Scammell and Nephew Ltd v. Ouston [1941] AC 251, House of Lords

The defendants (appellants) wrote to the plaintiffs (respondents) and offered to sell them a Commer van for £268 and to take the plaintiffs’ Bedford van in part exchange, allowing them the sum of £100 for the Bedford van. The parties agreed these terms at an interview. The following day the defendants wrote to the plaintiffs and asked them to place the official order for the van in order to enable them to complete their records. The plaintiffs accordingly wrote to the defendants and the letter included the following sentence: ‘this order is given on the understanding that the balance of the purchase price can be had on hire-purchase terms over a period of 2 years.’ This sentence reflected the plaintiffs’ position throughout the negotiations, namely that they could only purchase the van on hire-purchase terms. The relationship between the parties then deteriorated, principally as a result of a disagreement about the condition of the Bedford van that led the defendants to refuse to take it in part exchange. The plaintiffs claimed that this amounted to a breach of contract and brought a claim for damages. The defendants denied any liability on the ground that no contract had in fact been concluded between the parties. The defence failed at first instance and in the Court of Appeal but succeeded in the House of Lords where it was held that the words ‘on hire-purchase terms’ could not be given any definite meaning so that the parties had not, in fact, concluded a contract.

Viscount Maugham

My Lords, I have had the advantage of reading the opinion of my noble and learned friend, Lord Russell of Killowen. I entirely agree with it and with his statement of the relevant facts. No less, however, than four judges have come to a different conclusion, and they think that the respondents have succeeded in establishing a contract in this case. I should always be slow to differ from views of those for whom I entertain a very genuine respect, if I could entertain any real doubt about the matter. I am constrained therefore to add some remarks of my own to explain why I am led to an opinion which coincides with that of my noble friend.

It is a regrettable fact that there are few, if any, topics on which there seems to be a greater difference of judicial opinion than those which relate to the question whether as the result of informal letters or like documents a binding contract has been arrived at. Many well-known instances are to be found in the books, the last being that of Hillas & Co v. Arcos, Ltd (1932) 147 LT 503. The reason for these different conclusions is that laymen unassisted by persons with a legal training are not always accustomed to use words or phrases with a precise or definite meaning. In order to constitute a valid contract the parties must so express themselves that their meaning can be determined with a reasonable degree of certainty. It is plain that unless this can be done it would be impossible to hold that the contracting parties had the same intention; in other words the consensus ad idem would be a matter of mere conjecture. This general rule, however, applies somewhat differently in different cases. In commercial documents connected with dealings in a trade with which the parties are perfectly familiar the court is very willing, if satisfied that the parties thought that they made a binding contract, to imply terms and in particular terms as to the method of carrying out the contract which it would be impossible to supply in other kinds of contract: see Hillas & Co v. Arcos, Ltd . . .

We come then to the question as to the effect of the (so-called) purchase being on ‘hire purchase terms’, and here we are confronted with a strange and confusing circumstance. The term ‘hire-purchase’ for a good many years past has been understood to mean a contract of hire by the owner of a chattel conferring on the hirer an option to purchase on the performance of certain conditions: Helby v. Matthews [1895] AC 471. There is in these contracts—and this is from a business standpoint a most important matter—no agreement to buy within the Factors Act, 1889, or the Sale of Goods Act, 1893; there is only an option and the hirer can confer on a purchaser from him no better title than he himself has, except in the case of sale in market overt. It is inaccurate and misleading to add to an order for goods, as if given by a purchaser, a clause that hire-purchase terms are to apply, without something to explain the apparent contradiction. Moreover a hire-purchase agreement may assume many forms and some of the variations in those forms are of the most important character, e.g., those which relate to termination of the agreement, warranty of fitness, duties as to repair, interest, and so forth.

Bearing these facts in mind, what do the words as to ‘hire-purchase terms’ mean in the present case? They may indicate that the hire-purchase agreement was to be granted by the appellants or on the other hand by some finance company acting in collaboration with the appellants; they may contemplate that the appellants were to receive by instalments a sum of £168 spread over a period of two years upon delivering the new van and receiving the old car, or, on the other hand, that the appellants were to receive from a third party a lump sum of £168 and that the third party, presumably a finance company, was to receive from the respondents a larger sum than £168 to include interest and profit spread over a period of two years. Moreover, nothing is said (except as to the two years period) as to the terms of the hire-purchase agreement, for instance, as to the interest payable, and as to the rights of the letter whoever he may be in the event of default by the respondents in payment of the instalments at the due dates. As regards the last matters there was no evidence to suggest that there are any well-known ‘usual terms’ in such a contract; and I think it is common knowledge that in fact many letters though by no means all of them insist on terms which the legislature regards as so unfair and unconscionable that it was recently found necessary to deal with the matter in the recent Act entitled the Hire-Purchase Act, 1938.

These, my Lords, are very serious difficulties, and when we find as we do in this curious case that the trial judge and the three Lords Justices, and even the two counsel who addressed your Lordships for the respondents, were unable to agree upon the true construction of the alleged agreement, it seems to me that it is impossible to conclude that a binding agreement has been established by the respondents. The appeal must, I think, succeed, and the action for damages must be dismissed with costs here and below.

Viscount Simon LC, Lord Russell of Killowen, and Lord Wright delivered concurring speeches.