THE INADEQUACY OF CONTRACT. An examination of the...

THE INADEQUACY OF CONTRACT. An examination of the relationships arising out of

credit transactions by way of hire-purchase. IT The courts, both civil and criminal, are becoming familiar with the mechanics of hire-purchase, though the legal relationship between the hirer, the dealer and the hire-purchase company at various stages in the transaction still involves many problems which have not been authoritatively solved;"'

"It must be remembered that hire-purchase is a very modern development in commercial life, and surely it is a common- place in commercial law that if one finds commercial men inventing new methods of business and using documents which are, perhaps, unfamiliar at the time when they are first brought into use, but which are invented to meet the requirements of a particular time or peculiar circumstances, the law has to be moulded and developed to meet the commercial deevlopments which are taking p l~ce . "~

1. INTRODUCTION-THE LIMITATIONS OF CONTRACT.

The topic which I have been asked to discuss is that of the ancillary relationships arising out of credit transactions carried out by the familiar method of hire-purchase. I t has been suggested to me that the major part of this topic might well be discussed in the light of the fact that such transactions a n given legal effect by being built within the framework of the common law rules of contract, and that in some respects the limitations imposed by that framework have produced undesirable results. Thus, although the courts have been able up to a point to "mould and develop" the la-w, as Lord Goddard puts it, they have not been able to go far enough to meet the needs of the situation. It has therefore been necessary for the legislature to step in to make up for some of the defects of the common law; but it will be submitted, in the course of examining the terms and the effects of the latest piece of legislative intervention, the Hire-Purchase Act, 1959, that the draftsmen and legislators have been insufficiently bold, and have legislated too much within the contract framework; as a result of this, the new legislation is not beyond criticism.

A paper read at the Law Summer School held at the University of Western Australia in February, 1962.

1 Lowe v. Lombank Ltd., [I9601 1 W.L.R. 196, per Diplock J. at 206. 2 Karflex, Ltd. v. Poole, [I9331 2 K.B. 251, per Goddard J. at 263-264.

The limitations of the common law of contract, in the situations I propose to discuss, stem from three sources.

(i) Th:e concept of privity.

The concept of privity is the shorthand name for the fundamental principle of English law, reaffirmed only a few months ago by the House of Lords in Midland Silicones Ltd. v . Scruttons Ltd.,a that a person who is not a party to a contract can neither enforce it nor rely for protection on its provisions, a doctrine enunciated in Australia five years ago in Wilson v. Darling Island Stevedoring d Lighterage Coy. Ltd.* Although, as the powerful dissent of Lord Denning in Scruttons' case5 indicates, it is at times in complete disaccord with the needs of modem commercial practice, the majority decision means that any prospect of a successful frontal assault on what compatriots of Professor Pedrick have described as "the citadel of privity" have vanished. The citadel may (if the military metaphor continues per- missible) be by-passed on occasion by the route of tortious duty, or the device of an implied or "notional" contract, as we shall see; but any substantial gains at its expense will require to be effected by legislation, at any rate here and in New Zealand and England.

(ii) The fallacy of equal bargaining power. The nature of this fallacy is very well described in another passage

from the judgment of Diplock J. in Lowe v. Lombank, Ltd.:6 "The common law . . . subject to some restrictions based on public policy, permits persons to make whatever contractual bargains they please and will enforce those bargains. This general principle, of which the underlying assumptions are that persons entering into contracts are of equal bargaining power and read and understand what they sign, ignores the fact that under modern conditions many transactions, particularly of hire-purchase, are entered into by ignorant persons whose only choice is either not to enter into the transaction at all or to enter into it upon the terms of a standard agreement drafted by the hire-purchase company containing numerous clauses, printed in minuscule characters, which the hikrs do not in fact read and, if they did, would be incapable of understanding."

The clauses referred to include clauses designed to exclude any liability of the hire-purchase company either for representations made during.the course of the preliminary negotiations (if any such liability

3 [I9621 2 W.L.R. 186. 4 (1956) 95 Commonwealth L.R. 43. 6 [I9621 2 w.L.R. 186, at 202-2r2. 6 [I9601 1 W.L.R. 196, at 201-202.

could attach) or under such warranties and conditions as might otherwise be implied in the contract for hire-purchase. The courts, whose general bias in this century, no doubt as a result of their view of public policy, has been against such exclusion clauses, especially when efforts have been made to conceal their existence or their purport from the other party to the contract, have been able to extend some protection to such other parties by construing the exclusion clauses as narrowly as possible; for example, in Wallis v. Pratt,' it was held that a, clause which specifically excluded "warranties" did not operate to exclude conditions. The task of protecting the buyer was made more easy by the surprising ineptitude of many of the draftsmen of standard forms of hire-purchase agreement, whose principle in drafting appears to have been to endeavour simultaneously to terrorise and to mystify the buyer. Even where this particular stricture could not be levelled at the instrument or the draftsman, a good many purported exclusion clauses have been long-winded and obscure in the e~trerne.~ But the difficulty has been that the courts, which were not prepared to lay it down as a distinct head of public policy that all attempts to exclude liability under whatever warranties and conditions might be implied in the particular hire-purchase transaction were void as against public policy, have been powerless to protect the buyer or hirer who has signed an agreement containing a properly-drawn exclusion clause.@ This powerlessness has extended even to cases in which the buyer or hirer has not appreciated in the least the purport of the document he has been signing, because of the third of the limitations in the common law of contract, now to be discussed.

(iii) The objective theory of contract.

This is the theory that a party to a contract is bound not by what he has in fact, subjectively, assented to, but by what a reasonable man in the position of the other party would suppose he has assented to. Let me say at once that this is in many respects a necessary doctrine, for inquiry into the subjective state of mind of a contracting party would in many cases be difficult if not impossible. But there must be many instances in which the doctrine operates harshly. I t is possibly

7 [I9111 A.C. 394. 8 Compare, for example, the clause in the agreement in Criss v. Alexander,

(1928) 28 State R. (N.S.W.) 297, which turned out to be ineffective to protect the owner, with the short, simple, and effective clause 9 of the form of Hire-Purchase Agreement set out in 7 AUSTRALIAN ENCYCLOPAEDIA OF FORMS AND PRECEDENTS (Sydney, 1958). 343-347.

9 See, for example, Felston Tile Co., Ltd. v. Winget Ltd., [1936] 3 All E.R. 473, and Gemmell Power Farming Co. Ltd. v. Nies, (1935) 35 State R. (N.S.W.) 469.

the underlying reason for the maxim that simplex commendatio non obligat, i.e., mere praise (of goods) raises no binding obligation by way of warranty, because every reasonable man discounts a seller's praise of his wares. If this be so, the reasoning is false; for if the reasonable seller knows that the reasonable buyer takes no notice of his extravagant praise he will save his breath; it is surely just because he expects to be believed that he draws the long bow. I t may be part of the reasoning which produced in the common law (as opposed to the Roman and the civil law) the doctrine of caveat emptor; unless the buyer specifically sought assurances as to quality (and title) by way of warranty, the seller was entitled to assume that he was taking the risk or relying on his own judgment, even when any reasonable seller could see that that judgment was seriously at fault. When, at the beginning of the nineteenth century, the Common Law began to erode the maxim caveat emptor by developing the implied warranties which have now been codified in sections 12 to 15 of the Sale of Goods Act, 1895, these warranties were hedged about with necessary conditions for their implication .which clearly bear the marks of the "objective theory." Thus before a condition as to fitness for purpose could be implied it was necessary to show that the buyer had expressly or impliedly made known the purpose for which he required the goods, in such a way as to show that he relied upon the seller's skill and judgment; i.e., to show that the "reasonable man" would assume from the surrounding circumstances that the buyer was tacitly seeking such a warranty before buying. Finally, as has been suggested, it dictated the enforcement of exclusion clauses even when it was perfectly obvious that the buyer or hirer had signed the contract containing the clauses without reading it. The most that can be said in favour of allowing this enforcement was that the finance company must in many cases have known perfectly well that the hirer's need for the goods, or for the goods on credit terms, was such that he would have assented to the clauses even if he had read them; though the minuscule print and obscure language of many of the clauses1° suggest that the companies were not always as confident of this as might have been thought at first.

2. THE COMMON LAW OF HIRE-PURCHASE.

(i) The legal nature of a tripartite hire-purchase transaction.

For the purpose of this paper the hire-purchase transaction which will be taken as typical is that in which the would-be purchaser of

10 Cf. the facts in Lowe v. Lombank Ltd. (note 1, supra).

goods enters into negotiations with a dealer in those goods. At some point in the negotiations he will have disclosed to the dealer that he cannot or does not wish to purchase for cash, and requires hire- purchase terms. The dealer will then 'introduce' him to a hire-purchase company, usually by obtaining his signature on the spot to a standard form of hire-purchase agreement. The signature constitutes an offer to hire the goods from the company; the offer may be expressed as "irre~ocable"~~ but the exact legal effect of this is unclear. Upon acceptance by the company a contract of hire-purchase is concluded between the would-be purchaser-who may be called the "hirer"- and the company, which either before or contemporaneously with the acceptance has itself purchased the goods from the dealer, and has thus become the owner.

The more usual type of hire-purchase agreement today is that in which the periodic payments under the agreement, though calcu- lated by reference to the cash price which would have been paid for the goods plus interest and other "terms" charges, are expressed as rent, and the hirer is given an option to return the goods and terminate the hiring or to buy the goods, either by making all the prescribed payments under the agreement, or during the continuance of the hiring upon complying with certain conditions; this is the type of agreement whose effect was laid down by the House of Lords in the leading case of Helby v. Matthews.12 But there is also a form of hire- purchase agreement under which the hirer is bound to buy the goods hired.18 The latter type of agreement is clearly a contract of sale of goods within the Sale of Goods Act, 1895, to constitute which there must be both a seller who agrees to sell the goods, and a buyer who agrees to buy the goods. The former type is not-there is no person who has agreed to buy the goods and thus no buyer."

11 Cf. Newlands v. Argyll General Insurance Co. Ltd., [I9591 State R. (N.S.W.) 130.

12 [I8951 A.C. 471. 13 Lee v. Butler, [1893] 2 Q.B. 318. . - ~

l* This point does not appear to have been brought to the attention of the Court of Appeal in Felston Tile Co., Ltd. v. Winget Ltd., [1936] 3 All E.R. 473, in which a hire-purchase agreement containing merely an option to buy was described as a "conditional sale." So, from some points of view, it may be; an option to buy land was so described by Griffith C.J. in Golds- borough Mort & Co. Ltd. v. Quinn, (1910) 10 Commonwealth L.R. 674, at 678 (though there may be a distinction between options to buy land and options to buy chattels). But the definition in the Sale of Goods Act, 1895 (section 1, read in conjunction with the definitions in section 60), is quite explicit. Winget's case has been expressly rejected in Victoria in Woods Radio Exchange v. Marriott, [I9391 Victorian L.R. 309.

(ii) The owner's liability under implied warranties and conditions. (a) As to title:

In Karflex Ltd. v . Poole,16 Goddard J . (as he then was) said: "I think it is desirable to state that in my judgment where a person is letting out chattels of any description on hire-purchase, he does there- by impliedly contract, not that he will at some time become possessed of that property during the currency of the agreement, but that he is the owner of the property at the time he lets it out."

In Mercantile Union Guarantee Corporation v . Wheatley,le "the time he lets it out" was interpreted in effect as being not the time of execution of the hire-purchase agreement but the time of delivery. The facts in Newlands' case17 as set out by Mr. Justice Walshl8 suggest that an interesting problem might have arisen at common law if, as in that case, the goods were delivered before the hire-purchase agreement was accepted and (presumably) the finance company acquired title to the goods.

(b) As to quality and fitness for purpose: Here a distinction must be made between the two types of agree-

ment referred to above. If the agreement amounted to a contract for the sale of goods under the Sale of Goods Act, 1895,1° the common law conditions and warranties which were codified therein would clearly be implied, though, as mentioned below, difficulties might arise in establishing the existence of the necessary conditions; for example, in respect of the implied warranty of merchantable quality, that the goods were bought from the finance company by description, and that the company could be described as a person who habitually dealt in such goods. If, however, the agreement were a mere agreement for hire, with no more than an option to purchase, the common law simpliciter would have to be relied on. In Klose v . Duncan and Fraser Ltd.,2O it was pointed out by Angas Parsons J. that in every contract of bailment (as a hiring agreement is) there is implied a term as to the quality or fitness of the goods for the purpose for which they are bailed, although the liability of the bailor under this is less extensive than that of the vendor under a contract for sale, being limited to liability for defects which could have been discovered by

16 [I9833 2 K.B. 251, at 263. 16 [1938] 1 K.B. 490. 17 Note 11, supra. 18 Statutory Controls Affecting the Sale of Goods on Credit, 447-471, supra. 19 That is, was a Lee v. Butler type of agreement (note 13, supra). 20 [I9281 South Aust. State R. 139.

the bailor had he exercised reasonable care. The authority cited was Geddling v. Marsh:' although this was a case of a gratuitous bailment and not a bailment for consideration. But it had been decided by Wright J. in Vogan &? Co. v. O ~ l t o n : ~ that the fact that the defects in an article let for a particular purpose were latent was no answer to the hirer's claim under the implied warranty; and this was applied by Jordan C.J. in Gemmell Power Farming Co. Ltd. v . Nies23 to support the general rule which he stated as being that when one person for value supplies a chattel to another to be used for an agreed or stated purpose or for a purpose indicated by the nature of the chattel, he impliedly promises, in the absence of some provision to the contrary, that it is reasonably fit for such use." The High Court has now set the seal of its approval on this doctrine in Bedton v . Moore Acceptance Corporation Pty, Ltd.25 In fact, the rule in Beaton's case imposes upon the hirer a liability in respect of a condition of fitness for purpose less hedged about with necessary conditions than that imposed on a vendor of goods; for in its joint judgment the High Court first26 reviews the question whether there should be implied in the hire-purchase agreement (which was of the Helby v. M a t t h k ~ s 2 ~ type) the common law condition in contracts for the sale of goods that the goods should be reasonably fit for a particular purpose, but after asserting that, on principle, there is no reason why there should not, goes on to point out that this implied condition is subject to the prerequisite that it should appear that the buyer had bought on the seller's judgment that the goods would answer a particular purpose, and that in the case in question it was open to doubt whether it was possible to say that the hirer relied upon the skill and judgment of the finance company. One would think that there were few instances in which this could be said in any tripartite hire-purchase transaction, and at first sight it seemed that the High Court, in its efforts to imply a condition which would give protection to the hirer against what appears to have been an unsavoury piece of roguery on the part of the dealer, would be prevented from so doing by what I have described above as an inadequacy of contract arising from the operation of the objective theory of contract. In the result, however, the common law

21 [I9201 1 K.B. 668. 22 (1898) 79 L.T. 384. 23 (1935) 35 State R. (N.S.W.) 469. a See also Woods Radio Exchange v. Marriott, [I9391 Victorian L.R. 309, and

Roach v. Roberts. (1924) 26 West. Aust. L.R. 110. 25 (1959) 104 Commonwealth L.R. 107. 26 (1959) 104 Commonwealth L.R. 107, at 119. 27 Note 12, supra.

was able to develop free from the shackles in question, though, with respect, the imposition on the person who lets goods on hire of a liability less hedged about with prerequisites than that imposed on the vendor appears somewhat an~malous .~~

In their discussion of Beaton's case Else-Mitchell and Parsons say that the judgment justifies an assumption that the High Court would also hold that the condition implied at common law in a sale of goods by description, that they shall be of merchantable quality as goods of that description, applies to a hire-purchase agreement relating to the goods. It is submitted (as suggested above in the discussion of the implication of conditions in hire-purchase agreements of the type which constitute contracts of sale30) that it may not be as easy to establish that the hire-purchase company is a person which "deals in goods of that description" as to show in relation to the warranty of fitness for purpose that the goods "are of a description which it is in the course of the [hire-purchase company's] business to supply." But it is possible that the High Court might be as willing to overlook that prerequisite to the implication of a condition relating to merchantable quality as it was to overlook the prerequisite of reliance upon the owner's skill and judgment in respect of the condition as to fitness.

One final comment might be made on the effect of Beaton's case,8l if a hire-purchase agreement is of the Lee v. Butler type, and it is desired for some reason to rely upon the conditions implied at common law, the effect of which is expressly preserved by section 5 (5) of the Hire-Purchase Act, 1959, the hirer may have a better chance of success if he relies on the conditions implied in the contract as a contract of hiring (if it be possible to "sever" the provisions of the contract in this case) rather than on those ,implied in it as a contract of sale.

(c) The exclusion of the owner's liability under warranties.

As has been pointed out above, the superior bargaining position of companies providing finance on hire-purchase terms was such that it quickly became standard practice for the hire-purchase agreement to contain clauses negativing the existence of any warranties of quality or fitness for purpose. Although the courts were able to extend some

28 Cf., on this point, some comments of Lowe J. in Woods Radio Exchange v. Marriott, [1939] Victorian L.R. 309, at 316.

29 HIRE-PURCHASE LAW (3rd edn. (Sydney) , 1961), 58. 30 Under Lee v. Butler (note 13, supra). 31 Note 25, supra.

protection to hirers by limiting the effect of ill-drawn or carelessly- drawn clauses, there was no way of avoiding the effect of a properly drawn clause (such as that referred to above) other than declaring it against public policy and void. This step the courts, no doubt under the lingering influence of the theory of equal bargaining power of the parties to a contract, refused to take. Thus, although in Gemmell Power Farming Co. Ltd. v. N i e ~ , 3 ~ the Court was as we have seen prepared to imply into, a hire-purchase agreement a general condition as to fitness for purpose analogous to that implied in contracts for the sale of goods, it was forced to concede that the exclusion clause in the agreement prevented this. In defence of the hire-purchase companies it may be said that their business was really that of financiers or money-lenders on security, not that of suppliers of goods; had their security transactions been by way of accepting bills of sale from pur- chasers on credit no liability under warranties of quality or fitness could possibly attach, and it would seem unjustified that the fact that the "struggle for title" had led to the adoption of the device of sale to them by the dealers and hire by them to the prospective purchaser should impose upon them liabilities normally foreign to the relationship of money-lender or banker with his client.s3 But unfortunately the rigidity of the framework of contract within which the transactions were carried out was such that the person who ought to be primarily liable under such warranties, the dealer, had available to him, at any rate for a good part of the seventy years history of hire-purchase transactions of the kind being discussed, the defence tha.t there was no privity of contract between him and the hirer, for there was no express contract between them. How the effect of the concept of privity in this respect was circumvented forms the subject of the next section.

(iii) The liability of the dealer under warranties. ( a ) As to title:

So long as there was thought to be no privity of contract between the dealer, whose sale was to the hire-purchase company, and the hirer no question as to warranty of title to the hirer could have arisen. The development of the doctrine of "implied" or "notional" contract

32 (1935) 35 State R. (N.S.W.) 469. 33 Cf. the attitude of the finance company in Lowe v. Lombank Ltd., [I9601

1 W.L.R. 196: at 206 Diplock J. referred to their statement that "in this instance we are acting purely as bankers" as one which he preferred to think was "merely ignorant" and not dishonest. Concerning this W. A. Thornely remarks, in Hire-Purchase Hardships and Hopes, [I9621 CAMB. L.J. 39, 40, that hire-purchase companies "readily assert their ownership and their contractual relationship with the hirer when it comes to repossessing the goods or suing him for his defaults."

between dealer and hirer, to be discussed below, suggests that if circumstances should render the hirer's recourse against the hire-purchase company ineffective it might now be possible to support a collateral warranty as to title on the part of the dealer, if the defect in title was originally a defect in that of the dealer.

(b) As to quality and fitness for purpose: In Herschtal v. Stewart and Ardern Ltd.," the plaintiff was in-

jured in an accident which, he claimed, was due to the negligence of the defendants in reconditioning a used motor car which they had supplied to a hire-purchase company so that it might let it to the company of which the plaintiff was a director. Alternative grounds of claim included a claim for breach of warranty, but this was abandoned at an early stage because there was no contract between the plaintiff and the defendants. Quite apart from the doctrine of privity, of course, the plaintiff was not the person to whom or for whose behalf the motor car was to be supplied. But the importance of this case was that it by- passed the doctrine of privity by making the dealer liable in tort for his negligence, or for that of hi servants, negligence which was described by the learned judgea6 as negligence either in the manner of fixing the wheel or in failing properly to overhaul the car. I t does not, however, go far enough to answer the question posed by Mr. Justice Walsh in his discussion of Newlands' case,a6 whether negligence in supplying the motor car without making a proper examination to discover defects could be relied upon in an action in tort.

In the next year the Court of Appeal decided Drury v. Bucklmd Ltd.a7 The plaintiff in this case was persuaded to buy a refrigerator from the defendant. She was unable to pay cash, so a hire-purchase agreement was arranged with E. Company, to whom B. Ltd. sold the refrigerator. The refrigerator broke down, and D. brought an action against B. Ltd. for breach of warranty. She succeeded in the county court, as the learned judge was apparently misled by some remarks of Goddard L.J., in Menzies v. United Motor Finance C0rp.,8~ in which he discussed the effect of a tripartite hire-purchase transaction and the "true interest" of the hire-purchase company in the transaction, and felt constrained to hold that there was in the instant case a real sale, to which the usual warranty under section 14 of the

[lW] 1 K.B. 155. 36 Zbid., at 159. 36 See Statutory Controls Affecting the Sale of Goods on Credit, at 449-451,

supra. 37 [I9411 1 All E.R. 269. as [I9401 1 K.B. 559. at 568 et seq.

(English) Sale of Goods Act 1893 attached. But the Court of Appeal (Scott, Clauson, and Goddard L.JJ.) found no difficulty in holding that there was no sale at all (in spite of the fact that B. Ltd. invoiced the goods to D.) and therefore nothing to which a warranty could attach.

It is of interest, in the light of later cases, to note that in Drury's case D. alleged that in the course of the negotiations for the refrigerator she was told that if it went wrong she was to ring B. Ltd. and they would service it for eighteen months free. She might have been better advised to insist that the promise be fulfilled, and in the event of default bring an action for the breach. For in Brown v. Sheen and Richmond Car Sales Ltd.,Ss the dealers, who had advertised the car in question as for sale "in perfect condition" and their sales manager repeated to the plaintiff, who subsequently became the hirer from United Dominions Trust (Commercial) Ltd., that the car was "in perfect conditionyy and added that it was "good for thousands of trouble-free miles." It turned out that the car needed £60 to £70 worth of repairs to make it road-worthy. The dealer, when sued by Brown, cited Drury's Case for the proposition that there was no sale and therefore no warranty on which the plaintiff could sue; but Jones J. had no difficulty in finding that there was a separate express warranty given to Brown which induced him to enter into the hire- purchase agreement with the United Dominions Trust. Jones J. made no attempt to spell out the terms of and especially the consideration for the warranty contract between Brown and the dealer, but McNair J., after spelling out such a contract in a different setting, in Shanklin Pier Ltd. v. Detel Products Ltd.,40 applied this technique in a hire- purchase situation in Andrews v. Hopkinson,4l although the learned judge appears, unless he has been misreported, to have mis-stated the essentials of the relationship between the dealer and the hirer. In the course of the preliminary negotiations the dealer's sales manager had said, "It's a good little bus. I would stake my life on it. You will have no trouble with it." (In passing, it many be noted that as a result of the dangerously defective condition of the steering the plaintiff had almost £650 worth of trouble with it only eight days later). McNair J.,42 after holding that it was clear that in law the relationship between plaintiff and defendant was not that of purchaser and seller,

80 [i9501 1 ~ i i E.R. 1102. 40 [1951] 2 K.B. 854. 41 [I9561 3 All E.R. 422. The case was recently approved by the Court of

Appeal in Yeoman Credit Ltd. v. Odgers, [I9621 1 W.L.R. 215. 42 [I9561 3 All E.R. 422, at 425.

but that if it had been so, the words used by the sales manager could properly be held to be words of warranty, went on to cite both Brown's Case and the Shanklin Pier Case, citing the latter for the reasons that led to the conclusion that "there may be an enforceable warranty between A., the intended purchaser of a car, and B., the motor dealer, supported by the consideration that B. should cause the hire-purchase finance company to enter into a hire-purchase agreement with A., the intended purchaser!' What he should have described as the consideration, it is submitted, is that A. should enter into the hire-purchase agreement with the finance company, or, to be more precise, that A. should offer to enter into the hire-purchase agreement. It is true that the offer would be revocable at any time before acceptance, so that it may be argued that no consideration in fact has moved from A., but it is submitted that the making of an offer constitutes a sufficient alteration of a man's legal position (amounting in the terminology of the late Professor HohfeldAa to the imposition upon himself of a liability) to be a detriment and hence a consideration in law. Among the Australian cases which support the existence of this independent contract of warranty are Irwin v. PooleYu Hercules Motors Pty. Ltd. v. Schubert,'hd C . J. Grais B Sons Pty. Ltd. v. F. Jones B Co. Pty. Ltd.M

It will be noticed that in the English cases whose facts I have discussed the relationship between hirer and dealer was predicated partly on the fact that the dealer or his employee said something about the goods which could be construed as an express collateral promise by way of warranty; and the same is true of the Australian cases cited. But what if the dealer (exceptionally perhaps, considering the habits of salesmen) says nothing at all about the goods, or confines himself to pointing out any visible merits, refusing to commit himself on the question of possible defects? If the goods prove defective can the hirer obtain relief against the dealer by alleging a breach of an implied collateral warranty? McNair J., in Andrews v. Hopkinson, suggested obiter'7 that such relief should be available. Although he was not prepared to examine exhaustively the head of claim under implied warranty, he did point out that the principle on which Brown v. Sheen B Richmond Car Sales Ltd." was decided was neither ad-

4s FUNDAMENTAL LEGAL CONCEPTIONS AS APPLIED IN JUDICIAL REASONING (New Haven, 1923). 55. (1933) 70 W.N. (N.S.W.) 186.

4s (1953) 53 State R. (N.S.W.) 301. [I9621 N.S.W.R. 22, discussed by Walsh J. at pp. 456-457, supra.

47 [I9561 3 All E.R. 422, at 426. 48 [I9501 1 All E.R. 1102.

vanced nor considered in Drury v. Buckland Ltd.49 nor in Herschtal v . Stewart @ Ardern Ltd.,6O and went on to say:51

"Bearing in mind that the statutory implied warranty now embodied in s. 14 (1) of the Sale of Goods Act, 1893, was merely a modification of the long existing common law in relation to sales, I feel that there is much to be said for the view that in a transaction such as the present, which, though not in law a transaction of sale between the parties, is closely akin to such a transaction, the court ought to imply such a condition or warranty if any contractual relationship between the parties can in fact be established."

This, I would suggest with the greatest respect, is both good sense and sound policy. Unfortunately, the rigidity of the framework of bilateral contract, with its requirements of privity and of consideration moving from the promisee, is such that if this desirable result is to be reached at all it must be reached by the use of devices to bridge the gap between the factual reality of the transaction and the legd reality of the contracts (if there is in truth more than one) by which it is carried into effect. It is submitted that a cleaner and more elegant result would have been achieved had the concept of contract been sufficiently flexible to allow the courts to establish between the three parties to a modern hire-purchase transaction relationships corresponding more closely to the factual reality of the transaction, which, as the learned County Court Judge in Drury v . Buckland Ltd.62 per- ceived, is that the dealer is selling to the purchaser-hirer, who is bor- rowing the purchase price from the finance company. As I have already observed, the "struggle for title" demands that the transaction be carried out by way of sale from the dealer to the company and hire by the company to the purchaser; but the company, being prin- cipally a lender of money, does not wish to find itself saddled, as a result of the security device it has used, with liability in respect of defective goods; this, indeed, is the underlying reason for and, as I have suggested, may be regarded as some justification for the familiar clauses in hire-purchase agreements excluding such liability. On the other hand it is the person who deals in goods, i.e., offers them for sale, who ought to stand behind them by way of warranty, a fact which was realised by the common law when it introduced the implied warranties and conditions into the contract of sale. Perhaps the only

49 [1941] 1 All E.R. 269. 60 [I9401 1 K.B. 155. 51 [I9561 3 All E.R. 422, at 426. 52 [1941] 1 All E.R. 269.

justification which could be advanced for imposing liability by way of warranty of quality on the finance company is the "deeper pocket" principle; i.e., the argument that since it is the finance company which makes the greater share of the profits in the process of distributing the goods (if this is in fact the case) it ought to bear the risk that some of the goods will prove defective.

For the sake of completeness I should mention one further problem involving the relationship between the dealer and the hirer. In the usual hire-purchase transaction the dealer, upon receiving a deposit and the .hirer's signature to the hire-purchase documents, delivers the goods to the hirer pending the acceptance of the agreement by the owner and the simultaneous transfer of title to the owner. Thereafter the hirer is a hirer from the owner. But pending the acceptance, on what terms is he in possession of the motor-car, which is still the property of the dealer? He can be nothing other than a bailee, probably a bailee for value, on account of the payment of the deposit which, it is conceived, is in practice a prerequisite to delivery of the car to him, and the dealer must be the bailor. I t would seem therefore that there should be implied in this bailment either a warranty of the kind described in Geddling v. Marsh58 or perhaps even of the kind described in Gemmell Power Farming Co. Ltd. v. N i a M I t is true that, as Mr. Justice Walsh has pointed out,56 the plaintiffs in Newlands' case did not succeed in a claim based on a contract of bailment alleged to have been made by the hire-purchase company through the dealer as its agent, but this holding does not appear, with respect, conclusive against the contention I am now advancing.

In passing, mention may be made of a situation in which the device of implied or notional contract may now be used to secure a remedy against a dealer. What would be the position if after the conclusion of negotiations leading to the signature by a hirer of an offer to take under hire-purchase he did not take or was not given delivery, delivery being withheld it may be until the hire-purchase agreement was accepted, or perhaps merely deferred until the dealer found it convenient to deliver, and before delivery the dealer disposed of the goods to someone else? I t is submitted that there would now be little difficulty in arguing that the course of dealing between the dealer and the hirer had given rise to a contract binding the dealer, in consideration of the signature by the hirer of the hire-purchase agreement

58 [I9201 1 K.B. 668. (1935) 35 State R. (N.S.W.) 469.

as ~t pp. 449-451, supra. 56 Newlands v. Argyll General Insurance Co. Ltd., [I9591 State R. (N.S.W.) 130.

form and (where there is a deposit) the payment of the deposit, to offer the particular goods for sale to the finance company, and perhaps to hold those goods available for sale to the company and delivery to the hirer unless the company refuses the hirer's offer to hire under hire-purchase terms.

(iv) Summary.

The relationship arising at common law out of the familiar tripartite hire-purchase transaction (apart of course from those embodied in the agreement itself or in any express contracts ancillary thereto) are :

(a) As between the owner (the hire-purchase company) and the hirer:

( 1 ) An implied "warranty" as to title.

(2) If the hire-purchase agreement is of the Lee v. Butler5' type, the warranties and conditions as to merchantable quality and fitness for purpose in section 14 of the Sale of Goods Act, 1895.

(3) If the hire-purchase agreement is of the Helby v. Matthewsds type, (i) an implied condition of fitness for purpose which does not depend on reliance on the skidl and judgment of the owner nor, apparently, on the goods being of a description which it is in the course of the owner's business to supply, and (ii) semble, an implied condition of merchantable quality, which may depend on the goods being hired by description but may not depend on the owner's being a person who deals in goods of that description.

These warranties and conditions may be expressly excluded by the tenns of the hire-purchase agreement.

(b) As between the dealer and the hirer:

(1) Liability on the part of the dealer under express statements during the negotiations which can be construed in such a way as to import collateral warranties by the dealer.

(2) Semble, an implied collateral warranty as to title by the dealer.

(3) Quaere, an implied collateral warranty of fitness for purpose, and perhaps as to merchantable quality.

67 Note 13, supra. 5s Note 12, supra.

This liability may be, but is unlikely to be, excluded by agreement; it cannot be excluded by the terms of the hire-purchase agreement, unless the dealer is a party to it: In Beaton v. Moore Acceptance Corpo~ation,6~ a term of the negotiations between the dealer and the hirer negatived any such warranties; that term did not because of the doctrine of privity avail the owner.

(c) As between the dealer and the owner.

For the sake of completeness it should perhaps be briefly stated that the transaction of sale by which the owner acquires title from the dealer will import the implied condition as to title under the Sale of Goods Act, 1895, section 12, and also the implied condition as to merchantable quality in an appropriate case. It is doubtful, however, whether there would be any foundation for importing a condition as to fitness for purpose. The purpose of the purchase by the owner is that he (or it) may hire out the goods under hire-purchase terms; if they are unfit for this purpose they must in any case be also not of merchantable quality.

3. THE HIRE-PURCHASE ACT, 1959.

(1) The implied warranties under the Act. (a) As to title:

Section 5 (1) of the Act implies in every hire-purchase agree- menteo (a) an implied warranty that the hirer shall have and enjoy quiet possession of the goods; (b) an implied condition on the part of the owner that he will have a right to sell the goods at the time when the property is to pass; (c) an implied warranty that the goods will be free from any charge or encumbrance in favour of any third party (other than a charge or encumbrance created by or with the consent of the hirer) at the time when the property is to pass.

It will be noted that the time when the owner is required to have a right to sell the goods is the time when the property is to pass. Where a hire-purchase agreement gives the hirer an option to buy to be exercised either by making all the payments prescribed under the agreement, or at an earlier date by complying with some condition as to accelerated payment, the question could perhaps arise, at what date is the property to pass? Section 11 ( 1) of the Act gives the hirer a statuto.ry right to complete the purchase of the goods at any time by

69 (1959) 104 Commonwealth L.R. 107. 60 By the clumsy drafting device of deeming implied warranties and conditions

to be in the document; the draftsman has overlooked the fact that implication is in fact a species of deeming.

giving notice in writing of his intention so to do; the notice must apparently specify a day for completion, but the hirer may complete before that day. But there may be hire-purchase agreements which confer a power on the hirer to complete at an earlier date simply by tendering an amount arrived at in accordance with prescribed calculation^.^^ If of course these are less favourable to the hirer than those made under section 11 ( 2 ) , which requires the allowance of certain statutory rebates, the hirer would be ill-advised to exercise the power conferred upon him by the agreement. If he does exercise it, however, there appears to be the possibility that if an owner has not already taken steps to put himself in a position to give title he may be "caught short" when the necessary money is tendered; so too may be an owner who does not take those steps until he has received a notice under section 11 ( I ) , if the hirer seeks to complete before the date specified in the notice. Perhaps for these reasons Else-Mitchell and Parsonse2 suggest that the statutory condition as to title will arise immediately on the making of the agreement, in the light of the power given by the Act to complete at any time. This would seem to be a little harsh on the owner who after receiving the notice puts himself in a position to give title before tender of the net balance due under the agreement, and even more harsh on the owner who, having found out after completion of the hire-purchase agreement that his title is defective, perhaps because of a defect in the title of his vendor the dealer, takes the necessary steps to perfect the title before the hirer is in a, position to complete. The problem is no doubt unlikely to arise in practice, but it is possible to imagine a case in which an astute hirer for some reason seeks to take advantage of the dilatoriness of the owner in completing the purchase of the goods or perfecting the title to return the goods, even though he has been using them, and succeeds in recovering all moneys paid by him.63

(b) As to merchantable quality:

Section 5 ( 2 ) imports into every hire-purchase agreement an implied condition that the goods shall be of merchantable quality, but goes on to provide (by section 5 (2) (a ) ) that no such condition shall be "deemed to be implied" ( !) "as regards defects of which the owner could not reasonably have been aware, or, if there is a dealer,

It is not altogether clear that such a power would not offend against section 28 (1) (i) as being a provision modifying or restricting the operation of any provision of the Act, for section 11 (1) contemplates that the power to complete purchase is exercisable only on the giving of written notice.

62 Op. cit. in note 29, at 60. 63 Cf. Warman v. Southern Counties Finance Corporation, [I9491 2 K.B. 576.

neither the owner nor the dealer could reasonably have been aware, at the time the agreement was made . . ." I t will be noticed that, in comparison with the corresponding condition under section 14 (11) of the Sale of Goods Act, 1895, the goods need no longer be "bought" by description, nor need they be "bought" from a seller (i.e., a dealer) who deals in goods of that description. But why is the condition not implied as regards latent defects? Surely as against those who distri- bute or facilitate the distribution of goods the hire-purchaser is as much entitled as the purchaser for cash to protection against latent defects? Moreover, if the hire-purchase agreement is of the Lee v. Butlerm type, he will have the more extensive protection conferred by the implied condition under section 14 (11) of the Sale of Goods Act, 1895, and in any case he may have available against the dealer a common law warranty of merchantable quality which does not exclude liability for latent defects.

The Act, it is submitted, is further defective in that it does not define in any way the circumstances in which either the owner or the dealer "could reasonably have been aware" of any defect, and there is little or no guidance from existing law on the analogous subject of warranties in respect of goods bailed by way of hire. To what extent is a dealer bound to inspect the goods before he deals in them? Take the case of the dealer in Newlands v. ArgyLl General Insurance Co. Ltd.66 Should he have inspected the axle-nuts on the motor-car before "selling" it? In Andrews v. Hopkinson, McNair J . saidYBB "Although in Herschtal v. Stewart d Ardern Ltd.67 the negligence relied on was negligence in actually effecting the repair, I see no reason why the motor dealer should not equally be held liable if he put into circula- tion in the hands of his customer a motor car which is in fact in a dangerous condition, when the defect rendering the condition dangerous is one which could and ought to have been discovered by reasonable diligence on his part." He went on to hold that bearing in mind the fact that in an old car the danger spot is the steering mechanism, and that the defect which caused the accident could have been discovered by a competent mechanic if the car had been jacked up, the defendant was negligent in not making the necessary examination, or at least in not warning the plaintiff that no such examination had been canied out. It is not altogether clear whether, on the doctrine

Note 13, supra. 65 (1951) 51 State R. (N.S.W.) 130. 68 [1956] 3 All E.R. 422, at 426. 87 [I9401 1 K.B. 155.

of Jacobs v. London County C o ~ n c i l , 8 ~ this is an alternative ratio decidendi or mere obiter dictum; but it is an indication that there may in some cases be a duty of inspection laid upon a dealer, though whether in the particular facts of Newlands' case a dealer knowing that the brakes had just been re-lined ought to have contemplated that a careless mechanic might have failed to tighten one of the axle- nuts is a question on which I would hesitate to be dogmatic. Whether, however, the words "could reasonably have been aware" in section 5 (2) (a) import liability only if a reasonable man would have inspected the goods, and such inspection would have disclosed the defect, or whether they import liability if an inspection would have discovered the defect, whether the making of such an inspection was reasonably to be expected or not, appears still to be obscure; I would submit that the first is the meaning which would be attached to the words, but it is a pity that the drafsman was not more explicit.

Again, the degree of skill which will be called for in examination is left open; Andrcws v. HopkinsonSO suggests that the standard to be applied in relation to a defect in a motor car is that of a competent mechanic, regardless of whether the dealer possesses that skill or not. Similarly, the Act does not prescribe by what standard it is to be judged whether an examination by the hirer ought to have revealed defects in the goods (section 5 (2) (b) ), and there is a singular absence of authority on this point arising from section 12 (2) of the Sale of Goods Act, 1895; it is assumed, however, that the test will be a subjective one-i.e., that each particular buyer will be judged by what he reasonably ought to have discovered upon inspection, and not by what a more expert person ought to have discovered. Finally, the point of time at which the reasonableness of the owner's or dealer's awareness of defects is to be determined is the time the agreement was made. This must prima facie be the time at which the acceptance was signed by the owner, but if this is so a nest of problems may be imagined. Take for example the facts in Newlands' case. An inspection by the dealer before the car was delivered to the plaintiff hirer would have discovered the defect; but this was not the point of time at which the duty to inspect (if any) would arise under the Act. Thirteen days later, when the hire-purchase agreement was accepted, the accident had already occurred. Whether or not the presumably damaged car had been repaired, could it be said that the dealer or the owner could reasonably have been aware of the defect at that

6s I19501 A.C. 361, at 369-370. 60 Note 66, supra.

time? Perhaps indeed it could; but was that what the legislature intended? Again, what if goods are delivered at a time when a defect is still latent and before the owner accepts the, agreement for hire- purchase the defect becomes patent to reasonable inspection? Do

- these circumstances attract liability under the implied condition, or does the fact that when the agreement is made the goods are in the hands of the hirer mean that neither dealer nor owner can reasonably be expected to make an inspection? Finally, Mr. Justice Walsh in his paper drew attention to the interesting suggestion of Sugerman J. in Newlands' case70 that the hire-purchase agreement might be retro- active to the date of signature of the offer. Even if this were the result of an express term in the agreement it is difficult to see that it could make any difference to the interpretation of the words "at the time the agreement was made" in section 5 (2).

(c) As to fitness for purpose:

Section 5 (3) imports into every hire-purchase agreement, where the hirer expressly or by implication has made known to the owner, to the dealer, or to any servant or agent of the owner or dealer, the particular purpose for which the goods are required, a condition that the goods are reasonably fit for that purpose. I t will be noted that the prerequisites for the implication of this condition differ from those for the implication of the corresponding condition under section 14 (I) of the Sale of Goods Act, 1895. I t is not necessary to show that making known the purpose for which the goods were required imports reliance by the hirer-on the skill and judgment either of the dealer or of the owner, nor need the goods be of a description which it is the dealer's or the owner's business to supply. Thus the legislature has in this instance broken free from some of the common law fetters discussed in an earlier part of this paper.

The conditions implied. in hire-purchase agreements by section 5 (2) and (3) are of course operative only as between the hirer and the owner, although their existence is predicated upon the conduct of or upon certain happenings involving the dealer. Section 5 (4) gives the owner a statutory recourse against the dealer, not, as might be expected, in the case in which the owner becomes liable under an implied condition as a result of the failure of the dealer to discover a defect, of which he ought reasonably to be aware, affecting the merchantable quality of the goods, but in the case in which the owner suffers loss under an implied condition because the hirer made known to the dealer expressly or by implication the purpose for which he

70 [I9591 State R. (N.S.W.) 130, at 135-136.

required the goods and, perhaps as a result of a latent defect, they turned out to be unfit for that purpose. Thus there is statutory recourse against the innocent dealer but not against the negligent one. Of course in many cases the dealer will be liable under a "recourse" provision in an agreement between him and the owner; and in the balance of the cases not so covered the sale by the dealer to the owner will be subject to the implied warranty of merchantable quality under section 14 (11) of the Sale of Goods Act, 1895, provided that the goods can be said to have been bought by description and the dealer deals in goods of that description. Nevertheless, I submit that it would have been "cleaner" had the Hire-Purchase Agreements legislation provided a similar statutory recourse in respect of the owner's liability under section 5 (2) . Further, in many cases goods which are unfit for the purpose for which they are required will also not be of merchantable quality, so that the hirer may choose under which of the implied conditions he can pursue the owner. The existence of the owner's statutory recourse against the dealer will then depend upon the election of the hirer as to which condition he will treat as broken; this can hardly be regarded as a sa.tisfactory state of affairs.

Finally, this process of statutory recourse means that the dealer will ultimately, as between the three parties to the retail transaction, be obliged to bear the loss resulting from the distribution through him of goods not fit for the purpose for which they were intended; but, apparently in order to preserve the doctrine of privity, the legislature has resorted to circuity. Would it not have been better to have given the hirer direct statutory recourse against the dealer in respect both of unmerchantable goods and of unfit goods?

(ii) Second-hand goods and the exclusion of warrmties in respect thereof.

By section 5 (2) (c) and 5 ( 3 ) the implied conditions of merchantable quality and fitness for purpose may be excluded only in the case of second-hand goods, and then only if the agreement contains a statement to the effect that the goods are second-hand, and that all conditions and warranties of fitness and suitability are expressly negatived, and the owner proves that the hirer has acknow- ledged in writing that the statement was brought to his notice. I t would appear that the acknowledgment in writing should be contained in a document separate from the hire-purchase agreement.71 One

71 This is the view of ELSE-MITCHELL AND PARSONS, op. cit., at 66-67.

might criticise the requirements that the statement be "to the effect" that the goods are second-hand; Else-Mitchell and Parsons, writing in 1960, sayT2 that presumably to describe a motor vehicle as a 1959 model is to the effect that it is second-hand, but it may merely mean that it is a "superseded m~del", and this would apply also to (inter alia) washing machines, refrigerators, and T.V. sets. I t would seem that a statement "to the effect that all conditions and warranties . . . are expressly negativedyy must by force of the word LLexpressly" be more explicit. In any case, since Lowe v. Lombank Ltd.,7a any attempt to "wrap up" the exclusion by some such device as obtaining an acknowledgment that the hirer has not expressly or by implication made known to the dealer the purpose for which the goods are required is doomed to failure.

In requiring that the statement in the agreement be to the effect that all conditions and warranties of fitness and suitability am expressly negatived the legislature has at first sight abandoned the role of protector of the hirer and has came to the aid of the financier; for in order to exclude the implied statutory conditions he must apparently also expressly exclude the common law implied conditions to the same effectT4 and the common law warranties. But section 5 (5) expressly provides that nothing in the section itself is to prejudice any other enactment or rule of law whereby any condition or warranty is to be implied in any .hire-purchase agreement. Is this to be construed as having the effect that although section 5 (2) (c) and (3) require the insertion of a clause in the hire-purchase agreement negativing a11 warranties and conditions, this is not to negative those implied under any statute or rule of law other than the Act itself?

Again, what if an attempted exclusion of the statutory implied conditions turns out to be defective, because of a defect in, or the absence of, the necessary accompanying acknowledgment? Will the clause in question (if not rendered nugatory by section 5 (5) ) still operate to exclude other conditions and warranties? Whatever the result, one thing will be clear; the doctrine of privity will operate so as to render the clause in question ineffective to negative any collateral warranties which might be given by the dealer and be available to the hirer against him.

72 Id., at 65. 73 [I9601 1 W.L.R. 196. 74 That is to say, those which were held in Beaton v. Moore Acceptance Cor-

poration Pty. Ltd., (1959) 33 Aust. L.J.R. 345, to be implied in hire-purchase agreements.

(iii) Warranties and conditions other than those under the Act. As has been noted above, section 5 (5) expressly saves the impli-

cation of warranties and conditions in the hire-purchase agreement by any other statute or rule of law. Thus Beaton's case may still operate, and, in the case of a Lee v . Butler type of agreement, section 14 ( I ) of the Sale of Goods Act, 1895, except in reference to second-hand goods when the statutory conditions have been effectively excluded, as explained above, and where the hire-purchase agreement contains an effective exclusion clause, as explained below.

(iv) False representations in negotiations and liability therefor of the owner and of the dealer and his employee(s). I t is perhaps desirable to set section 6 (1) out in full.

( 1 ) A representation, warranty, or statement made to the hirer or prospective hirer, whether orally or in writing, by the owner or dealer or any person acting on behalf of the owner or dealer in connection with or in the course of negotiations leading to the entering into of a hire-purchase agreement confers on the hirer-

(a) as against the owner, the same right to rescind the agreement as the hirer would have had if the representation, warranty, or statement had been made by an agent of the owner; and

(b) as against the person who made the representation, warranty, or statement, and any person on whose behalf the first-mentioned person was acting in making it, the same right of action in damages as the hirer would have had against them or either of them if the hirer had purchased the goods from the first-mentioned person or the person on whose behalf he was acting (as the case requires) as a result of the negotiations."

I t will be noted that, although the machinery for effectuating the implied conditions under section 5 is that of bilateral contract, with in one case recourse against the dealer, section 6 comes closer to recognising a tripartite, or even a quadripartite, relationship. The hirer has two kinds of remedies for false statements or representations: (1) a right of rescission against the owner, though the statements or representations were not made by him or on his behalf, and (2) a right of action in damages against the dealer (and his salesman) even though the contract finally negotiated is not with either of them (over- looking for the moment the possibility that a notional contract between

hirer and dealer might be raised). It will be seen from the terms of the subsection that to determine whether a right of rescission exists under it it will be necessary to examine whether the misrepresentation is such as would have entitled the hirer, had he been a purchaser, to rescind; i.e., whether it was fraudulent, or, if innocent, material. It will also be necessary to determine whether restitutio in integrum is possible, as to which Else Mitchell and Parsons point that any use by the hirer of the goods hired would preclude restitutio in integrum. But where a modicum of use is necessary to establish the falseness of the representation-as in the case of a defective motor car78the application of this rule would appear harsh in the extreme. In Yeoman Credit Ltd. v. Apps it is possible to infer from the judgment of Holroyd Pearce J.77 that the hirer might have had the benefit of a trial run or two, to discover the existence of "the congeries of defects [which] destroy the workable character of the machinenTs before rejecting the car and repudiating the contract. Moreover, Davies L.J. observed78 that "when a motor-car is in such a disgraceful state as this motor-car was in April when it came into the hands of this unfortunate defendant [the hirer], it seems to me that any automatic depreciation by lapse of time has really no relation to the realities of the case. The car was so bad in April that it is impossible, in my view, to say that it was any worse by the time the plaintiffs retook it in October." If similar findings of fact were possible in a case involving fraudulent or material misrepresentation a court might be able to hold that restitutio in integrum is possible. Nevertheless, it is submitted that the legislature could well have made the conditions in which rescission would be allowed, if the representation were such as would otherwise allow it, a little more explicit, instead of simply incorporating the common law rule.

A somewhat different criticism may be levelled at the provision that the dealer's misrepresentation is to convey the same right of rescission as against the owner as if it had been made by an agent of the owner. Again, Else-Mitchell and Parsons sayYS0 "The section does not attempt to determine when a contract with a principal may be rescinded because of the misrepresentation of an agent. This is

75 Op. cit., at 73. 76 Cf. the facts in Yeoman Credit Ltd. v. Apps, [I9611 3 W.L.R. 94. 77 [1961] 3 W.L.R. 94, at 104. 7s Quoting Lord Dunedin in Pollock & Co. v. Macrae, [I9221 Sess. Cas. 192,

at 200. 79 [1961] 3 W.L.R. 94, at 109. 80 OP. cit., at 73.

left to the general law of vicarious liability." They go on to suggests1 that these words raise a notional agency, and addJE2 "It is generally said that a principal can only be bound in contract for acts within the actual, apparent, or ostensible authority of his agent. I t is, of course, nonsense to speak of the actual or ostensible authority of a notional agent." I t may be doubted, however, whether the draftsman really intended to establish a notional agency. He seems to have fallen uneasily between providing that the owner is to be liable as if the dealer who made the representation were his agent and providing that the owner is to be liable as if he himself had made the representation. It is submitted that the meaning which should be placed on the words in question is that the hirer should have the same right of rescission as he would have had if the representation had been made by the duly authorized agent of the owner.

The intention under section 6' (1) (b) is no doubt praiseworthy, but the execution leaves much to be desired. In his zeal to tamper as little as possible with the common law, and to use its framework as much as possible, the draftsman has left it to be determined by judicial decision, just what "representations, warranties, or statements" would have raised liability in damages against a vendor of goods. He may have had in mind the line of decisions on "collateral warranties" beginning with Brown v . Sheen tY Richmond Car Sales;sa but these, it is submitted, cannot be prayed in aid in the interpretation of the provision in question because the dealer (or salesman) is to be liable as if the warranty were part of a contract of sale entered into by him, not collateral to a contract of hire-purchase entered into by another. I t will therefore be necessary to determine whether the statement or representation was such as would have formed a term of the contract of sale between the representor and the hirer had the negotiations re- sulted in the formation of such a c o n t r a ~ t . ~ One wonders whether the draftsman might not have had it in mind to make other representations and statements made by dealers and salesmen attract liability in damages, if false, and thus to restrict the operation of the maxim simplex commendatio non obligat. In a, day when no one can sell anything without the most extravagant commendation of it some legislative restraint on the mendacity of advertisers and salesmen would be no bad thing. But if this were the draftsman's policy motive

81 By implication (at 79), and explicitly (at 75-76) when discussing the Queens- land variant of section 6 (1) (a).

82 Id., at 76. 83 [1950] 1 All E.R. 1102. 84 See ELSE-MITCHELL AND PARSONS, op. cit., at 75.

he did not go about implementing his intentions very well. He has also left the courts without guidance on the question of the measure of damages to be applied in such cases; is this t o be determined by considering what damages the hirer would have suffered had the representation induced him to enter into a contract of sale and purchase of the goods at the "sale price", or is it to be determined by "looking at what sort of a bargain the h i r has made in the hire- purchase agreement,"86 which may not be the same? Finally, he has, for some curious reason, made the salesman or other agent of the dealer liable in damages for his own representations and warranties, in addition to the liability vicariously imposed on his master or principal. This certainly suggests that the aim of the provision is to restrain the exuberance and recklessness of salesmen in their commendation of the goods they sell; it is difficult to suggest any other motive.

It should be noted that if the owner suffers any loss through the operation of section 6 (1) (a) he may claim indemnity against the person making the representation, warranty, or statement which induced the loss and any person on whose behalf it was made.*

( v ) The prohibition of exclusion of liability.

(a) For implied conditions:

Section 5 (2) and (3) expressly provides that the conditions each implies may be excluded if the goods are second-hand, subject to the method of exclusion fulfilling certain specified requirements. Section 28 (1) (i) provides that any provision in any hire-purchase agreement or other document whereby the operation of any provision of the Act is excluded, modified, or restricted except as expressly provided in the Act is void. This sounds the death-knell of exclusion clauses so far as they affect conditions implied under the Act. But as has been pointed out, section 5 (5) expressly saves the implication in hire!- purchase agreements of conditions or warranties under any other Act or rule of law, by providing that "nothing in [the] section prejudices" the implication. It is submitted that an exclusion clause which sought to exclude conditions and warranties implied by the Sale of Goods Act, 1895 (if applicable) or by the common law as to hire-purchase as it has developed would not seek to exclude, modify, or restrict the operation of section 5 (5), and would therefore be valid. It seems clear, however, that nothing less than a plain unambiguous statement that such warranties and conditions are excluded will suffice; devices

86 Zbid. 88 Section 6 (3) .

such as that perpetrated in Lowe v. Lombank Ltd.87 will not now avail. Further, care must be taken that the exclusion clause is not susceptible of being construed as affecting the warranties or conditions implied under the Hire-Purchase Act, 1959, or the owner will be guilty of an offence under section 28 (2) ; and it should not be caught by the provisions of section 6 (2)-to be discussed later.

(b) For false representations, warranties, and statements:

Again, section 6 (2) expressly provides that a covenant, condition, or term in a hire-purchase agreement or other document purporting to exclude, limit, or modify the operation of the section, or to preclude any right of action or any defence based on or arising out of any such representation, warranty, or statement is void. What this adds to section 28 (1) (i) is not clear; perhaps the apparent duplication is pedagogic and minatory rather than of any legal significance. Further, while a provision in a hire-purchase agreement may (section 6 (2) apart) exclude the liability of the owner to have the contract rescinded if the representation in question is fraudulent, or if innocently false, material, it cannot operate to exclude or limit the liability of the dealer or hi agent, because neither of them is privy to the agreement; hence the ineffectivness of the provision in the hire-purchase agreement in C. 1. Grais d Sons Pty. Ltd. v. F. Jones d Co. Pty. Ltd.,88 referred to by Mr. Justice Walsh in his paper, to limit the dealeis liability under a collateral warranty. The only document which could so limit their liability would be one to which they and the hirer were parties, such as a receipt on delivery, signed by the hirer, purporting to acknowledge that he has entered into the hire-purchase agreement solely in reliance on his own skill and judgment and not in reliance on any representations or statements made by the dealer, and that he has examined the goods and that they are in good order and condition and fit for the purpose for which they are required. Since Lowe v. Lombank Ltd.89 the effectiveness of such a document is subject to grave doubt; but section 6 (2) makes its ineffectiveness certain. But, though the attempt may be void, if it is such an attempt as would otherwise be unsuccessful the insertion of the provision in the document will not, it is submitted, expose the owner to the penalties under section 28 (2 ) ; for that subsection predicates the offence upon the insertion in the agreement or document of a provision that is void under section 28 ( I ) , and a provision which would otherwise be in-

87 [I9601 1 W.L.R. 196. 8s [I9621 N.S.W.R. 22. 89 [I9601 1 W.L.R. 196.

effective is not, it is submitted, one which excludes, modifies, or restricts the operation of any provision of the Act.

Section 6 (2) speaks of a covenant, condition or term in a hire- purchase agreement or other document; thus, if a dealer can secure from a prospective hirer an oral acknowledgment that he will not hold the dealer or his salesman liable under any representations, warranties, or statements made in the preliminary negotiations, and it is possible to prove the acknowledgment, it is submitted that dealer and salesman will be protected against the liability imposed by section 6 (b), even if they also lose the sale.

A curiously anomalous result of section 6 (2) may finally be noted: The dealer who sells for cash may, if he is in a sufficiently strong bargaining position, still exclude liability in respect of representations and wamnties which would otherwise bind him; but the dealer whose customer requires hire-purchase finance, even though it is obtained from a third party, cannot. This appears to lend some point to the comment, frequently made, that it is not only unfashion- able but anti-social to buy goods for cash today.

4. THE LIABILITY OF THE DEALER AND THE OWNER TO THE HIRER FOR DEFECTIVE GOODS APART FROM

STATUTE AND CONTRACT.

It will be remembered that in Herschtal v . Stewart and Ardern Ltd.gO the dealer, who was also the repairer, was held liable for per- sonal injuries caused to a hirer by goods which were unsafe as a result of the negligence of the dealer or his servants in overhauling them. It has been suggested in discussing the liability of the dealer to the hirer under contract that the question of the extent of the dealer's duty of care to the hirer is still open, and it was pointed out at a later stage in the paper that in Andrews v. HopkinsonYQ1 McNair J. said that a dealer who did not inspect the steering mechanism of an old car when the defect in question could easily have been discovered by a' competent mechanic if the car had been jacked up was liable under a count of negligence, though it is not clear whether this was ratio or obiter. It is of interest to note that in the United States some jurisdictions have imposed duties sounding in tort on motor car dealers to inspect the vehicles they sell, such duties being owed not only to the purchaser (or, in a hire-purchase transaction, the hirer) but to passengers in the motor car and others who suffer injuries as

00 [I9401 1 K.B. 155. 91 [I9561 3 All E.R. 422.

a result of the defects which such inspection should have discovered. However, the dealer will be absolved from liability if after he has discovered the defects in question he notifies the buyer of them. Thus it appears that a duty in tort is being imposed in order to secure honest dealing in the automobile vending business.g2

It is difficult to suggest circumstances in which a similar duty might be held to be imposed on the finance company owner hiring under a hire-purchase agreement, unless perhaps in a case in which as a result of an inspection of the motor car to determine its worth for security purposes it was brought to the owner's notice that the motor car was dangerously defective in some particular, but the company, relying on the hirer's credit rating, went ahead with the transaction without notifying the hirer of the defects.

5. THE INTEREST OF THE HIRER IN THE GOODS.

( a ) At common law:

A brief discussion of this point has been included in the paper because, though not directly connected with the main theme, the same concentration on the "reality" of the situation which leads to the view that the dealer is selling, the hirer is buying, and the hire- purchase company is merely lending-a view which, it has been submitted at times in the preceding pages, might well lead to some useful revision of the relationships at present predicated between the partie9 upon the basis of the legal categorization of the transactions involved -may lead to the view that the hirer has or ought to have some "interest" in the goods which he has contracted to acquire by this method. One suspects, indeed, that many hirers believe in their ig- norance that they are as good as owners, and thus, for example, that they may sell the goods at will so long as they keep up the payments under the "loan."

The feature which distinguishes a hire-purchase agreement from an ordinary hiring is of course the fact that the periodical payments thereunder are more than mere payments of rent, as each reduces the amount which the hirer must finally pay in order to complete his purchase, whether the agreement is a Helby v . MatthewsQS type or a

92 See the note by Johnson, Torts-Negligence-Auto Dealer's Liability for Failure to Inspect, (1961) 15 ARKANSAS L. REV. 213, on McKinney v. Frod- sham, (1960) 356 P. 2d. 100; see also 2 HARPER AND JAMES, THE LAW OF

TORTS (Boston, 1956), 1598; Eldredge, Vendor's Tort Liability in MODERN TORT PROBLEMS (Philadelphia, 1941), 243, and GILLAM, PRODUCTS LIABILITY IN THE AUTOMOBILE INDUSTRY (Minneapolis, 1960), 23 et seq.

93 Note 12, supra.

Lee v. Butlerw type. I t was this fact which led Channel1 J. in Belsize Motor Supply Company v. Cox95 to hold (in a case involving a Helby v. Matthews type agreement) that a pledgee from the hirer of the goods had acquired an interest in the goods which amounted to a right to complete the purchase by tendering to the owner the unpaid balance of the purchase money. Again, in Whiteley v. Hiltse the defendant, who had purchased from a person (who was hiring a piano under a Helby v. Matthews type agreement) all the contents of that person's flat, including the piano, was held by the Court of Appeal to have acquired all the interest of the vendor in the piano, an interest described by Warrington J.O7 as comprising: First, a right to retain possession of the chattel so long as the hirer performed the conditions of the agreement; second, an option to purchase the chattel; third, in case of failure to pay any instalrnent or of breach of any other provisions of the agreement, the right to have the right to possession and the option to purchase restored upon performing certain conditions. This agreement, the learned judge said, was clearly assignable in equity.

Mr. Justice Dean in his HIRE-PURCHASE LAW IN AUSTRALU~~ dissents from the view, which the foregoing cases might be regarded as supporting, that the hirer has a proprietary interest in the goods, and argues strongly that all that the hirer has is a contractual right against the owner, for breach of which he may recover damages (citing, in support of this, dicta of Lord Macnaghten in Helby v. Matthews),09 although, as he points out later, this right is, in the absence of any provision to the contrary in the hire-purchase agreement, assignable.

(b) Under the Hire-Purchase Act, I959: The assignability of the hirer's rights under the agreement, and

thus the recognition of an economic interest of which he may take advantage, is set beyond exclusion by section 9 of the Hire-Purchase Act, 1959, coupled with section 28 (1) (i) and (2). What is described in section 9 (2) as the "right, title, and interest of a hirer under a hire-purchase agreement" may be assigned with the consent of the owner, for which no payment shall be required other than the making good of any defaults and payment of the reasonable costs of stamping

f~ Note 13, supra. @5 [I9141 1 K.B. 244. se [i918j 2 K.B. 808.

Zbid., at 819-820. 9s (2nd edn.. 1938) 5-6. 99 [1895] A.C. 471, at 481; these dicta themselves are set out by DEAN op. cit.,

at 3.

and registering the assignment documents, and if such consent is withheld the hirer may apply to a court of petty sessions for an order declaring that the consent has been unreasonably withheld; if such an order is made the assignment may then be made without the owner's consent. It is not clear what is to happen if an owner, as a condition prerequisite to granting consent, stipulates that defaults shall be made good, and that the assignee sign an assignment agreement making hi personally liable under, the terms of the hire-purchase agreement (as the owner may do by subsection (4) (a) ), but adds some other stipu- lations which result in the making of an order that consent is deemed to be unreasonably withheld; can the hirer then assign without the defaults being made good and without the execution of the required assignment agreement? It would seem so. Indeed, if the owner simply refuses consent unreasonably, it would seem that if an order is made he is then precluded from asking for the making good of defaults and for an assignment agreement; no doubt this is intended as a sanction.

6. RELATIONSHIPS WITH PARTIES OTHER THAN

THOSE TO THE TRANSACTION.

(i) Conversion by others-the rights of the hirer and the owner. It is proposed finally to look briefly at certain circumstances in

which the rights and liabilities of the owner, the hirer, and the dealer vis-d-vis third persons may be in question. The first set of circumstances is that in which a third person converts the goods hired, either without colour of right, or by bona fide purchase from the h i i r , or by some other dealing with the goods with the purported authority of the hirer.

If the goods hired are converted by a third person against the will of the hirer, and not in such circumstances as would amount to a breach of the hire-purchase agreement entitling the owner to repossess the goods, the hirer will be the only person entitled to sue for the conversion. The amount he may recover will of course not be limited to the extent of his interest in the goods, but will be the full value of the goods,' though the hirer will be required to account to the owner for moneys still owing to him.

If, however, the hirer has dealt with the goods in such a way as to entitle the owner to repossess the goods, or the conversion results from circumstances which will give the owner that power, the owner may be entitled to sue. This right to sue in conversion depends upon

1 The Winkfield, [I9021 P. 42.

the owner's being entitled to immediate possession, and the question when this entitlement arises does not appear yet to be perfectly settled. Default clauses in hire-purchase agreements appear to be of three main types; those which on breach entitle the owner on giving notice to terminate the agreement and retake possession of the goods;2 those which provide that on breach of a condition the hiring should auto- matically terminate and the owner should be entitled to retake possession; and those which provide that on breach the owner may terminate the agreement and retake possession, either keeping silence on the question of notice of termination3 or expressly negativing the require- ment of n o t i ~ e . ~ Fleming6 suggests that where the contract requires notice of termination and the notice is not given t k owner's right to possession does not arise, citing for this proposition Reliance Car Facilities v . Roding Motors," a decision of the Court of Appeal. This was the effect of the decision of the Divisional Court in Nelson Murdoch d Co. v . Wood;7 but the Court of Appeal in that case helds that as the point had not been taken before the county court the Divisional Court had no jurisdiction to decide it, and that the case could not be cited as an authority in any subsequent case for the prop~sition.~ But in Belsize Motor Supply Company v. Coxlo Channel1 J. held the owner entitled to sue in conversion, thus implying that he had an immediate right to possession, even though the hire-purchase agreement had not been terminated; and this latter point is clearly part of the ratio decidendi, since upon it turned the question whether the defendant had an interest in the goods. The other cases cited above do not assist greatly; in North General Wagon and Finance Co. Ltd. v. Grahaml1 Asquith L. J., discussing the question whether on the true construction of the hire-purchase agreement any form of notice is required, appears to hold the view that termination of the

2 See Reliance Car Facilities v. Roding Motors, [I9521 2 Q.B. 844. 3 See Belsize Motor Supply Company v. Cox, [I9141 1 K.B. 244-though the

words of the agreement in that case were: "they are hereby authorised to take possession . . . of the said motor-taxi cab and terminate this agreement . . .", and it might have been argued that the agreement could be terminated only by the retaking of possession. See also North General Wagon and Finance Co. Ltd. v. Graham, [1950] 2 K.B. 7.

4 Jelks v. Hayward, [I9051 2 K.B. 460; Nelson Murdoch & Co. v. Wood, (1921) 38 Times L.R. 23, (1922) 126 L.T. 745.

6 THE LAW OF TORTS (2nd edn. (Sydney), 1961), 69, note 25. 6 [I9521 2 Q.B. 844. 7 (1921) 38 Times L.R. 23. 8 (1922) 126 L.T. 745, at 748. 9 Sed quaere, as the point appears to have been fully argued.

10 [1914] 1 K.B. 244. 11 [1950] 2 K.B. 7, at 13.

agreement is a condition prerequisite to the arising of a, right to immediate possession, though he also suggests that the retaking of possession may itself be the mode of terminating the hiring. Cohen L.J. certainly takes the latter view.12 But there are dicta in Reliance Car Facilities v. Roding Motors13 on the effect of Graham's case which suggest that the right to possession arises as soon as the hiring becomes determinable; if this is the correct view it would not seem to matter whether the determination be by notice or in some other manner.14

The owner would on principle be entitled to recover from the converter the full value of the goods converted except where the converter had some interest in the goods,15 notwithstanding that he had already received some part of that value by way of instalments under the hire-purchase agreement. It does not appear that the recovery of damages for conversion could be construed as "taking possession of goods" under sections 13 to 17 of the Hire-Purchase Act, 1959, so as to entitle the hirer to recover under section 15 ( 1 ) (b) the difference between the total sum received by the owner and the net amount payable under the agreement.

(ii) Negligent damage by others to the goods hired-the rights of the hirer and the owner.

Little need be said under this heading other than to refer to the excellent and comprehensive article by Professor Fleming on Tort Liability For Damage to Hire-Purchase Goods.16 The right of recovery of both the hirer and the owner will be governed by the

12 Ibid., at 15. 13 [I9521 2 Q.B. 844, at 849 per Denning L.J., and at 851 per Hodson L.J. 14 Cf. the facts in Moorgate Mercantile Co. Ltd. v. Finch and anor., reported

in The Times, 29th March 1962, p. 17. The plaintiffs, a hire-purchase company, had hired a car to F.; unfortunately, the report does not indicate what were the express terms of the hire-purchase agreement with reference to termination of the hiring. F. having left the car with E. to have a new clutch fitted, E. (with F.'s permission) lent the car to R. who took it away and proceeded to put 675 "uncustomed" watches in it. The customs authori- ties caught R. with the watches in the car; it was seized and forfeited. F. having disappeared, R. was held liable in conversion-what he had done was to take the car and use it in a way which necessarily or in all prob- ability might result in the owner being deprived of the car forever, and he was taken to have intended the consequences which were likely to happen. Clearly the hiring determined, and the plaintiff's right to possession arose, as soon as the car was seized; quaere, might it have arisen earlier (if the relevant hire-purchase agreement contained a prohibition against parting with possession of the car) when E. with F.'s permission allowed R. to take the car away?

15 Cf. Belsize Motor Supply Company v. Cox, [I9141 1 K.B. 244. 16 (1959) 42 AUST. L.J. 267.

common law by analogy to its rules concerning bailrnents; there is curiously little direct authority involving hire-purchase agreements, and only one case on the right of the owner to recover for damage to goods in the possession of the hirer, Dee Trading Co. v. B a l d ~ i n , ' ~ in which the owner recovered the full amount of the permanent damage to the motor car even though it might have been able to insist that the hirer make good the damage under the terms of the hire-purchase agreement. But in that case the hirer was in arrear and unlikely to be able to repay the cost of repair, and in fact the car was repossessed just after the accident. Whether the measure of damages is in any case to be limited to the amount of the unpaid purchase price (or alternatively, the amount the owner could recover on repossession) or the entire damage or full value at the time of destruction is a question on which American decisions may be helpful; Professor Fleming points out that the great weight of United States authority favours the limitation, but that a recent development in Massachusetts has given rise to the doctrine that if the owner is deprived of any substantial part of his security he is entitled to full redress.

(iii) The liability of the dealer and the owner to third parties for dangerous and defective chattels.

Again little need be said on this, as the question of the dealer's and the owner's duty in tort to the hirer has already been canvassed, and the same principles will apply to the question whether a duty is owed to third persons. Clearly in the case of defective motor vehicles, if any duty of care at all is owed to the hirer a corresponding duty will be owed to other persons who may drive the motor car, to passengers in the car, and perhaps to the travelling public who may be injured in an accident caused by the defective condition of the car.18 Similarly, if the defect is one in a piece of household electrical equipment, and a duty of care to the hirer can be established, that duty will extend to other members of the household who may use or come into contact with the equipment, perhaps even to persons to whom it may be lent; how much further the duty will extend is, of course, matter for speculation.

E. K. BRAYBROOKE.*

17 [I9383 Victorian L.R. 173. 18 Stennett v. Hancock, [1939] 2 All E.R. 538.

+ LLM. (NZ.), LLM. (Columbia): Barrister and Solicitor of the Supreme of New Zealand; a Senior Lecturer in Law, Victoria University College, Wellington, New Zealand, 1947-1957. Reader in Jurisprudence, University of Western Australia, 1958-.

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