LORD HERSCHELL LC(reading the leading judgment)
The appellant was the owner of a piano, of which he had given possession to one Charles Brewster, under an agreement in writing of 23 December 1892, to the terms of which I shall Brave occasion to refer immediately. On 21 July 1893, Brewster, improperly and without the consent of the appellant, pledged the piano with the respondents, who are pawnbrokers, as security for an advance. The appellant, upon discovering this, demanded the piano from the respondents, and, on their refusing to deliver it, brought an action of trover. The defence set up by the respondents was that they had received the piano from Brewster in good faith and without notice of any claim on the part of the appellant, and that Brewster having "bought or agreed to buy" it from him, they were protected by s 9 of the Factors Act, 1889. The county court judge held that the defence was not proved, and his judgment was upheld by the Divisional Court of the Queen's Bench. The Court of Appeal, however, came to the conclusion that the defence had been established, and reversed the judgment of the Divisional Court.
The only question is whether the respondents have made out that Brewster had bought or agreed to buy the piano. This depends upon the true effect of the agreement under which he obtained it. By that agreement Brewster, called therein the hirer, agreed to spay the "owner" on 28 December 1892, a rent or hire instalment of 10s 6d, and 10s 6d on the 23rd of each succeeding month, and to keep the instrument in the hirer's own custody at the address named in the agreement, and not to remove the same without the owner's previous consent do writing. He further agreed that if the hiring should be terminated by him under a subsequent clause of the agreement, and the instrument returned to the owner, the hirer should remain liable to the owner for arrears of hire up to the date of the return, and should not be entitled to any allowance, credit, return, or set-off for payments previously made. The owner, on the other hand, agreed that the hirer might terminate the hiring by delivering up the instrument to the owner, and, further, that if the hirer should punctually spay the full sum of eighteen guineas, by 10s 6d at the date of signing and by thirty-five monthly instalments of 10s 6d in advance as aforesaid, the instrument should become the sole and absolute property of the hirer. It was also agreed that unless and until the full sum of eighteen guineas was paid the instrument should be and continue the sole property of the owner.
It is said that the substance of the transaction evidenced by the agreement must be looked at, and not its mere words. I quite agree. But the substance must, of course, be ascertained by a consideration of the rights and obligations of the parties, to be derived from a consideration of the whole of the agreement. If Brewster agreed to buy the piano the parties cannot, by calling it a hiring, or by any mere juggling with words, escape from the consequences of the contract into which they entered. What then, was the real nature of the transaction? The answer to this question is not, I think, involved in any difficulty. Brewster was to obtain possession of the piano and to be entitled to its use so long as he paid the plaintiff the stipulated sum of 10s 6d a month, and he was bound to make these monthly payments so long as he retained possession of the piano. If he continued to make them at the appointed times for the period of three years the piano was to become his property, but he might at any time return it, and, upon doing so, would no longer be liable to make any further payment beyond the monthly sum then due.
I cannot, with all respect, concur in the view of the Court of Appeal that, upon the true construction of the agreement, Brewster had "agreed to buy" the piano. An agreement to buy imports a legal obligation to buy. If there was no such legal obligation there cannot, in my opinion, properly be said to have been an agreement to buy. Where is any such legal obligation to be found? Brewster might buy or not just as he pleased. He did not agree to make thirty-six or any number of monthly payments. All that he undertook was to make the monthly payment of 10s 6d so long as he kept the piano. He had an option, no doubt, to buy it by continuing the stipulated payments for a sufficient length of time. If he had exercised that option he would have become the purchaser. I cannot see, under these circumstances, how he can be said either to have bought or agreed to buy the piano. The terms of the contract did not, upon its execution, bind him to buy, but left him free to do so or not as he pleased, and nothing happened after the contract was made to impose that obligation. The Master of the Rolls said:
"It is a contract by the seller to sell, and a contract by the purchaser, if he does not change his mind, to buy; and, if this agreement goes on to its end, it ends in a purchase. Therefore, it seems to me that the true and proper construction of this instrument, after all, is this - it is an agreement by the one to sell, and an agreement by the other to buy, but with an option on the part of the buyer if he changes his mind to put an end to the contract."
I cannot think that an agreement to buy, "if he does not change his mind," is any agreement to buy at all in the eye of the law. If it rests with me to do or not to do a certain thing at a future time, according to the then state of my mind, I cannot be said to have contracted to do it.
It appears to me that the contract in question was in reality a contract of hiring, and not in name or pretence only. But for the provision that if the hirer punctually paid the 10s 6d a month for thirty-six months, the piano should be his property, it could not be doubted that it was a mere agreement for its hire, and I cannot see how the fact that this provision was added made it any the less a contract of hiring until that condition had been fulfilled. I think it very likely that both parties thought it would probably end in a purchase, but this is far from showing that it was an agreement to buy. The monthly payments were no doubt somewhat higher than they would have been if the agreement had contained no such provision. One can well conceive cases, however, in which a person who had not made up his mind to continue the payment for three years, would nevertheless enter into such an agreement. It might be worth his while to make somewhat larger monthly payments for the sue of the piano in order that he might enjoy that option if he chose to exercise it. In such a case how could it be said that he had agreed to buy when he had not only come under no obligation to buy, but had not even made up his mind to do so? The agreement is, in its terms, just as applicable to such a case as to one where the hirer had resolved to continue the payments for the three years, and it must be construed upon a consideration of the obligations which its terms create, and not upon a mere speculation as to what was contemplated, or what would probably be done under it.
It was said in the Court of Appeal that there was an agreement by the appellant to sell, and that an agreement to sell connotes an agreement to buy. This is undoubtedly true if the words "agreement to sell" be used in their strict legal sense; but when a person has, for valuable consideration bound himself to sell to another on certain terms, if the other chooses to avail himself of the binding offer, he may, in popular language, be said to have agreed to sell, though an agreement to sell in this sense which is in truth merely an offer which cannot be withdrawn, certainly does not connote an agreement to buy, and it is only in this sense that there can be said to have been an agreement to sell in the present case.
It was argued for the respondents that the case came within the mischief intended to be provided against by s 9 of the Factors Act, 1889, and that the enactment ought, therefore, to be so construed as to cover it. I can see no reason for thus straining the language of the enactment. A person who is in possession of a piano under such an agreement as that which existed in the present case is no more its apparent owner than if he had merely hired it, and in the latter case any one taking it as security would have no claim to hold it as against the owner. Reliance was placed on the decision in Lee v. Butler (1) and it was said that the present case was not, in principle, distinguishable from it. There seems to be to be the broadest distinction between the two cases. There was there an agreement to buy. The purchase money was to be paid in two instalments; but as soon as, the agreement was entered into, there was an absolute obligation to pay both of them, which might have been enforced by action. The person who obtained the goods could not insist upon returning them and so absolve himself from any obligation to make further payment. Unless there was a breach of contract by the party who engaged to make the payments the transaction necessarily resulted in a sale. That there was in that case an agreement to buy appear, to me, as it did to the Court of Appeal, to be beyond question. It was further urged for the respondents that when Brewster pledged the piano with them it became impossible for him to return it to the appellant, and be became, therefore from that time bound he make the stipulated payment and to become the purchaser. I cannot acceed to this argument. In my opinion, it is impossible to hold that Brewster, having only a right under the contract to buy, provided he complied with the prescribed conditions, could convert himself into a purchaser as against the owner by violating the conditions of the contract. I think the judgment appealed from must be reversed.
LORD WATSON:
This case depends upon the construction of an agreement made on 23 December 1892, between the appellant and one Charles Brewster, in terms of which a piano belonging to the appellant was on that date delivered to Brewster. On 21 July 1893, while the instrument was admittedly the property of the appellant, Brewster gave it in pawn to the respondents for the sum of 4 pounds 10s. The present action was then brought by the appellant against the respondents in the county court of Middlesex for recovery of the piano or its value. The defence set up by the respondents, which has occasioned this litigation, is, that at the date of pawning Brewster was in possession of the piano under an agreement for its purchase, and was, therefore, in a position to make an effectual pledge to them under s 9 of the Factors Act, 1889, is not being disputed that they received the pledge in good faith, and without notice of the appellant's right. In these circumstances the case is narrowed to the single question whether the possession of Brewster was attributable to a contract of purchase, as the respondents maintain, or to a contract of hiring, as contended for by the appellant. The county court judge held Brewster's possession to have been that of a hirer, and, in the Divisional Court, the same view was taken by LORD COLERIDGE, CJ, and DAY, J. In the Court of Appeal, LORD ESHER, MR, AL SMITH and DAVEY, LJJ, were all of opinion that the agreement constituted a contract of sale and purchase, and they, accordingly, reversed the decisions of the courts below, and gave judgment for the respondents.
The terms of the agreement are exceedingly simple; and had it not been for the conflict of judicial opinion which they have provoked it would not have occurred to me that their true character and substance admitted of much doubt. The only stipulations which are of materiality to the present question are these. Brewster undertakes to pay a monthly rent or hire instalment of 10s 6d, commencing on 23 December 1892, subject to the condition that he may terminate the hiring at any time by delivering up the piano to the appellant. In the event of the hiring being so terminated he is to remain liable to the owner for arrears of hire up to the date when the piano is returned. Then follows a stipulation to the effect that:
"If the hirer shall punctually pay the full sum of 18 pounds 18s, by 10s 6d at date of signing and by thirty-five monthly instalments of 10s 6d in advance as aforesaid, the said instrument shall become the sole and absolute property of the hirer."
These stipulations, in my opinion, constitute neither more nor less than a contract of hiring, terminable at the will of the hirer, coupled with this condition in his favour - that if he shall elect to retain it until he has made thirty-six monthly payments as they fall due the piano is then to become his property. The only obligation which is laid upon him is to pay the stipulated monthly hire so long as he chooses to keep the piano. In other words, he is at liberty to determine the contract in the usual way, by returning the thing hired to its owner. He is under no obligation to purchase the thing or to pay a price for it. There is no purchase and no agreement for purchase until the hirer actually exercises the option given him.
The respondents' counsel endeavoured to assimilate this case to Lee v. Butler (1) but in reality the two cases differ essentially. In Lee v. Butler (1) the so-called hirer was bound absolutely to make payment of 1 pound on May 6 and of 96 pounds 4s on 1 August 1892, which sums were described as "rent for the hire or use" of certain furniture, which was the subject-matter of the agreement, it being declared that upon due payment of these rents, amounting to 97 pounds 4s, the furniture was to be the sole and absolute property of the hirer. It appears to me to have been rightly held that Mrs Lloyd, the hirer, had truly agreed to purchase the furniture, and could, therefore, give a good title to a bona fide purchaser. Her legal obligation to pay the price attached as soon as the agreement was executed. Apart from the arrangement for hire of the piano, the only right given to Brewster by the agreement in question was the option to become a purchaser. It is true that, while he was under no obligation to buy, the appellant was legally bound to give him that option, and could not retract it if the other stipulations of the contract were duly observed by the hirer. But the possession of such a right of option was in no sense an agreement by Brewster to buy the piano; and the appellant's obligation to give the option was not, in the sense of law, an agreement by him to sell. In order to constitute an agreement for sale and purchase there must be two parties who are mutually bound by it. From a legal point of view the appellant was in exactly the same position as if he had made an offer to sell on certain terms, and had undertaken to keep it open for a definite period. Until acceptance by the person to whom the offer is made, there can be no contract to buy. So long as the agreement stood unaltered, there could, in this case, be no contract to purchase by Brewster until he had complied with the terms of the option given him, and had duly made the thirty-six monthly payments which it prescribes as the condition of his becoming owner of the piano. The distinction between a pre-contract of that kind and a proper agreement for the sale and purchase of goods does not appear to me to have been sufficiently regarded by the learned judges of the Court of Appeal. Their Lordships seemed to have assumed that, because the appellant had bound himself to sell if Brewster chose to buy upon the terms prescribed, he was in reality a seller; and that the existence of a seller necessarily implied the existence of a buyer. In my opinion, that reasoning is inconclusive. While, in popular language, the appellant's obligation might be described as an agreement to sell, it is in law nothing more than a binding offer to sell. There can, in such a case, be no agreement to buy, within the meaning of the Act of 1889, until the purchaser has exercised the option given him in terms of the agreement.
Another argument was urged for the respondents, which I find thus succinctly stated in their fifth reason of appeal: "That upon Brewster pledging the pianoforte with the respondents he put it out of his power to exercise his right to determine the agreement by returning the pianoforte, and thereby the agreement to purchase became absolute and unconditional." The argument is, in my opinion, untenable. In a question with the appellant, Brewster could not become purchaser off the instrument, except upon the condition of his observing the stipulations of the agreement, and making regular payment of each monthly instalment until 23 November 1895, which he was under no obligation to do. By the act of pawning he violated these stipulations, and that dishonest act, which was committed after he had paid only seven out of thirty-six instalments, is not calculated to suggest that he entertained any intention of becoming purchaser of the piano. It is quite true that Brewster thereby put it out of his power (at least until he could raise, the amount for which it was pawned) to return the piano to the appellant; but he, at the same time, broke his contract, and forfeited his right to exercise the option of purchase given him by the agreement. For these reasons I am of opinion that the order of the Court of Appeal ought to be reversed, and the judgment of the Divisional Court restored.
LORD MACNAGHTEN:
In this case I think that his Honour Judge BACON took the right view. It seems to me that the agreement under consideration means what it says, and can mean nothing more. It is an agreement not forbidden by law, not unintelligible, and not, I think, unreasonable. I rather doubt whether the meaning of the parties can be better elucidated, or their relative position more clearly defined, by speaking of an "option," or of a "defeasance," or by translating their contract into other and more formal language. At least I am unable to express the obvious intention of the parties in simpler or plainer words than those which they have used.
The musical instrument dealer let out a piano by the month, and undertook to sell it to the customer who hired it conditionally on his making a certain number of monthly payments. But it was the intention of the parties - an intention expressed on the face of the contract itself - that no one of those monthly payments until the very last in the series was reached, nor all of them put together without the last, should confer upon the customer any proprietary right in the piano, or any interest in the nature of a lien, or any interest of any sort or kind beyond the right to keep the instrument and use it for a month to come. The customer was under no obligation to fulfil the conditions on which - and on which alone - the dealer undertook to sell. He was not bound to keep the piano for a single day, or a single hour. He was no more bound to purchase it after he had signed the agreement than he was before. The contract as it seems to me on the part of the dealer, was a contract of hiring, coupled with a conditional contract or undertaking to sell. On the part of the customer it was a contract of hiring only until the time came for making the last payment. It may be that, at the inception of the transaction, both parties expected that the agreement would run its full course, and that the piano would change hands in the end. But an expectation, however confident and however well-founded, does not amount to an agreement, and even an agreement between two parties operative only during the pleasure of one is no agreement on his part at law.
The learned counsel for the respondents spoke of dealings of this sort with an air of righteous indignation as if they were traps for the extravagant and the impecunious - mere devices to tempt improvident people into buying things which they do not want, and for which at the time they cannot pay. I think that is going too far. I do not see why a person fairly solvent and tolerably prudent should not make himself the owner of a piano, or a carriage, or anything else by means of periodical payments on such terms as those in question in the present case. The advantages are not all on one side. If the object of desire loses its attractions on closer acquaintance if faults are developed or defects discovered - if a coveted treasure is becoming a burden and an encumbrance, it is something surely to know that the transaction may be closed - at once without further liability, and without the payment of any forfeit. If these agreements are objectionable on public grounds it is for Parliament to interfere. It is not for the courts to put a forced or strained construction on a written document, or to import a meaning which the parties never dreamed of, because it may not wholly approve of transactions of this sort.
Lee v. Butler (1) on which the Court of Appeal relied, was a very different case. There a person, who got some furniture under an agreement which was called "a hire-purchase agreement," was abound by the terms of the agreement to pay for and purchase the furniture. I do not see how Lee v. Butler (1) can be an authority for the respondent's contention. Nor can I understand why the customer in the present case should be taken to have agreed to purchase the piano which be hired because he fraudulently pledged it, and so put it out of his power to return it without redeeming the pledge. I agree that the judgment under appeal should be reversed.
LORD MORRIS:
I concur.
LORD SHAND:
I am also of the same opinion. The right of the defendant to refuse delivery of the piano in question under s 9 of the Factors Act depends on his being able to show that Brewster, in whose possession it was, had either bought it or agreed to buy it from Mr Helby, the plaintiff and appellant, and the decision of this question depends entirely an the true construction of the agreement between the plaintiff and Brewster, under which the latter got possession of the instrument. It is true that, by that agreement Brewster undertook to spay to the appellant not only the first instalment of 10s 6d described as a "rent or hire instalment," but to pay the same amount on the 23rd of each succeeding month, and that it was provided that on the payment of thirty-six monthly instalments the piano should become his property.
If these stipulations had been unqualified there would have been an absolute obligation or agreement by Brewster to acquire the instrument in property, and by purchase, although the instalments were described as for rent or hire, and Lee v. Butler (1) would have directly applied. But the whole obligations by Brewster were qualified by the stipulation "that the hirer may terminate the hiring by delivering up to the owner the said instrument." This provision appears to me to make it clear that there was no purchase and no agreement to purchase. The hirer need not continue the hiring a day longer than he desired; and he need not allow the transaction to become one of purchase unless he desired to do so. An agreement be purchase would infer an obligation to pay a price the payment of which could be enforced by action, while here it is plain that no action for any balance of the alleged price could be maintained if Brewster thought fit at any time to return the instrument to its owner. The substance of the transaction was a hiring of the piano, for the use of which monthly instalments were to be paid, with a provision that the arrangement might ultimately result in a purchase, but that this should be entirely at the option of the hirer and should depend entirely on his thinking fit to make payment of thirty-six monthly instalments. The contract of hiring only was to cease at his option on the instrument being returned to the owner.
It was maintained that under the general words of the undertaking to pay future instalments there was an agreement to purchase within the meaning of the Factors Act, although there was power to resolve the agreement or to bring it to an end by returning the instrument. It seems to me to be very difficult to hold that, even if in form the agreement could be correctly thus described, this would satisfy the provision of the Factors Act, which it has been forcibly maintained requires an absolute obligation to purchase and pay a price - or, at least, an obligation which is not merely dependent on the will or wish of the alleged purchaser. In this case, however, I think there was an agreement of hiring only with an option to the hirer to become the purchaser; and that although there was an obligation to sell if the hirer should avail himself of the right of option to purchase, there was no obligation or agreement be purchase. I cannot hold that there is such an agreement on the part of one who having the beneficial use of the property of another agrees to pay instalments described as rent or hire instalments, and which he is entitled to treat as payments for hire only because it is also stipulated that by continuing to make the payments for a certain time he shall acquire the property he having at the same time the power at any moment and at his own will by returning the property to the owner, to put an end to any obligation to pay any further instalments.
Appeal allowed