Agency in Hire‐Purchase Transactions

AuthorA. D. Hughes.
Published date01 July 1964
Date01 July 1964
DOIhttp://doi.org/10.1111/j.1468-2230.1964.tb01036.x
AGENCY LN HIRE-PURCHASE
TRANSACTIONS
THE Hire-Purchase
(No.
2)
Bill,
1963,
proposes
a
number of
important and welcome changes in the law.
In
this article it is
intended to examine one of the issues which will
be
affected by the
provisions of the Bill, namely, the extent of the dealer’s agency in
the typical three-cornered hire-purchase transaction. This is of
particular importance, because
it
raises a fundamental question of
common law principle upon which conflicting views have been
expressed, both judicially and otherwise, and which the provisions
of the Bill will not set entirely at rest.
The situation which forms the background to this problem is a
familiar one in everyday life: the customer desires to obtain goods,
usually
a
car, from a dealer on hire-purchase terms, but (for his
own financial convenience and benefit) the dealer does not conclude
a
hire-purchase agreement directly with the customer. Instead, he
sells the car to a third party, the finance company, which in turn
lets
it
to the customer on hire-purchase. The dealer then drops out
of the picture, and the customer’s contract is with the finance com-
pany alone. The end result is the same for him as
if
he had con-
cluded
a
contract directly with the dealer, but of course the situation
in law is entirely different from, and of considerably greater
complexity than,
a
direct sale by the dealer to the cust0mer.l
The complexity
of
the situation becomes apparent as
soon
as
any disharmony arises between the conduct of the dealer in relation
to the contract and the view the finance company takes of its rights
and obligations under the contract. The occasions for such dis-
harmony are plentiful, for in concluding the agreement the customer
has, almost without exception, bargained exclusively with the
dealer, and relied entirely
on
him to
make the arrangements
with the finance company.
If
any difficulty arises the hirer turns,
quite understandably, to the dealer whom he knows, rather than to
the finance company, which is for all practical purposes a stranger
to him. The finance company, on the other hand, has an interest
in the transaction which is of a very different kind from the
dealer’s: its function
of
providing finance
is,
in
reality, one of
lending money
on
the security of the goods which are the object
of
the hire-purchase agreement.2 Consequently, it is natural for the
See
the
comments
of
Harman
L.J.
in
Yeoman Credit, Ltd.
v.
Apps
[1962]
2
Q.B.
508
at
p.
522,
and
of
Pearson
L.J.
in
Financings, Ltd.
v.
Stimson
[1962]
3
All
E.R.
386
at
p.
390.
Cf.
Lord Denning
in
Bridge
v.
Campbell Discount
Co.,
Ltd.
[1962]
A.C.
600
at
p.
627.
395
396
THE MODERN LAW REVIEW
VOL.
27
company to take the line that the dealer is a stranger to the agree-
ment between
it
and the hirer, and that nothing the dealer says
or
does can affect its position.
Put in very broad terms the issue can be stated thus: to what
extent should the finance company’s position be affected by the
conduct of the dealer-what weight should be given to the fact that
the hirer has, in a great many cases, placed considerable reliance
on the dealer? This issue has been conceived as
a
question of
agency. Thus,
Mi.
Guest writes
s:
‘(
A
more realistic approach,
however, is to treat him [the dealer] as an agent of the finance
company, with the result that the company will be legally affected
by his acts.” Lord Denning M.R., in
Financings,
Ltd.
v.
Stim~on,~
in a judgment which represents the most advanced judicial opinion
on the matter, states, somewhat more cautiously, that
[on] a
realistic view of the position, the dealer is
in
many respects and for
many purposes the agent of the finance company.” The Law
Reform Committee is
also
of opinion that it is
‘‘
in accordance with
the realities of the situation that the dealer should be treated as the
agent of the finance company for the purpose of doing business
with the hirer.”
It
is the present writer’s submission that to pose
the issue in the form,
Is
the dealer the agent of the finance com-
pany
?
involves a dangerous oversimplification of the problem,
and leads to
a
distortion of the principles which
it
is sought to
It
will be helpful to consider first what is meant by saying that
one person is the
agent
of another.
A
person is an agent,
in
the sense relevant to the present context, when he has power to
perform acts in the name of and
on
behalf of another (the principal),
which will be binding
on
the latter, and will affect the legal rela-
tions of the latter with a third party. Such power can arise,
on
general principles of the law
of
agency, from four sources
e;
first,
the agent (the dealer) may have express authority from the prin-
cipal (the finance company) to act as his agent; secondly,
in
the
words of Bow~tead,~
the relationship of principal and agent may
be constituted
. .
.
by implication of law from the conduct
or
situation of the parties
”:
examples of the application of this
principle are numerous thirdly, the dealer may have power to
affect the legal relations of the finance company with third parties
by virtue of his position
qua
dealer, by performing acts on behalf
apply.
8
(1963) 79
L.Q.R.
33.
4
[1962]
3
All E.R.
386
at
p.
388.
6
Apart from special cases, such as agency
of
necessity, which are
not
relevsnt
7
Aoencu.
12th
ed..
Article
3.
Tenth Report (Innocent Misrepreaentation),
1962
(Cmnd.
1782),
para.
20.
here.
8
See,
e.g., Pole
v.
Leask
(1860) 28
Beav.
662;
Deyes
v.
Wood
[1911]
1
K.B.
806;
Sims
v.
Landrey
[1894] 2 Ch. 318;
and
Bank Melli Iran
v.
Barclays
[195l] 2
T.L.R.
1057.

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