PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
Buyer Beware for Goods on HP
When someone unknowingly sells something that they do not own, they can be liable to the real owner of the item sold. The liability is not criminal (there is no criminal intent), but is based on the civil law of tort.
It is therefore especially important for dealers in second-hand goods, particularly valuable ones such as motor vehicles, to make sure they own them before they sell them. Attempts to sell to dealers motor vehicles which are still the subject of HP agreements are very common. However, there are specialist databases, listing motor vehicles and motor bikes that are the subject of HP agreements, which can be searched by dealers.
A recent case concerned a dealer who had acquired in good faith three motor bikes that were still on HP, having checked the relevant database as is normal trade practice. The original purchaser of the motor bikes had defaulted on the HP agreements but the HP company that was the legal owner of the motor bikes had not subscribed to the database, so the bikes were not flagged as being subject to HP agreements.
The HP company sought to repossess the motor bikes and discovered that its customer had sold them to the dealer. It claimed it was entitled to recover them. The dealer argued that having followed standard trade practice by checking the database, the finance company could not claim that the dealer had failed to acquire better title to the motor bikes than the HP debtor (from whom the HP company had the right of recovery).
The court ruled that the dealer had not acquired title to the motor bikes. There was no requirement for the HP company to register with the database. Accordingly, the company was entitled to recover the motor bikes.
This case serves as a cautionary tale for traders in second-hand assets of all kinds.