Contract of Hire Purchase Answer

Contract of Hire Purchase Answer FOUNDLING FINANCE LIMITED Claimant and MISS DIANE DALY and MR DEREK DOBSON Defendant OPINION I am asked to advise Miss Diane Daly and Derek Dobson (â€Å"the defendants†) with regard to their contract of hire-purchase with Foundling Finance Limited for the purchase of a ‘Nuffield’ knitting machine from Saffron Supplies Limited. This contract is the basis of an action in the Dover County Court against Miss Daly and Mr Dobson for repayment of arrears, and interest thereon, for the period from 3rd January to 3rd April. I am asked to advise whether Miss Daly and Mr Dobson are still bound by the terms of the hire-purchase contract, and if not, what type of compensation they may recover by way of damages. Conclusions In summary, I would advise that the defendants were entitled to disregard the hire-purchase contract after they found out the representations of Mr Stone about the fitness of the ‘Nuffield’ for the intended type of work were false. That this right probably subsisted and was exercisable on the 16th January 2006 but can only be determined with further information. The compensation available largely depends on the success of the rejection action. If the defendants are successful then they will be able to recover their money that they have paid and hand back the knitting machine as if they had never been in the contract. If they are unsuccessful they will be left with the residuary claim in damages for the purchase price of the ‘Newmark’ knitting machine and breach of contract but will be liable to keep paying the hire-purchase contract. I have also advised that some more investigation may be required to ascertain whether any further losses have been incurred. Finally, I have been cognisant of Miss Daly’s concerns surrounding the high APR of the hire-purchase agreement and have therefore attached a consideration of whether the bargain may be considered extortionate. Contract On the 3rd October 2005 the defendants went to Saffron Supplies in Sandwich. They entered into a hire-purchase contract for the supply of a ‘Nuffield’ knitting machine for their fashion design business. According to Miss Daly, their business specialises in the knitting of thick wool garments. They took samples of their wool and made it clear to Mr Stone that the sewing machine had to be capable of knitting those types of fibres. Mr Stone replied that the machine was ‘man enough’ to handle such fibres and on the back of which the defendants entered the hire-purchase contract with Foundling Finance Limited. A matter of importance in the formation of this contract is whether or not you entered as a consumer. If you’re not then clause 12 of the hire-purchase contract may exclude any implied term of fitness for purpose. It appears as though the key matters are whether the contract is one which is regularly entered into by the buyer or bought for a distinctive business purpose (R B Customs Brokers Co Ltd v. United Dominions Trust [1988] 1 ALL ER 847). This will depend on the nature of the business and whether this particular sewing machine was integral to the defendants business. These are again facts which the Instructing Solicitors will need to ascertain in particular look at whether there have been any other sewing machines purchased? How was the ‘Nuffield’ used in the business? Was it used for any personal purposes? Breach of Contract The first issue is whether or not the hire-purchase contract was breached when it became evident that the ‘Nuffield’ knitting machine was unfit for knitting the type of fibres that the defendants use in their business. The difficulty will be whether or not we can establish the conversation between the defendants and Mr Stone as to its fitness for the knitting of the thick wool because it was purely oral. The evidence of both the defendants will be critical – Could instructing solicitors please ascertain more details of the conversation. Was Mr Dobson party to the conversation with Mr Stone? If so, what did he hear? How much was the issue of fibres stressed as important to Mr Stone? The obvious difficulty will be that the evidence of Mr Dobson could turn out to be hearsay unless he was party to the conversation. The strength of this argument will become clearer when we have an indication of Foundling Finance’s or Mr Stone’s stance on the issue; currently I only have Miss Daly’s statement as to the matter. It would seem pragmatic to assume that Mr Stone will be a difficult witness for two reasons; he presumably deals with many customers which may make his recall of a conversation that he had seven months ago rather vague and a fear of losing his job could cause him to be a completely useless witness for us. It isn’t clear from my instructions whether Foundling Finance have acknowledged this claim by the defendants but it seems safe to assume that they will deny it given that an admission would bar their current action in the County Court. However if we can establish the oral assurances by Mr Stone then breach of contract will be more likely. The Implied term of fitness for purpose under Consumer Credit Act 1974 will have been breached as long as the facts bear out consumer status, as I advised above. If we cannot establish consumer status we may have to rely on more general common law considerations .In particular Harlingdon Leinster Ltd v. Christopher Hull Fine Art Ltd [1991] 1 QB 564 which argues that even where the Unfair Contract Terms Act 1977 doesn’t apply the totality of the negotiations will be looked at and the exclusion of an implied term of fitness for purpose, as Foundling Finance Limited have done, maybe disregarded. The strength of this argument will largely depend on the oral evidence which is lead at trial and will depend on the information which I have requested above. Repudiation of Contract The success of maintaining the breach of contract will also rely on whether we can establish the defendants effectively rejected the contract by their letter of the 16th January. This is fundamentally an issue of fact which will need to be ascertained by the Instructing Solicitors. Short of an outright denial, as suggested above, Foundling Finance will likely attempt to argue that either the defendants accepted the breach through acting inconsistently with the ownership of the seller or through lapse of a reasonable time. In order to give my opinion on the strength of this argument could the Instructing Solicitors ascertain facts regarding the dates of the various repairs and more details about the communications between Saffron Supplies and the defendants regarding the repairs. What date was the third repair? Were the repair men’s concerns communicated to the defendants orally or in writing? Were both defendants present at all of the repairs? Was the Knitting machine used at any point between the third repair and the purchase of the ‘Newgate’ knitting machine? The ‘lapse of a reasonable time’ is the test for acceptance of a breach under the Consumer Credit Act 1974 therefore these factors will be critical. If there was a significant period of time between the third repair and the 16th January then I would advise that the Defendants attempt to argue rescission by misrepresentation under the Misrepresentation Act 1967 which is not subject to the same time-constraints as the rejection argument under the Consumer Credit Act 1974. However, I have some doubt as to the strength of this argument not least because it appears never to have been attempted in any reported cases. A critical issue for the success of refuting any defences by Foundling Finance will be the ability to prove that the letter was actually sent. Therefore could the Instructing Solicitors please find out whether Miss Daly has any proof of postage or proof that Foundling received the letter? The copy letter that I received looks as though it was word processed and it may be possible to establish postage through the creation date of the file. According to Miss Daly, she also telephoned the finance company to express her concerns; it would be extremely useful if the Instructing solicitors could ascertain more details about these telephone calls. Does Foundling Finance record phone-calls? When were they made? What exactly was stated in those telephone calls? In my opinion, in order to clarify the issues in dispute between the parties, we should contact Foundling Finance’s representatives to see whether they dispute either the letters or the telephone calls. It maybe that we could then avoid applying for disclosure of evidence Compensation There is a distinction to make between the situation where we can establish that the defendants effectively rejected the contract and where they failed to do so therefore I have treated the separately under this heading. Many of the grounds of damages will be interlinked between the various substantive claims in law. However, if we cannot realistically establish a breach of contract at all then as I am sure Instructing Solicitors will appreciate we have no defence or counterclaim to the current action. If the latter occurs my opinion is that you enter a defence and counter-claim in any case and attempt to settle and avoid some of the interest. (i) If rejection is effective The difference between the two grounds turns on whether or not the sums paid, by my calculation  £3194.57 (that being the November, December and January payments and the two-thousand pound deposit paid on 3rd October 2005), will be recoverable and whether the hire-purchase contract is at an end. I appreciate what a big difference this will make to the defendants. If the rejection is effective then the aim of the court is to put the two parties back in the same position so the money paid will be recoverable and there will be no obligation to continue paying the hire-purchase agreement. However, if rejection is not effective there is in most cases still an action for damages for breach of contract but there is no possibility of ending the contract other than the statutory termination powers in the Consumer Credit Act 1974. (ii) If rejection is not effective As the Instructing Solicitors will appreciate in these circumstances we are limited purely to claiming for purely breach of contract financial losses rather than any emotional losses. However, it is clear that there have been certain losses that will have been caused by the breach in contract. The defendants will remain liable to pay the instalments, including the arrears, if they fail to establish their rejection this is because all the express conditions of the contract will still be enforceable and as a result the defendants will be in breach of contract until they remedy the arrears, along with interest which has been contractually included. (a) Purchase of the ‘Newgate’ It is unclear whether the defendants can claim for the purchase of the ‘Newgate’. It certainly can be characterised as a cost of mitigating the loss which they had initially suffered by Foundling’s breach of contract (as per Bacon v. Cooper (Metals) Limited [1982] 1 ALL ER 397). However, the question of whether it is reasonable will depend on a number of factors which would perhaps require the opinion of an expert. It would be necessary to quantify whether the price paid was reasonable for the product? Whether there were cheaper alternatives available on the market? It seems likely that it would be possible to claim for the whole purchase price of the ‘Newgate’ despite the fact that it may be a better product and leave the defendants in a better position. It seems analogous to Bacon where the court held that replacement of a new item for an old item which became broken didn’t entitle the defendants to reduce the damages to the value of the old item. (b) Loss of Earnings / Damage to Wool. Aside from the purchase of the ‘Newgate’ Miss Daly is of the opinion that her business has not suffered through the breach of contract. However, with all respect to Miss Daly, she is not to my knowledge legally qualified and it would be a breach of professional ethics if we just accept her judgement on this issue. It would be useful if the Instructing Solicitors can check this. In particular: Did the machine not stop being workable for at least three separate twenty-four hour periods? Was there any wool damaged by the machine? What about wasted time waiting for repairmen? It is likely that we can claim these as damages and I am of the opinion that there will be something other than the replacement sewing machine which the defendants can claim for. (c) Extortionate Bargain According to Miss Daly, she feels horrified at the level of the interest that she had to pay for the knitting machine which naturally leads to concerns over whether this hire-purchase agreement could be considered extortionate under the Consumer Credit Act 1974. This could form part of the counter-claim if it can be established. The salient point of the credit agreement is the extremely high APR of 46.2%. In line with A.Ketley Limited v. Scott [1981] ICR 241 the correct approach is to look at whether the rate of interest is extortionate in comparison to other sorts of transactions. I am of course not an expert and thus not qualified but given that the amount repayed will be 161% of the value of the item and that the APR seems to be extremely high at a period of time when interest rates are relatively lower than they have been in the last couple of decades it certainly seems arguable. I think it would be necessary for the Instructing Solicitors to obtain some sort of expert evidence on this point or perhaps some diligent research. In particular – what level of risk is assumed by Foundlings Finance? What sort of experience and means did the defendants have at the time of the agreement? The purpose of arguing this would not so much be as compensation but if Miss Daly was unable to establish a rejection of the contract it could be extremely useful in making the remainder of the payments more equitable. In particular I could ask the court to alter the terms of the credit agreement under s.139 of the Consumer Credit Act 1974. I am not overly confident about the success of this argument because generally the court have been reluctant to find bargains extortionate because of the ordinary principles of fair dealing and even where high APR’s have existed such as in Grangewood Securities v Ellis (unreported 23 November 2000) an APR of 35.4% on its own was not held to be extortionate. My largest reservation is that both Miss Daly and Mr Dobson will be construed by the court as business people who ought to have been more aware (this was a factor in A.Ketley). Next Steps I would advise that we enter a defence and counter-claim to the current action that Foundlings Finance has risen. However, before it calls I would suggest that a letter setting out the key elements of our case be sent to the other side because until now they haven’t appeared to have responded to our claims. I would hope that the Instructing Solicitors would be able to settle this case in the meantime. In that event I would be happy to advise on the terms of such a settlement or a Part 36 offer. In particular, it would put the defendants in a strong bargaining position if they can establish whether or not any other damages were sustained by the defendants such as loss of earnings or destruction of property. If you do wish me to advise then please could such instructions include further items of evidence that I have requested throughout this opinion. IN THE DOVER COUNTY COURT Case No. DV6/49215 BETWEEN FOUNDLING FINANCE LIMITED Claimant / Part 20 Defendant and MISS DIANE DALY MR DEREK DOBSON Defendants / Part 20 Claimants DEFENCE AND COUNTERCLAIM Paragraphs 1, 2 and 3 of the Particulars of Claim are admitted. Save that the Defendants admits that they have not paid instalments on all the relevant dates, it is denied that they are due to be paid as alleged in Paragraph 4 or at all. On 16th January 2006 the Defendant’s rejected the contract for breach of the implied condition of fitness for purpose under the Consumer Credit Act 1974 . A copy of the Defendant’s letter to the Claimants confirming the above is attached to the defence and counterclaim. Paragraph 5 is admitted. The defendants are and were at all relevant times a partnership carrying on business as fashion designers. The Claimants are and were at all relevant times a limited company carrying on business as a provider of consumer credit. The ‘Nuffield’ knitting machine was supplied to the defendants by Saffron Supplies Limited, 6 Shadwell Street, Sandwich (â€Å"the suppliers†) in terms of the Consumer Credit Act 1974. Whereas it is admitted that a hire-purchase contract was entered into as set out in Paragraph 5 of the Particulars of Claim, prior to the signing of said contract, on 3rd October 2005, it was orally agreed by Mr Scott Stone of the suppliers that the said ‘Nuffield’ knitting machine would be capable of knitting specific thick wool as used in the Defendants fashion design business. A sample of said wool was exhibited to Mr Stone by the first defendant for the confirmation of the same. It is averred that in consequence of this conversation, the defendants entered the said contract and that it was implied term that the said knitting machine would be fit for the said purpose. On the 3rd October 2005 The Defendants paid a deposit of  £2000 to the Claimants and paid instalments on 3rd November 2005, 3rd December 2005 and 3rd January 2005. The amount of these instalments plus the deposit was  £3194.57 Between 3rd October 2005 and 16th January 2006 the Defendants complained on three occasions to Saffron Supplies Limited that the said knitting machine had broken. On the first two occasions representatives of the suppliers diagnosed the same as being due to minor problems which were rectified without charge. On the third occasion they diagnosed the breakage as being due to the inability of the said knitting machine to knit the said thick wool fibres. The Defendants refused to pay for the cost of repairing said knitting machine in consequence of which the suppliers thereafter failed and/or refused to repair the said knitting machine at the time. By various phone-calls to the Claimant in or about January 2006 the Defendants demanded the repair of the said knitting machine. Despite this, the Defendant thereafter unlawfully failed and / or refused to arrange repair of said knitting machine. By reason thereof the Defendant sent the said letter of the 16th January 2006 which duly informed the Claimants within a reasonable period of time of their intention to reject the said hire-purchase contract because they had breached the said implied condition and the Defendants are consequently not liable thereon, further the Defendant’s demanded (without prejudice to his claim for damages herein) return of the said  £3194.57 and stated that they would exercise a lien over the said knitting machine until the same had been done.. In the circumstances it is denied that the Claimant is entitled to the relief claimed or any relief for the reasons alleged or at all. Further or alternatively, the Defendants will seek to set off against the Claimant’s claim the matters set out in the Counterclaim below, so as to reduce it or extinguish it altogether. COUNTERCLAIM The Defendants repeat their Defence herein. The hire-purchase agreement has an Annual Percentage Rate (APR) of 46.2% which it is averred is much higher than hire-purchase agreements for other knitting machines and comparable items. In the Circumstances, the said hire-purchase agreement is extortionate pursuant to section 139, Consumer Credit Act 1974. By reason of the Claimant’s said breach of contract the Defendant’s were unable to knit their wool fibres and by reason thereof the Defendants have suffered loss and damage. PARTICULARS By reason of the Defendant’s said breach of contract, the Claimant suffered additional loss and damage, in that they were forced to purchase a similar knitting machine elsewhere, about January 2006 the Defendants purchased a ‘Newgate’ knitting machine at a price of  £9,500. Wasted Time during said repair visits. Cost of Wool Material damaged by said ‘Nuffield’ knitting machine.[1] Further the Defendants are entitled to and counterclaims interest on the sum found due to them for such period and at such rate as the court may think fit pursuant to section 69, County Courts Act 1984. The value of this action exceeds  £5,000 but does not exceed  £15,000. AND the Defendants Counterclaim: Refund of the said Deposit and three instalments of  £3194.57 Interest pursuant to statute as aforesaid. Further or Alternatively; Damages for breach of contract Further or Alternatively; An order that the said hire-purchase agreement is extortionate and that the APR be judicially altered to a more reasonable APR. Statement of Truth I believe (the Defendant believes) that the facts stated in this Defence and Counterclaim are true. Signed†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ DATED thisDay of2006 Bibliography Atiyah, P.S., Adams, John MacQueen, Hector ‘The Sale of Goods’ 2005 / Pearson-Longman / 11th edition. Bridge, Michael ‘The Sale of Goods’ 2000 / Oxford University Press / 1st edition Doonan, Elmer Foster, Charles ‘Drafting’ 2000 / Cavendish Publishing / 1st edition. Inns of Court School of Law ‘Opinion Writing’ 2003 / Oxford University Press Marshall, Enid ‘Scots Mercantile Law’ 1997 W.Green / Sweet Maxwell Edinburgh / 3rd edition. Rose, William M. ‘Pleadings Without Tears: A Guide to Legal Drafting Under the Civil Procedure Rules’1999 / Blackstone Press Limited / 5th edition. 1 Footnotes [1] I have added these in the case that they can be proved as per my opinion.