Financings Ltd v Stimson [1962] EWCA Civ 1 (17 July 1962)

A customer signed a hire-purchase offer for a car, but returned it to the dealer before the finance company accepted. The car was then stolen and damaged. The court held no contract existed as the offer was revoked or, alternatively, was subject to an implied condition that the car remain in the same state.

Facts

On 16th March 1961, the defendant, Mr Stimson, wished to acquire a car on hire-purchase terms. He saw the car at the premises of a dealer, Stanmore Motor Co. He signed a hire-purchase agreement form provided by the dealer. This form, which was an agreement with the plaintiffs, Financings Ltd, stated that it would only become binding once signed by the finance company. Mr Stimson paid the first instalment of £70 to the dealer and was allowed to take the car away. Unsatisfied with the car’s performance, on 18th March, he returned it to the dealer, stating he no longer wished to buy it and was willing to forfeit his first instalment. On the night of 24th-25th March, the car was stolen from the dealer’s premises. It was later recovered in a badly damaged condition. On 25th March, Financings Ltd, being unaware that the car had been returned or that it was damaged, signed the hire-purchase form. Financings Ltd later sold the damaged car and sued Mr Stimson for damages for breach of the hire-purchase agreement.

Issues

The Court of Appeal had to determine whether a binding contract had been formed between Financings Ltd and Mr Stimson. This involved considering two primary legal questions:

1. Had Mr Stimson validly revoked his offer before it was accepted by Financings Ltd? Central to this was whether the dealer had authority (actual or ostensible) to receive the notice of revocation on behalf of the finance company.

2. Was the offer made by Mr Stimson subject to an implied fundamental condition that the subject matter of the contract (the car) would remain in substantially the same condition until the moment of acceptance, and if so, had this condition been breached?

Judgment

The Court of Appeal unanimously dismissed the appeal, holding that no contract had ever come into existence. The judges, however, provided slightly different reasoning for arriving at the same conclusion.

Lord Denning M.R.

Lord Denning found for Mr Stimson on two alternative grounds. Firstly, he held that the dealer had ostensible authority to act as an agent for the finance company for all purposes connected with the transaction, including receiving a notice of revocation.

It seems to me that the dealer was, in this transaction, an agent for the finance company to receive the notice of revocation… He was the person put forward by the finance company as the person to deal with the hirer… and it seems to me that the hirer was entitled to assume that the dealer had authority to transmit communications to his principals.

On this basis, Stimson’s return of the car and his statement to the dealer on 18th March constituted an effective revocation of his offer. Therefore, there was no offer open for acceptance by Financings Ltd on 25th March.

Secondly, and as an alternative ground, Lord Denning held that the offer was conditional upon the goods remaining in the same state. He reasoned that once the car was stolen and damaged, this fundamental condition was breached and the offer lapsed automatically.

The offer made by the defendant was a conditional offer. It was conditional upon the car remaining in substantially the same condition until the moment of acceptance… As that condition was broken, the offer lapsed. That is another reason why I think there was no contract.

Donovan L.J.

Donovan L.J. agreed that the appeal should be dismissed but preferred to base his judgment solely on the second ground identified by Lord Denning. He was doubtful about the agency point, questioning whether a dealer, whose financial interest lies in the completion of the sale, could be deemed an agent for the finance company to receive a revocation that would terminate the deal. However, he was firm on the point of the implied condition. He held that Stimson’s offer was to take on hire-purchase the car he had seen and inspected, not a significantly damaged vehicle. The substantial change in the car’s condition before acceptance meant the offer had terminated and could not be accepted.

Implications

The decision in Financings Ltd v Stimson is significant in English contract law for several reasons. It is a key authority on the formation of contracts in tripartite hire-purchase agreements, clarifying that until the finance company signs the document, the customer’s signed form is merely an offer that can be revoked. The case establishes that in such transactions, the dealer can have ostensible authority to receive the revocation notice on behalf of the finance company, offering protection to consumers who reasonably conduct all their dealings via the intermediary dealer. Furthermore, it reinforces the important principle of the ‘conditional offer’, confirming that an offer for specific goods is implicitly conditional on those goods remaining in substantially the same state until the point of acceptance. A breach of this condition causes the offer to lapse, preventing a contract from being formed.

Verdict: The appeal was dismissed. The court found in favour of the defendant, Mr Stimson, ruling that no binding contract had been formed.

Source: Financings Ltd v Stimson [1962] EWCA Civ 1 (17 July 1962)