Distance Learning Module Planner
Commercial Law: Consumer Credit and
Agency
Course Code: MP–LD2026
Module Leader: Stuart Williams
© University of Wolverhampton 2007
All rights reserved. No part of this publication may be reproduced or transmitted in any form or by
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damages.
Contents
How to Use Your Module Planner
5
Topics Covered by Module
7
Skills to be Developed and Examined
8
Examinations
9
A Brief Guide to Study Skills
10
Introduction to Study Units
13
Reading List
14
Study Unit 1: Creation of Agency and Authority
16
Study Unit 2: Rights and Duties of Agents
19
Study Unit 3: Contractual Liability to Third Party and Tortious Liability
22
Study Unit 4: Termination of Agency
25
Study Unit 5: Consumer Credit: Essential Terminology
27
Study Unit 6: The Meaning of Multiple Agreements and Linked
Transactions. Protecting the Debtor Before the Contract is Made
30
Study Unit 7: The Making of a Credit Agreement
33
Study Unit 8: Liability for Breach of Contract and Misrepresentation;
Matters Arising During Currency of Agreement
36
Study Unit 9: Breach and Termination of a Credit Agreement at
Common Law
39
Study Unit 10: The Statutory Regime Regarding Breach and
Termination
41
Study Unit 11: Control of Credit Agreements: Judicial Control of
Regulated Agreements
44
Appendix to Study Units
47
Learning Project
58
Practice Question and Suggested Answer
63
Revision
69
Taking the Examination
73
Module Questionnaire
75
How to Use Your Module Planner
The Module Planner is vital to your studies. It divides the work in each area into Units, and shows
you the minimum number of hours you should spend on each Unit, at the top right hand corner of
the first page of each Study Unit, in order to understand the law involved. You should plan on devoting a minimum of 150 hours to each module you study.
The section headed ‘Essential Reading’ contained in the Reading List and each Study Unit refers
you to the materials with which you are provided: the Textbook, 150 Leading Cases and Statute
Book. The materials listed in the Essential Reading are sufficient to enable you to complete the
course very effectively.
The section headed ‘General Reading’ lists other books which, if you wish, you can read to give
you other approaches to the law. These books are not provided but you should be able to purchase them from Hammicks Legal Bookshop, whose address, telephone number and website details are provided in the General Reading section of the Reading List. They are not essential for
you to be successful on the course, but they may help to give you a different viewpoint of the law
involved in this module.
The Module Planner guides you through the course. Work through it logically, and in order, and
make sure you understand one Unit before you move on to the next. At the end of each Unit you
will find a set of Self-Study Questions. Test yourself on these and make sure you understand them
before you move onto the next Unit.
At the end of the Study Units you will find the Learning Project. A compulsory question will be set
in the examination in Section A of your paper on all or parts of the material covered by the Learning Project, and this will count for 50 per cent of your overall grade, so it is essential that you ensure you study and understand all aspects covered by it. The Study Units which relate to the
Learning Project have been indicated to guide you through this material while you study.
The Module Planner is your guide to the topic of English law that it covers. Have it with you as you
study and you will make the most of this opportunity to obtain the best law degree of which you
are capable.
With this Module Planner you should have the following materials:
Commercial Law Textbook
Griffiths (3rd edition 2003) Old Bailey Press
Commercial Law 150 Leading Cases
Fletcher (2002) Old Bailey Press
Commercial Law Statute Book
Cracknell (3rd edition 2002) Old Bailey Press
Commercial Law Revision WorkBook
Fletcher (2nd edition 2002) Old Bailey Press
If you do not receive this set of materials, please contact:
Distance Learning Department
Holborn College
Woolwich Road
Charlton
London
SE7 8LN
Tel: +44 (0) 208 317 6000
Fax: +44 (0) 208 317 6003
E-mail: dl@holborncollege.ac.uk
Topics Covered by Module
This module covers the following topics within English law.
Creation of Agency and Authority
Rights and Duties of Agents
Contractual Liability to Third Party and Tortious Liability
Termination of Agency Consumer Credit:
Essential Terminology
The Meaning of Multiple Agreements and Linked Transactions.
Protecting the Debtor Before the Contract is Made
The Making of a Credit Agreement
Liability for Breach of Contract and Misrepresentation; Matters
Arising During Currency of Agreement
Breach and Termination of a Credit Agreement at Common Law
The Statutory Regime Regarding Breach and Termination
Control of Credit Agreements: Judicial Control of Regulated
Agreements
Skills to be Developed and Examined
To be successful in the end of module examination you need to show that you understand and
can apply the area(s) of law you have been studying. You must be able to demonstrate this to the
examiners by writing answers which communicate the points you wish to make accurately and in
good English. This is a key part of demonstrating that you have understood the points of law, the
cases and the Acts of Parliament that you have studied.
Before you start to write your answer, identify the issues that are relevant to the question. These
must be clearly stated in your short introductory paragraph(s). When referring to case law and
statute law, you then need to explain the relevant legal principles in the context of the issues you
identified in your introductory paragraph(s). Finally, you need to write a concluding paragraph
which brings your points together. Do not write everything you know about an area, or write
answers that take the form of a series of notes. Your answer should be structured in the way described above and be written in good English.
For further guidance on how you will be graded please consult your Award Guide which contains
an explanation of the criteria used to grade your work.
It is important that you practice answering questions and in particular take the opportunity to submit a sample question for marking and feedback. This question is contained in the Practice Question section of the Module Planner.
Examinations
This module is assessed by one, two hour, unseen written examination. Examinations take place
in September, January, and May of each year. The examination is in two parts: Part A is a compulsory question and counts for 50 per cent of the total grade, Part B has four questions of which
you will be required to answer two only. Each of the questions in Part B is worth 25 per cent of the
total grade.
The compulsory question in Part A is based on those topics which make up the Learning Project.
You will find details of the Learning Project and the topic area covered by it at the end of the Study
Units in this Module Planner. You should read this section carefully to identify those areas of the
module covered by the Learning Project.
You will, therefore, know in advance of the examination that there will be a substantial question on
the topics covered by the Learning Project. When you write the examination you should make sure
that you devote 50 per cent of the time to the question in Part A. Your answer to this question
should normally be about twice as long as your answer to the two questions in Part B.
The purpose of the Learning Project is to allow you to study a significant part of the syllabus in
depth in the sure knowledge that you will be examined on it. In this way, hard-working students
who have studied their materials thoroughly will be able to write an in-depth answer and have full
credit for the work they have done reflected in the grade awarded.
There is no assessed coursework for this module. The total grade for the module is based upon
the unseen written examination. Although you should make sure that you cover the whole syllabus, it is particularly important that you study those syllabus topics which are covered by the
Learning Project thoroughly so that you can write a complete answer to the compulsory question
in Part A and take advantage of the fact that this question is worth 50 per cent of the grade.
The examination is a two-hour examination with an additional 15 minutes reading time. It is an unseen examination. You will, however, be able to take into the examination an unmarked copy of
your 150 Leading Cases, Statute Book and Law Update (this means that you should not write on
these materials; you are only allowed to underline or highlight part of the text). As stated above,
you will also know what topics will be covered by the compulsory question in Part A of the
examination, provided you have studied the details of the Learning Project at page 44 of this Planner.
A Brief Guide to Study Skills
As a distance learning student you will undoubtedly have other demands on your time. It is, therefore, important that you use your time effectively. The following tips are intended to help you do
so.
Time Management
Be realistic.
Work out what time you have available for study; take out time for sleeping, eating, recreation, etc.
Try to plan ahead – do not leave everything to the last minute.
Prioritise – do not do the easiest task first, but the one that really needs to be done first.
Set objectives which are reasonable, and make sure that they are somewhere you see
them.
Break large tasks into manageable sub-tasks and set target dates against each sub-task.
Keep a wall planner chart.
Try doing the most difficult things when you feel at your best.
Remember the unexpected always happens, so be flexible – don’t get angry when plans
have to change.
Effective Reading
Reading
Read with purpose (what questions have to be answered?).
Read selectively – scan and skim – only read in detail what you need to.
Mentally recite what you have just read.
Make notes at appropriate points – bullet points, do not rewrite the whole book.
Review
Did I answer the questions I wanted to?
Do I understand and remember what I read?
Studying
Where?
Choose somewhere that is conducive to study. You need: a large table or desk; a suitable
chair; a bookcase; adequate, suitable lighting; adequate ventilation; reasonable temperature – too cold,
you can’t concentrate – too warm, you will go to sleep.
Banish distractions – magazines, radio, telephone, TV.
Decide where you study best, and try to keep to it.
When?
When you are alert.
Not when you are too tired.
When it is the best time of day for you – some people work better at night, others early in
the morning.
How?
Try studying for 50 minutes, break for 10 minutes, etc.
Have all you need available – pens, pencils, dictionary, PC, etc.
Avoid too much physical relaxation or you will go to sleep!
Actively study – make notes, etc. It is difficult to just read for too
long; it makes you sleepy and you lose concentration.
Remember to have breaks and do have time for relaxation.
Set yourself targets, and give yourself rewards!
Practice Questions
At the end of each unit you will find Sample Questions, and at the end of the Planner is a Practice
Question and Suggested Answer. strongly advised to submit at least one answer to either a Sample Question or the Practice Question for marking. Unless you do so you will not gain any insight
into your strengths and weaknesses.
Introduction to Study Units
The Study Units deal with the individual topics covered by the module. The module is broken
down into Study Units to enable you to look at each area of law in digestible parts. You must work
through each Study Unit in order, ensuring that you understand the material covered by each Unit
before progressing on to the next one.
Each Study Unit is broken down into four major sections.
Reading List
This indicates what reading you must do (Essential Reading) in order to cover all of the material
set in the Unit. All material listed in the Essential Reading is provided as part of your study materials. You can, if you wish, further your knowledge and understanding by completing the General
Reading in each Unit. These materials are not essential for you to complete the course, but you
may find them useful in your study. Such materials are not supplied, and you are responsible for
obtaining copies of the titles listed in the General Reading. Details are given in the Reading List of
suppliers.
Case Law and Statutes
This section directs you to those cases and statutes that you will need to read and understand in
order to complete the Unit. All materials listed here can be found in your Textbook or 150 Leading
Cases.
Self-Study Questions
These are questions designed to set the parameters of the Study Unit and to test your application
of the basic principles.
Sample Questions
These may be essay or problem questions, often taken from past examination papers. You should
attempt your own answers to all of these questions.
Reading List
These are the titles that you will use throughout the course. They are referred to in the reading
section of each Study Unit, to guide you in your learning.
Essential Reading
All materials listed here must be read in order for you to understand the module. These books are
supplied as part of your study materials.
Commercial Law Textbook
Griffiths (3rd edition 2003) Old Bailey Press
Commercial Law 150 Leading Cases
Fletcher (2002) Old Bailey Press
Commercial Law Statute Book
Cracknell (3rd edition 2002) Old Bailey Press
General Reading
These materials are not supplied, and are not essential to pass the module. You may, however,
wish to refer to them to deepen your understanding of the topics covered by the course. You are
responsible for obtaining your own copies of these titles. If you choose to do so, you should be
able to purchase them by contacting Hammicks Legal Bookshops at 192 Fleet Street, London
EC4A 2NJ; tel: +44 (0)20-7405-5711 or you can order online at www.hammickslegal.co.uk.
Commercial Law
Bradgate (3rd edition 2000) Butterworths
An Outline of the Law of Agency
Markesinis and Munday (4th edition 1998) Butterworths In addition, in each Study Unit you will find
a list of cases which should be consulted. Summaries of these can be found in the 150 Leading
Cases; cases marked with an * are referred to in the Textbook. If you have access to the Internet
you may wish to take advantage of the legal materials available via this source. See your Award
Guide for details.
For those students who have never studied the law, certain terminology used may be difficult to
understand at first. As you progress through the course, you will learn a range of new words and
phrases that are frequently used in the study of law. If you encounter any difficulties with the terminology used, however, you will find it useful to refer to a legal dictionary, which will explain the
meaning of legal words and phrases in plain English. Mozley and Whitley’s Law Dictionary (12th
edition 2001) by Butterworths is very helpful, and can be purchased through Hammicks Legal
Bookshops.
Study Unit 1 Suggested minimum study hours: 10
Topic
Creation of Agency and Authority
Introduction
An agent is someone who acts for another (the principal) in the making
of contracts or other transactions with third parties. Whether or not an
agent can bind the principal depends on the agent’s authority. This
authority depends on how the agency was created. In this Unit we look
at the methods of creation of an agency and the powers the agent thus
acquires.
Objectives
a To analyse the scope of an agent’s authority by examining the way the
agency was created.
b To analyse the scope of implied actual authority.
c To discuss the prerequisites for apparent authority.
d To consider the problem of usual authority.
e To discuss the condition for and effect of ratification.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapters 24 and 25
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
An Outline of the Law of Agency, Markesinis and Munday – Relevant
Chapter(s)
Case law and statutes
ACTUAL AUTHORITY
i Express
* European Asian Bank AG v Punjab and Sind Bank (NZ) [1983] 2 All ER 508
* Midland Bank v Reckitt [1933] AC 1
ii Implied
* Sorrell v Finch [1976] 2 All ER 371
APPARENT AUTHORITY
Armagas v Mundogas, The Ocean Frost [1986] 2 All ER 385; [1986] 2 WLR 1063
* Attorney-General for Ceylon v Silva [1953] AC 461
* Farquharson Bros v King & Co Ltd [1902] AC 325
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
USUAL AUTHORITY
i As an explanation of the extent of other types of authority
Armagas v Mundogas, The Ocean Frost (above)
Panorama Developments (Guildford) Ltd v Fidelis Furnishing Fabrics Ltd [1971] 2 QB 711
ii As a separate head of authority
* Daun v Simmins (1879) 41 LT 783
Watteau v Fenwick [1893] 1 QB 346
AGENCY BY OPERATION OF LAW
* Great Northern Railway v Swaffield (1874) LR 9 Ex 132
* Sachs v Miklos [1948] 2 KB 23
RATIFICATION
* Bolton Partners v Lambert (1889) 41 Ch D 215
* Brook v Hook (1871) LR 6 Ex 89
* Forman & Co Pty Ltd v The Liddesdale (Owners) [1900] AC 190
Keighley, Maxsted & Co v Durant [1901] AC 240
* Kidderminster Corporation v Hardwicke (1873) LR 9 Exch 13
* Watson v Swann (1862) 11 CB BS 756
The Commercial Agents (Council Directive) Regulations 1993 (SI93/3053)
The Commercial Agents (Council Directive) (Amendment) Regulations 1993 (SI 93/3173)
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Self-Study Questions
1 What is the test for the extent of implied actual authority?
2 What is the relationship between apparent authority and estoppel?
3 Explain Watteau v Fenwick.
4 What is the effect of ratification?
5 When is ratification necessary?
Sample Questions
1 ‘If an agent enters a contract without authority the principal can ratify
the unauthorised act. Between this unauthorised act and the
ratification, however, the third party is in a difficult position. He does
not have a contract with the principal and yet cannot escape liability.
He is in a kind of legal “no man’s land”.’
Describe the requirements for ratification and explain why the
third party in this situation is in this ‘no-man’s land’.
(Wolverhampton LLB by Distance Learning, May 1999, Question 2.)
2 ‘Usual authority, as shown in cases such as Watteau v Fenwick, is
merely a form of apparent or ostensible authority.’
Discuss.
(Wolverhampton LLB by Distance Learning, May 2001, Question 3.)
Study Unit 2 Suggested minimum study hours: 7
Topic
Rights and Duties of Agents
Introduction
Agents have the right to be paid and indemnified and, where possible, can exercise a lien over
the principal’s property until this happens. The agent also owes certain duties to the principal.
Many of these arise because the agency relationship is personal and is one of the utmost good
faith, thus requiring the agent always to act in the principal’s interests.
Objectives
a To analyse the agent’s entitlement to remuneration.
b To consider the agent’s indemnity and lien.
c To apply the fiduciary nature of agency to factual situations.
d To contrast the level of skill required of contractual and gratuitous agents.
e To discuss the extent to which delegation is permitted.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapters 28, 29 and 30
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
An Outline of the Law of Agency, Markesinis and Munday – Relevant Chapter(s)
Case law
AGENT’S REMUNERATION
Alpha Trading Ltd v Dunnshaw-Patten Ltd [1981] 1 All ER 482; [1981] QB 290
Luxor (Eastbourne) Ltd v Cooper [1941] AC 108
AGENT’S INDEMNITY
* Anglo Overseas Transport Ltd v Titan Industrial Corporation (UK) Ltd [1959] 2 Lloyd’s Rep 152
AGENT’S LIEN
* Rolls Razor Ltd v Cox [1967] 1 All ER 397
PERFORMANCE: AGENT’S DUTIES
Chaudhry v Prabhakar [1988] 3 All ER 718
* Christoforides v Terry [1924] AC 566
* Turpin v Bilton (1843) 5 Man & G 455
CONFLICT OF INTEREST
Attorney-General for Hong Kong v Reid [1994] 1 All ER 1; [1994] 1 AC 324 (PC)
* Boardman v Phipps [1966] 3 All ER 721; [1967] 2 AC 46
* De Bussche v Alt (1878) 8 Ch D 286
Harrods Ltd v Lemon [1931] 2 KB 517
Hippisley v Knee Bros [1905] 1 KB 1
Kelly v Cooper [1992] 3 WLR 936; [1993] AC 205 (PC)
* Logicrose v Southend United Football Club [1988] 1 WLR 1256
* Mahesan v Malaysia Government Officers’ Co-Operative Housing
Society Ltd [1979] AC 374
DELEGATION OF AGENT’S DUTIES
* McCann (John) & Co v Pow [1974] 1 WLR 1634
AGENT’S DUTY TO ACCOUNT
Arab Monetary Fund v Hashim [1993] 1 Lloyd’s Rep 543
DUE CARE AND SKILL OF AGENT
McCullagh v Lane Fox and Partners Ltd (1995) The Times 22 December (CA)
Merrett, Gooda Walker and Feltrim Cases [1994] 2 Lloyd’s Rep 468 (HL)
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Self-Study Questions
1 Does the position of agent carry with it a right to remuneration?
2 What is the difference between a particular lien and a general lien?
3 What degree of diligence must be observed by an agent?
4 To what extent may an agent delegate his authority?
5 What is the distinction between a bribe and a secret profit?
Sample Questions
1 Prem appointed Arran his agent to sell two of Prem’s cars for not less
than £9,000 each. Although Arran knew that Tim was looking for a car
similar to one of Prem’s, he pretended to Prem that he could not find a
purchaser for the vehicle but instead offered to buy it himself for
£9,000. Prem agreed and sold the car to Arran. Arran then sold it to
Tim for £12,000.
Arran sold the second car to Sam for £10,000 after Sam had
persuaded him to do so by paying for Arran to go for a week’s holiday
in Europe. Prem has now discovered the nature of both these
transactions.
Advise Prem of his rights, if any, against Arran, Tim and Sam.
(Wolverhampton LLB by Distance Learning, September 2001,
Question 3.)
2 Distinguish between the decisions in Luxor (Eastbourne) Ltd v
Cooper and Alpha Trading Ltd v Dunnshaw-Patten Ltd.
(Wolverhampton LLB by Distance Learning Question.)
Study Unit 3 Suggested minimum study hours: 7
Topic
Contractual Liability to Third Party and Tortious Liability
Introduction
Generally it is irrelevant to the parties’ rights, duties and liabilities whether or not the agent discloses that he is acting in this capacity. There are, however, exceptions to this rule. In this Unit we
examine these exceptions. We also look at the circumstances in which the agent will be personally
liable on any transactions undertaken.
Objectives
a To consider when an agent may be personally liable even though he/she is acting for a disclosed principal.
b To analyse the circumstances in which an undisclosed principal may not be able to claim rights
under the contract.
c To explain the circumstances in which an agent will be liable in breach of the implied warranty of
authority.
d To apply the tortious liability of the principal for the acts of agents.
e To consider the protection of agents by exemption clauses conferring an immunity on the principal.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapters 27, 28, 29 and 30
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but you may wish to refer to
them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
An Outline of the Law of Agency, Markesinis and Munday – Relevant Chapter(s)
Case law
DISCLOSED PRINCIPAL
* Santa Carina, The [1977] 1 Lloyd’s Rep 478
* Swan, The [1968] 1 Lloyd’s Rep 5
* Teheran-Europe v S T Belton Tractors Ltd [1968] 2 QB 545
UNDISCLOSED PRINCIPAL
Boyter v Thomson [1995] 3 WLR 36; [1995] 3 All ER 135; [1995] 2 AC 628 (HL)
Dyster v Randall & Sons [1926] Ch 932
* Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] AC 203
* Greer v Downs Supply Co [1927] 2 KB 28
* Humble v Hunter (1842) 12 QB 310
Keighley, Maxsted & Co v Durant [1901] AC 240
Said v Butt [1920] 3 KB 497
IMPLIED WARRANTY OF AUTHORITY
* Collen v Wright (1857) 8 E & B 647
* Yonge v Toynbee [1910] 1 KB 215
THIRD PARTY’S RIGHT TO ELECT
Clarkson, Booker Ltd v Andjel [1964] 3 All ER 260; [1964] 2 QB 775
TORTIOUS LIABILITY
Lloyd v Grace, Smith & Co [1912] AC 716
New Zealand Shipping Co Ltd v Satterthwaite (AM) & Co Ltd [1974] 1 All ER 1015; [1974] 2 WLR
865
* PCW Syndicates v PCW Reinsurers (1995) The Times 10 October (CA)
Scruttons Ltd v Midland Silicones Ltd [1962] 1 All ER 1; [1962] 2 WLR
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Self-Study Questions
1 What
is the difference between acting for an unnamed principal and for an undisclosed principal?
2 Can an agent be personally liable where he discloses the existence of the principal but does not
name him?
3 What rights does the third party have if he discovers that the person he contracted with was an
agent?
4 Distinguish Said v Butt and Dyster v Randall.
5 Can the injured party sue both principal and agent?
Sample Questions
1 ‘Despite the exceptions, the general rule that there is no distinction between the rights, duties
and liabilities of disclosed and undisclosed principals is still extremely important.’
Discuss.
(Wolverhampton LLB by Distance Learning, January 2001, Question 4.)
2 Without disclosing that she was acting as Paul’s agent, Ann sold Tan a consignment of Paul’s
goods. Tan had previously bought goods from Paul and, finding them unsatisfactory, had said that
he would never deal with Paul again. Furthermore, Ann owed Tan money from another, unrelated,
transaction and Tan had intended to set-off this debt against the price of the goods. Tan has now
discovered that Ann was acting as Paul’s agent and does not wish to be bound by the contract.
Advise Tan of his rights and liabilities.
(Wolverhampton LLB by Distance Learning, May 2001, Question 4.)
Study Unit 4 Suggested minimum study hours: 7
Topic
Termination of Agency
Introduction
There are a number of ways in which an agency can be ended. In this Unit we examine these
ways and look at the effects of termination on the parties’ rights.
Objective
To discuss the rules of termination and the concept of irrevocable agency.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapter 31
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but you may wish to refer to
them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
An Outline of the Law of Agency, Markesinis and Munday – Relevant Chapter(s)
Case law and statutes
* Blades v Free (1829) 9 B & C 167
Drew v Nunn (1879) 4 QBD 661
* Sears Investment Trust Ltd v Lewis’s Group Ltd [1992] TLR 459
* Yasuda Fire & Marine Insurance Co of Europe Ltd v Orion Marine
Insurance Underwriting Agency Ltd and Another [1995] 2 WLR 49;
[1995] 3 All ER 211
25
Powers of Attorney Act 1971: s4
Enduring Powers of Attorney Act 1985
Insolvency Act 1986: Part IX (incorporating s45 Bankruptcy Act 1914)
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Self-Study Questions
1 When may the principal withdraw the agent’s authority?
2 What remedy is open to the agent if his agency is terminated in breach
of a contractual obligation to keep it open?
3 What remedy is open to a third party who has contracted with the
agent after termination of the agency?
4 When does agency become irrevocable?
5 What is the effect of the principal’s death?
Sample Questions
1 ‘The mere fact that an agent has been dismissed or has resigned does
not necessarily end the agent’s power to bind the former principal.’
Discuss.
(Wolverhampton LLB by Distance Learning Question.)
2 ‘Not all agencies can be ended unilaterally.’
Discuss.
(Wolverhampton LLB by Distance Learning Question.)
Commercial Law: Consumer Credit and Agency
26
Study Unit 5 Suggested minimum study hours: 7
Topic
Consumer Credit: Essential Terminology
Introduction
The Consumer Credit Act 1974 (CCA 1974) adopted a new approach to
credit contracts. It introduced a number of categories into which all
such contracts can be placed. In this Unit we look at those categories
and the meaning of the terminology adopted by the Act.
Objectives
a To appreciate the differenct types of agreement.
b To learn the basic vocabulary of the Act.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapter 17
Commercial Law 150 Leading Cases – (See listed cases)
Note: it is impossible to emphasise too strongly that careful study of
all pertinent provisions of the Consumer Credit Act 1974 is imperative
at all stages of this part of the course. For this Unit, especially ss8,
10–13 and 189(1) are relevant.
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
27
Case law and statute
TYPES OF AGREEMENT
i Hire purchase agreement
Helby v Matthews [1895] AC 471
CCA 1974: s189(1)
ii Conditional sale
CCA 1974: s189(1)
Note: Sale of Goods Act 1979: s25(2)
iii Credit sale
CCA 1974: s189(1)
iv Financing loan
BASIC VOCABULARY
Note: see generally CCA 1974: s188 and Sch 2
i Regulated agreement
* Dimond v Lovell [2000] 2 WLR 1121 (HL)
* Ketley v Gilbert (2001) The Times 17 January (CA)
* Majeed v The Incentive Group [1999] CLY 2465
CCA 1974: s8
Note: individual: s189(1)
Exempt agreement: s16 and CC (Exempt Agreements) (No 2) Order
1985 and CC (Exempt Agreements) (Amendment) Order 1999
ii Credit
CCA 1974: s9
iii ‘Functional categorisation’
Fixed-sum/running-account: CCA 1974: s10
Restricted/unrestricted-use: CCA 1974: s11
Debtor-creditor-supplier: CCA 1974: s12
Debtor-creditor: CCA 1974: s13
iv Small agreements
CCA 1974: s17
v Non-commercial agreements
CCA 1974: s189(1)
SANCTIONS FOR BREACH OF THE ACT
CCA 1974: ss167(1), 170(1) and Sch 1
CONTRACTING OUT
CCA 1974: s173(1)
Also note CCA 1974: s173(3)
Commercial Law: Consumer Credit and Agency
28
GENERAL
CCA 1974: ss10–13
Cases marked with an * can be found in the Appendix at the end of the
Study Units; all other cases can be found in your 150 Leading Cases.
Self-Study Questions
1 What is a regulated consumer credit agreement?
2 How do you calculate the total charge for credit?
3 What is the difference between debtor-creditor and debtor-creditorsupplier
agreements?
4 How does the Act distinguish between restricted use and non
restricted use credit?
5 Categorise the use of credit cards. Is such use DCS or DC? Fixed sum
or running account credit?
Sample Questions
1 ‘The distinction between debtor–creditor agreements and between two
and three party debtor–creditor–supplier agreements is vital to the
debtor’s rights.’
Explain the distinction between these types of agreement and
analyse why they are so important.
(Wolverhampton LLB by Distance Learning, January 2001,
Question 3.)
2 Explain the implications of the categorisation of credit agreements in
the Consumer Credit Act 1974.
(Wolverhampton LLB by Distance Learning Question.)
Study Unit 5
29
Study Unit 6 Suggested minimum study hours: 10
Topic
The Meaning of Multiple Agreements and Linked Transactions.
Protecting the Debtor Before the Contract is Made.
Introduction
In this Unit we examine further definitions used in the 1974 Act and
look at the ways the legislation protects the debtor even before the
contract is made.
Objectives
a To consider the purpose, details and merits of s18.
b To analyse linked transactions and the total charge for credit.
c To examine the administrative controls contained within the Act.
d To discuss in what way the Act regulates the creditor’s conduct before
the conclusion of any contract.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapter 17
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
Case law and statutes
TOTAL CHARGE FOR CREDIT
CCA 1974: s9(3) and (4)
CCA 1974: s20
CC (Total Charge for Credit) Regulations 1980
30
MULTIPLE AGREEMENTS
* National Westminster Bank plc v Story [1999] Lloyd’s Rep Bank 261 (CA)
CCA 1974: s18
LINKED TRANSACTIONS
CCA 1974: s19
Note: relative: s189(1); associate: CCA 1979: s184
LICENSING
Hare v Shurek (1993) The Times 23 May
CCA 1974: Part III (note in particular ss21, 22, 32, 39 and 40)
PRE-CONTRACT RULES
i Advertisements
CCA 1974: ss43–47
ii Canvassing
CCA 1974: ss48 and 49
Cases marked with an * can be found in the Appendix at the end of the
Study Units; all other cases can be found in your Textbook.
Self-Study Questions
1 What is the purpose behind s18?
2 How many categories of linked transaction are there?
3 Why is it important to know whether a certain sum is within the total
charge for credit?
4 Are compulsory vehicle insurance premiums credit or charge?
5 How does the licensing system work? How effective is it?
Sample Questions
1 Singh, a retailer of electrical goods, had not obtained a credit broker’s
licence as all his customers paid by cash. One day, however, Tom, a
friend of his, asked Singh to arrange a loan with a credit company to
enable Tom to buy a television from Singh. Singh introduced Tom to a
licensed creditor, Kwikash, which gave Tom the loan. Tom is now
refusing to repay the loan on the grounds that Singh was unlicensed, a
fact of which Kwikash was unaware.
Discuss the licensing provisions in the Consumer Credit Act 1974
and advise Singh and Kwikash of their position in the following
separate situations:
Study Unit 6
31
a this was the only time Singh had made such an introduction; and
b Singh had made a number of such introductions in the past.
(Wolverhampton LLB by Distance Learning, January 2001,
Question 2.)
2 Discuss the ways in which the Consumer Credit Act 1974 protects the
debtor before the credit contract is made.
(Wolverhampton LLB by Distance Learning, May 2001, Question 2.)
Commercial Law: Consumer Credit and Agency
32
Study Unit 7 Suggested minimum study hours: 10
Topic
The Making of a Credit Agreement
This Unit covers material contained in the Learning Project.
Introduction
The 1974 Act requires all prescribed information to be put on the form
before the debtor signs. If the formalities are not complied with the
agreement is unenforceable without a court order or, in some cases, is
completely unenforceable. In some circumstances a debtor may cancel
an agreement. This is to protect debtors from high pressure
salesmanship.
Objectives
a To establish how an agreement is concluded in the context of regulated
agreements.
b To consider the Act’s rules as to the revocation of an offer by the debtor
(withdrawal).
c To discuss the formalities imposed by the Act.
d To discuss the philosophy behind cancellable agreements.
e To analyse the availability, process and consequences of cancellation.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapter 18
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
33
Case law and statutes
FORMALITIES
* Dimond v Lovell [2000] 2 WLR 1121 (HL)
* Wilson v First County Trust Ltd (No 2) (2001) The Times 16 May (CA)
CCA 1974: ss60–63, 65, 127(3) and 180
* Human Rights Act 1998: art 6 and art 1 of the First Protocol
(Schedule 1 HRA)
CANCELLABLE AGREEMENTS
Moorgate Services Ltd v Kabir [1995] CC LR 74
CCA 1974: s67
IMPACT OF CANCELLABLE STATUS ON FORMALITIES
CCA 1974: ss64 and 127(4)
CANCELLATION PERIOD
CCA 1974: s68
PROCEDURE AND CONSEQUENCES OF CANCELLATION
CCA 1974: ss69–73
EXEMPTIONS
CCA 1974: s74
NON EST FACTUM
United Dominions Trust Ltd v Western [1976] QB 513
Material marked with an * can be found in the Appendix at the end of
the Study Units or in your Textbook; all other cases can be found in
your 150 Leading Cases.
Self-Study Questions
1 What formalities are imposed by the CCA 1974 on a notice of
withdrawal?
2 What is the effect of non-compliance with the Act’s procedural
requirements in relation to the documentation?
3 When is an agreement cancellable?
4 How is an agreement cancelled?
5 What is the consequence of cancellation of a D–C agreement?
Commercial Law: Consumer Credit and Agency
34
Sample Questions
1 How is the philosophy of the CCA 1974 reflected in, and achieved by,
the requirements of the Act relating to formalities?
(Wolverhampton LLB by Distance Learning Question.)
2 Describe the circumstances in which a debtor can cancel a credit
contract and explain the method and effects of the cancellation on the
rights of both the debtor and the creditor.
(Wolverhampton LLB by Distance Learning, May 1999, Question 5.)
Study Unit 7
35
Study Unit 8 Suggested minimum study hours: 15
Topic
Liability for Breach of Contract and Misrepresentation; Matters
Arising During Currency of Agreement
This Unit covers material contained in the Learning Project.
Introduction
This Unit discusses the various rights and liabilities arising out of the
credit contract. Note the importance here of the distinction between
two and three party D–C–S agreements.
Objectives
a To understand the triangular system of liability.
b To examine in particular ss56 and 75.
c To determine the role of the doctrines of affirmation and acceptance in
the law of consumer credit.
d To consider matters arising during the agreement.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapters 19 and 20
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
36
Case law and statutes
LIABILITY FOR MISREPRESENTATION AND BREACH OF CONTRACT
i Dealer’s liability to debtor
Andrews v Hopkinson [1956] 3 WLR 732
ii Creditor’s liability to debtor
1 In respect of dealer’s acts and statements
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552
* Porter v General Guarantee Corporation Ltd [1982] RTR 384
Royscott Trust Ltd v Rogerson [1991] 3 WLR 57
* United Dominions Trust Ltd v Taylor 1980 SLT 28
CCA 1974: s56
CCA 1974: s75
Supply of Goods (Implied Terms) Act 1973: s10 (as amended by reg 13
of the Sale and Supply of Goods to Consumers Regulations 2002)
2 In respect of the goods
* Farnworth Finance Facilities Ltd v Attryde [1970] 1 WLR 1053
* Karflex Ltd v Poole [1933] 2 KB 251
Shine v General Guarantee Corp Ltd [1988] 1 All ER 911
* Warman v Southern Counties Car Finance Corporation Ltd [1949] 2
KB 576
* Yeoman Credit v Apps [1962] 2 QB 508
Supply of Goods (Implied Terms) Act 1973: ss8–11 and 14(1)
SGA 1979: ss11(4), 12–15, 34 and 35 (as amended by the Sale and
Supply of Goods to Consumers Regulations 2002)
Unfair Contract Terms Act 1977: ss6 and 3
Unfair Terms in Consumer Contract Regulations 1994 (as amended
1999)
iii Dealer’s liability to creditor
CCA 1974: s75(2)
SGA 1979: s14(3) especially
MATTERS ARISING DURING THE CURRENCY OF AGREEMENTS
i Duties to give information
CCA 1974: ss77, 78 and 80
ii Appropriation of payments
CCA 1974: s81
iii Variation of regulated agreements
CCA 1974: s82
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Study Unit 8
37
Self-Study Questions
1 What are antecedent negotiations?
2 Who is a negotiator?
3 When will s75 apply?
4 In a two party D–C–S agreement what liability is incurred by the
negotiator?
5 Distinguish between the application of affirmation and acceptance.
Sample Question
David went into Nigel’s garage where he saw a Carrera motor car,
which he agreed to buy for £12,000. Nigel said ‘it is a good little car
and very reliable but you must take it as seen’. David did not have
time to test drive the car, but he did make a thorough examination of
its exterior. Since David only had £4,800 he paid that as a deposit and
signed a hire purchase form with Carefree Finance Company Ltd for
the balance payable over 36 monthly instalments of £200. The hire
purchase form had already been signed by Carefree Finance Company
Ltd. David was given a photocopy of the agreement.
On the way home, David was injured when the car crashed
because the brakes were defective.
David failed to pay any instalments under the agreement and
claimed substantial damages from Nigel and Carefree Finance
Company Ltd. Carefree Finance Company Ltd sought payment of the
arrears of instalments.
Advise David.
(Wolverhampton LLB by Distance Learning Question.)
Commercial Law: Consumer Credit and Agency
38
Study Unit 9 Suggested minimum study hours: 7
Topic
Breach and Termination of a Credit Agreement at Common Law
Introduction
To protect themselves, creditors often insert express terms in credit
contracts to cover cases where, for example, the debtor makes a late
payment. These are often dealt with by the courts using the common
law doctrine of penalties.
Objectives
a To determine the quantum of damages payable by a debtor at common
law.
b To analyse the distinction between breach and termination.
c To discuss the legality of minimum and accelerated payments clauses
at common law.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapters 20 and 21
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
Case law
DAMAGES
Financings Ltd v Baldock [1963] 2 QB 104; [1963] 1 All ER 443
* Lombard North Central plc v Butterworth [1987] 2 WLR 7
* Overstone Ltd v Shipway [1962] 1 WLR 117; [1962] 1 All ER 52
39
* Yeoman Credit Ltd v Waragowski [1961] 1 WLR 1124; [1961] 1 QB 54
THE BREACH/TERMINATON DISTINCTION
* Bridge v Campbell Discount Co Ltd [1962] AC 600
* United Dominions Trust Ltd v Ennis [1968] 1 QB 54; [1968] 3 All ER
145
TERMINATION BY DEBTOR UNDER A CONTRACTUAL POWER
* Associated Distributors v Hall [1938] 2 KB 83
* Bridge v Campbell Discount Co Ltd (above)
MINIMUM PAYMENT CLAUSES
* Anglo-Auto Finance Co Ltd v James [1963] 1 WLR 1042
* Capital Finance Co Ltd v Donati (1977) 121 SJ 270
ACCELERATED PAYMENT CLAUSES
* Wadham Stringer Finance Ltd v Meaney [1980] 3 All ER 789
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Self-Study Questions
1 When does Financings v Baldock apply?
2 Why, according to the House of Lords, did the debtor’s conduct in Bridge v
Campbell Discount amount to a breach of contract? Are you convinced?
3 Is it possible to have one minimum payment clause to cover all
breaches of contract by the debtor?
4 What is an accelerated payments clause?
5 What is equity’s attitude to forfeiture clauses?
Sample Questions
1 ‘Even though creditors attempt to avoid the strict provisions of the
Consumer Credit Act by the use of express terms such as acceleration
clauses and minimum payment clauses, the courts interpret these so
strictly against the creditor that they are of little use.’
Discuss.
(Wolverhampton LLB by Distance Learning, September 2001,
Question 4.)
2 Explain the relevance of the common law doctrine of penalties in the
courts’ application of express terms in credit contracts.
(Wolverhampton LLB by Distance Learning Question.)
Commercial Law: Consumer Credit and Agency
40
Study Unit 10 Suggested minimum study hours: 10
Topic
The Statutory Regime Regarding Breach and Termination
This Unit covers material contained in the Learning Project.
Introduction
In this Unit we examine the ways in which the 1974 Act protects the
debtor at the end of the credit agreement. The Act gives the debtor a
number of rights and controls the creditor’s rights to recover the goods
which are the subject of the contract.
Objectives
a To examine the various notices that the creditor may serve.
b To discuss the effect on the agreement of the death of the debtor.
c To analyse the protected goods provisions.
d To consider the debtor’s rights of early settlement and termination.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapters 20, 21 and 22
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
Commercial Law, Bradgate – Relevant Chapter(s)
41
Case law and statutes
CREDITOR’S NOTICES IN THE ABSENCE OF ANY BREACH BY DEBTOR
CCA 1974: ss76 and 98
DEFAULT NOTICES
CCA 1974: ss87–89
CC (Enforcement, Default and Termination Notices) Regulations
1983/1561
Note: CCA 1974: s111
DEATH OF THE DEBTOR
CCA 1974: ss86, 90(6)(infra)
PROTECTED GOODS
Bentinck v Cromwell Engineering Co [1971] 1 QB 324
Capital Finance Co Ltd v Bray [1964] 1 WLR 323
* Chartered Trust plc v Pitcher (1987) The Times 13 February
* Mercantile Credit Co Ltd v Cross [1965] 2 QB 205; [1965] 1 All ER 577
CCA 1974: ss90–92
EARLY SETTLEMENT
CCA 1974: ss94–97, 167 and Schedule 1
CC (Rebate on Early Settlement) Regulations 1983/1562
CC (Linked Transactions) (Exemptions) Regulations 1983/1560
TERMINATION BY THE DEBTOR
CCA 1974: ss99–100
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Self-Study Questions
1 Under s99 when may the debtor terminate?
2 What is the effect on a consumer credit agreement of the death of the
debtor?
3 What conditions must be satisfied before the creditor can repossess?
4 When do goods become protected?
5 What is meant by early settlement?
Sample Question
a Sunil entered a contract to acquire a television and video recorder
on hire purchase. The total HP price was £900. Under the
Commercial Law: Consumer Credit and Agency
42
agreement, Sunil agreed to pay £50 deposit and the balance of the
sum after two years in equal monthly instalments. After making
payments totalling over £300, Sunil was made redundant and
missed paying two of the HP instalments. He is now worried what
the HP company may do and comes to you for advice as he wants
to keep the TV and video and tells you that he should be starting a
new job soon.
Explain to Sunil what course of action the hire purchase
company can take and how he should respond.
b How would your answer differ if Sunil tells you that he wants to
terminate the agreement and have no further liability in the
future?
(Wolverhampton LLB by Distance Learning Question.)
Study Unit 10
43
Study Unit 11 Suggested minimum study hours: 10
Topic
Control of Credit Agreements: Judicial Control of Regulated
Agreements
Introduction
In this Unit we look at further various ways in which the 1974 Act
protects the debtor by giving the court power to extend the period for
payment and to make consequential orders varying aspects of the
contract. We also look at the law relating to credit cards, bearing in
mind that, when these are used to acquire goods or services, they are
three party D–C–S agreements.
Objectives
a To consider the impact of the Act on the common law relating to
security.
b To understand the distinction between securities provided by the
debtor and those provided by third parties.
c To discuss the application of s106.
d To consider, briefly, the provisions concerning credit tokens.
e To discuss the wide range of judicial powers.
f To examine the concept of an extortionate credit bargain.
Essential Reading
These titles have been supplied as part of your study materials.
Commercial Law Textbook – Chapters 22 and 23
Commercial Law 150 Leading Cases – (See listed cases)
General Reading
These titles have not been supplied and are not essential reading, but
you may wish to refer to them to further your understanding.
44
Commercial Law, Bradgate – Relevant Chapter(s)
An Outline of the Law of Agency, Markesinis and Munday – Relevant
Chapter(s)
Case law and statute
SECURITIES
CCA 1974: ss189(1), 105, 113, 106 and 111
CREDIT TOKENS
Charge Card Services Ltd, Re [1988] 3 All ER 702; [1988] 3 WLR 764
CCA 1974: ss14, 51, 64(4), 66 and 83–85
JURISDICTION
CCA 1974: s141
COURT POWERS
CCA 1974: ss127–136 and 142
First National Bank plc v Syed [1991] 2 All ER 250
Southern & District Finance plc v Barnes [1995] TLR 225 (CA)
EXTORTIONATE CREDIT BARGAINS
Coldunell v Gallon [1986] QB 1184
Davies v Directloans Ltd [1986] 1 WLR 823
CCA 1974: ss137–140
Cases marked with an * can be found in your Textbook; all other cases
can be found in your 150 Leading Cases.
Self-Study Questions
1 For what type of breach would a s65 enforcement order be granted?
2 What powers does the court have if it holds an agreement to be an
extortionate credit bargain?
3 What factors must be taken into account by the court in deciding
whether an agreement is an extortionate credit bargain?
4 What is the effect of a protection order?
5 What powers does the court have under ss135 and 136?
Study Unit 11
45
Sample Questions
1 Discuss the advantages, if any, of obtaining goods or services by using
a credit card as opposed to obtaining them by means of a loan under a
debtor-creditor agreement.
(Wolverhampton LLB by Distance Learning, May 2001, Question 5.)
2 Donaldson MR in Wills v Wood described extortionate credit bargains
as denoting at least a substantial imbalance in bargaining power
between the parties of which the creditor has taken advantage.
Describe the meaning of an extortionate credit bargain and discuss the
implications of Donaldson’s judgment.
(Wolverhampton LLB by Distance Learning, September 2001,
Question 5.)
Commercial Law: Consumer Credit and Agency
46
Appendix to Study Units
National Westminster Bank v Story [1999] Lloyd’s Rep
Bank 261 Court of Appeal
Facts
The bank agreed to lend the defendants a total of £35,000 on three
credit facilities:
• an overdraft to S;
• two joint loans to both defendants. These loans were of £5,000 and
£15,000 respectively;
• by subsequent agreements, these loans were increased to a total of
£456,012.
The question before the Court was whether the joint loans were, or
could be, treated as being provided under separate agreements, each
for credit not exceeding £15,000 (the previous level for a regulated
agreement) and thus be covered by the Consumer Credit Act (CCA) or
whether it was a single loan for £35,000, in which case the CCA would
not apply. If the loans were treated as being separate transactions and
thus regulated, each agreement and any agreement varying it (that is
the increase to £456,012) would be regulated. In that case as the
agreement did not comply with CCA formalities, it would be
unenforcable.
The defendants argued that each loan facility was of a distinct and
separate nature:
• the overdraft to S was for running account credit under s10 CCA;
• the joint loan of £5,000 was to re-finance an existing borrowing and
was therefore a restricted-use-credit (R-U-C) agreement under
s11(1)(c) CCA;
• the joint loan of £15,000 was unrestricted-use-credit (U-U-C) under
s11(2) CCA. The defendants’ argument was that, as there were three
separate facilities, there had been an agreement in respect of each of
these facilities. Each constituted a separate category of agreement and
therefore was regulated under the Act.
47
Held
The Court of Appeal held that there was only the one agreement for
£35,000. The object of the transaction had been to provide overall
credit of £35,000. This credit was granted for various purposes, partly
to replace existing borrowing and partly to provide new money, but the
overall borrowing had been negotiated, agreed and documented as one
transaction. As this one transaction was for £35,000 it was outside the
CCA and was unregulated and therefore the bank could recover all the
money owing.
Comment
Story argued that the £5,000 loan was R-U-C as it was to re-finance
existing debtedness incurred for home improvements and was treated
separately as it was eligible for tax relief. This argument was rejected
by the Court of Appeal as the agreement did not require Story to use
the £5,000 for this purpose and for an agreement to come within the RUC category, it has to contain a term, express or implied, that the
loan must be used for the purposes in question.
However, the Court of Appeal did not look at the fact that Story
and his partner owed the bank £12,000 and this amount was to be refinanced
in some way from the new facility totalling £35,000. In other
words, the bank was not lending £35,000 on top of the existing debt.
Thus, prima facie, ‘part’ of the facility came within different
‘categories’. There was an R-U-C agreement for re-financing existing
indebtedness and a U-U-C agreement for the remainder of the loan.
Thus, if the £12,000 were to be re-financed from the £20,000 loan it is
arguable that the arrangement could be treated as two loans, both of
which would be regulated. The Court of Appeal did not consider this.
In relation to the meaning of ‘category’, Auld L J (obiter) said that
this word must be construed as meaning disparate categories, eg R-UC
and U-U-C are separate disparate categories. Unless the phrase was
construed narrowly all agreements would be multiple as even the
simplest credit agreement can fall into several broad categories. For
example, a simple loan can be categorised as:
• a personal credit agreement;
• a consumer credit agreement;
• a regulated credit agreement, and so on.
With regard to the meaning of the word ‘part’ a broader interpretation
could be used, so that the only agreements which would not be in parts
are those where the different uses are so interwoven that they could
Commercial Law: Consumer Credit and Agency
48
not be separated without affecting the nature of the agreement as a
whole (eg credit cards).
It is interesting to note that the first time that s18 (which is
designed to protect debtors by stopping creditors using avoidance
devices) was used was by a debtor trying to avoid liability under a
loan.
Dimond v Lovell [2000] 2 WLR 1121 House of Lords
Facts
The defendant crashed into the back of the claimant’s car. The
defendant had no defence to a claim for negligence. The claimant made
an agreement with First Automotive Ltd (a company which specialises
in hiring replacement vehicles to individuals whose cars, through no
fault of their own, had been damaged by another driver’s negligence
and were off the road while being repaired). The agreement was that:
• while the client’s damaged vehicle was being repaired, First
Automotive would provide a suitable alternative vehicle;
• First Automotive would sue on the claimant’s behalf to recover
damages from the defendant;
• the claimant would not have to pay First Automotive any money until
the claim against the defendant was settled. This claim would include
First Automotive’s charges and First Automotive would retain their
charges out of these damages;
• the maximum rental period would not exceed 28 days. The agreement,
however, did not specify the cost of hiring the replacement car, the
delivery charge or the cost of collision damage waiver.
The defendant’s insurance company paid the plaintiff the cost of the
repairs to her car but refused to pay First Automotive’s charges of
£346.63. The claimant (represented by First Automotive) sued.
Held
The House of Lords had to consider a number of issues.
1 Was the agreement between the claimant and First Automotive a
regulated agreement within the Consumer Credit Act? (Credit being
the deferral of payment, which, in the absence of any agreement,
would be immediately payable.)
The House of Lords held that this was a regulated credit
agreement because the claimant was given financial accommodation.
The agreement was not exempt under s3(1)(a)(i) Consumer Credit
Appendix to Study Units
49
(Exempt Agreement) Regulations 1989. Section 3(1)(a)(i) gives
exemption from the Consumer Credit Act for fixed sum credit
contracts which provide for repayment in four or fewer instalments
‘within a period not exceeding twelve months beginning with the date
of the agreement’. Clause 5 of the contract between the plaintiff and
First Automotive provided that the claimant would be allowed ‘…
credit on the hire charge until such time as a claim for damages had
been concluded …’. This period could be longer than twelve months
beginning with the date of the agreement. It depended on when the
claim for damages was settled. Therefore the agreement was not
exempt. It was a regulated agreement under the CCA.
2 Was the agreement enforceable?
The agreement did not contain the prescribed terms (such as the
hire charges and other costs) and was therefore unenforceable without
a court order. However, by s127(3) the Court has no power to make an
enforcement order if the requirement of signature is not complied with
unless some other document, containing all the basic terms, has been
signed by the debtor/hirer. In this case no such form had been signed.
Thus the agreement was totally unforceable. (Now see Wilson v The
First County Trust Ltd at page 54.)
3 Could an argument of unjust enrichment be maintained?
It was argued by First Automotive that, as Dimond would not have
to pay for the car, she would have had free hire and therefore would
have been unjustly enriched at First Automotive’s expense. There was
therefore the potential that she might be sued by First Automotive and
this potential liability should be treated as a loss. The House held that
First Automotive could not rely on unjust enrichment, as this would be
inconsistent with the purpose of s61(1) of the CCA. Parliament
contemplated that, if a consumer credit agreement was improperly
executed then, subject to the enforcement powers of the court, the
debtor should not have to pay. In other words, Parliament
contemplated that the debtor might be enriched and the court would
not reverse this by imposing a remedy at common law. The policy of
the 1974 Act is to penalise creditors for not entering a properly
executed agreement and the fact that the debtor would benefit from
this was within the Act’s contemplation.
Thus First Automotive, representing Dimond, lost their action.
Comment
A number of points arise from the judgment in Dimond v Lovell, as
explained below.
1 Neither of the parties knew they had created a personal consumer
Commercial Law: Consumer Credit and Agency
50
credit agreement for fixed sum credit. It was a D-C-S agreement for RUC. Furthermore, had it been capable of lasting for more than three
months, it would also have been a regulated consumer hire agreement.
The Court of Appeal in this case said that a consumer credit
agreement is not restricted to cases where the debtor acquires goods or
services etc on credit or re-finances existing debtedness. Any
agreement where payment is deferred will be a credit agreement.
2 If an agreement is both a regulated consumer credit and consumer
hire agreement, it is arguable that the same agreement would require
the owner to comply with the formality requirements for both types of
agreements, unless the Director General waived this need.
3 The only way in which First Automotive would have proved that their
agreement with Dimond was enforceable would have been to show that
it was an exempt agreement under art 3(1)(a)(i) of the Consumer
Credit (Exempt Agreements) Order 1989. To do this they would have
had to show that the total number of payments made by Dimond
would not exceed four and that the repayment would have had to have
been made ‘within a period not exceeding twelve months beginning
with the date of the agreement’. This they could not do.
4 The decision in Dimond’s case meant that the business of firms which
hire cars to people whose own vehicle had been damaged by another’s
negligence and who claimed the cost of hire from the negligent party’s
insurers, was effectively destroyed. Many of these companies have
attempted to show that their agreements were in fact exempt from the
workings of the CCA by virtue of art 3 of the Consumer Credit
(Exempt Agreements) Order 1989. There have therefore been a
number of cases in which the court has been called upon to interpret
art 3 of the Order. These are dealt with below.
Majeed v The Incentive Group [1999] CLY 2465
Facts
There was a car hire agreement similar to that in Dimond. The hirer
was to pay the hire charges either on completion of the relevant court
proceedings, or on failure to co-operate in the conduct of the court
proceedings, and, in any event, no later than 365 days from the date of
the agreement. The agreement, however, did not specify the nature of
the payment itself, ie whether payment had to be made in four or
fewer instalments, nor did it contain the information required by the
CCA to make it an enforceable credit agreement. The hire company
argued that the agreement came within art 3(1)(a)(i) and was
therefore exempt from the workings of the CCA. This argument failed.
Appendix to Study Units
51
Held
The court held that the words of the article are not capable of
including an implied condition for payment in four instalments. It said
that ‘the agreement must set out in express terms that the payments
are to be made in four instalments. The agreement must set out the
number of instalments in an express manner’. In other words, the
mere fact that it is possible to pay off the debt in four instalments is
not sufficient to bring the agreement within the scope of art 3.
Ketley v Gilbert (2001) The Times 17 January Court
of Appeal
Facts
The facts again were similar to those in Dimond. The hirer, following
an accident, hired a car from the hire company for a period of 17 days.
Clause 5(1) of the agreement required the hirer to repay the charges
by a single payment when the claim against the defendant was
satisfied, or ‘on the expiry of 12 months starting with the date of this
agreement’, whichever was the earlier.
The issue was whether this was a regulated agreement. If it was,
the formalities did not comply with the CCA’s requirements, so the
hire company would not be able to recover its charges from the
claimant and therefore could not rely on its right of subrogation to
recover these costs from the defendant or her insurers. The hire
company, however, argued that the agreement was exempt by virtue of
art (3)(1)(a)(i) of the Consumer Credit (Exempt Agreements) Order
1989.
Held
The Court of Appeal held that the agreement was not an exempt
agreement. Article 3(1) exempts agreements where payment is to be
made ‘within’ 12 months. In other words, payment has to be made
before the expiry of the period. Clause 5 of the agreement, however,
allowed payment to be made on the ‘expiry’ of the period. In other
words it permitted the final payment to be made after the period of 12
months from the making of the agreement.
The agreement, therefore, was not exempt. It was regulated and,
as it did not comply with the CCA requirements relating to formalities,
it was unenforceable. Thus the claimant had no liability to the car hire
company and therefore the company could not be subrogated to his
rights against the defendant and her insurers.
Commercial Law: Consumer Credit and Agency
52
Comment
It would therefore appear that, for the application of art 3(1)(a)(i) of
the Consumer Credit (Exempt Agreements) Order 1989 the creditor
must expressly state that full payment is to be made before the end of
12 months beginning on the date of the agreement and that these
payments must be made in four or fewer instalments. Anything less
precise than this would mean that the agreement is not exempt under
this article.
Consumer Credit (Exempt Agreements)
(Amendment) Order 1999
Previously, by s16 of the CCA, where a loan was granted on an
interest rate of less than 13 per cent or 1 per cent above the highest
base rate of London and Scottish Clearing Banks this agreement was
exempt from the workings of the CCA. The 1999 Order, however,
repealed that category of exempt agreement. It replaced it with
exemption for Debtor/Creditor agreements where the following applies.
• The interest is no more than 1 per cent above the base rate of listed
banks (these are the major banks specified in the regulations).
• The loans are not ‘offered to the public generally’.
• The loans are offered only to a particular class or classes of
individuals.
The regulations derive from art 2.2 of the EC Consumer Credit
Directive 87/102. It would appear, therefore, that the category of
agreement which is exempt under the Order is a low cost loan offered
to a group of people who share some characteristics, such as employees
of a common employer (eg the employees of a bank or building society
or members of a club).
For the exemption to apply the agreement must provide that
interest is the only item included in the total charge for credit and,
although it is variable, interest cannot at any time exceed 1 per cent
above the highest of any base rates of the listed banks. Thus there can
be no exemption for the following.
• Loans at a fixed rate of interest. However low the rate of interest is, it
cannot be said at the outset of the agreement that the rate ‘at any
time’ will not exceed the specified (variable) rate.
• An agreement providing for an increase in interest rate on the
occurrence of a certain event. For example, if a low cost loan is
provided by an employer to an employee but, under the terms of the
agreement, the interest rate will increase if the employment ends.
Appendix to Study Units
53
• Loans where the charges other than interest are to be included in the
total charge for credit. Thus, for example, if an agreement imposes
compulsory insurance charges on the debtor and these charges are
included in the total charge for credit the agreement will not be
exempt.
Human Rights Act 1998 (HRA)
The Human Rights Act 1998 incorporates:
• the Convention for the Protection of Human Rights and Fundamental
Freedoms by the Council of Europe in 1950;
• the Protocols to the Convention (1952).
Article 6(1) of the Convention
‘In the determination of their civil rights and obligations … everyone is
entitled to a fair and public hearing within a reasonable time by an
independent and impartial tribunal established in law.’
First Protocol to the Convention (Schedule 1 HRA)
Article 1 guarantees the right to the peaceful enjoyment of one’s
possessions and the right not to be deprived of these possessions
except in the public interest.
The relevance of the Human Rights Act to the Consumer Credit
Act was considered in the case below.
Wilson v First County Trust Ltd (No 2) (2001) The Times
16 May Court of Appeal
Facts
W obtained a loan from FCT, pawn brokers. The loan was for £5,000
and was to be repaid over six months at an APR of 94.78 per cent. FCT
also charged a ‘document fee’ of £250 and, with the agreement of W,
this £250 was added to the loan. The agreement therefore stated that
the credit advance was £5,250 (rather than the actual figure of
£5,000). W signed the agreement and pawned her BMW car to FCT as
security for the loan.
W did not repay the loan to FCT and she herself issued
proceedings against FCT claiming that by virtue of s127(3) of the CCA,
the agreement was unforceable against her.
The basis of W’s argument was that the CCA requires regulated
credit agreements to comply with the formalities in the Consumer
Commercial Law: Consumer Credit and Agency
54
Credit (Agreements) Regulations 1983. If the agreements do not
comply with these formalities, s65 of the CCA provides that they can
only be enforced by a court order. In deciding whether or not to grant
such an order, the court has the discretion to take into account the
creditor’s blameworthiness and any prejudice caused to the debtor by
virtue of the failure to comply with the formalities.
However, by s127(3) CCA the court shall not make an enforcement
order under s65(1) if the document was not signed or, if signed, did not
contain the minimum basic terms of the agreement. These minimum
basic terms are set out in Schedule 6 of the Consumer Credit
(Agreements) Regulations 1983 and include ‘a term stating the
amount of the credit’. The £250 ‘document fee’ was an item entered as
part of the ‘total charge for credit’ and so it should not have been
included as part of the credit advanced. Thus, as the agreement
wrongly stated that the credit was £5,250 the agreement was not
properly executed and, by s127(3), the Court had no power to make an
enforcement order against the debtor. Thus, even though W had not
been prejudiced at all by the error, the loan (and the security given
under it) was wholly unenforceable. In other words, W did not have to
repay the loan and the security she had given (her BMW car) could not
be enforced.
Held
The Court of Appeal held that it was arguable that s127(3) infringes
art 6(1) of the HRA and/or art 1 of the First Protocol. In relation to art
6, it was arguable that the absolute prohibition on enforcement in
cases such as this is a disproportionate restriction on the rights of the
lender to have the enforceability of the loan determined by the court.
This right exists in all other cases where the agreement is improperly
executed except where the improper execution occurs by virtue of the
lack of the minimum basic terms. The complete inflexibility of s127(3)
if the defect fell into the specified category violates art 6.
It was also arguable that there was a violation of art 1 of the
Protocol. FCT lent money which had been in its possession to W on
terms which, it thought, would entitle FCT to recover the money
within six months. Section 127 (3) deprived FCT of that possession.
The Court of Appeal pointed out that it is unlawful for a court to
act in a way which is incompatible with a Convention right unless the
provision of the primary legislation which so offended against s6(1)
cannot be read, or given effect to, in a way which is compatible with
Convention rights, ie the court must not interpret an Act in a way
which is incompatible with the Convention unless it has no other
choice but to do so. In this case, the Court of Appeal held, it was not
possible to interpret s127(3) in a way which was compatible with the
Appendix to Study Units
55
rights granted under the HRA. In these circumstances, the Court had
to make a declaration of that incompatibility both to protect itself and
to enable remedial action to be taken by the Secretary of State.
Thus, although s127(3) was incompatible with the Convention
rights, in that it excluded any judicial consideration of a case without
regard to prejudice or culpability and, in fact, adopted a purely
mechanistic approach, the Court had to apply the law as clearly stated
in this section.
In other words, the Court of Appeal had to apply s127(3) as it was
written. This meant that W did not have to repay the loan nor did she
have to hand over her BMW car which she had used to secure the loan.
In effect, she kept both the money and her BMW. However, the Court
of Appeal did make a declaration of incompatibility stating that
s127(3) was incompatible with the rights granted under the HRA.
Comment
By s4(6) HRA, a declaration of incompatibility does not affect the
continuing validity of the condemned provision. Furthermore, there is
no compulsion on the Government to act to change the law and remove
the incompatibility. The Government has the power to do this but is
not required to do so. However, following the declaration of
incompatibility and the reasoning in Wilson v First County Trust,
there is a strong possibility that s127(3) CCA will be amended so that
in all cases of improper execution, regardless of whether the minimum
basic terms are included or not, the court will have the power to
enforce the agreement having regard to the degree of the creditor’s
culpability and the harm suffered by the debtor as the result of the
procedural irregularity.
The Wilson case also has implications for Dimond v Lovell (see
page 49). In the Dimond case, the House of Lords held that the hire
agreement was unforceable by First Automotive against Dimond
because the agreement lacked the some of the minimum basic terms
and therefore s127(3) applied. The question mark now hanging over
s127(3) will affect the Dimond decision.
The decision in the Wilson case could also have implications for the
law relating to cancellation of regulated agreements. By s127(4) CCA
if notice of the right to cancel a cancellable agreement has not be
served then the court ‘shall not’ grant an enforcement order. Again the
court has no power to enforce such an agreement regardless of the
culpability of the creditor and the harm, if any, caused to the debtor by
this procedural irregularity. Section 127(4) adopts the same
mechanistic approach as adopted by s127(3). Under the law as it
stands, if a cancellable D-C agreement does not contain notice of the
right to cancel the creditor will be unable to enforce the loan or any
Commercial Law: Consumer Credit and Agency
56
interest charged under it. Because of s127(4) the debtor will be able to
keep the money and would not have to repay either that or any
interest. As with s127(3) this may be an infringement of the creditor’s
rights as stated in art 6 of the Convention, incorporated by the HRA.
The decision could also have implications in relation to protected
goods (s91 CCA). Recovery of protected goods without a court order
ends the agreement and requires the creditor to repay the debtor all
sums the debtor has paid under that agreement. The creditor has no
power to ask the court to consider the case and to look at the harm (or
lack of it) suffered by the debtor because of this seizure of the goods
without a court order. Again, the section requires the courts to adapt a
purely mechanistic approach without considering the rights or wrongs
in that particular case. Thus s91 could also be considered under the
HRA.
Appendix to Study Units
57
Learning Project Suggested minimum study hours: 50
In common with all the modules that form part of the LLB by Distance
Learning programme this module involves a Learning Project.
Undergraduate students at the University of Wolverhampton are
required to demonstrate that they are capable of independent research
before they can be recommended for the award of a degree. For
distance learning students this is assessed by reference to the
Learning Project you undertake in respect of each module.
It requires you to pay specific attention to a list of defined reading.
Commonly covering a range of cases and statutes you are required to
demonstrate your mastery of the area(s) of law concerned by
undertaking a compulsory question as part of the end of module
examination. This will commonly take the form of an extended legal
problem and require you to demonstrate not only that you understand
the areas of law concerned but are able to apply them clearly and
without error. It could also take the form of an essay question
requiring you to demonstrate an ability to comment on linked areas of
law. Particular attention will be paid to the accuracy with which you
cite the law and the arguments of those responsible for its
development. You will also be expected to demonstrate that you
understand, and have not been confused by, the ambiguities and
contradictions that exist in the undergraduate study of the law.
This question, which will change with each examination paper,
will account for 50 per cent of the overall grade and require you to
devote one hour of the two-hour examination period to it. Please note
that for each examination you are allowed 15 minutes’ reading time on
top of the two hours you have to write your answers. You may also
take into the examination the relevant 150 Leading Cases and Statute
Book. Please note that these may not contain any additional notes or
markings.
58
Learning Project for Consumer Credit and Agency:
The Making of, and Liability Under, a Regulated
Consumer Credit Agreement
Essential Reading
Commercial Law Textbook (Chapters 18, 19, 20, 21 and 22) Griffiths
(3rd edition 2003) Old Bailey Press
Commercial Law 150 Leading Cases (Relevant Chapter(s)) Fletcher
(2002) Old Bailey Press
Guidance notes
This Learning Project is covered by Units 7, 8 and 10 in your Module
Planner. In carrying out your reading and research you should have
special regard to the following key points.
• The nature of two party and three party D–C–S agreements.
• The formalities required for creation of credit agreements,
particularly in relation to cancellation.
• The restricted circumstances in which a credit contract is
cancellable.
• Procedure for cancellation and the debtor’s rights and duties upon
cancellation.
• The common law position in relation to creditor’s liability for
dealer’s misrepresentation.
• The significance of deemed agency in s56.
• Creditors’ liability for faulty goods in a hire purchase contract.
• Creditor’s liability for faulty goods or services in a three party
D–C–S agreement.
• Effect of exclusion clauses on creditor’s liability.
• Meaning and significance of default notices.
• Implications for creditor of goods being protected.
• The meaning and implications of early settlement and
termination.
Learning Project
59
Case law and statutes
FORMALITIES
* Dimond v Lovell [2000] 2 WLR 1121 (HL)
* Wilson v First County Trust Ltd (No 2) (2001) The Times 16 May (CA)
COLLATERAL CONTRACT
Andrews v Hopkinson [1956] 3 WLR 732
CREDITOR’S LIABILITY TO DEBTOR FOR DEALER’S ACTS AND STATEMENTS
Branwhite v Worcester Works Finance Ltd [1969] 1 AC 552
* Porter v General Guarantee Corporation Ltd [1982] RTR 384
Royscott Trust Ltd v Rogerson [1991] 3 WLR 57
* United Dominions Trust Ltd v Taylor 1980 SLT 28
CREDITOR’S LIABILITY TO DEBTOR IN RESPECT OF THE GOODS
* Farnworth Finance Facilities Ltd v Attryde [1970] 1 WLR 1053
* Karflex Ltd v Poole [1933] 2 KB 251
Shine v General Guarantee Corp Ltd [1988] 1 All ER 911
* Warman v Southern Counties Car Finance Corporation Ltd [1949] 2
KB 576
* Yeoman Credit Ltd v Apps [1962] 2 QB 508
PROTECTED GOODS
Bentinck v Cromwell Engineering Co [1971] 1 QB 324
Capital Finance Co Ltd v Bray [1964] 1 WLR 323
* Chartered Trust plc v Pitcher (1987) The Times 13 February
* Mercantile Credit Co Ltd v Cross [1965] 2 QB 205; [1965] 1 All ER 577
Consumer Credit Act 1974: ss56, 60–82, 86–92, 94–100, 111, 127, 167,
180 and 189
Consumer Credit (Rebate on Early Settlement) Regulations 1983/1562
Consumer Credit (Linked Transactions) (Exemptions) Regulations
1983/1560
Consumer Credit (Enforcement, Default and Termination Notices)
Regulations 1983/1561
Supply of Goods (Implied Terms) Act 1973: ss8–11 and 14(1) (as
amended by the Sale and Supply of Goods to Consumers
Regulations 2002)
Unfair Contract Terms Act 1977: ss3, 6 and 7
Sale of Goods Act 1979: ss11(4), 12–15 and 34–35
Cases marked with an * can either be found in your Textbook or the
Appendix at the end of the Study Units; all other cases can be found in
your 150 Leading Cases.
Commercial Law: Consumer Credit and Agency
60
Sample Questions
1 Ben went to Electronics plc to buy a scanner and printer to use with
his computer. As he knew little about computers, Ben took the
specifications of his model with him and showed them to Sim, the
owner of Electronics. Sim recommended equipment which, he said,
was compatible with Ben’s computer and would produce high quality
work. Both the printer and the scanner were normally used for
professional purposes. Acting on Sim’s recommendation, Ben decided
to buy both items.
The scanner cost £1,300, and Ben decided to pay for it by means of
a loan from his bank. He discussed the loan with his bank manager
who agreed to advance Ben the money. The manager gave Ben an
application form to complete and sign at home. Ben did this and
returned it to the bank the next day. The manager then signed on
behalf of the bank, gave Ben a bank draft for £1,300 payable to
Electronics plc but forgot to give him a copy of the loan agreement.
Under the terms of the agreement, Ben was to repay the loan in 24
monthly intervals.
Ben took the draft to Electronics and bought the scanner. He also
bought the printer, which cost £700, paying £600 by means of his Visa
credit card and the balance of £100 by cash. The contract he signed for
both pieces of equipment contained a term, which stated that all
equipment was ‘bought at the customer’s sole risk’ and that
Electronics accepted no liability for any defects.
Both the scanner and the printer proved unsatisfactory. Neither
was compatible with Ben’s computer and, when he tested the
equipment with a friend’s computer with which it was compatible, Ben
discovered that both the scanner and the printer produced work of
very poor quality.
Ben immediately returned to Electronics to complain but found
that the company had gone out of business.
Advise Ben.
(Wolverhampton LLB by Distance Learning, January 2001,
Question 1.)
2 Anton’s old electric oven had broken down so, when he saw an
advertisement placed in the local paper by Electronics plc offering ‘the
latest modern ovens’ for £1,500, he decided to acquire one. The
advertisement also promised £300 off customer’s old ovens ‘whatever
their condition’ and said that hire purchase terms could be arranged
with Kwikash plc.
Anton telephoned Electronics and, referring to the advertisement,
ordered a new oven, saying that he wanted it on hire purchase. It was
Learning Project
61
agreed that he would fill in the Kwikash proposal form when
Electronics’ representative called to deliver the new oven.
The next day the representative arrived and, while he was
installing the new oven, described the merits of the equipment to
Anton and also helped him with various points on Kwikash’s proposal
form which Anton eventually completed and signed. The total price
was reduced by the £300 trade-in for Anton’s old oven, which was in
fact worth only £20 as scrap. The representative gave Anton the top
copy of the proposal and took away the rest of the form to send to
Kwikash for its approval. He also took Anton’s old oven and a cheque
from Anton for £150 as a deposit on the new goods.
Advise Anton in the following circumstances.
a Anton paid the first instalment but then lost his job and so could
not afford to make any further payments. He therefore wanted to
end the contract with Kwikash. Since the new oven had been
installed, Anton had not received any further communication from
either Electronics or Kwikash. In fact Kwikash had posted the
second copy of the agreement (which they had signed) to Anton but
this had been lost in the post.
b How would your answer to (a) differ if all the negotiations for the
oven and the hire purchase agreement had been undertaken over
the telephone and Electronics’ representative had merely handed
Anton the Kwikash proposal but had not discussed the oven or the
proposed credit agreement with him? Furthermore, Anton
discovered that the oven was not ‘the latest model’ but was, in fact,
an older model, which had such serious design defects, that this
type of equipment was no longer made by the manufacturer.
(Wolverhampton LLB by Distance Learning, September 2001,
Question 1.)
Commercial Law: Consumer Credit and Agency
62
Practice Question and Suggested
Answer
The following test is designed for practice only and does NOT count as
part of the assessment regime. A Suggested Solution is, however,
offered in the following section. Students are advised not to consult
this solution until they have completed the test. It is expected that you
will return your answer to the College for marking and feedback.
Unless you undertake such work you will not gain an insight into your
academic strengths and weaknesses before you attempt the
examination.
Before attempting your answer, please ensure that you understand
the assessment criteria explained in the Award Guide, and the
guidance contained in the section of the Module Planner headed ‘Skills
to be Developed and Examined’.
Question
Two years ago Lam acquired a car under a four-year hire purchase
contract with Ready Finance (RF). The cash price of the vehicle was
£15,000. Lam, who had a bad credit record, agreed to pay interest of 80
per cent APR on the deal. So far Lam has paid all the monthly
instalments on time but, last month, the firm he works for told its
employees that they would all have to take six months unpaid leave.
This meant that Lam could not pay this month’s instalment to RF. He
explained his position to RF, which told him he had to pay, served him
with a default notice and demanded the return of the car. Lam,
however, wants to keep it.
A week before he received the news from his employers of the
temporary loss of his job, Lam had made another hire purchase
contract with Sunny Credit plc for the acquisition of a digital camera.
Lam had seen the camera in Klickers shop and had been told by the
sales assistant that it was the latest in digital technology and was
absolutely compatible with Lam’s computer, the details of which Lam
had provided.
When Lam took the camera home, he found that he could not use
it with his computer and, when he talked about the problem to a friend
who was an expert in this type of equipment, he was told that the
camera was a basic model, which gave poor reproduction. As he had
explained to Klickers’ assistant, Lam wanted to develop a photography
63
business and the assistant had assured him that the camera was ideal
for this purpose. This assurance was false. Having temporarily lost his
job, Lam cannot keep up the payments on the camera but, in any case,
he wants to end this contract so that he can acquire more suitable
equipment. Klickers refused to accept any liability.
Advise Lam:
a what is the meaning and significance of the default notice he has
received and what steps should he take to try to keep the car; and
b what are his rights against Klickers and Sunny Credit plc in
relation to the camera?
(Wolverhampton LLB by Distance Learning, May 2001,
Question 1.)
Commercial Law: Consumer Credit and Agency
64
Suggested Answer to Practice
Question
NB: Do not consult this solution until you have completed the test.
Outline Answer
Identify contracts as being two party D–C–S agreements.
a Define and explain the implications of these to Lam.
• Meaning, effect and contents of default notice.
• Time order – explain and apply to the problem.
• How would this benefit Lam?
• Not an extortionate credit bargain – Lam is a bad risk.
• Protected goods – explain meaning and effect of this.
• How would it help Lam?
• Conclusion and cases.
The answer to this question should have started by identifying
both these contracts as being two party D–C–S agreements. The
definition of a regulated agreement (s8 CCA) should have been
given and applied, and the implications of the contracts being two
party D–C–S agreements explained.
The meaning, effect and contents of a default notice should
have been discussed. In particular, given Lam’s wish to keep the
car, the answer should have referred to the possibility of him
applying for a time order (s129). This should have been explained
and applied to the problem. The case of First National Bank v Syed
should have been discussed and applied, as should the courts’
powers under s136 to make consequential orders relating, for
example, to accruing interest, time of repayment, etc. The
possibility of the agreement being an extortionate credit bargain
should have been discussed in the context of Lam’s bad credit
record, which may prevent the APR being regarded as
extortionate.
Lam has had the car for two years of a four-year hire purchase
contract and has paid regularly, and thus he has paid over one
65
third of the total hire purchase price. This means that the goods
are protected goods. The meaning and effect of this should have
been explained and applied to the problem.
b Sunny Credit liable for the camera.
• Possible breach of s9 SG(IT)A.
• Breach of s10 SG(IT)A – Lam made known purpose to credit
broker.
• Also liable for Klickers’ misrepresentation – s56 – explain and
apply.
• Action against Klickers in collateral contract.
• Meaning and effect of such a contract.
The contract for the acquisition of the camera is also a two
party D–C–S contract (this being a contract of hire purchase).
There is a possible breach of subsections 9 and 10 of the Supply of
Goods (Implied Terms) Act 1973. Lam made known his purpose to
the credit broker. The goods are not fit for this purpose nor are
they of satisfactory quality. This should be explained and applied.
There is also a possibility of a breach of the implied condition as to
description.
The finance company is also liable for Klickers’
misrepresentation by virtue of s56. This section should have been
explained and applied.
Lam could also bring an action against Klickers in collateral
contract (Andrews v Hopkinson) and the meaning and effect of
such a contract should have been discussed.
Answer
Note: this answer is based on one written by a distance learning
student covering the question set as part of an examination.
A consumer credit agreement is an agreement according to CCA 1974
s8, between an individual (the debtor) and any other person (the
creditor) by which the creditor provides the debtor with credit not
exceeding £15,000.
In considering Lam’s issue, one needs to first establish whether his
transactions are governed or regulated by the CCA 1974. Thus Lam
acquiring a car under a hire purchase contract with Ready Finance
(RF) is seen as a D–C–S agreement. For this purpose, a D–C–S
agreement is a regulated consumer credit agreement according to s12.
This is where the debtor wishes to purchase the goods from the
Commercial Law: Consumer Credit and Agency
66
supplier, but goes to the finance company to finance the goods. For this
to take place there should be a pre-existing arrangement between the
garage and RF. Thus, in this instance, the garage sells the car to RF,
who in turn lease it to the debtor – in this case Lam. This is clearly
seen as a two party D–C–S agreement. A two party D–C–S occurs
where RF is both the supplier and the finance house. Also, this is seen
to be a restricted use credit agreement (s11). A restricted use credit
agreement in a D–C–S (s12b) is one made by the creditor under a preexisting
arrangement, or in contemplation of future arrangements,
between himself and the supplier. For this reason, the credit
arrangement is seen as a two party D–C–S, restricted and being that it
is not over £15,000, it then falls within the Act, and is therefore
regulated. Lam is said to have kept up with payments but could not
pay last month. Can this be seen as a repudiatory breach? It is
unlikely because it is just one month’s default and therefore could not
really be termed as fatal. Again, if he was not prepared to pay in
future, he wouldn’t have told RF about his difficulties.
However, service of a default notice arises due to a breach by the
debtor or hirer of a regulated agreement (s87). The notice specifies the
breach, the capability of remedy, or a sum required to compensate for
the breach (s88). It is significant because it specifies the evidence that
Lam has defaulted, and if he doesn’t comply with the default notice the
goods may be repossessed and the contract terminated by the creditor.
However, repossession is only possible by a court order. In this
circumstance if the creditor repossesses, the debtor may be free from
all liabilities. But according to the facts, Lam wants to keep the car,
and therefore he needs to take certain measures to do this.
First, he can pay off early ahead of time (s94) and in doing so, he
may be entitled to a rebate. Alternatively, he can ask the permission of
the court to extend his minimal repayment. However, the court can
only grant this where there is a possibility in the future that he will be
able to pay. It therefore seems unlikely that he would be granted this
because he has lost his employment and the proceedings may be
expensive.
Alternatively, he can pay up to one third of the cost of the car in
order to protect it from being repossessed. Also, it seems in his case
that he has paid two years’ instalments, which amounts to half the
total payment. He is, therefore, qualified to keep the car from
repossession, and on the ground of extortion principles he may be
granted time and minimal repayments.
Lam has a hire purchase contract with Sunny Credit (SC) which is
seen as a D–C–S agreement as noted above, consisting of regulated
and restricted use credit.
Lam relied on the advice for the acquisition of the digital camera,
Suggested Answer to Practice Question
67
and one can see here the principle contained in the Supply of Goods
(Implied Terms) Act s10(2) which deals with fitness for purpose,
durability, safety, etc. In this case, the camera is not in accordance
with the implied terms and the production is poor; it is also not fit for
Lam’s particular purpose (SGA s10(4)). This is particularly important
because Lam made his purpose known. However, since his purpose
was business-like, UCTA 1977 will not protect him from any exclusion
clause. But Sch 2 of UCTA, which deals with the reasonable test,
would suffice.
Lam, who wants to end his contract, may rescind the contract on
the basis of misrepresentation by the negotiator. In common law, the
negotiator is not the agent of the creditor. For this reason, the CCA, in
s56, renders the negotiator as a deemed agent. Therefore, the creditor
is also as liable (s75 CCA) as the negotiator. Thus, Lam can rescind
the contract for negligent misstatement and can sue the creditor who
is at the same time the supplier under a D–C–S (two party)
agreement. They would have had a defence had they tested the camera
or made Lam aware of any defect the camera had. But in the absence
of this, the creditor is held liable.
Marker’s comment on Student Answer
This was a reasonably well-answered question but it made a number
of errors. For example, in (a), as this was a two party D–C–S
agreement, it is not necessary to show that there is a pre-existing
agreement between the parties. The student states that Lam ‘can pay
up to one third of the (price) in order to protect it from being
repossessed’. On reading the question, it will be seen that Lam has
already done this.
In the final paragraph the student mentions s75 CCA. This is
wrong. Section 75 applies exclusively to third party (not two party)
D–C–S agreements.
Thus, although this answer was reasonable, it could have been
improved had the student taken greater care and applied the law more
carefully to the facts of the problem.
Commercial Law: Consumer Credit and Agency
68
Revision
What to revise
Consider carefully what you have been told about the format of the examination. How many questions will you be required to answer in what length of time? Work out how long you are likely to
have to write an answer to any one question.
Look at past exam papers. A sample can be accessed via the School of Legal Studies website
www.wlv.ac.uk/sls. They may help you to identify the questions which are most likely to appear on
your exam; and on which you can concentrate your revision. This is known as question spotting
and, although this is not advisable, it may sometimes be necessary. If you have to do this, you
should revise two additional topics just in case: the question on one of the topics on which you
have concentrated most may be phrased in such a way that you are not certain how to answer it.
It is, however, safer to deal with every topic in the module so that you are prepared for all questions.
By looking at past exam papers you may also be able to determine whether certain topics tend to
be examined by way of problem scenarios or general discussion questions. Structure your revision
to accommodate the different approaches those two different types of question require.
Look closely at the topics covered by the module. Those topics which have been given the greatest emphasis are a good bet to appear in the exam.
The question in the Learning Project is compulsory so make sure that your revision is thorough on
the topic, or topics, it covers.
Planning your revision
The best method of revision is to revise continuously throughout your study of a module, but
whether you revise continuously or prefer the last minute approach, try to relax on the day before
an exam. To do well you need to be both physically and mentally fit.
Well before the exam period make yourself a revision calendar. Make sure that the revision period
you plan is long enough to cover all of the modules you have studied, and gives you regular
breaks away from your studies. You need to start your revision at least two weeks before the examination period. It is not wise to plan to revise for more than an hour at a time without a short
break. You should build in some days in which you put revision aside altogether and do something
which will take your mind off the upcoming exam period.
Don’t just divide the revision period equally between topics. Make a realistic appraisal of which
topic(s) you are weakest in and plan to give them the most time. In deciding how much time to
give each topic you should also take into account how much the exam counts towards your overall
mark. In other words, plan your revision to do best on exams which will give you the most benefit
in terms of your overall results.
Do not concentrate all your revision of any one topic in a solid block. You will find that your concentration will be better if you rotate your revision from topic to topic.
Plan your revision of any one topic in stages. The first stage is to acquire a knowledge of the topic.
This involves re-reading your notes and whatever is necessary in your books. The second stage is
to break that knowledge down into easily remembered key components. The third stage is to hone
your ability to identify issues and relate them to those key components. This is best accomplished
by writing answers to past exam questions.
How to revise
If you have any general problems with your studying, don’t just sit there hoping it will come right in
the end; contact the Module Leader or the College.
There are a number of stages in the revision process. First you have to ensure that you have an
adequate knowledge of the topics. This is a matter of re-reading notes and filling in gaps by reading relevant sections of your Textbook or other materials until you have reached the point where
you understand the material being dealt with.
While you are reviewing your notes and other study materials, you should be identifying and marking key points which you can return to when you start to make your revision notes.
Remember: revision can only be effective if it is based on a previously acquired basic knowledge
and understanding of the topics.
The second stage of revision is to create a set of revision notes.
These will be aimed at (1) setting out key points and (2) relating these to each other in such a way
that they form a coherent picture of a particular topic (3) identifying key cases and/or statutory provisions which you need to know details of.
There are numerous ways of structuring revision notes. Which you choose will be a matter of personal preference. The basic aims, however, are to create a set of notes which you can review
quickly many times; and one from which you can retain a vivid mental image so that you will be
easily able to recall them in the examination.
Therefore your revision notes should be made up of key words and phrases. Each entry in the
notes should represent a condensation of information about the topic at hand. Strike a balance
between brevity and comprehensiveness. Some concepts may be too complicated to remember
without a detailed note. Others readily lend themselves to summing up in a phrase of even a word
or two. A rule of thumb is to confine all the revision notes on one topic to one page or less of A4
paper.
Using different colours for different topics, or writing the notes so that they create a distinctive pattern on the page, is a way of creating a vivid mental image of your notes. During the exam you
may be able to recall the particular information you need by calling up a ‘picture’ of the information. A stepped outline or a spider diagram are two of the ways you can create a pattern which will
help you to recall information by focussing on the image and the way it was written down. Spider
diagrams are especially useful for creating an image of the way ideas or rules link together.
Your friends may think you have become very eccentric but it is a good idea to stroll about your
room reciting out loud the contents of a page of revision notes. This, after all, is how actors learn
their lines before a performance, and you are doing the same thing when you set out to learn your
revision notes before an exam.
You may be tempted to shortcut the process of building up a set of your own revision notes by
buying one of the many revision guides which are available. These can be extremely useful to give
you a very condensed overview of a topic, but remember this: what makes for exam success is
displaying to the examiner your own knowledge of the topic. The only way to create your own
knowledge of the topic is to create your own set of revision notes using all those other sources
The third stage of revision is self-testing. Pick a question from a past exam – and this is where
having made a considered choice about which topics to revise is essential – and write an answer
to it under ‘exam conditions’: ie taking the length of time you would be given to do the question in
the exam. Then go back over your revision notes on that topic and see what you have left out,
what you did wrong and what you put in that was not really relevant to the question asked.
You may want to return to your original notes from lectures and reading and have another look at
that material. After half an hour or more break, pick another question on the same topic and write
an answer to it. Go through the same review process again. Repeat the whole process once or
twice more. The advantages of doing this will soon become apparent. You will identify weaknesses in your knowledge and/or understanding. You will see how some components of an answer to a
question on a particular topic will re-appear over and over again no matter how the question is
worded, and you will have written those bits down often enough that you will not have to spend
time in the exam trying to work out how to phrase that part of your answer.
The benefit of self-testing is enormously enhanced if you do it as part of a group. Three or four of
you working together will amongst you have a very comprehensive knowledge of any topic. What
you are weak on, you can pick up from one of the others and vice versa. There is also the psychological boost which comes from working as part of a team. You will find that some of the things
you thought it was important to write about completely eluded other members of the group. Also,
you will not have seen some important point which they did. Discussing all of your answers together will help you to craft a complete answer to all of the aspects of the question. If you are not in
contact with fellow distance learning students, ask members of your family or friends to test you.
As well as helping you, this will give them a valuable insight into how much your studies
mean to you and the hard work involved.
Taking the Examination
Hints for Answering Questions
The very first thing you must do is to read the whole question. If the question is a problem:
DO
Ask yourself:
• Why am I being asked to advise this person?
• What has gone wrong?
• What are the areas of law involved?
If the question is an essay:
DO
Ask yourself:
• What area of law does the essay cover?
• Which part of that area of law is the essay asking me to discuss?
• Which points do I have to focus on in answering the question?
DO NOT, IN EITHER TYPE OF QUESTION
• Start writing before you have read the whole question.
• Identify one area of law and write all you know about that area without putting it into the context
of the question.
The next step is to write an outline plan of your answer. In this plan, you should identify the main
points in the problem. If you do not want the plan to be taken into account in your answer, then
cross it through and your examiner will ignore it. When you are writing your answer, follow your
plan. This will help you avoid discussing areas of law which are not relevant to the question. It will
also help you ensure that you cover all the points raised in the question and do so in a
logical, reasoned way. After you have read the question and written your outline plan you should
re-read the question and then attempt the answer.
WRITING THE ANSWER
In writing your answer, start at the beginning and work through to the end. Make sure that you
deal with each issue raised and that you apply the law to the relevant points. Reach a conclusion
at the end. Do not start with your conclusion as you may find, part of the way through your answer,
that you realise your original conclusion was wrong and you will have to start again.
Always give authorities for your answers. These authorities will be statutes and/or cases.
DO
• Address the issues from the start of your answer.
• Start at the beginning and work through to the end.
• Reach a conclusion at the end.
• Relate your answer to specific points in the question.
• Give authority for every point of law you make.
• Write clearly and in good English.
• Time your answers.
DO NOT
• Write all you know about the area before you start actually answering the question; you will only
have to write it out again in dealing with the specific points in the question.
• Reach a conclusion at the beginning.
• Move away from the structure of your outline plan.
• Give unsupported statements of law.
• Spend so long answering one question that you do not have enough time to answer the rest.
• Write in note form (unless you have spent too much time on your previous answers and are left
with insufficient time to write a full answer).
• Copy large amounts of material from the books you are allowed to take into the examination.
Make sure that you put all quotations in quotation marks otherwise you may be thought to have
been cheating.
Module Questionnaire
Commercial Law: Consumer Credit and Agency
The School of Legal Studies and Holborn College attach great importance to your views. We
would, therefore, be grateful, if now that you have finished studying this module, you would answer the following questions and return them to the address give below. Your answers will be considered by the distance learning teaching team and used in updating teaching materials.
1 What two things did you find most useful about the materials you were provided with for this
module?
________________________________________________________________
_____________________________________________________
2 What two things did you find least helpful about the materials you were provided with for this
module?
________________________________________________________________
_________________________________________
3 Please identify any typographical errors you encountered in using this planner (please make reference to appropriate page numbers).
________________________________________________________________
___________________________
Return to:
External Programmes Administrator
School of Legal Studies
University of Wolverhampton
Arthur Storer Building
Molineux Street
Wolverhampton
WV1 1SB
United Kingdom
You may if you wish e-mail your answers to in4655@wlv.ac.uk