Yeoman Credit Ltd v Latter
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HARMAN |
| Judgment Date | 24 March 1961 |
| Judgment citation (vLex) | [1961] EWCA Civ J0324-1 |
| Court | Court of Appeal |
| Date | 24 March 1961 |
[1961] EWCA Civ J0324-1
Lord Justice Holroyd Pearce
Lord Justice Harman and
Lord Justice Davies.
In The Supreme Court of Judicature
Court of Appeal
Mr NEIL LAWSON, Q. C, and Mr JOHN LLOYD-ELEY (instructed by Messrs Paisner & Co.) appeared for the Appellants (Plaintiffs).
Mr EDWARD H. LAUGHTON-SCOTT (instructed by Messrs Drysdale, Lamb & Jackson) appeared for the Respondent (Second Defendant).
LORD JUSTICE HOLROYD PEARCE; This is the plaintiffs' appeal from a Judgment of His Honour Judge Gage at Southend County Court dismissing, on a preliminary point of law, the plaintiffs' claim for £182.8s. against the second defendant.
The plaintiffs are a finance company. By a hire purchase agreement dated the 14th January 1959 they let a car on hire purchase to the first defendant who was then, as all the parties were aware, an infant. Printed at the end of the hire purchase agreement is a form of guarantee securing the performance of all the terms by the hirer, and upon his default accepting liability as if the guarantor had been the hirer. At the foot of the form is printed the words: "Note. If the hirer is under twenty-one an adult must sign a special form of indemnity". Since the hirer was in this case under twenty-one, the second defendant signed a more lengthy and complicated form headed: "Hire purchase indemnity and undertaking".
The hire purchase price of the car was £668.18s. The initial payment of £55.10s. was paid. Forty-eight monthly instalments of £12. 15s.2d. were payable, but the hirer never paid any of them. In May 1959 the plaintiffs repossessed the car and sold it for £430. In June 1959 the hirer went on military service to Hong Kong. In September 1959 the plaintiffs demanded from the second defendant £182.8s., being the amount due under the Indemnity. They then started these proceedings against him, claiming that sum. They also sued the hirer as first defendant since by then he had reached his majority. But they never served him. The sum for which the first defendant would be liable under the terms of the hire purchase agreement in the events that had happened was £278.19s., a sum which differs not only in amount, but also in its method of calculation from the liability of the second defendant under his indemnity. It is admitted that the hire purchase agreement was not a contract for necessaries.
Before the Infants Relief Act of 1874, the contract would have been voidable, and the contract of indemnity would admittedly have been enforceable. But section 1 of that Act provides: "All contracts, whether by specialty or by a simple contract, henceforth entered into by infants for the repayment of money lent or to be lent, or for goods supplied or to be supplied (other than contracts for necessaries) and all accounts stated with infants, shall be absolutely void: Provided always that this enactment shall not Invalidate any contract into which an infant may, by any existing or future statute, or by the rules of common law or equity, enter, except such as now by law are violable". The hire purchase agreement was, therefore, void under the Act.
In the county court it was argued by the second defendant as a preliminary point that the indemnity, though so called, was really a guarantee, and that since it guaranteed a void contract It was itself void on the reasoning and authority of Mr Justice Oliver, who held in ( Coutts & Company v. Browne-Lecky 1947 King's Nench Division, page 104) that since a guarantee is by definition an obligation to answer for the debt, default or miscarriage of another, there cannot, In respect of a void contract, be any debt, default or miscarriage to answer for.
There are, therefore, two questions raised by this appeal. First, is the document in question a guarantee although styled an indemnity? And, if it is a guarantee, is it void? In its widest sense a contract of indemnity includes a contract of guarantee. But in the more precise sense used in various cases dealing with section 4 of the Statute of Frauds (and used in the arguments in this case) a contract of indemnity differs from a guarantee. An indemnity is a contract by one party to keep the other harmless against loss, but a contract of guarantee is a contract to answer for the debt, default or miscarriage of another who is to be primarily liable to the promise.
Mr Laughton-Scott, in an able argument, admits that if the so-called indemnity in this case is in truth a contract of indemnity, he cannot on the authorities claim that it was void. If, however, it is in essence a guarantee, then the Judge was right in regarding himself as bound by Coutts v. Browne-Lecky, and this court should hold likewise unless it takes the view (for which Mr. Lawson contends) that that case was wrongly decided. Mr Lawson argues that it is out of accord with other authorities, and that we should accept the view taken in certain cases that the guarantor of a void contract may yet be liable, a view which is in accord with that taken by the civil law.
The document in question is headed and described as: "Hire Purchase Indemnity and Undertaking". It is clear from the wording of the document and the surrounding circumstances that it was intended to be something more than a mere guarantee. This tells in favour of its being in truth an indemnity. However, I agree with Mr Laughton-Scott that we must have regard to its essential nature in order to decide whether or not it is really no more than a guarantee. Its ultimate object, of course, was to unsure that the plaintiffs received back with profit the money that they had laid out in the transaction; but that ultimate object is shared by guarantee and indemnity alike. It is the method by which that object is attained which decides the class to which the document belongs.
Its material words are as follows: (1) undertake and agree as follows: (1) To indemnify you against any loss resulting from or arising out of the agreement and to pay to you the amount of such loss on demand and whether or not at the time of demand you shall have exercised all or any of your remedies in respect of the hirer or the chattels but so that upon payment in full by me of my liabilities hereunder I shall obtain such of your rights as you may at your discretion assign to me". Thus under paragraph I the second defendant does not obtain the full rights of subrogation to which a guarantor is by law entitled, but only such rights of subrogation as the plaintiffs may choose to allow. The second defendant docs, however, under clause 3 (as will be seen) get valuable rights of a nature different from subrogation. Clause 2 reads: "The amount of your loss for the purpose of this Indemnity whether or not the agreement shall have been terminated by any party thereto shall be the total amount which the hirer would have had to pay under the agreement to entitle him to exercise the option of purchasing the chattels plus all expenses you may incur in the exercise or enforcement of your rights under the agreement less the amount actually paid to you under the agreement by the hirer". By that clause the second defendant is assuring to the plaintiffs such amount as will make up the sums paid by the hirer to the total amount of hire payable under the agreement and the price of the option together with any expenses incurred by the plaintiffs in enforcing the agreement. Clause 3 provides that if the car has come into the plaintiffs' possession, they shall either give the second defendant credit for any amount which the plaintiffs realise on the sale of it, or shall, after payment in full by the second defendant of the full sum due, transfer the car to the second defendant so that ho can sell it and keep the proceeds.
One may sum up the effect of the document in question as this: It protects the plaintiffs against any loss they may suffer since it assures to them the full sum of the hire purchase price, plus any costs incurred by them in enforcing the hire purchase agreement. Thus the rights of the second defendant (if called upon to pay) are different from the rights of subrogation under a guarantee, rights which would, in such a case as this, be useless. Moreover, whereas the plaintiffs' rights against hirer and second defendant would, under a normal guarantee, be identical, the document in question gives to the plaintiffs wholly different rights from those which they have against the hirer under the hire purchase agreement. In some circumstances the plaintiffs' rights against the hirer may be higher than those against the second defendant, and in some circumstances lower.
If, as happened in the present case, the plaintiffs seize the car on default and sell it for a good price, the...
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