The defendant, a waterman in the Port of London, entered into a hire-purchase contract with the claimant finance company in respect of a motor car. After the first instalment, his wages were reduced by a dock strike. He wrote with the keys and log book saying he wished to terminate the agreement because he could not fulfil its terms. He returned the car to the dealer which had supplied it and the company later took possession of it. Clause 8 of the agreement gave the company the right to terminate the agreement if the hirer failed to pay any instalment. Clause 10 gave the hirer the right to terminate the agreement at any time by returning the car to the company. Clause 11 provided that, if the agreement should be terminated under either provision, the hirer should pay the company such an amount as together with the instalments already paid should amount to two-thirds of the total hiring cost as agreed compensation for depreciation. The company issued a writ claiming the amount provided for in clause 11 on the grounds that the hirer had terminated the contract under clause 10. Later, during the course of the proceedings, it was amended to add an alternative claim for damages for repudiation. The matter was remitted to the county court where the judge held that the hirer had terminated the agreement and gave judgment for the company.
Held: The company must be taken to have terminated the agreement under clause 8 and that, since the sum provided for by clause 11 was a penalty (not being a genuine pre-estimate of loss), it could not be recovered. There being no claim by the company for any identified loss, the court directed that the appeal be allowed and that judgment be entered for the hirer.
Lord Denning MR said: ‘In the absence of a consensual termination, I think the finance company must be taken to have terminated the hiring under the powers given to them by clause 8 of the agreement. That clause says that ‘should the hirer fail to pay . . any subsequent instalment . . the owner may forthwith and without any notice terminate the hiring.’ That is how this agreement came to an end. The owners exercised their right to terminate the hiring: and the hirer was content that they should do so. On such a termination the owners cannot rely on the minimum payment clause: for the simple reason that they are terminating for a breach; and in that case the minimum payment clause is a penalty and unenforceable under the decision of the House of Lords in Campbell Discount Co. Ltd v Bridge . . .
There remains the alternative claim for repudiation. It is said that Mr. Ennis repudiated the contract. I very much doubt myself whether his letters and his conduct should be considered as repudiation. He was simply asking for the agreement to be terminated. He was not repudiating it. But even if it be treated as a repudiation, it is clear that the repudiation was never accepted by the finance company. After receiving his letter, they treated the contract as being still continuing. They claimed under the minimum payment clause, which is a thing they could not possibly have done if there had been an acceptance of repudiation. By so doing, they elected to treat it as continuing. Mr. Goodenday said they accepted the repudiation by retaking possession of the car. But that was not pleaded. Nor has it ever been suggested hitherto. The county court judge said they accepted the repudiation in November, 1963, when they amended their pleading. That was far too late. They had already evinced their intention to treat the agreement as continuing. I do not think they can rely on the alleged repudiation.’
Harman LJ said that the hirer had not exercised his option to terminate the agreement: ‘As to the other point, I think it may be said that the letter was the expression of a determination not to be bound any further by the agreement. If there had been a prompt acceptance of that, I am not sure I should not have held that there was a repudiation, because a repudiation needs both the expression of such an intention and its acceptance on the other side. There clearly was no acceptance on the other side. The plaintiffs elected not to accept repudiation: they elected to treat the agreement as binding and to sue him under it and not to sue him for damages for its breach. Therefore, they cannot rely on repudiation.’
Salmon LJ said that the company had terminated the contract under clause 8: ‘I think that the finance house must be taken to have repossessed the goods under clause 8, as they were entitled to do, since the hirer was in arrear with the first instalment. As I have already stated, this would give the finance house no right to recover any part of what would then clearly be a penalty under clause 11.’
Lord Denning MR, Harman LJ, Salmon LJ
[1968] 1 QB 54
England and Wales
Cited by:
Distinguished – Stocznia Gdynia Sa v Gearbulk Holdings Ltd CA 13-Feb-2009
Orders were placed for the construction of ships. They were not delivered. The buyer, the defendant, cancelled the orders. The defendants sought the loss of profit. The claimants said they were entitled only to the repayment of instalments. The . .
Lists of cited by and citing cases may be incomplete.
Updated: 29 August 2021; Ref: scu.282634
