Auctioneers’ liability for conversion–Car subject to hire-purchase agreement put into car auction by dishonest hirer–Action against auctioneers by hire-purchase finance company–Auctioneers’ liability in principle settled by House of Lords over 100 years ago–Whether hire-purchase company entitled to immediate possession so as to have right to sue for conversion–Bailor’s right to immediate possession arises when bailee acts in a way wholly repugnant to contract–Auctioneers’ appeal dismissed
This was an
appeal by British Car Auctions Ltd against a decision by Lawson J holding them
liable at the suit of Union Transport Finance Ltd for conversion as the result
of the sale of a car at one of the appellants’ car auctions, the car being the
property of the respondents, Union Transport Finance Ltd. The car had been let
on a hire-purchase agreement to a hirer, who after changing the number plates,
entered it for auction with the appellants.
Gerald Owen QC
and Thayne Forbes (instructed by Cripps, Harries, Willis & Carter, agents
for Clive Fisher & Co, of Addlestone) appeared on behalf of the appellants;
R Denyer (instructed by Meade-King & Co, of Bristol) represented the
respondents.
Giving the
first judgment at the invitation of Cairns LJ, ROSKILL LJ said: This is an
appeal by the defendants from a judgment of Lawson J given by him at Bristol on
May 10 of last year The appeal has, if I may say so, been admirably argued by
Gerald Owen and his junior Thayne Forbes, but, for my part, I have no doubt
that the learned judge’s decision was right. The problem that we have to
consider is the all too familiar one of which of two innocent parties has to
suffer for the fraud of a third.
The plaintiffs
in the action are Union Transport Finance Ltd, a well-known hire-purchase
finance company, and, indeed, as their documents show, a subsidiary of the even
better known Wagon Finance Corporation Ltd. The defendants are a well-known
firm of car auctioneers, who, we are told, have passing through their hands
throughout the length and breadth of this country many scores of thousands of
cars every year. The trouble arose because on February 7 1973 the plaintiffs,
in accordance with what to them was no doubt a perfectly ordinary hire-purchase
transaction, bought an Audi car the number of which was CFH 138J from a firm of
dealers for the purpose of letting it on hire-purchase to a gentleman who gave
the not very unusual name of Harry Smith. Smith told them that he was a
surveyor, and a contract was entered into on that date in the usual
hire-purchase transaction form providing for a sum to be paid down and for some
36 monthly instalments to be paid, the first payment to be made later, namely,
on March 7 1973.
The next day
Smith (as he was thought to be) taxed the vehicle. On February 13 the
plaintiffs, in accordance with the usual practice, informed Hire Purchase
Information. On February 19 1973 Mr Smith–who by this time appears to have
changed his name to Smithers–entered that car for auction with the defendants,
not under its original number, but under number CFH 738J, presumably having
done the necessary physical alterations to the number plates. He did not reveal
that there were any outstanding hire-purchase instalments. On February 22 the
defendants sold the car at an auction at Alexandra Palace for £1,045, from
which they deducted their commission of just under £60. On February 28 1973
they sent Mr Smithers, as by then he was, a cheque for the difference.
Down to that
time, of course, the plaintiffs knew nothing about Smithers’ or Smith’s
dishonest activities. But come March 7, which was the day for the payment of
the first instalment, strangely enough none was forthcoming. Nor was any
instalment forthcoming on the next monthly date, April 7. The plaintiffs
accordingly, as one would expect, on April 11 served a notice of default in
respect of these two instalments. That letter reads thus: ‘We cannot trace a
reply to previous reminders and unless the above amount’–which by this time was
£90–‘is paid in full within seven days from the serving of this notice by
normal postal delivery the hiring of the above goods will be terminated
forthwith and steps taken to recover our property together with your full
liability under the terms of the hire-purchase agreement.’
We were told
by counsel that the vehicle had been bought by someone called Yates. He plays
no part in this story. Whatever his part was, he was a completely innocent
purchaser. We are told that he subsequently resold it, and the vehicle has now
irretrievably disappeared. The sins of Smith, or Smithers, in due course were
found out, and in yet another name of Day, in August 1973, he was sent to
prison for obtaining this vehicle by dishonest representations. He might well,
I should have thought, have been charged with the theft of the vehicle, though
whether he was or not does not matter, nor is it clear from the papers.
That being the
factual background of the matter, the action came before Lawson J at Bristol on
agreed facts. There was no oral evidence adduced before the learned judge, and
he was invited to decide on those facts whether or not the defendants were
guilty of conversion. The defendants took two points in reply to the
plaintiffs’ claim. First–and I can deal with this quite shortly–they said that
auctioneers who act as they acted on this occasion are not in law guilty of
conversion; and second, they said: ‘Even if in law we as auctioneers can be
guilty of conversion, you, the plaintiffs, on the date when we resold the car,
February 22 1973, had no right to immediate possession, and, therefore, you
cannot maintain this action for conversion against us.’ Those were the issues which Lawson J had to
try.
I can, I hope
without any discourtesy to Mr Owen, dispose of the first point speedily. The
learned judge had no doubt–and he, too, dealt with this point very shortly–that
before him it was not open to the defendants to assert that they were incapable
as a matter of law of being guilty of con-
his clients’ right if this matter were to go to the House of Lords to reopen
what has been long thought to be the law, ever since Hollins v Fowler
(1875) LR 7 HL 757 about 100 years ago, and to put the matter to the test in
the highest tribunal. I mention for the sake of completeness that the point
that an auctioneer cannot in such circumstances as those be guilty of
conversion, might have been, but was not, taken in this court in a case to
which I shall refer in more detail in a moment, North Central Wagon &
Finance Co Ltd v Graham [1950] 2 KB 7. If one looks at the statement
of facts on pp 7 and 8 of the report one sees that the defendant, Graham, was
an auctioneer against whom, as in the case of the present appellants, no
allegation whatever of want of good faith was made. But counsel for Mr Graham
did not take the point which it is sought to keep open in the present case.
I now turn to
the second point that has been pressed upon us in this court. It is, I
apprehend, an elementary branch of the law of tort, first, that an action for
conversion depends upon injury to the right to possession and second, as
Asquith LJ put it in the North Central Finance Co case: ‘When a bailor
and lessor on hire-purchase wants to sue in conversion by reason of the
wrongful sale by the bailee of the article bailed, it is essential for him to
show that he is entitled at the time of the sale to immediate possession of the
goods.’ The hire-purchase finance
agreement between the plaintiffs and Smith contained a large number of clauses.
It is not necessary for me to read more than a few in order to make plain the
point that was argued before Lawson J and has been argued again in this court.
If one looks at clause 1 one finds a number of covenants under the letters (a),
(b) and (c) and through to (k) on the part of the hirer. Clause 1(c) provides:
‘To keep the goods in good repair and working condition . . . and not to remove
or allow to be removed their present identification marks.’ Sub-clause (f) provides:
Not without
the previous consent of the owner to part with the possession or control of the
goods . . . and not to sell or offer for sale nor assign pledge mortgage
underlet give away or otherwise in any way legally or equitably deal or attempt
to deal with either the goods or option to purchase herein contained or other
interest of the hirer hereunder.
Pausing there,
there can be no doubt that Smith’s actions, first in altering the number plate
by substituting the figure ‘7’ for the figure ‘1,’ as I mentioned earlier, was
a breach of clause 1(c), and then in handing over the car to the appellants as
auctioneers for sale was a breach of clause 1(f).
Clause 3
provides:
Unless and
until the whole of the sums due under this agreement shall have been paid and
purchase been made under clause 2(2) hereof the goods shall remain the absolute
property of the owner and the hirer shall not have any right or interest in the
same other than that of hirer under this agreement. (b) Should the hirer make
default in any monthly rentals as agreed or commit any other breach of this
agreement or be adjudicated bankrupt . . . the owner shall have the right at
any time to declare the hiring to be terminated by forwarding a notice of
default to the hirer’s last known address and take action to retake possession
of the goods and to recover against the hirer or his estate the amount stated
in clause 3(f) hereof. . . .
I need not
read sub-clauses (c), (d), (e) or (f), but I mention that (f) deals with what
is the liability of the hirer.
Stated in a
sentence the argument of the appellants is this. ‘True, Smith acted dishonestly
on February 22 in handing this car over, but you the respondents, the legal
owners, have no right to sue us, the appellants, in conversion, because as at
the date when we sold this car and would be liable in conversion if an action
for conversion lies against us at all, you had no right to immediate
possession, and therefore your action is not maintainable against us.’ I hope that I do Mr Owen’s argument no
injustice if I say that in the ultimate analysis, however he sought to put it,
in the end one comes back to the same point: on the true construction of the
clauses to which I have referred in this agreement, is there anything to bar
the plaintiffs from bringing this agreement to an end in any other way than as
is there provided, and thus acquiring an immediate right to possession? That was the question before Lawson J, and it
has been repeated in this court.
The learned
judge well summarised the point when he said: ‘Mr Owen, on behalf of the
defendants, submits this: That having regard to the terms of the hire-purchase
agreement and, specifically, the terms of clause 3(b) of the hire-purchase
agreement, unless and until the bailors, the plaintiffs in this action, have
served a notice of termination, the right to immediate possession remains in
the bailee, and that they, therefore, the bailors, the plaintiffs here, had no
right to immediate possession because they had not in fact served a notice of
termination under clause 3(b) as is the fact, of course; the position being
that on February 22, as far as they, the owners of the car, were concerned the
bailee was not in arrears of any instalment.’
There will have been observed, as I read that passage from the learned
judge’s judgment, the words ‘the right to immediate possession remains in the
bailee.’ When Mr Owen read that passage
all three members of this court intervened to ask whether that did represent
his argument. He frankly said that it did, and that it was an essential part of
his argument that at that point of time the bailee–Smith–alone had the right to
immediate possession. I will come back to that point later.
Reliance was
placed upon the decision in North Central Wagon & Finance Co Ltd v Graham,
and Mr Owen laid much stress on the first of the judgments in that case
delivered by Asquith LJ. The second judgment was given by Cohen LJ, and
Singleton LJ merely said, ‘I agree.’
When one looks at Asquith LJ’s judgment, it seems that he looked at the
matter from the point of view of whether the particular hire-purchase agreement
there before the court had the effect contended for by the defendants (a view
which had been accepted by the trial judge, Lewis J) of preventing the
plaintiff bailors from claiming to be entitled to sue for conversion as being
the persons immediately entitled to possession. Asquith LJ went through the
agreement in some detail at p 13, and he reached the conclusion on p 14 that
that agreement on its true construction did not operate to prevent the
plaintiffs from immediately terminating the agreement apart from its express
provisions and thus claiming to be the persons entitled to immediate possession
and thus to sue for conversion.
Cohen LJ, who
began his judgment by saying that he agreed with Asquith LJ, and for the same
reasons, then approached the matter somewhat differently, and, as I venture to
think, on a rather wider basis. In the middle of p 15 the learned Lord Justice
referred to a passage in the then current edition of Halsbury’s Laws of
England (2nd ed vol 1 p 736) which reads thus:
‘The act of
the bailee in doing something inconsistent with the terms of the contract
terminates the bailment, causing the possessory title to revert to the bailor
and entitling him to maintain an action of trover.’ That view is stated in somewhat similar
language in the following passage in Pollock and Wright on Possession in the
Common Law (at p 132): ‘Any act or disposition which is wholly repugnant to
or as it were an absolute disclaimer of the holding as bailee revests the
bailor’s right to possession, and therefore also his immediate right to
maintain trover or detinue even where the bailment is for a term or is
otherwise not revocable at will, and so a fortiori in a bailment
determinable at will.’
The learned
Lord Justice then went on to say:
Those
passages, which seem to me, if I may respectfully say so, to be a correct
statement of the law definitely support the view which my brother has
expressed–namely, that the plain-
that they only apply where the contract is silent on the subject, and that here
the contract provides what is to happen in the event of a breach of any
stipulation and merely gives the right to terminate the contract. That, he
says, is something distinct from a right to enter into possession, and the
latter right is only exercisable after notice has been given to terminate the
contract. As I have said, I do not so construe the contract, and I am glad to find
that the construction which I place on the contract accords with the view of
what the law would be in the absence of express provision and, if I may say so
respectfully, with what is a very reasonable position in the circumstances of
the case.
Cohen LJ was
there presumably founding upon what he thought was the position at common law.
He then went on to say, on the last page, that Mr Elwes, whose argument in that
case must have resembled Mr Owen’s argument in the present case, could not
escape from the common law position by relying on the language of the contract
there in question.
The learned
judge in the present case drew attention to what Mr Owen had said, namely, that
the current (4th) edition of Halsbury’s Laws of England stated the law
rather differently from the statement in the passage I have just read from the
2nd edition. However that may be, as my Lord pointed out during the argument,
it seems plain that this court, in the persons of Cohen LJ and Singleton LJ,
expressly approved that statement of the law in the 2nd edition. We therefore
should follow that statement whatever may be stated in the 4th edition, to
which we have not been referred beyond the reference to that passage in Lawson
J’s judgment.
It seems to me
that there is no room for doubt that the position at common law is this: if the
bailee acts in a way which, to use the phrase used in argument, destroys the
basis of the contract of bailment, the bailor becomes entitled at once to bring
that contract to an end, and thus at once acquires the right to immediate
possession of the article bailed. That is consistent with what is stated in the
2nd edition of Halsbury and in their classic work on Possession
by Sir Frederick Pollock and the first Mr Justice Wright.
In those
circumstances, it seems to me that the only question that remains for
consideration is whether the provisions of the present contract affect the
basic common law position. Mr Owen strenuously argued that they do. He contends
that because there is this express contractual right to bring this contract to
an end only after notice of termination, there is no room for the survival as
between the plaintiffs and Smith of the basic common law rule–and, indeed, the
phrase he used in argument was that ‘clause 3 ousts the common law rule.’ I think, with respect, that this argument is
misconceived for a number of reasons. When one looks at these clauses one can
see why they are there. They give a modicum of protection to the hirer but they
also give certain specific contractual rights to the bailor in the happening of
certain events. They give him the right to bring the contract to an end and to
retake possession in the event of certain things happening. But they do not
expressly deprive the bailor of any other rights that he may have at common
law; and still less, in my view, do these clauses, either expressly or
impliedly, confer any right, possessory or otherwise, upon the bailee which
would lead to a conclusion different from that which would follow at common law
if the bailee deliberately, as happened here, tears up the contract of bailment
by fraudulently selling the car through an auctioneer to an innocent third
party. Therefore, it seems to me, following the reasoning in the North
Central Wagon Finance case, that even if there be room in principle for the
existence of a contract which may contract out of the basic common law rule, it
would require very clear language to deprive the bailor of his common law
rights in circumstances such as these; in the case of the present contract the
language used is nothing like strong enough to achieve that result.
I mentioned a
few moments ago a passage in the judgment of Lawson J in which, in setting out
Mr Owen’s argument, he referred to the fact that it had been contended that the
right to immediate possession remained in the bailee–Smith. With respect to Mr
Owen, that seems to me to be an impossible argument. I ventured to ask Mr Owen
in whom he claimed the possessory title lay at the moment when the hammer fell
and this car purported to be sold. As I understood him, he replied that it
would then pass to the innocent purchaser, and would remain his as a possessory
title unless and until it came to an end on the termination of the contract of
hire-purchase by the giving of the appropriate notice. That argument involves
that the innocent purchaser has a defeasible possessory title; which, being
defeasible, would suddenly come to an end upon the true owner, the person in
whom the legal title was vested, giving notice to determine the contract, to
which the innocent purchaser would not be a party and of which he would never
have heard. I venture, with respect, to think that that cannot possibly be
right in principle.
During the
argument my Lord referred to the well-known latin tag nemo dat quod non
habet, which may be translated into English as: ‘You cannot give what you
have not got.’ In the present case, it
seems plain that Smith had nothing beyond a possessory title which he acquired
when the agreement was entered into and he took delivery of the car, but which
he lost the moment he destroyed the agreement by acting dishonestly, and that,
therefore, he could not convey any title, possessory or otherwise, either to
the auctioneer or to the innocent purchaser.
For those
reasons, which I have given at some length in deference to the argument for the
appellants, it seems to me clear that Lawson J gave the right answer, and I
would dismiss the appeal.
BRIDGE LJ gave
a judgment agreeing that the appeal should be dismissed.
CAIRNS LJ
expressed agreement with both judgments.
The appeal
was dismissed, with costs. Leave to appeal to the House of Lords was refused.
