Section 55 – Acquisition in good faith of motor vehicles
251.This section protects any person who acquires a motor vehicle that is encumbered property. It is similar in effect to the measures in section 27 of the Hire-Purchase Act 1964 in respect of motor vehicles hired under a hire-purchase contract, or purchased under a conditional sale agreement.
Example
D Ltd supplies a motor vehicle to Barry under a hire-purchase agreement with a three-year duration. Barry will not become the owner until he makes the final payment at the end of the three years. But after six months Barry sells the vehicle to Charlotte, who believes that Barry is the owner. Under section 27 of the 1964 Act, Charlotte will become owner of the vehicle if she is in good faith and is a private purchaser.
252.This section achieves the same result where Barry is the owner of the vehicle but grants a statutory pledge over it. Charlotte would take the vehicle unencumbered by the pledge if she is a good faith private purchaser from Barry.
253.Subsection (1) sets out four conditions which must be met if the property is to be acquired unencumbered, despite the consent of the secured creditor to the transfer not having been obtained:
The first condition is that there is a sale agreement (which could be a conditional sale agreement) or a hire-purchase agreement in respect of a motor vehicle.
The second condition is that the motor vehicle must be encumbered property under a statutory pledge.
The third condition is that the hirer or purchaser of the encumbered property cannot be carrying on a business described in section 29(2) of the 1964 Act, namely a business which consists wholly or partly of:
purchasing motor vehicles for the purpose of offering or exposing them for sale, or
providing finance for purchasing motor vehicles for the purpose of hiring them under hire-purchase agreements or selling them under conditional sale agreements.
The fourth condition is that the purchaser or acquirer must be in good faith. However, subsection (6) makes it clear that the purchaser or acquirer is not to be regarded as not being in good faith only because the pledge is registered. This means that they are not expected to check the register.
254.Where all of these conditions are met, subsection (2) provides that the property will be acquired unencumbered. Subsection (3) protects the purchaser or hirer by preventing enforcement of the statutory pledge prior to the property being transferred in implementation of an earlier hire or sale agreement.
255.Where a motor dealer transfers a vehicle in a way that results in it becoming unencumbered by the pledge, subsection (4) entitles the secured creditor to a limited right of recovery against the motor dealer rather than having to pursue the now unsecured debt against the provider. Subsection (5) provides that if this right is relied upon and the secured creditor receives a payment directly from the motor dealer, the provider’s liability to the secured creditor is reduced accordingly, but instead the motor dealership can pursue the provider for the amount paid out.
Example
John grants a statutory pledge over his car to the Ayr bank. He then sells the car to a motor dealer without the consent of the Bank. The motor dealer is not protected by subsection (2) because it is a motor dealing business and so should have made a search in the Register of Statutory Pledges against John and/or the car. But if the motor dealer then sells the car to a private purchaser who is protected then the Bank is entitled to be compensated by the motor dealer. The motor dealer can in turn try to recover this money from John, whose debt to the Bank has been reduced.
256.The term “motor vehicle” is defined in section 29 of the 1964 Act as “any mechanically propelled vehicle intended or adapted for use on roads”, and that definition is adopted in subsection (7) for the purposes of this section. The definitions of “conditional sale agreement” and “hire-purchase agreement” are also given by reference to the 1964 Act.
257.Subsection (8) provides for the Scottish Ministers to be able to exclude by regulations certain classes of vehicle from the application of this section. Those regulations can also (but do not have to) exclude vehicles from other purchase protections.
Example
The Driver and Vehicle Licensing Agency requires UK registered vehicles to have a vehicle identification number (VIN). If RSP Rules make it compulsory for an entry in the RSP to include the VIN, making it easier to check whether a particular vehicle is subject to a pledge, then Ministers might consider that the protection should not apply (say) to commercial vehicles. They would then be able to either disapply just the protection in this section in relation to such vehicles or, if desired, to disapply the protection in other sections too so that the VIN is checked even when buying from a business seller.
