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SC.362/1964; LD/68/63









Chief MOORE, with him P. G. JACOB, for the appellants.

  1. M. OLAKUNRIN, with him N. A. B. ANIMASHAUN, for the respondents.



COMMERCIAL LAW: Contract: hire-purchase — Terms – Fundamental (implied) term – Effect of representations Defective goods taken as such – Whether implied terms were breached – Repudiation – Relevant considerations

COMMERCIAL LAW: Hire-purchase transactions – Whether dealers not general agents of owners – where hirer knowingly takes defective vehicles — Where owners terminate agreement subsequently – Whether hirer can recover ‘minimum payment’ – Hirer’s right to usual damages – Where hirer terminates agreement – Whether liable to ‘minimum payment’)

TRANSPORT AND INFRASTRUCTURE LAW – MOTOR VEHICLE: Purchase of second-hand vehicles via hire purchase – Hire-purchase agreement – Right of agent of sellers to retake possession when contract is breached – Right of hirers to repudiate contract due to poor operation of vehicles – How proved – Relevant considerations

CHILDREN AND WOMEN LAW: Women in Business – Terms of a contract- Hire purchase – When breached – When repudiated – relevant considerations

PRACTICE AND PROCEDURE – COURT: Appeals to Supreme Court – Case in which non-suit was ordered – How treated






COKER, J.S.C. (delivering the judgment of the Court):-

The appellants have appealed against the judgment of the High Court, Lagos, awarding against them and in favour of the respondents a total amount of £1,389-1 2s-3d., “being arrears of hire rentals, re-possession expenses and agreed depreciation amount” and costs. The respondents were the plaintiffs in the High Court and their writ of summons is endorsed as follows:-

“The plaintiffs’ claim against the defendants jointly and severally is for the sum of £1,389-12s-3 being arrears of hire rentals, repossession expenses and agreed depreciation amount owed by the defendants to the plaintiffs under a hire-purchase agreement between the plaintiffs Company and the 1st defendant in respect of five vehicles registered numbers are as follows:-

The second defendant is being sued as an indemnifier to the 1st defendant.”


It is common ground that the real hirer of the vehicles was the first appellant and that the second appellant was a guarantor or indemnifier of the first appellant to the respondents.


The case of the respondents is that pursuant to a hire purchase agreement dated the 23rd February, 1962, the first appellant took on hire from the respondents five second-hand vehicles, four of which were Austin A.55 saloon cars and the fifth a five-ton lorry. The hire-purchase agreement was produced in evidence as Exhibit 1. By an indemnity dated the 16th February, 1962, the second appellant agreed to pay all such sums of money as may at any time become due or payable by the first appellant but be unpaid by her. Following breaches of the terms of Exhibit I by the hirer, the respondents retook possession of the vehicles in May, 1962.


The appellants denied that they were in breach of the hire purchase agreement and maintained that when the vehicles were delivered to the hirer, the parties agreed that the hirer was not to pay any rentals until the vehicles should have been put to the use for which they were purchased. The appellants also complained that since the vehicles were delivered to the hirer, they had been pushed from one mechanic to another for the purpose of repairing the several faults in them and that indeed three of them were incapable of self-propulsion. Finally, the appellants contended that before taking delivery of the vehicles, Messrs. S.C.O.A., who were the dealers for the vehicles and from whom possession was taken, represented to the appellants that there “would not be any great trouble to get” the vehicles repaired. It was also part of the appellants’ case that the vehicles had never been roadworthy, that the first appellant made various suggestions to Messrs. S.C.O.A. with regard to the postponement of the payment of rentals, but as those were not accepted, she repudiated the contract and directed Messrs. S.C.O.A. to where the vehicles could be found.


The learned trial judge did not accept the evidence that any representation was made to the appellants about the condition of the vehicles or that it was the first appellant herself who had repudiated the contract. Rather he accepted the case of the respondents that in May, 1962, when they retook possession of the vehicles, the appellants were in breach of the hire purchase contract as rentals were already overdue and in arrears on the vehicles. He therefore gave judgment against the appellants in the sum stated above, the particulars being as follows: –

£       s d    

(a)     Hire rent due 1st April, 1962                        230    5 0

(b)     Hire rent due 1st May, 1962                         230    5 0

(c)     Repossession and towing expenses              97 18 6

(d)     Agreed depreciation amount under Clause 4 (ii) of terms and conditions of the agreement                      831    3 9

TOTAL                                    1,389         12 3 


Before us on appeal, two grounds of appeal were argued and in view of the importance to the hire-purchase business of the issues raised for decision, we think it desirable to deal with the grounds of appeal seriatim and at length.


It was firstly argued on behalf of the appellants that the learned trial judge wrongly applied the decision in Associated Distributors Ltd. v. Hall and Hall [1938] 1 All E.R. 511, and erred in holding that the sum claimed as damages was by way of liquidated damages and not a penalty. This ground of appeal manifestly refers to item (d) of the particulars of award, i.e., agreed depreciation amount under clause 4(ii) of the terms and conditions of the agreement £831-3s-9d. In awarding this item of claim. the learned trial judge observed as follows in his Judgment:-

“regarding the depreciation clause, I would have thought it was clearly a penalty and would have so decided had it not been for the case of Associated Distributors Ltd. v. Hall [1938] 2 K.B. 83, the principle of which I think is applicable to the present case.”


Learned counsel for the appellants on this ground of appeal submitted however that the relevant provisions in the hire purchase agreement, Exhibit 1, constitute a penalty and not a fair calculation or assessment of the actual wear and tear or depreciation of the vehicles concerned. On the other hand, learned counsel for the respondents maintained that the amount awarded is justifiable by way of agreed depreciation of the goods the subject matter of the hire-purchase contract.


We pointed out before that the judge did not accept the contention of the appellants that the hirer repudiated the hire purchase contract and that he took the view that on account of the several breaches of the contract, the owners exercised their right of re-possession and seized the vehicles. Clauses 2, 3 and 4 of the hire-purchase agreement, Exhibit 1, as far as they are material to this case read as follows:-

“2.     The owners agree (a) To permit the hirer to terminate this Agreement by giving notice of termination in writing to the owners and returning the said goods in good order, repair and condition at his risk and expense to the owners at such place as they may designate together with all additions alteration and improvements as may have been made thereto without thereby becoming entitled to any credit allowance or set off and without prejudice to the rights of the owners in respect of any breach of this agreement by the hirer. (b) …

  1. Should the hirer fail to pay the initial payment in full at the time when this agreement is made or to pay any subsequent installments or other sum payable thereunder in full within Ten days after the same shall have become due … or if the hirer shall fail to observe or fulfill any term of this agreement … then and in each and every such case, the owners may forthwith and without any notice terminate the hiring or alternatively by written notice … forthwith and for all purposes terminate the hiring and this agreement and thereafter the hirer shall no longer be in possession of the goods with the owner’s consent and the owner shall be entitled to the immediate possession of the goods and to retake and resume possession of same and to enter upon any promises where the goods are believed to be in order to retake and resume possession and the hirer shall indemnify the owners against any consequence of whatsoever nature which they might suffer by so doing.
  2. Should the hiring be terminated by the hirer under clause 2 hereof or by the owners under clause 3 hereof the hirer shall forthwith pay to the owners:-

(i)      all installments and other moneys then due under this agreement and unpaid, and

(ii)     such sum, if any, as may be required to make the total amount of installments paid and payable by the hirer equal to three-quarters of the hire purchase price. This amount shall be by way of agreed depreciation of the goods.”


It seems clear from these clauses that no difference exists in the statement of the liability of the hirer vis-a-vis the owners whether the hirer deter-mines the contract (or repudiates it) under clause 2 or whether the owners terminate the contract and retake possession of the hired goods under clause 3.


We have already set out the contentions of counsel on both sides as to the nature of the provisions of clause 4(ii) of the hire-purchase agreement, Exhibit 1. We observe that the determination of the question whether or not the provisions of clause 4(ii) (usually referred to as a “minimum payment” clause) are a penalty or an agreed assessment of the depreciation naturally occurring to the hired goods is not free from difficulty and a close study of the decisions in the welter of authorities on this point is necessary in order to appreciate the correct legal position.


In Associated Distributors Ltd. v. Hall and Hall (supra), the appellant had entered into a hire-purchase agreement for the hire of a bicycle. There was a clause in the agreement under which the hirer was entitled to terminate the contract. There was another clause under which the owners were equally entitled to do so. Another clause of the agreement provides as follows:-

“In the event of this agreement or the hiring being determined for any cause whatsoever … I will pay to you by way of compensation for depreciation of the goods in addition to any other sums payable hereunder, such sums as with the amount previously paid for rent shall make up a sum equivalent to not less than one-half of the total amount including the option purchase price payable under this agreement.”


The appellant having taken possession of the bicycle and paid some installments returned the bicycle to the owners and so terminated the contract. In subsequent proceedings against him for payment of the amount due to the owners under the “minimum payment” clause (quoted above) it was held by the Court of Appeal (reversing the Derby County Court) that the appellant was liable to pay the amount envisaged by that clause. Slesser, L.J., observed in the course of his judgment at p. 513 as follows:-

“This is a case where the hirer has elected to terminate the hiring. He has exercised an option and the terms on which he may exercise the option are those set out in clause 7. The question therefore whether these payments constitute liquidated damages or a penalty does not arise in the present case for determination.”


It is clear that the Court of Appeal in Associated Distributors Ltd. v. Hall and Hall decided a case in which the hire-purchase contract was terminated by the hirer and certainly not one in which the owners had put an end to the contract. We observe, therefore, that in the present case, the learned trial judge having held that the appellants did not terminate the contract, the principles of the case of Associated Distributors Ltd. v. Hall and Hall are not applicable.


Be that as it may, the question still remains as to the true nature of the minimum payment clause where the owners terminated the contract following breaches of the same by the hirer. In Bridge v. Campbell Discount Co. Ltd. [1962] 1 All E.R. 385, the appellant as hirer had entered into a hire-purchase agreement with the respondents in respect of a second-hand motor-car. A clause of the agreement provided that the hirer may at any time terminate the agreement and clause 6 of the agreement stipulated that in such an event the hirer shall return the vehicle and pay:-

“to the owners all arrears of hire rent due and unpaid at the date of termination of the hiring together with interest … and by way of agreed compensation for depreciation of the vehicle such further sum as may be necessary to make rentals paid and payable hereunder equal to two thirds of the hire-purchase price.”


The appellant paid the initial deposit and one rental and before the next rental was due returned the vehicle to the owners expressing his inability to continue with the contract. Subsequently, the owners commenced proceedings against him for two-thirds of the hire-purchase price less the initial payment and the one installment paid. The County Court held that this amount was a penalty and therefore irrecoverable. The Court of Appeal held, reversing the County Court, that it was not a penalty but an agreed amount at which the depreciation was assessed and therefore the hirer was liable to pay same. The hirer appealed to the House of Lords. The House of Lords took the view (Viscount Simonds dissenting) that on the pleadings there was no admission that the hirer had exercised his option to terminate the contract. The House therefore held that on the basis that the hirer did not terminate the contract the “minimum payment” clause was a penalty and so irrecoverable. Viscount Simonds did not dissent from the decision so long as it is rested on that basis. He however took the view that the hirer had exercised his option and so, following the decision of the Court of Appeal in Associated Distributors Ltd. v. Hall (supra), the amount claimed was recoverable from the appellant. He observed at pp. 387-388 of the report as follows:-

“Clause 6 is not a penal clause. It confers on the hirer a right for which he agrees to pay a price. He need not exercise it if he does not want to … I must dissent … from the suggestion that there is a general principle of equity which justifies the court in relieving a party to any bargain if, in the event, it operates hardly against him.”


Viscount Simonds and Lord Morton emphasised the correctness of the decision in Associated Distributors Ltd. v. Hall (supra), but clearly limited its application to cases in which it was the hirer who had repudiated the contract. Lord Morton observed at p. 390 as follows:-

“My Lords, in my opinion Associated Distributors Ltd. v. Hall was rightly decided, and, if I had thought that, in the present case, the appellant exercised his option under clause 6 of the agreement … I should have agreed with the decision of the Court of Appeal in the present case. In that event, the appellant would have been bound to pay the stipulated sum . . . not by way of penalty or liquidated damages, but simply because payment of that sum was one of the terms on which the option could be exercised. I am of opinion, however, that the appellant never had the slightest intention of exercising the option contained in clause 6 . . . .”


As already pointed out in the case of Bridge v. Campbell Discount Co. Ltd. (Supra), the majority view in the House of Lords was that although this was all but clear from the pleadings and the facts of the case as presented, the natural interpretation of the conduct and action of the hirer was that he intended merely to state the facts of his position that he could not carry on with his hire payments and to ask for directions as to what he was to do with the vehicle to the possession of which he could no longer be entitled. It was therefore the owners who having retaken possession of their vehicle and terminated the contract, were proceeding to exercise their rights thereunder. on the meaning of the “minimum payment” clause in the agreement, Lord Radcliffe observed at p. 395 of the report as follows:-

“I can say at once that,if one really tied oneself to this idea of compensation for depreciation, the case for treating the clause as a genuine pre-estimate of the damage suffered by depreciation would be almost unarguable. Since the obligation under clause 9(b) may mature at any time from the beginning to the end of the hiring, a week after the beginning or a week before the end, it seems to me impossible to take a single formula for measuring the damage as any true pre-estimate … This is because the sum agreed on diminishes as the total of the cash payments increases. It is a sliding scale of compensation, but a scale that slides in the wrong direction … The fact that this anomalous result is deliberately produced by the formula employed suggests, I think, that the real purpose of this clause is not to provide compensation for depreciation at all but to afford the owners a substantial guarantee against the loss of their hiring contract.” Lord Denning observed at p. 399 as follows:-

“The truth is that this minimum-payment is not so much compensation for depreciation but rather compensation for loss of the future installments which the respondents expected to receive, but which they had no right to receive. It is a penal sum which they exact because the hiring is terminated before two-thirds has been paid. In cases when the hiring is terminated, as it was here, within a few weeks, it is beyond doubt oppressive and unjust. Is not this, then, a classic case for equity to intervene?”


There are a number of authorities on this rather difficult subject but it is unnecessary to refer to all of them. Many of them have been referred to and discussed extensively in Bridge’s case (supra) and it is sufficient to observe that the position seems to be that: Where a hirer exercises his right of option to which he is entitled by the hire-purchase agreement, he cannot complain that the “minimum payment” clause is a penalty it being agreed that he purchased the option on the terms of the contract, i.e., at the price for which he bargained: where, however, it is the owners who terminate the contract and wish to enforce their rights under the hire-purchase contract, different considerations will apply. As Lord Devlin observed in Bridge’s case (supra), at p. 402:-

“It is well settled that, when a Court of Law finds that the words which the parties have used in a written agreement are not genuine and are not designed to express the real nature of the transaction but for some ulterior purpose to disguise it, the court will go behind the sham front and get at the reality”.


So, if the sum described as agreed depreciation is in reality an amount charged not as a genuine pre-estimate of the loss of the owners but as an insurance in any event for securing to them a minimum proportion of the cost of the article hired, the court will take the view that the clause constitutes a penalty and that the amount encompassed within it is not as such recoverable.


The initial difficulty in every case is to ascertain the question of fact as to who terminates the contract. In Financings Ltd. v. Baldock [ 1963] 1 All E.R. 443, where it was found that the hirer did not terminate the contract it was held as settled that the owners may not recover under the “minimum payment” clause. A similar decision was arrived at by the Court of Appeal in Anglo-Auto Finance Co. Ltd. v. James [1963] 1 W.L.R. 1042, where the “minimum payment” clause was declared to be a penalty after it was found that it was the owners who terminated the contract and were proceeding to enforce their rights thereunder. In the case in hand, the issues of fact are not at all clear. By their pleadings and evidence, the respondents claimed that they terminated the contract and retook possession of the vehicles. By their pleadings and evidence, the appellants claimed that they repudiated the contract and directed the respondents to where the vehicles could be collected. The learned trial judge apparently disbelieved the appellants for he observed as follows in the course of his judgment:-

“The first defendant defaulted in the payment of the installments and the plaintiffs caused the vehicles to be repossessed. The first defendant said she repudiated the contract when she found she could not repair the vehicles.


I am of the opinion that such termination of the contract was wrongful and that the first defendant is liable in damages.”


We are of the view that whilst there is a clear finding that the owners exercised their contractual rights and retook possession of the vehicles, no such finding was made as to the conduct of the hirer. On that basis, therefore, i.e., the basis that it was the owners who terminated the contract and thereafter proceeded to enforce the “minimum payment” clause, we have come to the conclusion that the clause does constitute a penalty and that the amount of £831-3s-9d claimed under Item (d) is not as such recoverable.


It remains to decide what is the appropriate order to make in the circumstances postulated by the above findings. Prima facie, when the owners are driven to the termination of the contract by the breaches of same by the hirers, the owners are entitled at common law to damages for such breaches assessed in the usual way. Lord Denning hinted at this when in the judgment in Bridge’s case at p. 401 he observed as follows:-

“Now that equity and law are one, the hire-purchase company should recover its actual damage, and such damage should be assessed according to the realities and not according to any fiction.”


In the present case, the breaches by the appellants of the hire purchase contract are the cause of the whole litigation and although they have the benefit of a decision in their favour on the “minimum payment” clause, we have come to the conclusion that in view of the nature of the pleadings in this case and the issues actually canvassed in the court below, the respondents should on this part of their claim be non-suited. This ground of appeal succeeds.


Secondly, it was argued on behalf of the appellants that the learned trial judge misdirected himself on the evidence and erred when he held that the vehicles delivered to the hirer were those that she bargained for and that there was no breach by the owners of any condition of the contract by the fact that the vehicles were in such condition as they were delivered. Counsel submitted on this point, on the one hand that in as much as Messrs. S.C.O.A. as agents of the owners represented to the hirer that the vehicles could be made roadworthy by effecting only minor repairs thereon when in fact they could never be rendered roadworthy, there was a misrepresentation entitling the appellants to repudiate the contract; and on the other hand that in as much as it must be assumed to be a fundamental condition of the contract that the vehicles delivered should be fit for the purpose for which, in the contemplation of the parties, they should be employed, and as the vehicles concerned in this case were never capable of self-propulsion, there was a breach of a fundamental condition of the contract entitling the appellants to a rescission of the contract. On his part, learned counsel for the respondents submitted that the appellants took delivery of the vehicles for which they bargained and in the condition in which they contracted about them. Counsel further submitted that the element which is assumed as fundamental to a contract must always be decided as a matter of fact in the circumstances of each case.


The facts of this case show that the hirer took on hire pursuant to the hire-purchase agreement, Exhibit 1, five vehicles of which two were stated by the hirer to be in good working condition and three described as being in need of repairs. It is also established, and indeed this was part of the case of the hirer herself, that the three vehicles which were in need of repairs were never self-propelling and that they were pushed out of the premises of Messrs. S.C.O.A. at the time when she took delivery of them.


The submission of learned counsel for the appellants on the issue of an alleged representation made to the hirer by the dealers has proceeded on the assumption that Messrs. S.C.O.A. are agents of the owners. It is well to point out, however, that although Messrs. S.C.O.A. could in law be treated as agents of the owners for the purposes of delivering the vehicles to the appellants, it does not follow that they are such agents for all purposes. It is true that in a normal hire-purchase transaction the hirer deals with the dealers for the purpose of executing the necessary documents, paying the initial deposit, taking delivery of the goods and, in some cases, paying the periodical rentals. This however does not warrant the conclusion that the dealers thereby become general agents of the owners. The dealers collect the documents and initial payments from the hirer but this does not necessarily guarantee that the owners would agree to pay for the goods and release them on hire purchase to the hirer. In short, there is a business deal in which the owners, the dealers and the hirers are concerned. Each party wants as much from the deal as it can possibly secure. The owners will do business with as many dealers as are willing to trade with, and are acceptable, to them, and with as many hirers as the dealers can procure for, and on terms acceptable to, them. The dealers will do business with as many owners as are ready and willing to accommodate the hirers who come through them; and the hirers will do business with as many dealers as are able to secure for them owners who are willing to let them have goods on acceptable hire-purchase terms. This point came up for consideration by the Court of Appeal in Campbell Discount Co. Ltd. v. Bridge [1961] 2 All E.R. 97, where it was urged on the court that the dealers were agents of the owners in as much as for all practical purposes they dealt with the hirers and eventually delivered the articles hired. The Court of Appeal did not accept the contention.


If, therefore, Messrs. S.C.O.A. are not agents of the respondents, it is difficult to see how, even if they made any representation to the hirer with respect to the condition of the vehicles covered by the hire-purchase agreement, Exhibit 1. the respondents could be made liable for such representation. Furthermore, and on this point, we observe that apart from the ipse dixit of the appellants there was no other evidence to support the claim that any such representation was made to the appellants. The learned trial judge did not accept the evidence of the appellants on this point and taking this view of the evidence before him he, rightly in our view, came to the conclusion that no such representation was in fact made or proved.


It is not disputed by the respondents that it is a fundamental term of a contract of this nature that the goods delivered should be fit for the purpose for which, in the contemplation of the parties. they are intended; but it was submitted on their behalf that in this case the hirer negotiated for and took on, hire the five vehicles comprised in the agreement, Exhibit 1, in the condition in which she found them. Such indeed was the evidence of the hirer and on this point the learned trial judge observed as follows in the course of his judgment:-

“It seems to me that what the first defendant contracted for were the vehicles as they were and not the vehicles as they would be after they had been repaired”.


In Karsales (Harrow) Ltd. v. Wallis [1956] 2 All E.R. 866, it was held that the delivery of a car incapable of self-propulsion and with some of the essential parts missing was not the delivery of a car as envisaged by the hire-purchase agreement and that there was therefore a breach of a fundamental term of the contract entitling the hirer to repudiate the contract. It should be clear, however, that in order to entitle the hirer to repudiation the breach must be of such a nature as to make it obvious that goods delivered are not such as envisaged by the contract. As Davies, L.J. pointed out in Yeoman Credit Ltd. v. Apps [1961] 2 All E.R. 281, at p. 292:-

“Not every breach of condition, not every sort of unfitness, would amount to a breach of what has been called the fundamental condition; and it may, therefore, for that reason also, have been thought necessary to make it a condition that defects less than those which constitute a fundamental breach of the contract should give a right to the hirer in those cases.”


Where the defect cannot be described as fundamentally altering the nature of the article delivered pursuant to the contract, the remedy of the hirer lies in damages and is not a rescission of the contract.


Now it is contended by the appellants that the fact that the vehicles are in such a condition that the hirer could not make them roadworthy was a breach of a fundamental condition of the contract. We agree with the submission of learned counsel for the respondents that whether or not a particular defect materially alters the nature of the subject matter and so constitutes a breach of a fundamental condition is a matter of fact. in Astley Industrial Trust Ltd. v. Grimley [1963] 2 All E.R. 33, Pearson, L.J., observed as follows at p. 40:-

“The decided cases show that normally in a hiring or hire-purchase agreement the person who lets goods on hire assumes some contractual responsibility for the fitness of the goods for the purpose for which the hirer requires them, but the existence and the extent of the obligation depend on the contractual intention of the parties, which is to be ascertained from the provisions of the particular agreement and from the relevant facts of the situation in relation to which the agreement was made.”


We have already referred to the condition in which the vehicles in question in this case were taken out of the premises of Messrs. S.C.O.A. and it seems clear to us that in those circumstances it is unreasonable to infer otherwise than that the hirer contracted to hire the vehicles in the condition in which she saw and inspected them. We see no reason therefore to differ with the learned trial judge in his conclusion that the hirer took delivery of what she bargained for and that there was no breach of a fundamental and implied term of the contract of hiring. This ground of appeal must and does fail.


In the event, we have come to the conclusion that this appeal must be allowed in part and the following order is hereby made:-

(a)     With respect to the claims in Items (a) (b) and (c) above, the appeal is dismissed; and

(b)     With respect to the claim in item (d), the appeal is allowed, the award is set aside and an order of non suit is entered in respect of that claim.


With regard to costs, we observe that it was not clear from the pleadings and proceedings in the court below that the point on which the appeal has succeeded was canvassed. We therefore do not disturb the order for costs in the court below. In this court we order that the respondents should pay to the appellants costs assessed at 50 guineas.




LF 1671,

LE 9375,

LF 3632 and

WE 839.


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