#6694 - Campbell V. Bridg - Commercial Remedies BCL

Campbell v. Bridge

Facts

By an agreement in writing on a printed form dated July 20, 1959, and made between the respondents and the appellant, the respondents agreed to let and the appellant agreed to hire (with an option to purchase as therein provided) a used Bedford Dormobile motor-car described therein as having been manufactured in the year 1954, for a total hire-purchase price of 482 10s.

Clauses 6 to 9 of the agreement were as follows: "6. The hirer may at any time terminate the hiring by giving notice of termination in writing to the owners, and thereupon the provisions of clause 9 hereof shall apply. 7. If the hirer shall fail to pay any sum due hereunder or to observe any of the stipulations in clause 4 hereof or any other stipulations on his part contained herein the owners may thereupon and without notice terminate the hiring and/or this agreement, and may, subject only to the restriction of the owner's rights to recover (where the hire-purchase price does not exceed 300 and contained in the statutory notice hereto), retake possession of the vehicle whereupon the provisions of clause 8 hereof shall apply.

It was a provision of the said agreement that if the defendant should terminate the hiring he should pay to the plaintiff company by way of agreed compensation for depreciation a sum equal to two-thirds of the hire purchase price less payments already made.

The appellant complied with his obligations in respect of the initial rental of 105 and paid the sum of 10 10s. in respect of the first monthly rental of 10 9s. 2d. which fell due on August 20, 1959. On September 3, 1959, the appellant wrote to the respondents in the following terms:

Agreement No. 78900

Dear Sir,

Owing to unforeseen personal circumstances I am very sorry but I will not be able to pay any more payments on the Bedford Dormobile. Will you please let me know when and where I will have to return the car. I am very sorry regarding this but I have no alternative.

The respondents did not reply to that letter, and on or about September 14, 1959, the appellant returned the motor-vehicle to the sales room of Monarch Car Services who were the motor dealers concerned in the transaction. This was accepted as a return of the motor-car.

The defendant admits that on or about September 14, 1959, he terminated the said agreement. The defendant denies that he is indebted to the plaintiffs in the sum claimed or in any other sum. The alleged compensation for depreciation equal to two-thirds of the hire-purchase price is a penalty and is not recoverable.

Viscount Simonds

Not breach, exercising option under the contract

But I find it impossible to treat the issue between the parties as one in which the respondents alleged a breach by the appellant of the agreement and an acceptance by them of the breach as a repudiation of it. Nor can the admission by the appellant that he terminated the agreement be easily translated into an allegation that he committed a breach of it and that the respondents themselves put an end to it and were suing him for damages for the breach.

Since there is no breach, no question of the rule against penalties

I state my opinion very shortly, for I agree with the judgments given by Holroyd Pearce and Harman L.JJ. in the Court of Appeal. 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. It is a right which is sedulously preserved for the hirer by Act of Parliament and, though the amount here involved takes it out of the ambit of the Act, the principle is the same. I must dissent, as Harman L.J. did, 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… In the present case there is nothing which would justify the court in granting relief to a hirer who exercised his rights under clause 6.

As, however, this case has in your Lordships' House become a claim under clause 9 for a breach by the appellant of his contractual obligations, the question arises whether the amount allegedly due under that clause is a penalty or liquidated damages. Upon this question I have had the privilege of reading in print what your Lordships propose to say and agree that it is the former.

Lord Morton

There was a breach of contract

I am of opinion, however, that the appellant never had the slightest intention of exercising the option contained in clause 6, and the terms of his letter show that he did not have clause 6 in mind. He frankly and simply informs the respondents that "I will not be able to pay any more payments on the Bedford Dormobile." There is no reference to any option, and I cannot reconcile the statement just quoted with the view that he intended to exercise an option the terms whereof put him under an immediate obligation to pay a further large sum to the respondents. To my mind, the letter means that the writer feels reluctantly compelled to break his agreement, and the apologetic terms of the letter confirm me in this view. Why should the hirer apologetic so humbly, twice, if he thought that he was merely exercising an option given to him by the agreement.

Clause amounted to a penalty

My Lords, if I am right so far, the appellant has clearly committed a breach of the hire-purchase agreement by failing to pay the subsequent installments, and it becomes necessary to consider whether the payment stipulated in clause 9(b) of the agreement was a penalty or liquidated damages.

I find it impossible to regard the sum stipulated in clause 9 as a genuine pre-estimate of the loss which would be suffered by the respondents in the events specified in the same clause. One reason will suffice, though others might be given. This was a second-hand car when the appellant took it over on hire-purchase. The depreciation in its value would naturally become greater the longer it remained in the appellant's hands. Yet the sum to be paid under clause 9 (b) is largest when, as in the present case, the car is returned after it has been in the hirer's possession for a very short time, and gets progressively smaller as time goes on. This could not possibly be the result of a genuine pre-estimate of the loss. Further, in my view, the provisions of clause 9 were "stipulated as in terrorem" of the appellant. As counsel for the appellant put it: "They are intended to secure that the hirer will not determine the agreement until at least two-thirds of the price has been paid."

Lord Radcliffe

Breach, not exercising of the option under the contract

Is this to be treated as an exercise of the hirer's option to determine? I cannot help saying that I can see no ground for so treating it. It makes no reference to the option; it is not expressed in the terms of a man exercising a right; its whole tenor is that of a regretful apology for unexpected inability to carry out a contract that has been undertaken. In my opinion, the natural interpretation of such a message is that the writer 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 would no longer be entitled

The consequence is that we are dealing with a case in which the hirer declared his inability to go on with the hiring and the owners resumed possession of their vehicle and then went to court to assert their contractual rights under clause 9(b) of the agreement, claiming "as agreed compensation for depreciation" the balance sum of money required to make up two-thirds of the total hire-purchase price. Are they entitled to judgment for this sum or was the learned county court judge right in dismissing their claim as being a claim for a penalty?

The Clause is a penalty

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. It produces the result, absurd in its own terms, that the estimated amount of depreciation becomes progressively less the longer the vehicle is used under the hire. This is because the sum agreed upon 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, if the measure of anticipated depreciation is to be supposed to be the basis for the compensation agreed upon. The fact that this anomalous result is deliberately produced by the formula employed suggests, I think,...