Scottish Court of Session Decisions

LORD M'DONALD'S OPINION.—This is an action which has already been heard in the Sheriff Court where it was dismissed as irrelevant (1975 S.L.T. (Sh. Ct.) 34). Instead of appealing against the interlocutor of the Sheriff the pursuers have chosen to begin de novo in the Court of Session. The following facts are agreed.

The pursuers are a finance company who let a motor vehicle on hire purchase to one Ross. Ross fell into arrears with the payment of instalments. Although he had neither right or title to do so he purported to sell the vehicle to Hurlet Service Station. They in turn purported to sell it to the defenders. Both Hurlet Service Station and the defenders were trade purchasers as defined by section 29 (2) of the Hire Purchase Act 1964. The defenders then sold the vehicle to a person who was a private purchaser within the meaning of the same section.

It is not suggested that this private purchaser acquired the vehicle other than in good faith and without notice of the hire purchase agreement. By virtue of section 27 (3) of the 1964 Act, therefore, the disposition of the vehicle by the defenders to the private purchaser had effect as if the pursuers' title to it had been vested in Ross immediately before he disposed of it to Hurlet Service Station. In my opinion this statutory provision was intended to protect the interests of private purchasers who have no ready means of checking whether or not a vehicle is the subject of a current hire purchase agreement as distinct from those of trade purchasers who do have access to certain facilities in this respect. It is to be noted that by subsection (6) of section 27 the trade purchaser is not exonerated from any liability (whether civil or criminal) to which he would be subject apart from section 27.

The position therefore is that the defenders possessed the vehicle without title. So long as they remained in possession they could not resist a claim by the true owners for restitution. Moreover if they relinquished possession fraudulently or in bad faith they remained liable to the true owner for its value. This I take to be the effect of the passages in the Institutions of Stair at I-VII-2 and Erskine at III-I-10. If they relinquished possession in good faith and without negligence they would only be liable in recompense quantum lucratus (Stair I-VII-11).

The liability of a trade purchaser to the true owner which is reserved by section 27 (6) of the 1964 Act includes a claim based upon negligence or upon recompense. It is accepted that the present action rests upon neither, and the question for decision is whether the pursuers have relevantly averred any other ground of liability. The defenders maintain they have not.

The pursuers' first proposition was that they were entitled to recover the value of the vehicle from the defenders although they no longer had possession of it because by disposing of it to the statutorily protected private purchaser they had, albeit innocently, effectively deprived the pursuers of their right to recover the vehicle from that purchaser. In my opinion this extends the doctrine of restitution beyond the limits contained in the passages from the institutional writers referred to. Counsel for the pursuers argued that the passage in Stair at I-VII-2 extended the obligation to a haver who had fraudulently put the article away, and that it was his once having had the article which created the obligation, not the fraudulent away-putting. The obligation so created, it was said, remained and could be enforced if, for any reason, recovery from the ultimate possessor became impossible. If this is correct it is difficult to see why no mention of such a rule can be found in the institutional writers. The whole tenor of the passages cited is that, once possession is lost, liability to make restitution flies off save in the case of fraud. In Faulds v. Townsend (1861) 23D 437 Lord Ardmillan stated that in such circumstances the former possessor, except in so far as lucratus, would be free, and added the words "and the owner would be left to seek restitution from the possessor." I cannot, however, read from these words the further proposition that if the owner is unable to obtain restitution from the possessor, the obligation of the former possessor revives. In Oliver & Boyd v. The Marr Typefounding Co. Ltd. 1901 9 S.L.T. 170 Lord Stormonth Darling accepted that a bona fide sale to a third party is a good answer to a demand for restitution but said that it was on the principle that the demand can be and ought to be made against the person to whom the possession has been transferred. This may well be, but again I do not think it follows that if such a demand cannot be satisfied the bona fide sale ceases to be a good answer. In International Banking Corporation v. Ferguson Shaw & Sons 1910 SC 182 Lord Ardwall demurred to the proposition favoured in the lower court that where the true owner is deprived of his right to vindicate his property by the action, however innocent, of a bona fide possessor, the latter must bear the loss in a question with the former. I respectfully agree with Lord Ardwall because I consider that such a proposition is inconsistent with the principle laid down by the institutional writers that liability to make restitution disappears with loss of possession except in so far as the former possessor is lucratus. For these reasons I do not consider that the pursuers have averred a relevant case based upon restitution.

The pursuers' second submission was that they were entitled to a remedy based upon the doctrine of specificatio applied either directly or by analogy. It is at first sight startling to find this doctrine of the civilian jurists being relied upon in a case relating to the modern law of hire purchase, but it has been applied in the Sheriff Court (F.C. Finance Ltd. v. Langtry Investment Co. Ltd. 1973 S.L.T. (Sh. Ct.) 11). The pursuers' basis in their pleadings for such a case is an averment that section 27 of the Act of 1964 operated to change the character of the pursuers' property and that this change of character was brought about by the defenders' act of sale. This is not specificatio in its literal sense. That involves the forming of a new species from materials belonging to another, a change being produced in the substance (Bell's Principles para 1298). It envisages a physical change and there is no question of that in the present case. Where specificatio occurs it has certain consequences in law and I conceive the pursuers' argument to be that the same consequences should by analogy flow from the facts of the present case.

In the case of F.C. Finance Ltd. v. Langtry Investment Co. Ltd. the material facts were similar to those of the present case except that the circumstances of the defenders' disposal to a private purchaser were such as to infer negligence on their part. This was the primary ground upon which they were found liable to the pursuers, the true owners. Sheriff Principal Walker, however, also held that the principle of the doctrine of specificatio applied exactly to the circumstances surrounding the defenders' transactions with the vehicle. I regret that I cannot agree, although I am reluctant to differ from a distinguished and experienced Sheriff. Specificatio is a branch of the law of industrial accession (Bell, para 1298, supra). The rules which govern it are now part of the law of Scotland, although they provided a rich field of controversy among the civilian philosophical jurists (Wylie & Lochhead v. Mitchell (1870) 8 M 552). It is expressly stated in that case by Lord President Inglis that it would be unwise to extend any one of these rules to new cases on the ground of fancied resemblance. It respectfully appears to me that this is precisely what the learned Sheriff Principal has done in F.C. Finance Ltd. v. Langtry Investment Co. Ltd. There may be some resemblance to the consequences of specificatio in the sense that an innocent bona fide act on the part of the possessor of an article has had the legal result of debarring the true owner from vindicating his real right to it. But there the resemblance ends. It is of the essence of specificatio that the original article disappears. In the F.C. Finance case it continued to exist in forma specifica. Indeed it was not so much the act of the defenders which defeated the pursuers' right as an Act of Parliament. This is almost implicit in the pursuers' averment in the present case that the statutory provision operated to change the "character" of the property, whatever that may mean. It certainly cannot mean the creation of a new species and that is fundamental to specificatio. In my opinion this submission by the pursuers also fails.

The pursuers' final submission was that they were entitled to the remedy sought on grounds of natural equity. In this connection they relied principally upon the case of Wylie & Lochhead v. Mitchell where the Court adopted such an approach to determine the rights and obligations of parties whose separate properties had become united and were, except at great sacrifice, inseparable. This was a situation which did not fall within any recognised category with established rules such as specificatio and the Court therefore felt free to apply the principles of natural equity. So doing, they concluded that the parties held the property in common in shares corresponding to the values of their respective contributions. I do not consider that there is room for this approach in the present case. This is not a situation which does not fall within any recognised category with established rules. It is a situation where the existing rules of the common law have been amended by the effect of an Act of Parliament. It was argued that to grant the remedy sought would be equitable in the sense that the defenders could have recourse against Hurlet Service Station under warrandice, and they in turn would have, for what it is worth, a similar right against Ross, the real villain of the piece. I do not agree. In my opinion if the remedy sought is granted it exposes the defenders to a liability which did not exist before section 27 of the 1964 Act was passed and there is nothing in the Act which imposes such liability. If the defenders had disposed of the vehicle to another trade purchaser they would have been free from liability and I do not see why the situation should differ owing to the chance that the transfer was to a private purchaser. It was suggested on this branch of the case that what was sought was a remedy similar to that provided by the doctrine of specificatio but without expanding that doctrine. This is an unstable foundation for an argument based oil equity, since it is seriously to be doubted whether the rules of industrial accession are really based on natural equity (Wylie & Lochhead v. Mitchell per L.P. Inglis at p. 557). An expression of opinion to the contrary by Lord President Clyde sitting in the Outer House in McDonald v. Provan 1960 S.L.T. 231 would seem to be inaccurate.

It appears that in parallel circumstances a remedy might exist against persons in the position of the defenders in England (see e.g. Moorgate Mercantile Co. v. Twitchings (1975) 3 W.L.R. 286), and it was urged that it was desirable that the two systems of law should deal similarly with mercantile situations such as the present. The basis of the English law, however, is the doctrine of conversion, and in my opinion it would be unsafe to follow English authority in this field (see International Banking Corporation v. Ferguson Shaw & Sons per Lords Low and Ardwall at pp. 192 and 193).

For these reasons I sustain the first plea-in-law for the defenders and dismiss the action.