Report No. 20

8. Insolvency of hirer.-

An allied question which calls for consideration is as to the rights of parties when the hirer is adjudged insolvent. According to the law of England, goods which are in the possession of the insolvent in trade or business on the date of the petition with the consent of the true owner and under such circumstances that he is the reputed owner thereof, would vest in the Official Receiver and be divisible among the creditors. Under this doctrine, hire-purchase goods will also pass to the Official Receiver, provided, of course, the other conditions are satisfied.

Section 16 of the Hire-Purchase Act, 1938, provides that where the Court postpones the operation of an order for the specific delivery of goods under the Act, then the goods shall not be treated as being in the possession of the insolvent with the consent of the true owner. Subject to this exception, the general law as to reputed ownership will apply to hire-purchase goods in the possession of the hirer. The result is that the owner loses his property, his only right being to prove in insolvency for the value of the goods. Vide, Ex parte Haviside, Re Button, (1907) 2 KB 180.

9. Now, the doctrine of reputed ownership is a serious invasion on the rights of an owner, and the tendency of the Courts in England has been to limit its application within narrow limits. A series of exceptions have been recognised on the ground that it is the well-known custom of a particular trade that the goods in the possession of the trader are taken by him under a hire-purchase agreement, and that that excludes reputation of ownership in the hirer. Thus, when the proprietor of a hotel was adjudged insolvent the furniture therein was held not to have passed to the trustee-in-bankruptcy, as it was a notorious custom of the trade that hotels were furnished on hire-purchase system, and similar decisions have been given in respect of several other trades.1

An attempt to get out of the mischief of the reputed ownership doctrine has sometimes been made in England, by inserting a clause in the agreement, that the consent of the owner to possession by the hirer will stand revoked when he commits an act of insolvency. If this provision is valid, then the goods would cease to be in the possession of the hirer with the consent of the owner and the reputed ownership clause will not apply. The validity of this clause, however, has not been tested in Courts.

1. Re. Parker, Ex parte Turquand, (1885) 14 QBD 636 CA and the other decisions cited in William on Bankruptcy, 17th Edn., p. 310.

10. The doctrine of reputed ownership forms part of the law of this country, and, therefore, goods in the possession of a hirer, taken on a hire-purchase agreement, will vest in his assignee in bankruptcy. The question is, whether the law as to reputed ownership requires to be changed, insofar as it applies to goods which are covered by hire-purchase agreements. In our opinion, it does. It is common knowledge that having regard to the exigencies of modern business, many traders carry on with goods taken on hire-purchase system, and accordingly the foundation on which the doctrine of reputed ownership rests has practically no existence. The following observations in "Williams on Bankruptcy" are illuminating:-

"In considering the decided cases on reputation of ownership, the widespread prevalence in recent times of the practice of obtaining on hire-purchase almost all goods must be borne in mind. Reputation is a matter necessarily dependent on the habits of society and varies therewith, and the extension of the hire-purchase system has already considerably reduced the efficacy of the reputed ownership clause."1 We accordingly recommend that a provision may be inserted in the Insolvency Acts, to the effect that goods taken on hire-purchase system are not subject to the doctrine of reputed ownership. So far as the Hire-purchase Act is concerned, it would be sufficient to provide that the Official Receiver shall have the same rights and obligations in respect of them as the hirer had.2

1. Williams on Bankruptcy, 17th Edn., p. 315.

2. See Appendix 1, clause 23.

11. We think that the Official Receiver should be authorised to assign the hirer's rights under the hire-purchase agreement, even if there is a prohibition in the agreement against such assignment. The reason is, that the Official Receiver, very often, might not have sufficient funds for paying the instalments of the hire-purchase price and would find it more convenient to transfer the rights to a third person. We have accordingly provided that the Official Receiver might assign the hire-purchase agreement with the permission of the Court, notwithstanding any prohibition contained therein.1

1. Appendix I, clause 23.