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Over the years I have put forward many reasons why you should opt for Dealer HP over a personal loan (contrary to all advice given in the media). Your legal rights are so much greater when you take HP. If you have read my book An Insider Guide To Car Finance, or been a regular reader of my newsletter, you would know the reasons that I put forward. However, I have just uncovered a new one that you may find useful if you, or a friend/relation ever find yourself in this situation. If you are a consumer (can also be a sole trader) and you purchase a vehicle outright you are deemed to have accepted the goods if you have had a reasonable time to inspect the goods and not rejected them. After this time your remedy for defects is restricted to a claim for damages rather than the ability to reject the vehicle, unlike the lemon laws in the US. It is therefore fairly well known that the buyer loses his right to reject a new vehicle shortly after delivery, notwithstanding that defects may subsequently emerge. However, it is not commonly understood that a different rule applies in Hire Purchase agreements because agreements are not subject to the special doctrine in Sale Of Goods but rather to the general rule of contract law. This means that the right to reject goods is only lost when the contract is affirmed and this requires a positive decision by you, the Hirer, to carry on with the contract after having gained knowledge of the relevant defect. In legal terms this is explained, the Hirer “loses his right to terminate only when he becomes aware of the defect in the goods and then affirms the contract, or waives his right to terminate or is estopped from relying on his right to terminate.” Waiver or estoppel would result from a lapse of time after the Hirer became aware of the defect, or some other conduct on his part was inconsistent with subsequent rejection. The right of rejection is not lost if the Hirer allows the Lessor to arrange for the defect to be repaired. The right to terminate and reject are retained. As this is not widely known there have been few cases brought but in those that were the courts sympathised with the position of the Hirer where there was a genuine problem as to the satisfactory quality or fitness for purpose of a vehicle. The key issue here is that your rights to reject a car are very limited under the Sale of Goods Act but if you hire purchase a vehicle the lender is the owner of the vehicle until you pay the option to purchase fee at the end of the agreement it is he that you reject the goods from, even though you arranged the purchase from a dealer. I won’t list in detail all the cases but you will get a flavour of the findings:

Yeoman Credit Ltd v APPS (1961)

D took a second hand Ford on HP in May 1959, the vehicle was defective and neither safe nor roadworthy. D complained and paid his instalments for May, June and July but didn’t pay the August instalment and rejected the vehicle after 5 or 6 months. In this case, Holroyd Pearce LJ said that had this been a Sale of Goods transaction he would have been considered to have accepted the goods but under the rules of HP he was allowed to reject as ‘in spite of repeated requests, (the lessor) was still consistently refusing to honour their obligations.’ D was entitled to reject the car.

Fanworth Finance Facilities Ltd v Attryde (1970)

In this case the defendant had taken a motorcycle on HP in July 1964. A fault was identified and repairs were carried out by the dealer and at the manufacturer’s factory but not all the faults were repaired. In November 1964 the machine broke down again and the defendant (D) rejected it after he had paid 4 monthly instalments. The court held that he was entitled to reject it even though he had travelled 4,000 miles on it, 3,000 miles after it had been returned.

Other cases: 

Laurelgate v Lombard North Central PLC (1983)

Alpha Chauffeurs Ltd v Citygate Dealership Ltd

Lamarra v Capital Bank PLC

Fiat Auto Financial Services v Connelly (2007)

By Graham Hill