Finance company loses out on title fight

12.04.10

 

This article was written by Greg Standing, partner in Wragge & Co LLP's finance, insolvency, recoveries and sales team and published in the March issue of Motor Finance.

There has been a Court of Appeal decision involving Section 27 of the Hire Purchase Act 1964, one of the exceptions to the nemo dat quod non habet principle of English law, that no one can pass better title to goods than they possess.

Facts of the case

In Kulkarni v Manor Credit (Davenham) Ltd (Manor), Mr Kulkarni ordered a Mercedes from Gwent Fleet Management Ltd (Gwent). The timeline was as follows:

• 3 March 2008 - order drawn up and Kulkarni paid Gwent in full.
• 11 March - Manor acquired the Mercedes. Kulkarni obtained an insurance cover note.
• 13 March - Gwent entered into a master assignment agreement with Manor whereby Manor would provide vehicles to Gwent on hire-purchase terms and Gwent would provide those vehicles to its customers on sub-hire terms.
• 14 March - Manor and Gwent entered into a three year hire-purchase agreement in relation to the Mercedes. The Mercedes was delivered to Kulkarni.

Gwent failed to make payment and Manor repossessed and sold the car. Kulkarni claimed in conversion against Manor relying on the provisions of s27.

S27 provides that where a car has been bailed or hired or conditionally sold, and before title in the car vests in the debtor he disposes of it to a private purchaser in good faith and without notice of the hire-purchase or conditional sale, that disposition shall have effect as if the creditor's title had vested in the debtor immediately before that disposition so enabling good title to pass. Had there been a disposition/sale by Gwent when it was a debtor?

First instance judgment

At first instance, the judge looked at the presumption in Rule 5 of section 18 Sale of Goods Act 1979 (Rule 5) which provides that where there is a contract for the sale of unascertained or future goods by description, and goods of that description and in a deliverable state are unconditionally appropriated to the contract, property passes to the buyer.

The judge held that property in the Mercedes had been intended to pass when Kulkarni insured it, i.e. 11 March. As that was prior to Gwent entering into the hire-purchase agreement with Manor, s27 could not help Kulkarni. He appealed.

Court of Appeal's findings

The Court of Appeal held that for the presumption in Rule 5 to apply, the Mercedes had to be in a deliverable state which it was not until it had its registration plates affixed.

There was no evidence that they had been affixed prior to the date of delivery and Kulkarni was not bound to have taken delivery without the plates attached.

The disposition took place at the earliest on delivery at which time Gwent was a debtor to Manor. S27 applied to transfer good title to Kulkarni whose appeal therefore succeeded.

Comments

This is an interesting case, not least as it does not involve the classical application of s27 that many readers will be familiar with. 

The key point was that the Court of Appeal found that the date of disposition to Kulkarni was held to be when the car was delivered with registration plates and log book, not at any earlier point in time. 

For further information about this published article, contact Kathryn Hobbs on +44 (0)121 685 2785, Rebecca Davies on +44 (0)121 685 3819, Gayle Redding on +44 (0)121 685 2708 or Rebecca Lum on +44 (0)121 260 9973

This published article may contain information of general interest about current legal issues, but does not give legal advice.