - “I did not expect the chap to sign something if it was not right. When he signed it, I was not suspicious any more.”
Disposition For section 27 to apply there must be a disposition by the hirer. Disposition is defined as: “ any sale or contract of sale (including a conditional sale agreement), any bailment or (in Scotland) hiring under a hire-purchase agreement”. [s.29(1)] Section 2(1) of the Sale of Goods Act 1979 defines a sale as “ a contract by which the seller transfers or agrees to transfer the property in goods to a buyer for a money consideration, called the price”. If there is no disposition by the hirer, any later innocent private purchaser cannot claim the protection of the Act.
Section 27(3) – First Sale to Dealer “ (3) Where the person to whom the disposition referred to in subsection (1) above is made (the “original purchaser”) is a trade or finance purchaser, then if the person who is the first private purchaser of the motor vehicle after that disposition (the “first private purchaser”) is a purchaser of the vehicle in good faith without notice of the relevant agreement, the disposition of the vehicle to the first private purchaser shall have effect as if the title of the creditor to the vehicle had been vested in the debtor immediately before he disposed of it to the original purchaser.” This applies when a trade or finance purchaser is involved in the chain. Remember to look at the first private purchaser .
Section 27(4) – Further HP and then sale “ Where, in a case within subsection (3) above – (a) the disposition by which the first private purchaser becomes a purchaser of the motor vehicle in good faith without notice of the relevant agreement is itself a bailment or hiring under a hire- purchase agreement, and (b) the person who is the creditor in relation to that agreement disposes of the vehicle to the first private purchaser, or a person claiming under him, by transferring to him the property in the vehicle in pursuance of a provision in the agreement in that behalf, the disposition referred to in paragraph (b) above (whether or not the person to whom it is made is a purchaser in good faith without notice of the relevant agreement) shall as well as the disposition referred to in paragraph (a) above, have effect as mentioned in subsection (3) above.”
Section 28 - Presumptions Always beware the presumptions contained in section 28. They operate to fill in gaps in the evidence relating to what has happened to the car since it left your Hirer. They almost always act against the finance company. For example: Section 28(2) – “It shall be presumed … unless the contrary is proved, that the disposition of the vehicle to the [innocent private purchaser] was made by the debtor.” The burden of proof is on you.
Dealing with IPP Claims
Immediately send the purported IPP a keeper questionnaire to be supported by evidence of purchase. If title has not passed, seek collection of the vehicle without delay (but beware of trespassing on private property).
Immediately contact your hirer for their version of events (this will assist in any later claim)
If the IPP has obtained title you have a claim against your hirer for (a) damages for breach of the agreement and/or (b) damages for wrongful interference (see further below).
Check HPI search history.
Check DVLA keeper history.
If a person cannot rely on an innocent purchaser defence (or any other exception to nemo dat) then you may also have a claim in conversion against anyone who has dealt with the vehicle.
Section 1 of the Torts (Interference with Goods) Act 1977 defines wrongful interference with goods:
The focus here is on conversion.
Wrongful Interference Section 2(2) of the Act states that conversion is an act of deliberate dealing with a chattel in a manner inconsistent with another’s right whereby that other is deprived of the use and possession of it. The defendant need not intend to question, or deny, the claimant his rights to the item, it is enough that the defendant’s conduct is inconsistent with the rights of the owner. Examples: - when property is wrongfully parted with - when it is wrongfully sold so as to pass good title to the buyer - when it is wrongfully retained - when the defendant without physically interfering with it, denies access to the claimant.
Wrongful Interference A finance house can be effected downstream, e.g. its hirer selling a vehicle to a third party and the finance house asserting ‘nemo dat’ or upstream by having to resist a claim against it by another claimant. To succeed in a claim for conversion, the Claimant must have an immediate right to possession of the goods. In the case of an HP agreement, the agreement must therefore have been terminated. Until termination, the finance company has no right to possession, this is the hirer’s right.
Remedies for Conversion - an order for delivery - an order for delivery, alternatively damages together with consequential damages - damages
Measure of Damages in a Claim for Conversion Normally the measure of damages in a claim for conversion is the lesser of: (a) the balance outstanding under the HP agreement; (b) the value of the goods at the date of conversion. Allowance will be made for improvements to the goods of the ‘improver’ acted in the honest belief that he had good title to them. Consequential damages could include costs, loss of hiring etc. Section 5 of the Act states that payment of damages for wrongful interference will extinguish the title of the true owner.
Dealing with Wrongful Interference Claims - Think practically – if your hirer has part exchanged the vehicle, consider sending an agent to the dealer to see whether the vehicle can be located. The dealer will not have title to the vehicle under the HP Act (but query other exceptions to nemo dat) and you can collect (but beware of trespassing). - Find out exactly who at the dealer arranged the transaction – this will be important in any later claim for damages. - If the vehicle has been sold on by the dealer, find out who to – if to a trade or finance purchaser then they will not have obtained title and neither will a hirer under a second HP agreement unless they are an IPP and have exercised their option to purchase (s.27(4)). - Act quickly in case the dealer becomes insolvent.