Roger acquired on hire purchase a car from Dave’s Finance Ltd. Immediately on taking delivery of the car Roger sold it to Peter, a car dealer, who wanted it as a gift for his wife’s birthday. Before buying the car, Peter carried out an HPI check on the car and was told by HPI that it was not registered with them as being subject to any finance arrangement. It appears that Dave’s Finance Ltd frequently forgot to notify HPI of their finance agreements. Peter’s wife didn’t like the car, so Peter sold it on to his friend George who is another car dealer. George put the car on his forecourt and sold it to James, a retired local butcher.

Roger has not made any payments to Dave’s Finance Ltd who have now found out that Roger no longer has the car. They have contacted James requesting the car’s return.

Advise the parties as to who now owns the car.

Answer

This answer requires a brief introduction of the nemo dat rules and then a detailed assessment of the exceptions contained in s 21(1) SGA 1979 and s 27 HPA 1964 which will provide the answer to which party now owns the car in question.

You should explain the general principle which is that no one can transfer what he has not got and where a party purports to sell goods which he does not own or have the right to sell the law protects the true owner of the goods and the innocent purchaser gets nothing. This general rule is simply stated but it is the exceptions to the rule that are more complex. You need to provide a brief explanation of these exceptions and explain that where any of them apply, the original owner of the goods loses his title in favour of the purchaser who would have lost out if the exception did not apply.

Do not spend too much time on this introduction as the answer to the question lies with just two of the exceptions, namely s 21(1) SGA 1979 and s 27 HPA 1964 where the majority of your time should be spent.

s 21(1) SGA 1979

This exception creates an estoppel and applies in cases where the owner of the goods acts in such a way that it appears that the seller has the right to sell the goods. As a consequence, the owner is then prevented (estopped) from denying the facts as he represented them to be. The third party purchaser then becomes the owner of the goods at the expense of the original owner.

There are two broad types of estoppel and in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 both estoppel by representation and estoppel by negligence were unsuccessfully pleaded. In that case, as in the exam question here, the finance company failed to register the vehicle with HPI as being subject to finance and therefore, upon inquiry, HPI quite properly stated that they had no record of any outstanding finance on it. In both cases, there was no estoppel by representation because the statement made by HPI was in fact true.

HPI did not say that there was no outstanding finance on the car but only that nothing was registered with them. Furthermore, in both cases, HPI were acting in their own capacity and not as agents for anyone else. Neither was there an estoppel by negligence because the registering of HP agreements with HPI by its members was not compulsory and therefore the finance company was not under a duty to do so. For these reasons, therefore, it is unlikely that s 21(1) will apply in this case.

s 27 HPA 1964

You should first point out that s 27 only applies in the case of a sale of a motor vehicle that was acquired on hire purchase. It will not apply to any other transactions. In broad terms, s 27 means that a bona fide purchaser of a motor vehicle from a person in possession under a hire purchase agreement or conditional sale agreement obtains good title to the vehicle. In order for a purchaser to acquire good title, the requirements of s 27 must be satisfied. These are:

1. There needs to be a disposition, the timing of which is important (see Kulkarni v Manor Credit (Davenham) Ltd [2010] EWCA Civ 69).
2. The seller must be in possession of the motor vehicle either as a hirer under a hire purchase agreement or purchaser under a conditional sale agreement.
3. s 27 only applies to pass title to a private purchaser who must either purchase the motor vehicle or acquire it on hire purchase and must act in good faith and without notice of the existing hire purchase agreement.
4. Most importantly in this question, s 27 protects only the first private purchaser who buys the vehicle in good faith. This means that if X acquires a motor vehicle on hire purchase and before making the last payment wrongly sells it to Y, a motor dealer, who then resells it to Z, a private purchaser, who buys it in good faith and without notice of the hire purchase arrangement and therefore is unaware of the defect in both X’s and Y’s title, Z acquires good title to the vehicle notwithstanding that he has purchased it from Y rather than from X who was the original hirer and even though Y did not acquire any title himself. Note that in this example, s 27 does not pass ownership to Y as Y is not a private purchaser. Z is the first private purchaser and, as such, acquires good title to the vehicle. Z can then pass title in the ordinary way to a subsequent purchaser as he now owns the vehicle. In this case, s 27, therefore, passes good title to James.
5. A person who is a motor dealer, even part-time, is not deemed to be a private purchaser for the purposes of s 27 even if he buys the car for his own personal use (Stevenson v Beverley Bentinck Ltd [1976] 1 WLR 483). For similar reasons, the fact that Peter (a car dealer) bought the car as a present for his wife will not assist him to gain title of the vehicle as he is not a private purchaser.

You should also point out that any title that passes under s 27 will be the same as the creditor had who let the motor vehicle. As with the other exceptions, no title will pass if the creditor had no title in the first place.

Putting all this together, for the reasons stated above it is highly unlikely that s 21(1) will apply to this case and, because neither Peter nor George were private purchasers, s 27 will not apply so as to pass title to them. However, as James was the first private purchaser, then s 27 will operate so as to pass good title to him.