The Auto Supply Co. Ltd. vs V. Raghunatha Chetty

Murray Coutts Trotter, Kt., C.J.—This case turns on the construction of an agreement, dated the 12th of September, 1927, which is

commonly called a hire purchase agreement. By that agreement the plaintiffs, the Auto Supply Co., Ltd., delivered a Morris motor bus of which

they were the owners to the 1st defendant who hired it under the terms of the agreement. Those terms were these:

By Clause (3) the hirer was to pay by way of hire without demand a sum of Rs. 1,140 on delivery, and thereafter a sum of Rs. 226 on the 12th

day of every month beginning with the month next after the date of the agreement until 11 monthly Instalments had been made unless in the interim

he should have terminated the agreement.

Then by Clause (4) in the event of all the stipulated monthly hire being duly and punctually paid, the vehicle was at the hirer''s option to become

his absolute property, but he had a further option to buy the vehicle outright at any time during the currency of the agreement by paying all the hire

due up to date. By Clause (2) the hirer was to pay the owners a sum of Re. I as consideration for the option to purchase given to him. It was also

provided that the owners might terminate the contract of hiring and forthwith recover possession of the vehicle in certain events, one of which was

that the hire for any given month was in arrear and left unpaid for seven clays after the date fixed for its payment [Clause (4)(a)]. That is the event

which happened. No monthly instalments were paid for March, April, May and June, 1928, the total amount due to the owners in respect of those

months being Rs. 914. On the 30th June, 1928, the plaintiff company terminated the hire and called for delivery of the bus to them with payment of

the arrears then accrued. This was not done and the plaintiffs filed the present suit for possession of the bus, or, in lieu of that for Rs. 2,500, its

estimated value at the time, for the arrears of hire, i.e., Rs. 904 and for damages for wrongful detention from the date of demand, i.e., 30th June,

1928.

The learned Judge has held that the agreement before us was a hire purchase agreement which 1 take to mean that it was a hiring with an option

of purchase to the hirer on the fulfilment of the stipulated conditions and was not a sale which would pass the property in the bus to the hirer with

stipulated retardation of payment of the purchase price by monthly instalments. It has not been questioned by either side that the learned Judge was

right in so finding and that takes us out of the ambit of the decision in Lee v. Butler (1893) 2 Q.B.318 and the position is that which is dealt with in

the leading case of Helby v. Matthews (1895) A.C. 471 The learned Judge has decided that on the termination of the hiring the plaintiff-owners

were not entitled to retain the Rs. 1,140 paid as an advance under the agreement but only to Rs. 226 corresponding to the ordinary monthly

instalments for the balance of the duration of the hiring. This seems to me to be adding a term to the contract which is not there. No doubt it was in

the contemplation of the draftsman of the agreement that the sum of Rs. 1,140 was something more than what is described as being, namely, the

first month''s hire, and that for the protection of both parties. Every one knows that a new motor vehicle after it has been on the road for even a

month is depreciated in the market by something like 50 per cent. and I make no doubt but that the object of this clause is to prevent the hirer

turning a new into a second-hand car, depreciate it 50 per cent, and then put it on the hands of the owners in that condition. It is quite true that

there is no express clause in this contract that on the termination of the agreement either by return of the vehicle by the hirer or by breach of the

conditions of the agreement by him he shall forfeit all he has already paid including the initial sum of Rs. 1,140; but it appears to me that it is a

necessary implication of the contract and I so hold. The learned Judge thinks that this is a case of hardship for the defendant, the hirer. Were this

decision to be upheld, it seems to me that it would be an intolerable hardship on the owners. They hand over a new. car, it can be thrown back on

their hands at the end of a month on payment of the small sum of Rs. 226 leaving in their hands a car depreciated 50 per cent. in its value. Indeed,

if the sum of Rs. 1,140 is not to be treated as hire at all, I do not see why it should not be open to the hirer to return the car one day before the end

of the first month and have had a month less one day to use the car for nothing. It is quite true as I. have already said that there is no express

provision in this agreement that, when the agreement is terminated by the choice of the hirer or by his default, all sums paid by him up to date are to

be retained by the owners without giving credit to him for a: farthing. But it seems to me that it is a necessary implication of this agreement that such

sums should be irrecoverable by the hirer and that we should not be justified in treating the initial payment of Rs. 1,140, as in any event returnable

to him on the termination of the hiring. There is no question here of any misleading of the hirer; he signed the agreement with his eyes open and in

many ways it was an exceedingly favourable agreement to him, in that he could at his own choice put an end to the hiring whenever he was so

minded. But I think it must be a necessary implication that he was not entitled to get back anything which he had paid under the terms of the

agreement. I have no doubt that the initial payment was made a heavy one with the express purpose of acting as a deterrent to hirers throw ing

back road-depreciated cars on the hands of the owners within a few months of the commencement of the hiring. On the best view I can form of

this case I feel constrained to differ from the conclusion of the learned Judge and to allow this appeal with costs.

Anantakrishna Aiyar, J.

As I have the misfortune'' to differ from the learned Trial Judge in this case, and as the case raises a question of importance relating to the

incidents of hire purchase agreement, I feel bound to express in my own words the reasons for my decision. The plaintiff in the original suit, Auto

Supply Co., Ltd., is the appellant before us. In pursuance of an agreement, dated the 12th of September, 1927, the plaintiff delivered a Morris

motor bus to the first defendant (the second defendant stood as surety for the first defendant). Under the terms and conditions contained in the said

agreement, the first defendant paid a sum of Re. I in consideration of the option to purchase given to him under Clause (2) of the agreement; and

under Clause (3) he paid in September, 1927, a sum of Rs. 1,140 to the plaintiff; he also paid to the plaintiff by way of hire Rs. 226 in each of the

months after September, 1927. The first defend. ant committed default in the payment of the monthly instalments due for the months of March,

April, May and June, 1928; i.e., on the 12th of June, 1928, there was due by the defendant to the plaintiff a sum of Rs. 904. On the 30th of June,

1928, the plaintiff company exercised its right under the agreement and terminated the hiring and called upon the defendant to deliver the motor bus

to the plaintiff and to pay the arrears due. The defendant not having done so, the plaintiff filed the suit for possession of the motor bus, or in lieu of

it Rs. 2,500 its present value, for the arrears of hire Rs. 904 and also for damages for wrongful detention from the 1st of July, 1928, until delivery

of the bus to the plaintiff. The learned Judge decreed the suit in plaintiff''s favour, but held that out of Rs. 1,140 paid by the defendant to the plaintiff

in September, 1927, the plaintiff was entitled to retain only Rs. 226 as for hire for the first month and that credit must be given by the plaintiff to the

defendant for the balance (Rs. 1,140 minus Rs. 226 or Rs. 914). It is against this portion of the decision of the learned Judge that the plaintiff

company has preferred this appeal.

The first question to be considered is, what is the exact legal nature of the agreement between the parties. It is necessary to distinguish between

(1) contracts to buy and pay by instalments; and (2) contracts to hire, the hirer having an option to return goods, with a provision that on payment

of certain number of instalments the article should belong absolutely to the hirer. In a contract of sale for a price payable by instalments, the

purchaser has no option of terminating the contract and returning the chattel, whereas in a contract of hire purchase the hirer has such an option. In

the case of a hire purchase contract, the hirer has got an option to purchase, which he may exercise or not according to his sweet will and pleasure;

but in the case of a contract of sale the purchaser has become the owner of the chattel, but the price is by agreement payable by instalments. This

distinction has been well pointed out in the judgment of the House of Lords in the case of Helby v. Matthews (1895) A.C. 471 the learned Trial

Judge in the case before us held that the agreement in question was a hire purchase agreement. That finding is not disputed before us by either of

the parties. The question then is whether the learned Judge''s direction that the plaintiff should give, credit to the defendant for the difference

between Rs. 1,140 paid in September, 1927 and Rs. 226 is correct. Now turning to the terms of the agreement between the parties, I find that

Clause (2) of the agreement provides that

on the signing of the agreement, the hirer (the defendant) shall pay the owners (the plaintiff) a sura of Re. 1 in consideration of the option to

purchase given to the hirer hereunder and the said sum shall become the absolute property of the owners.

Clause (3) is important:

The hirer shall pay at Madras by way of hire without demand the sum of Rs. 1,140 and thereafter a sum of Rs. 226 on the 12th day of every

calendar month beginning with the month next after the date herein until 11 monthly instalments have been made, unless he shall have terminated

this agreement as hereinafter provided.. . The hirer acknowledges that he holds the vehicle as a bailee of the owner and shall not have any property

or interest as purchaser therein until he shall have exercised his option of purchase as hereinbefore provided and shall have paid the whole amount

due in this agreement. The owners may terminate the contract of hiring and forthwith recover possession of the vehicle if any monthly hire is in

arrear and left unpaid for seven days after the date fixed for its payment.

It is admitted that the defendant committed default in payment of the amounts due for the months of March and the subsequent months. The

question is whether on the true construction of the agreement the defendant is entitled to credit for the sum of Rs. 914. If on a proper construction

of the contract the defendant is not entitled to the same, then the defendant''s contention must be overruled, and no question of any ""hardship"" to

him would, in my view, arise. The parties dealt with at arm''s length and there is no question of bargain pressing hard on one and not on the other.

For the considerations recited in the agreement and moving from one party, the other party has undertaken to do something. It is admitted that the

defendant is not entitled to the return of any of the instalments paid, from October, 1927 to February, 1928; but it is contended that the defendant

is entitled to the return of Rs. 914 out of the amount of Rs. 1,140 paid by the defendant to the plaintiff on the date of the agreement when the bus

was delivered to the defendant. Is there any reason for making any distinction between the payment made in September, 1927 and the other

payments made subsequently? The agreement speaks of all these payments as payments made ""by way of hire,"" The amount of hire payable by the

defendant to the plaintiff has been fixed by the parties; that which is payable in September, 1927, has been fixed by them at Rs. 1,140 and that

which is payable on the 12th of each of the succeeding 11 months has been fixed by them at Rs. 226. As it is admitted that it is the defendant who

broke the/contract, prima facie he is not entitled to recover any amounts paid by him to the plaintiff. If this amount of Rs. 1,140 be treated as ""hire

it is clear that it is hire paid by the defendant for the use of the bus, and it stands on the same footing as the subsequent instalments paid by him; and

as he had the use of the bus for the period, the defendant is not entitled to the return of any portion of the hire paid by him. The learned judge says

that the plaintiff is not entitled to retain Rs. 1,140 treating the same to have been paid ""as advance of rent,"" on entering into the agreement; the

agreement does not mention this sum as ""an advance of rent."" My attention has not been drawn to any evidence, or provision in the document, that

the sum of Rs. 1,140 was paid ? as ""advance"" of rent. If once it is proved or admitted that it is ""an advance of rent,"" then quite different

considerations would apply. But, as already mentioned, there is no evidence to support the finding that the amount in question was paid as advance

of rent. If parties treated it as ""advance of rent,"" then naturally one should expect the agreement to contain a specific provision as to how this

advance of rent was to be dealt with subsequently--whether the same should be returned to the hirer or whether the same should be taken towards

the rent due for some particular instalments. The agreement in question does not make any such provision. Further there is no warrant in the case

for the view that the hire (rent) due for September, 1927, was only Rs. 226. The agreement only states that the hirer shall pay by way of hire the

sum of Rs. 226 on the 12th day of every succeeding month after September, 1927, until 11 monthly instalments have been made, unless in the

meantime he shall have terminated the agreement. The provision, as I understand it, is not that the parties have agreed that the proper rent for each

month is Rs. 226, but they have made a consolidated provision that the hirer shall pay by way of hire a sum. of Rs. 1,140 at the time of the delivery

of the bus to the defendant and also pay a sum of Rs. 226 on the 12th day of 11 subsequent months. The essential difference is this. According to

the defendant''s view, Rs. 226 would represent the rent of a new motor bus for the first month of its user, and the same would be the proper rent

for each of the 11 months following. If so, the defendant could have the use of a new motor bus for one month by paying Rs. 226 and he could at

the end of the period return the same without being under any further liability to the plaintiff. Again, if defendant''s view be upheld, he could return

the bus just one day before the expiry of the first month without being liable to pay any amount as rent. Obviously no owner of a new ""motor bus

would agree to let the same on such terms. The obvious intention of the parties should therefore be taken to be that the first instalment of rent to be

paid was to be Rs. 1,140 and that payable for each of the other instalments was to be Rs. 226. There is nothing wrong in the parties agreeing to

different amounts to be paid as rent for different periods. The reasonable view to be taken of the agreement is, in my opinion, that the defendant

paid Rs. 1,140 as the first instalment of rent and agreed to pay 11 further subsequent instalments of Rs. 226 each on the 12th of every succeeding

month so long as the agreement continued to be in force. But for the fact that the initial payment made by the defendant was a comparatively large

amount, the amount due for each of the subsequent instalments would have been much more than Rs. 226; in other words, in fixing the amount of

the subsequent instalments, the parties had clue regard to the amount of initial payment made by the defendant to the plaintiff. If the amount to

which the plaintiff would be absolutely entitled in case of breach of the agreement by the defendant was to be only Rs. 226, that is only a portion of

the initial payment, then, it stands to reason, as was contended before us, on behalf of the appellant, that the amount of the subsequent instalments

would have been fixed at a very much higher figure than Rs. 226. I am therefore of opinion that the amount of Rs. 1,140 in question should not be

taken as ""an advance of rent"" in the ordinary acceptation of the expression, but that it was the first instalment of rent agreed to be paid by the

defendant to the plaintiff for the use of the bus, and that it stands on the same footing as the payments made in respect of the instalments from

October to February, and that the defendant is not entitled to a refund of any portion of the same.

If, on the other hand, payment of this amount of Rs. 1,140 should not be treated as payment of rent, it should, in my view, be taken as a

premium taken by the owner, the plaintiff, with a view to grant the lease to the defendant. If it should be taken as a premium to grant a lease, then

the lease having been granted, the defendant is not entitled to have any portion of the said amount returned to him. The same should be taken to

have been paid for the plaintiff''s executing and granting the lease; and the defendant enjoyed the benefit of the same when he got the lease. This

view receives support from the decision of Muthuswami Aiyar and Best, JJ., in Kammaran Nambiar v. Chindan Nambiar.I.L.R.(189) M 32 The

plaintiff-landlord sued to eject the defendant, the tenant, on the ground that the defendant allowed the rent to fall into arrears and that the landlord

was entitled to recover possession on the footing of forfeiture of the lease. It appears that the defendant had paid the plaintiff the consideration

(premium) for the grant of the lease. The Lower Courts held that the plaintiff was not entitled to recover possession before he returned the

consideration (premium). The learned Judges of the High Court observed as follows:

We do not agree, with the Judge that if the clause for forfeiture of the perpetual lease is enforceable, the plaintiff is only entitled to a decree or

refund of the consideration paid by the tenant at the time of obtaining the lease. Ex, A contains no provision for such repayment and an obligation

to refund cannot be inferred from the clause for forfeiture. In the case of a lease, the consideration paid for it is exhausted by the grant of the lease,

and the tenant''s forfeiture of the lease cannot operate to convert the original consideration into a debt.

The High Court held that the plaintiff was entitled to recover possession without returning any portion of the consideration (premium) paid for

the grant of the lease. In my view the principle of that decision would apply to the case before me, in case it is taken that the initial payment made

by the defendant in this case should be taken to be in the nature of premium for the grant of the lease.

Thus whether the amount in question be treated (as I am inclined to take it) as the first instalment of rent fixed by the parties to be paid by the

defendant for the use of the bus, the amount of the subsequent instalments being fixed having regard to the amount fixed as the (1st) initial

instalment, or, whether the said amount be taken as ""premium"" paid to the lessor by the lessee for the grant of the lease, in either view the

defendant who broke the contract is not entitled to the return of the same. It was suggested that such a construction of the contract works to the

great advantage of the one party (the plaintiff) but works hardship on the other (the defendant). The rights of the parties have to be worked out

according to the terms of the contract which they entered into with their eyes open; each got under the contract what he bargained for, and there is

no question of fraud or mistake. In this case it seems to me that no question of ""hardship"" is before the Court for consideration. Further, the

judgment of Lord Macnaghten at p. 482 of Helby v. Matthews (1895) A.C. 471 mentions considerations which would seem to show that there is

no question of ""hardship"" in such a case at all. His Lordship observed:

The advantages are not all on one side. If the object of desire loses its attractions on closer, acquaintance--if faults are developed or defects

discovered--if a coveted treasure is becoming a burthen and an encumbrance, it is something, surely, to know that the transaction may be closed at

once without further liability and without the payment of any forfeit. If these agreements are objectionable on public grounds it is for Parliament to

interfere. It is not for the Court to put a forced or strained construction on a written document or to import a meaning which the parties never

dreamed of because it may not wholly approve of transactions of the sort.

The learned Advocate for the respondent drew our attention to the circumstanace that in Helby v. Matthews (1895) A.C. 471 the amount of

the initial payment was only 10s. 6d. and that the amount of each of the succeeding instalments was also only 10s. 6d. But in my view that does not

make any real difference. The subject-matter of hire in Hclby''s case 2 was a pianoforte, whereas the subject-matter of the agreement before us is,

as already mentioned, a new motor bus; and one can well understand the effect of the first few months'' use on the respective chattels concerned,

on which will depend the amount of the initial payment of hire. It was also argued on behalf of the respondent that in the case of Brooks v.

Beirnstein (1909) 1 K.B. 98 there was a specific provision that the hirer was in no case to be entitled to any credit for the amount paid for option

or for the said rent or in part thereof except at purchase of the said furniture under the provisions of the agreement. But that circumstance also does

not, in my view, make any difference for the reasons mentioned by me already. In Brook''s case4 the hirer paid 1 on the signing of the agreement,

14 at the time of the delivery of the furniture and 20 before the 29th of June, 1907, in all making 35. He had also paid rent at 7 per month for the

subsequent months but got in arrear and owed 51 for rent unpaid. The owners, in exercise of the powers given to them by the agreement, re-took

possession of the goods and claimed the arrears of rent of 51 without giving credit to any portion of 35 paid by the hirer. As mentioned by Bigham,

J. ;

But in truth the hirer has enjoyed the use of the furniture which was the consideration for the rent, and I can see no reason why he should not be

liable to pay the arrears claimed.

Our attention has not been drawn to any Indian case on the point. For the reasons mentioned by me, I am not able to make any distinction

between the sum of Rs. 226 paid on various occasions by the defendant and the sum of Rs. 1,140, the initial payment made by him. If the former

represent hire or rent, I think that the latter also should be taken to have the same legal characteristic. There is no evidence to show that the rent for

September, 1927, was fixed as at something less than Rs. 1,140. I do not feel justified in fixing the proper rent for the first month (September,

1927), at Rs. 226, nor am I able to find any evidence or any indication to support the argument that the amount of Rs. 1,140 should be taken as

payment of ""advance of rent."" If, however, the said amount he taken to represent ""premium"" (consideration) paid for the grant of the lease, then the

lease having been granted and the defendant having admittedly had possession and enjoyment of the bus for some months, the consideration, that is

the premium, paid has become exhausted by the grant of the lease, and in that view also the defendant is not entitled to the return of the same or

any portion thereof. The agreement in question is one of hire-purchase and the parties having dealt with each other at arm''s length, each had what

he bargained for; no question of hardship arises in my view of the case. In a case of this nature, it is with great reluctance that I have had to differ

from the decision of the learned Judge. But, for the reasons given by me above, I think that the direction in the decree that the defendant should be

given credit for the sum of Rs. 914 is not correct, and that the appeal should be allowed with costs.