When is a Hire-purchase Agreement Invalid
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An Expert Clears Up Some Problems Arising from the Polsky Decision, Particularly the Passing of Title in a
Vehicle
AN article by a legal correspondent, entitled "Raising Money on a Vehicle," published in "The Commercial Motor" on June 29, has created doubts as to the validity of certain alleged hire-purchase arrangements.
One dealer, having read this article, said that he had been thinking for some time about the validity of hire-purchase agreements in certain unusual circumstances, and he sought further information.
It would appear, he added, that the essentials of a valid agreement• comprised the selling of a vehicle to the hire-purchase company and its hiring, with option to parchase, by the customer. When a customer decided to buy a vehicle, he usually paid a deposit to the dealer at once, and, at a later date, a further amount to bring the total so deposited to the figure required by the hire-purchase concern—for instance, 25 per cent, of the total price. The customer would then require an invoice and/or a receipt.
An Unregistered Bill
If care were not taken, it seemed that the vehicle could become the property of the customer immediately the latter paid a deposit, the balance being a civil debt. In this case it would appear that the agreement would be invalidated and become an unregistered bill of sale.
Again, a customer who, after paying a deposit, decided to settle in cash for the balance, would receive an invoice. If on returning to pay this balance, he then decided that he would like a hirepurchase arrangement, what would be the position regarding the invoice given originally?
It seemed to this dealer, therefore, that a vehicle could not be invoiced both to the customer and to the hire-purchase concern without risking the possibility of invalidating the agreement.
The problems referred to by this dealer were placed before a wellexperienced member of one of the leading finance companies. He pointed out that the matter was highly technical. but made certain observattons which might help in overcoming at least some of these difficulties.
Subtle Difference
The dealer who raised the queries said that the essentials of a valid agreement comprised the selling of a vehicle to a hire-purchase concern and the hiring with option to purchase by the customer. This, our adviser considered, was on the right lines, but, from a hire-purchase company's point of view, it would have been better expressed by saying that the essentials were the purchase of the vehicle by the company and the agreement by it with the hirer for the letting on hire with the option of purchase.
He thought, incidentally, that the term " hirer " was preferable to that of "customer."
As to the case quoted, where a person decided to acquire a vehicle, paid a deposit and required an invoice and/or receipt, the important question was whether title passed. If the vehicle were in fact delivered to the person, our adviser agreed that the finance company might come up against a difficulty, but if not delivered, the intention of the parties would usually be that title should not pass.
If the vehicle were delivered, or if it were intended that title should pass when the "hirer" paid the deposit, the balance, in that event, would be a debt due from the hirer to the dealer.
If, in such a. case, hire-purchase facilities were required before the balance was paid and (notwithstanding what had taken place between the dealer and the hirer) the dealer proceeded to "sell the vehicle to a. hire-purchase company which entered into a hire-purchase agreement with the hirer, then the hirepurchase transaction might be upset (a) possibly on the grounds of its being a bill of sale if the matter were held to be a loan or (b) on the grounds that the hire-purchase company never acquired title to the vehicle, as a dealer had already parted with title to the hirer.
Where title had passed to the hirer the correct procedure would have been either for the dealer to buy back the vehicle or for the hire-purchase company to buy it from the hirer and then let it back to him on hire with option of purchase. The latter transaction might, however, be challenged as corn ing within the Polsky decision ("The Commercial Motor," June 29) unless carefully carried through not as a loan but as a bona fide purchase by the hirepurchase company and a bona fide hiring back.
It must not be overlooked that in a case where the hire-purchase company was held not to have acquired title, it would have a remedy against the dealer. This, however, would not help the particular dealer who raised the queries, because, apparently,' he is not only virtually the hire-purchase company concerned, but is also .a member of ihe dealer concern.
In his case, he would have the advantage of knowing at first hand how far the negotiations between the dealer arid the hirer had gone and could make certain that such negotiations were negatived before starting with h.p. facilities.
First Payment
Where the vehicle had not been delivered to the hirer and it was riot intended that title should pass, then the hirer must have agreed, either expressly or impliedly, that the negotiations with him should be considered cancelled end the deposit used as part of the first hirepurchase payment. His signature of hire-purchase documents for the hirepurchase company (and possibly some required by the dealer) would amount to acquiescence.
He must have known that the dealer was invoicing to the finance company, and after signing the hire-purchase agreement and delivery receipt as hirer, he could hardly argue that title had vested in him because of the invoice and payment of deposit. An invoice does not give title.
Our adviser also made some observations on the article published. on June 29. He stated that a genuine hirepurchase agreement could not become a hill of sale; if a transaction were really one for raising money, it was not hirepurchase.
"Normal Way" In the third paragraph of the article reference was made to the " normal way," but, normally, a finance company does not refer to a hirer as the "purchaser," and the payment made by the hirer would not be paid by him its "part of the purchase price," but, in fact, as the first payment due under the agreement. It would, in all probability, be used as part of the purchase price— not by the hirer, but by the finance company.
If the purchaser of a vehicle obtains a loan as mentioned, then the transaction is not hire-purchase, but money lending, and the borrower will be quite entitled to claim the protection of the Bills of Sale Acts. Where, however, there is a genuine sale and a genuine hiring back, then the transaction is hirepurchase and the Bills of Sale Acts do not apply.