Who Bears the Loss?

A recent case illustrates the wisdom, when purchasing a car, of always checking the background of the vehicle to identify the rightful owner and the terms under which it is owned.

Dr Kulkarni purchased a Mercedes for £39,000. The ‘seller’, however, could not lawfully sell the car as it was the subject of a hire purchase agreement. Upon discovering that the car had been fraudulently sold, the hire purchase company, Manor Credit (Davenham) Ltd., seized the vehicle. The seller could not be found and so Dr Kulkarni sued Manor Credit for conversion.

This was a complex case, which involved a thorough analysis of the Sale of Goods Act 1979 and the Hire Purchase Act 1964. The Court of Appeal had to determine whether the loss fell to Dr Kulkarni or to Manor Credit. The ultimate deciding factor was the point at which the third party seller intended the ‘property in’ the car to pass to Dr Kulkarni.

The Court held that if the third party had purported to pass title to the car before the hire purchase agreement was entered into, the loss would fall to Dr Kulkarni. However, because in this case it was found that the intention to sell to an innocent purchaser arose after the hire purchase agreement was formed, the loss fell to Manor Credit.

The circumstances in this case were unusual and each case will be decided on its own merits given the particular events.