I beg to move, in page 22, line 19, at the end to insert: (7) Without prejudice to the foregoing provisions of this section, in any action or proceeding by an owner of goods to enforce any contract of guarantee or indemnity in respect of a contract of hire purchase to which this Act applies against the person giving such guarantee or indemnity, the court shall enquire into the steps taken by the owner to enforce the contract of hire purchase or to repossess the goods the subject of the contract of hire purchase or in any other manner in regard to such goods to minimise the owner's loss and if it shall appear to the court that by the exercise of proper diligence or by the taking of any steps that ought reasonably to have been taken—

1. (a) goods that have not been repossessed could have been repossessed, or
2. (b) goods that have been sold could have been sold at better price, or
3. (c) further moneys could have been recovered from the hirer

and that as a result thereof the liability of the person giving the guarantee or indemnity might have been reduced the court shall refuse to enforce such guarantee or indemnity to such extent as to the court shall seem just. An Amendment in these terms was moved in Committee by my hon. and learned Friend the Member for Liverpool, Edge Hill (Mr. A. J. Irvine). There was then considerable debate and the Minister of State at the Board of Trade was good enough to say that, although he could give no assurance, he would look at the matter again in the light of what had been said. I am disappointed that, in spite of his having looked at the matter again, as I am sure he has, the Government have put no Amendment down.

The Amendment raises a question of real importance. In effect it provides that where, in a hire-purchase contract, there is a guarantor and an action is brought against the guarantor to enforce the contract of guarantee, the court should inquire into the steps taken by the owner to enforce the contract of hire purchase or to repossess the goods and into anything done by the owner to minimise the loss. If the court thinks that the owner could reasonably have taken steps so that the goods not repossessed could have been repossessed, the goods sold could have been sold at a better price, or further moneys could have been recovered from the hirer and, as a result, the liability of the guarantor might have been reduced, the court will have power to refuse to enforce the guarantee to such extent as it thinks fit.

In Committee, the Minister of State seemed to oppose the Amendment on the ground that it would make some fundamental Change in the law affecting guarantees. I suggest that he was making a false point. The hon. Gentleman then said: The general law on contracts of guarantee…is that, if a debtor whose liabilities are guaranteed fails to meet them, the creditor can proceed immediately to recover the amount of the debt from the guarantor."—[OFFICIAL REPORT, Standing Committee F, 19th March, 1964, c. 276.] This is true enough as a statement of law, but, under our law, if a guarantee is given and the creditor has some form of security, it is the duty of the creditor to look after the security. Indeed, in law he is entitled to have the security handed over to him if he pays the guaranteed debt. Any act of the creditor interfering with or impairing this right will, to the extent of any loss inflicted, relieve the surety or guarantor.

The difficulty in a hire-purchase transaction, is that the goods are not for legal purposes security, although the guarantor has given his guarantee in respect of those goods. The finance companies can be as careless as they like about enforcing the agreement with the hirer. They can be negligent in repossessing the goods, they can be negligent in reselling the goods, selling at a lower price so that the goods are diminished in value. In spite of all those things, the guarantor can be proceeded against and he suffers the whole loss.

In an earlier debate, I referred to the case of Financings Ltd. v. Baldock. In that case, Lord Denning, in dealing with the facts—I remind the House that the sum in respect of the lorry involved was £538—said this: The Company then put the lorry into the hands of the dealers who originally handled it, but they did not do what one would have thought would be the reasonable thing to do, try to let it on hire purchase again; they asked the dealers to try to sell it. They did not sell it for eighteen months, and eventually…they sold it for £140". That is a very good illustration of the sort of thing which might well happen in the case of a guarantor under a hire-purchase contract. The company in that case was, I suggest, negligent. It ought to have adopted the reasonable course of letting the lorry out on hire-purchase terms. Instead of that, it waited a considerable time and then, instead of letting it out in the way suggested and obtaining a considerably larger sum of money, it sold the lorry and received only £140. If there had been a guarantor in the case and he had been proceeded against, he would have had no remedy whatever.

A guarantor is, I submit, entitled to say, "Why should I lose a large sum of money when you, the owner, have not acted reasonably?" One of the answers given in Committee by the Minister of State was: …we have to be fully realistic on the question of consumer protection".—[OFFICIAL REPORT, Standing Committee F, 19th March, 1964; c. 278.] I remind the House that the hon. Member said that in about one third of the hire purchase transactions, guarantees were insisted upon. In that debate, my hon. Friend the Member for West-houghton (Mr. J. T. Price) drew attention to the large number of guarantees on behalf of parents where hire-purchase contracts are made by minors. Therefore, this affects a very considerable number of people. I want to adapt the words used by the hon. Member and approach this matter on the basis that he put forward—of being fully realistic on the question of consumer protection.

8.30 p.m.

Why should a hire-purchase owner who does not make proper steps in regard to the matter be able to recover against a guarantor? In the Amendment, category (a) concerns goods that have not been repossessed could have been repossessed. Suppose the owner deals with the goods in a neglectful fashion and does not take proper steps to repossess them, allowing them to stay for a long time on hirer's default and perhaps fall into disrepair. Why should the guarantor suffer because of that negligence?

The second category in the Amendment, in (b), is goods that have been sold could have been sold at better price, I have already given a practical illustration of this. A finance company very often takes the attitude, "Why should we bother about the price? We simply sell the goods and we have the right to get the full amount from the guarantor."

The Amendment's third category, (c), is further moneys could have been recovered from the hirer… Supposing the owner is negligent in pursuing his claim against the hirer because he takes the attitude that the guarantor is liable, why should the guarantor suffer? Why should the owner be able to adopt the attitude that it does not matter because he can always look to a guarantor? That is really the point of the Amendment.

It must be remembered that the guarantor is at the mercy of the owner but I suggest that he should be entitled to say to the finance company, "If you have not acted reasonably I should not bear the whole burden." I hope that the House will appreciate the importance of this matter and that the Government will accept the Amendment.

There is no doubt that the position of a guarantor is another of the great evils of modern hire-purchase practice. In Scotland, this system has caused untold misery. It has resulted in many broken homes. It is a method that finance companies have of covering bad risks.

I had a case recently. A man came to see me who had signed a form for a hire-purchase agreement made by one of his workmates, who was much better paid than he was. The agreement was for the hire purchase of a car. Within six months the hirer stopped paying his instalments, sold the car and took a oneway ticket to the South.

No attempt was made to catch him. All that happened was that the finance company got on to the guarantor and, when he pointed out that the car had been sold and that a considerable sum of money had accrued to the hirer which was not legally his, all he was told was that he himself could go to law on that matter. That was his only safeguard. Worse still was to come.

Although the citation was against the hirer and the guarantor was not informed of the hearing, nevertheless the finding was given to the guarantor and pinding took place. That is a shocking state of affairs and one that must be rectified. It was suggested in this case that the man should pay £1 a week. But if he paid £1 a week for 249 years his debt would be almost the size of the National Debt—for the firm is Napier's, whose interest rates are phenomenal.

We must do something about this matter. I wish that this Amendment was stronger, but at least it would provide some protection for the guarantor without completely removing the liability and it would not embarrass the hire-purchase company which took reasonable care to recover the debt from the person who contracted it. That would be a very good thing indeed. I believe that the Government should have gone further to discourage finance companies from trying to cover up a bad risk by a worse risk.

In the case I have stated, the guarantor was earning about £5 a week less than the hirer and had four children. He could not possibly meet the debt. His home was sold and the furniture taken away—not to cover the total cost of the goods, but to cover all the instalments which had not been paid so far. The finance company can still come back if he reestablishes his home and make the same claim. This can go on ad infinitum, because he cannot hope to pay off his debt.

It is said that in Scotland a debtor does not go to prison, but this man would be better off in prison because he can never clear this debt off. It may be that if the Bill applies to Scotland it will help, but I am not satisfied that it will help the position of the guarantor and I urge the Parliamentary Secretary to look at this again and consider whether he cannot accept the Amendment or at least consider whether it would not be possible for the Government themselves to offer some form of protection, however little, to the guarantor of a hire-purchase agreement.

Mrs. Slater:

I join my hon. Friends in asking the Government to look at this again and to consider whether they cannot do something about the situation. Not very long ago I had the case of a woman whose son became friendly with a boy who was in the care of the local authority. This boy bought a scooter—he was out at work—and as this lady felt sorry for him, for he came from a broken home, and considered that he had never had a chance, she stood guarantor for him.

The boy paid a few instalments, then nothing more. This lady was driven almost insane because the hire-purchase company did not bother to repossess the scooter from the boy but plagued her in an attempt to force her to pay up. She had agreed to act as guarantor through kindness of heart, but found herself in this position. She was just an ordinary person and certainly not wealthy.

Fortunately for her, the boy joined the army and we got his commanding officer to see that he made payments on the scooter until it was paid off. But if the boy had not joined the Army, and had not had a commanding officer who ensured that he made these payments, the finance company would have taken the money from a woman who could ill afford it.

In cases like this there should be some protection for the guarantor. Treasury Ministers have time and again said that the Bill is designed to protect the consumer. We are now considering another section of consumers—people who, out of the goodness of their hearts, or because the people coming to them are friends or relatives, implicate themselves and stand guarantor of agreements. They are members of the consuming public who will be severely handicapped, frightened out of their wits and made distraught by firms which fail to comply with what will become paragraphs (a), (b) and (c) of this part of the Bill if the Amendment is accepted.

Mr. Eric Fletcher (Islington, East)rose—

I rise not to conclude this debate, but to answer the point raised by the hon. Member for Paisley (Mr. J. Robertson) on the subject of guarantors, with particular reference to the position in Scotland. He mentioned the name of Napiers and I, as well as every other Scottish hon. Member, am very well aware that it is the normal business practice of Messrs. Napiers, where the principal signatory to one of its agreements has defaulted, to pursue the guarantors.

So long as people guarantee contracts, be they hire purchase or even the simple one of bank overdrafts, we must in general accept that some of them will be called upon to honour the undertakings they have given; and I cannot agree that, in principle, this is wrong.

No one suggests that the guarantor should not honour his obligations. The whole purpose of the Amendment is to ensure that although he should honour them, he should also have rights akin to what he has at common law.

I am merely trying to answer the point made by the hon. Member for Paisley, who made particular reference to the firm of Napiers. I would like to assure him, as I am sure he realises, that the guarantor in Scotland will be distinctly better protected after the Bill becomes law. At present in a hire-purchase contract the guarantee cannot be enforced against him unless he has signed the main contract and a copy is delivered to him. In the case of a credit sale agreement it is necessary for the seller to provide a considerable amount of information about the contract.

Although Napiers is not much involved, if anything, in the hire-purchase business—it is mainly credit sales with which it is concerned—I can assure the hon. Member for Paisley that the position of the guarantor will be better as a result of the passing of the Bill.

I do not think I have ever heard so much rubbish spoken from the Treasury Bench as we have just heard. I do not know what is the Minister's designation, but he came to the House obviously with a prepared speech. It was obvious that he had not listened or, if he had, that he had not attempted to understand, for he certainly had not understood the arguments put forward in support of what is a reasonable Amendment.

8.45 p.m.

The Under-Secretary of State for Scotland said that he was not concluding the debate. That was about the only sensible thing he said. I hope that at least before we conclude the debate on the Amendment we shall have a reply. I do not know why the Minister of State is not here to deal with this matter, which, as my hon. Friends have said, is of the greatest importance. I agree with what all my hon. Friends have said. I could quote, as they have done, numerous instances in which guarantors, sometimes innocent guarantors, often ill-informed and ill-instructed, out of the goodness of their hearts and, possibly, as the result of persuasion by diligent salesmen, have signed guarantees.

The Minister has said, and we have heard it before, that the Clause is designed for the protection of guarantors, just as the Bill is designed basically for the protect on of consumers. The Amendment, which I support, is eminently sensible, reasonable and necessary if we are to give proper protection to guarantors.

A guarantor very often signs a guarantee without fully understanding its commitments. The argument is that he should know, but we have to deal with the facts as they are. The guarantor signs because he accepts some responsibility. Let us be quite clear about what the principle should be. A guarantor who guarantees performance of a hire-purchase contract of this kind assumes only ultimate responsibility to the owner of the goods provided that the owner cannot get satisfaction elsewhere. All that the Amendment does is to write into the Bill assurances that before an owner has resort to the guarantor, he should exhaust all other remedies and should take all reasonable steps to minimise his loss. What could be more sane, just and reasonable?

We all know from experience in our constituencies how, over and over again, an owner wishing to enforce a remedy takes the line of least resistance and pursues the guarantor. He ignores whatever may be his duty at common law or elsewhere to minimise his loss. He may not even take steps to pursue the principal debtor. He does not always take steps to ensure that the goods have been sold at the proper price. He does not take all necessary steps to obtain what he can from the principal debtor, who is primarily responsible.

Where there is a guarantor, in most cases the owner not only has his claim against the debtor, but has his security in respect of the goods, which he can repossess and sell. The existing practice is intolerable in the conditions of modern life with the spread of hire-purchase contracts for all kinds of guarantees. I do not object to the fact that guarantees are required from time to time, but it is intolerable if the law permits an owner to take the line of least resistance and go for the guarantor before he has exhausted all other possible remedies and taken all proper and reasonable steps to minimise his loss.

No guarantor who signs any of these contracts should be at risk unless and until the owner has done everything possible to minimise his loss. That is the kind of responsibility which, under these agreements, a guarantor takes. I agree that a person who signs a guarantee must have responsibility, but it is a minimal, residual and ultimate responsibility and it should not be brought into operation until the owner has exhausted all other remedies. That is the simple, the only and the rational object of the Amendment.

I know that we have a great deal of Amendments to deal with as a result of discussion in Another place and as a result of Government mismanagement in this as in other matters, with which we are fully familiar and which we condemn. We have to deal with a great volume of Amendments, mostly introduced by the Government, to which we do not object, but there are some of these Amendments to which we on this side attach considerable importance.

I do not know whether the Parliamentary Secretary, like his colleague the Under-Secretary of State for Scotland, will read to us a statement prepared by his Department without having listened to the reasoned argument which we have heard. If so, I for one would regard that as intolerable and irresponsible conduct on the part of the Minister. I hope that he will at least have had the courtesy and decency to the House to have listened with understanding and sympathy to the arguments which have been addressed to him in support of the Amendment and I hope that the House will support and carry the Amendment.

I am rather surprised at the slightly offensive remarks of the hon. Member for Islington, East (Mr. Fletcher) towards my hon. Friend the Under-Secretary of State for Scotland, who intervened only when he felt that he could assist the hon. Member for Paisley (Mr. J. Robertson) on a point which he had raised. The hon. Member will have observed that my hon. Friend has been sitting by me throughout the debate to take care of the Scottish points as they arise. It was rather offensive of the hon. Member for Islington, East, who has not taken much part in our affairs. He might have seen the courtesy with which my hon. Friend has endeavoured, not necessarily to everyone's satisfaction, to be present to try to answer the points related to Scottish legal practice.

The Amendment seeks to ensure that the owner does not come down on the guarantor until he has exhausted all possibilities of getting the hirer to comply with his obligations under the agreement. It was moved in Committee, when my hon. Friend the Minister of State said that the Government would consider without commitment the position of the guarantor of a hire-purchase agreement.

On Second Reading several hon. Members referred to cases in which they believed that guarantors of hire-purchase or credit-sale agreements had suffered hardship. Several instances were cited. One was the case in which a person alleged that he had not realised that the document which he was signing was a guarantee. Another was a case in which the person realised that he was giving a guarantee but the obligation ultimately turned out to be greater than he had expected. The third was a case of a person who gave a guarantee confident that he would not be called upon and then felt that it was a hardship when the person he was guaranteeing defaulted and he was called upon to meet the obligation.

In the light of what was said on Second Reading, we have looked at the whole question of guarantees under both hire-purchase and credit-sale agreements. As my hon. Friend said in Committee, we have not received complaints about the operation of guarantees in relation to hire-purchase agreements at the Board of Trade, either direct or passed on to us by hon. Members on behalf of their constituents. As he said, this is not conclusive, but it is significant, because when there is an active problem of this kind we have a number of cases referred to us both directly and from hon. Members.

When it is a question of enacting statutory safeguards we need to be satisfied that in practice there is a serious abuse to be checked and not just individual cases. I do not want to sound unsympathetic, but we must be realistic in this matter of consumer protection, otherwise we shall find ourselves creating such a multiplicity of safeguards that they could defeat their own purpose.

Mr. Weitzinan:

Does the hon. Member understand the point which is put in the Amendment? Not a single word he has said has the slightest application to it.

I am coming to the common law point in a moment.

The hon. Member's reply has not the slightest application to the Amendment.

Indeed it has. The hon. and learned Member and I fail to agree. I am a little hurt that hon. Members, and now an hon. and learned Member, have started to introduce this narky attitude into our affairs.

The Amendment would mark a considerable change from the normal position. Under the general law in relation to contracts of guarantee, a creditor whose debt is guaranteed may proceed immediately against a guarantor if the debtor fails to pay his debt. The Amendment would make a fundamental change in the law relating to guarantees, but only in the rather narrow field of guarantees which relate to hire-purchase debts. The hon. and learned Member suggested that the common law position is different in relation to guarantees in hire-purchase. I am advised that this is not so and that possibly the guarantees of which he is thinking are those relating to mortgages. I am advised that the position of a guarantor who guarantees a hire-purchase agreement is no different from that of a guarantor in any other agreement.

Will the hon. Member do me the kindness of reading Hansard tomorrow? He will see that I dealt with this point in some detail. He obviously has not listened or has not understood.

I was about to say what my hon. and learned Friend said. The Minister obviously has not understood the argument. Whatever the common law may be, we are dealing with a special form of guarantees, namely, guarantees of hire purchase transactions. We are making law, and the law ought to be different in these cases. We are legislating in the Amendment to provide that a guarantor under a hire-purchase agreement should not be called to account until the owner has exhausted all other remedies. It is no answer to say what the common law is on the matter.

Indeed it is. The hon. Member is coming a long way towards my point of view. I am arguing that I see no reasen why a guarantor under a hire-purchase agreement should be considered differently from the guarantor of a debt under any other agreement. This is my point and I do understand the hon. and learned Member's argument. He was contending that the common law position about a guarantor was that the rights which a guarantor had were reduced in the case of a guarantor under a hire-purchase agreement.

At common law, where a person gives a guarantee as a rule he has security, and that security must be preserved by the owner. If it is lost or affected in any way, to that extent the guarantor has a right to claim it as diminishing what he has to pay. In this case the car is the security, but in law it cannot be the security because of the relationship in which the parties stand. What we are saying is that as we have an anomalous position in that way, surely the guarantor ought to be in a position to say to the owner, "If you interfere with what I have given a guarantee upon—the car—by not taking proper measures about selling it or repossessing it or exercising your right, then I, pro tanto, ought to be relieved of my liability". It is as simple as that, and quite in conformity with the principles of existing common law.

9.0 p.m.

I see the force of the hon. and learned Gentleman's argument, and it has not changed since he accused me of not having listened to it. I have the point perfectly well, but I suggest that there are many cases other than hire purchase in which a person is a guarantor without there being any security at all. The most obvious case is when a person is asked to guarantee somebody's else's overdraft. My substantial point is that there is not the distinction which the hon. and learned Gentleman is trying to draw between a guarantor of somebody's hire-purchase agreement and a guarantor for somebody's overdraft, or any of the other things which people guarantee.

The Amendment is limited to guarantees under hire purchase. The hon. and learned Gentleman has not extended it to credit sales. There must be some particular reason for that of which I am not aware. The basic proposition is this: there is, after all, no particular reason why people should give guarantees of the performance of obligations under hire-purchase or credit-sale agreements. I suggest that the position is rather different from that of the consumer who, by entering in an agreement of this kind, can obtain goods which he thinks he needs at once, and pay for them out of his subsequent income. Provided that it is kept within bounds, it is a useful facility: but guarantees, if they enable hirers to incur commitments beyond their means, are a different matter.

If people are willing to give guarantees, they should not be prevented from doing so in the field of hire purchase any more than in any other, but they must do it with their eyes open. The Clause helps in this respect by giving guarantors rights to documents and information, and I believe that when the Bill becomes law steps should be taken to bring home to the public, along with other features of the Bill, their rights and obligations in the matter of hire purchase. It should be made clear that people should not guarantee hire-purchase agreements unless they know what they are doing and what their obligations are going to be. As a general proposition I do not believe it is unreasonable that where there is a guarantor, the seller should expect that if the hirer or the buyer falls down, the guarantor will pay up.

These arguments still seem to us to weigh conclusively against making any alteration in the form which the Amendment proposes in one facet of the law relating to contracts of guarantee. One is bound to feel sympathy with the guarantor who, through ignorance, or an excess of confidence in a friend or relation, finds himself burdened by debt. The proper answer lies more in bringing home to people the importance of knowing what they are signing than in amending the law in this one respect.

Mrs. Slater:

The hon. Gentleman says that there is no difference between being a guarantor for an article bought on hire-purchase and being a guarantor for a bank overdraft. Is not the difference that the owner of an article is able to take steps to see that the guarantor is not called on to meet his obligation, whereas in the second case there is no article which can be reclaimed?

That is true, but in the case of a bank overdraft the bank manager usually has some control over the person being guaranteed before he reaches the point at which the guarantor has to come in. There is nothing in law on this, but if the hon. Lady were to guarantee my bank overdraft to a certain figure, she would have reason to be angry with my bank if the first she knew was that I was heavily overdrawn and that she was faced with a substantial commitment.

In essence, I do not believe that there is the kind of distinction which the hon. and learned Member has tried to draw. I emphasise this particularly since he has excluded credit-sales agreements and limited himself to hire-purchase agreements.

I am a little puzzled by the combative character which seems to have been attached to the discussion. I regret that the Parliamentary Secretary has not felt able to offer more in response to the arguments of my hon. and learned Friend and my other hon. Friends. I am sorry that I was absent when my hon. and learned Friend moved the Amendment, but I heard the rest of the debate. Before the House decides upon this issue there are two matters which it occurs to me to mention, dealing with the merits of the discussion.

First, after saying that inquiries had been made by his Department to ascertain the facts, the Parliamentary Secretary seemed to argue that there was not much evidence of large-scale abuse under this head. He argued—and I took down his words as he uttered them—that the Government would have to feel that there was a serious abuse to be checked before they would think it appropriate to recommend legislation. I could not help wondering whether that was not putting the argument rather too high. If, in the nature of things, there is a danger—albeit in a comparatively few cases—of the kind of abuse to which my hon. Friends have referred, it would seem appropriate to take steps by way of legislation to prevent their occurrence, or their possible increase in the future.

I have been interested to hear the striking and impressive cases of guarantors of hire-purchase agreements suffering a good deal by way of oppression and pursuit from the owners of chattels. If that kind of thing is happening even on a comparatively small scale it is a flaw in our system which we ought to deal with as quickly as possible. We would certainly think it appropriate to take steps to prevent that kind of treatment of people increasing.

The second matter which it occurs to me to menlion in connection with this argument arises from the question why we should advocate a particular law governing guarante es of hire-purchase contracts as distinct from the law governing guarantees in respect of other classes of contract. There is a good deal of force in the question put to the Parliamentary Secretary at the end of his speech by my hon. Friend the Member for Stoke-on-Trent, North (Mrs. Slater). She pointed out the real feature which distinguishes a guarantee in respect of a hire-purchase transaction from a guarantee in respect of other classes of transaction.

Furthermore, if the Parliamentary Secretary is going to take that somewhat academic line he could be heard to argue that in a whole manner of respects hire-purchase agreements are like all other kinds of contract; they have the same contractual features and characters. There are two parties; there is a financial consideration; there are governing conditions, and warranties. It may be argued that to a considerable distance a hire-purchase agreement is like any other agreement and has the features that any other type of contract attracts to itself.

That circumstance, which I would acknowledge, has not prevented Parliament from recognising that hire-purchase transactions call for a totally different treatment from that of other classes of contract. It is that differentiation which explains the 1938 Act and the controversial treatment of the matter in which we have been so heavily engaged in connection with this Bill.

All that my hon. and learned Friend and hon. Friends seek to do is to point out that hire-purchase agreements are treated as different from other agreements under certain heads, and that here is another in respect of which treatment of hire-purchase agreements should be different from the treatment of other agreements, namely, that of collatoral guarantee. To me that seems rational and sensible They are entitled to call in aid circumstances to which reference has been made, that to their knowledge without the kind of precautions and safeguards which they seek to introduce, this type of guarantee is causing a great deal of oppressive hardship to some numbers of people. It is no answer to their complaint to say that the number is small. If on any scale at all this is a current

source or oppression and hardship, that should be put right, and this would seem an appropriate opportunity to do it. I hope that my hon. Friends will pursue this matter to a Division.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 111, Noes 163.