Article - Commercial Law

Question

Two years ago I agreed to buy a new motor car.  I could not afford the payments so agreed to enter into a hire purchase agreement.  Because the credit was more than 25,00 I understand my agreement was not regulated by the Consumer Credit Act 1974.  I have recently lost my job so sold the motor car without the finance company's knowledge or consent and stopped making the payments.  The balance outstanding was 15,000 (its value was 20,000) so the buyer said he would pay off the balance and pay me 5,000.  I've now received a letter from the finance company recently terminating my agreement and demanding the motor car's return and/or payment of the balance.  It says that it has not been paid by the buyer.  What can the finance company do?

Answer

Because you acquired the motor car under a hire purchase agreement, you were not the owner of it until you paid all of the instalments due and paid the purchase fee.  By selling it before all of the payments were due (even if the buyer said he would pay the finance company directly) you will have breached the terms of the hire purchase agreement.  You will also have 'wrongfully interfered' or 'converted' the finance company's goods.

The finance company will therefore have the following claims against you:

  • breach of contract; and

  • wrongful interference with goods (which is also called conversion).

Most hire purchase agreements will say that on termination the full balance becomes immediately due and payable as a lump sum.  If it does (and does not mention any rebate), it may be a penalty clause and unenforceable (for more detail, see our article on liquidated damages clauses by clicking here).  Normally, the clause will say something like this:

If this agreement ends as a result of your breach of clause [x] (ie non-payment of rentals) then you must immediately pay to us the full amount payable under this agreement minus the amount already paid, a rebate calculated on the date of full payment in accordance with the Consumer Credit (Rebate on Early Settlement) Regulations 2004 and the vehicle's net sale proceeds.

This type of clause is unlikely to be a penalty clause and will therefore be enforceable.  It is important to note that:

  • a rebate (under these terms and conditions) will only be available at the date of full payment.  If you refuse to pay the balance outstanding the finance company can obtain judgment for the full amount: Forward Trust plc v  Whymark [1990] 2 QB 670;

  • the finance company is not required to recover the vehicle but, if it does, it must take reasonable steps to minimise its loss.  For example, it must ensure the vehicle sells for a reasonable amount; and

  • if you pay the balance outstanding then you become the motor car's owner and could, in turn, transfer ownership to your buyer.

In a claim for wrongful interference, the finance company needs to show that you deliberately dealt with the motor car in a manner inconsistent with its rights so that it has been deprived of use and possession of the motor car: Kuwait Airways Corporation v Iraqi Airways Co (Nos 4 & 5) [2002] 2 AC 883, p.999.  By taking goods which you did not own and selling them to a third party, it is likely that you have wrongfully interfered with the motor car.  It is generally irrelevant whether you purposely sold the motor car knowing it was not yours to sell.

If a claim for wrongful interference is successful, the finance company will be entitled to the motor car's market value at the date of sale.  However, because it is subject to an outstanding hire purchase agreement the finance company will be limited to the lower of the balance under the agreement (excluding a rebate) or the market value of  the motor car: Chubb Cash v John Crilley & Son [1983] 1 WLR 599.

On these facts, you are unlikely to have a defence to any claim brought by the finance company.  You should therefore contact your finance company and attempt to agree a payment plan with it.  You should also try and find the person who bought the motor car because you have a potential claim against him for misrepresentation.

Disclaimer

The views on this website are not necessarily those of The Student Law Journal and are not intended to provide specific legal advice.  Any legal problems should be specifically addressed to a solicitor.

Article First Published: 21 October 2008

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