Dealer invoices aren’t
offers to sell, explains Greg Standing
A crucial element of contract law is an intention by the
parties to create legal relations. When a motor dealer invoices a
lender in relation to the cost of vehicles delivered and registered
to purchasers, one would think that the intention to create legal
relations was apparent.
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In JD Cleverly Ltd and Cwmbran
Motors Ltd v Family Finance Ltd, a substantial fraud was
perpetrated by an intermediary motor dealer, Gwent Fleet Management
Ltd (Gwent). Purchasers placed orders for vehicles with Gwent and
paid Gwent for the vehicles. Gwent obtained quotes for the vehicles
from the claimant dealers and if acceptable, signed purchase
orders.
The dealers delivered the vehicles
to the purchasers and registered them in the purchasers’ names.
Gwent instructed the dealers to invoice the lender with which it
had agreed hire purchase facilities.
The dealers invoiced the lender
including a clause that a contract for sale would only come into
force once a purchase order had been signed by a dealers’ sales
executive. The lender paid the invoices by cheque.
The fraud was discovered and
vehicle ownership issues arose. The lender claimed the dealers had
contracted to sell the vehicles to it and, by releasing the
vehicles to the end purchasers, had enabled those buyers to acquire
title to the vehicles, to the prejudice of the lender.
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By GlobalDataAt first instance, the court held
that the dealers sending invoices to the lender (offer) and the
lender paying the cheques to them (acceptance), constituted a
contract for the sale of the vehicles. The lender could claim
repayment of the purchase prices from the dealers due to a total
failure of consideration as good title had not passed to them.
The Court of Appeal disagreed. No
contract had been formed. The invoices from the dealers did not
constitute offers to sell. They simply set out the manner in which
a contract for the sale and purchase of vehicles was to come into
force.
There were no discussions or
contact between the dealers and lender before the invoices were
sent and nothing to displace the clear wording in the invoice that
a contract would only be concluded by signature of a completed
dealer’s order form.
The invoices were consistent with
arrangements whereby the lender was to discharge Gwent’s
indebtedness without bringing into existence a contract between the
dealers and lender.
The lender failed to show that the
conduct between it and the dealers was consistent only with there
being a contract between them, pursuant to which, title in the
vehicles would pass to the lender.
Things to
consider
The court criticised the finance
company’s lax business practices. Finance companies need to agree
clear terms of business with dealers, or ensure a clear offer
confirming the dealer’s intention to sell the vehicles to the
finance company is received to ensure good title is acquired.
Greg Standing is a partner in
Wragge & Co’s motor finance litigation team
