The Impact of the Case of Shogun v Hudson on the Law
Material Facts of the Case
In June 10, 1996 a man entered the vehicle showroom of Chris Varieva Limited located in Leicester. The man communicated to the sales manager, a Mr. Bailey that his name is Durlabh Patel and he wanted to purchase a Mitsubishi Shogun that was on display. Mr. Bailey and Mr. Patel agreed at a price, in the amount of £22,250 payable on instalment, subject to the approval of the hire purchase finance agreement between the buyer and Shogun Finance Limited.
The buyer produced his driver’s license issued in the name of Durlabh Patel residing at number 45 Mayflower Road in Leicester. The driver’s license was genuine but this was either stolen or obtained illegally. In compliance with standard procedure, Mr. Bailey called Shogun Finance Limited to provide them with the information that the buyer gave and faxed the driver’s license and the draft agreement signed by the man in the name of Mr. Patel. Shogun Finance
Limited made a computer search to check the name and address given through the electoral register, database on bankruptcy orders or court judgments, and credit reference agencies for the person’s credit rating. The process lasted for about five minutes.
The information accessed by Shogun Finance Limited includes the period within which Mr. Patel lived at the given address, employment address, length of service, bank account number, time elapsed from the opening of the account, date of birth, and the driver’s license number. The computer check showed that Mr. Patel has a good credit standing, which resulted to the acceptance of the draft agreement. However, the information obtained did not cover any information on the capacity of Mr. Patel to pay for the value of the car in instalments.[1]
Shogun Finance Limited also compared Mr. Patel’s signatures on the faxed draft agreement and the driver’s license[2]. Upon being satisfied that the signatures matched, they communicated to the car dealer of their acceptance of the proposal. The dealer then received the ten percent deposit comprised of cash and a check, with the check eventually dishonoured, and subsequently handed the car to Mr. Patel together with the complete papers.
As it turned out, Mr. Patel sold the car to Mr. Hudson, the defendant-appellant, in exchange for £17,000[3]. Mr. Hudson used to be a car-breaker dealing in vehicle spare parts and had recently invested in the courtesy car business but he was not a car dealer so that even if he acted carelessly in entering into a poorly documented agreement, the purchase of the vehicle was done in good faith[4].
After learning of the subsequent sale, Shogun Finance Limited brought a claim against Mr. Hudson for damages under tort of conversion. Mr. Hudson made the counterclaim that in purchasing the car he acquired good title under section 27[5], section 29(1)[6] and section 29(4)[7] of the Hire and Purchase Act 1964. In case Mr. Patel was to be considered as a debtor under the provisions of the law, then Mr. Hudson is said to have acquired good title.
Based on the factual findings and the application of the relevant provisions of the Hire and Purchase Act 1964, the county court decided the case in favour of Shogun Finance Limited. The county court held that Mr. Hudson was not a debtor because the hire purchase agreement was made between Shogun Finance Limited and the real Mr. Patel whose identity was assumed by the person who transacted with the car dealer and the finance company. This meant that the real Mr. Patel cannot be made liable for the agreement since his signature has bee forged giving the defendant Mr. Hudson no protection.
Mr. Hudson appealed the decision of the county court. The appellate court dismissed the appeal. Majority of the members of the appellate court also rejected Mr. Hudson’s alternative argument that what transpired was a face-to-face contract between the person using the name Mr. Patel and Shogun via the dealer as agent so that the finance company intended to contract with the person assuming Mr. Patel’s identity[8]. In this case, the appellant claims that there was a valid contract allowing the passage of good title to him under the principle nemo dat quod non habet. Thus, the appellant, Mr. Hudson raised the case to the House of Lords.
Issues
In general, the issue presented to the House of Lords is whether Mr. Hudson, who purchased a car in good faith from a person assuming the identity of Mr. Patel who is in good financial standing can obtain the protection of section 27 of the Hire Purchase Act 1964 to provide him with the status of having good title and divest him of liability imposed by the county court and affirmed by the appellate court.
The decision would have an impact to the law on mistaken identity, especially since the few decided cases are irreconcilable and sometimes even confusing. Prior to the decision of the House of Lords, there were no clear rules governing cases on mistaken identity, particularly the distinction between inter praesentes and inter absentes[9]. In the case of inter absentes contracts, existing jurisprudence also differentiate two types of fraud with their corresponding effect on the validity of the contract and the high court has the opportunity to determine whether the distinction remains to be sound. The case also provided the high court with the opportunity of possibly reconciling the adverse outcomes of existing principles to achieve balance between the rights of innocent parties in sustaining losses.
In the first type of fraud, where a person asserts to have good financial standing, this has the effect of creating a voidable contract between the seller and buyer since the case is deemed as a mistake over the attributes of the buyer. In the second type of fraud, where a buyer assumes the identity of another person with good credit standing, there arises a void contract between the buyer and seller since the mistake is over the identity of the buyer. It is common in these cases that the crook sells the purchased item to a third party without knowledge of the previous transaction. The rights of third parties depend upon the distinction between the two types of fraud. In the first instance, the party to bear the loss of the item is the owner or seller[10] but in the second case, there are instances where the loss accrues to the innocent third party[11].
In particular, three issues are to be considered by the House of Lords. First is whether inter praesentes[12] or the face-to-face principle applies to a written agreement. Inter praesentes provides the presumption that one party holds the intention to deal with the other party who is actually present as identified by sight and sound regardless of whether the latter is assuming another person’s identity. Before the mistake is deemed to have made the agreement void, the party who made the mistake should show: 1) the intention to deal with someone else; 2) the party committing the fraud knew of this intention; 3) regard for identity was given crucial importance; and 4) the part committing the mistake took reasonable effort to check the identity of the other party. [13]
However, if some of these conditions are not met, the contract may still be considered voidable due to fraudulent misrepresentation. In case the items subject of the voidable contract passes on to an innocent party before the agreement is avoided, the third party obtains a good title.[14] As an exception to this rule, if the person had the intention to contract with the person identified, then the mistake would make the contract void[15].
Second is whether the transaction between the buyer and the finance company through the car dealer as intermediary brings the case under the inter praesentis principle. If this is the case, then the rules discussed above would apply, particularly the consideration of whether the contract is void or voidable and its corresponding effect to the acquisition of good title by the innocent third party.
Third is whether the commission of the error by the finance company with regard to the identity of the car buyer is of a nature that would prevent the existence of a valid contract. In this issue, the rules on offer and acceptance and the intention of the parties prove to be relevant. The buyer is considered as the offeror relative to Shogun Finance Limited so that the valid acceptance of the finance company of the draft purchase finance agreement would create a valid contract. However, if the offer is void by reason of mistake then there is no contract. Depending upon the case, the rules on the right to a good title of the third party rests upon the existence of a valid contract or a voidable contract.
Decision of the Court
The House of Lords dismissed the appeal. The court held that the written contract—the hire purchase agreement—was negotiated between the real Mr. Patel and the finance company. However, since the contract was made without the consent of the real Mr. Patel, the contract is void. There is no valid contract between the buyer and Shogun Finance Limited. Consequently, the third party Mr. Hudson cannot claim protection provided by section 27 of the Hire and Purchase Act 1964 because he cannot be considered as debtor and there is no good title to pass from the creditor to the debtor there being no valid contract. Under section 27, a third party purchaser acquires good title only in case of a valid hire purchase agreement. Since there was no valid hire purchase agreement because Shogun Finance Limited intended to contract only with the real Mr. Patel, then Mr. Hudson cannot be considered as having good title. Purchasing a car from a person without good title cannot append upon the purchaser, be it in good faith, a good title in conjunction with the principle nemo dat quod non habet.
Mr. Hudson’s right to retain possession of the car depended upon the establishment of the acquisition of the vehicle by the buyer under the hire purchase agreement made between Mr. Patel and Shogun Finance Limited. The hire purchase agreement was made between Shogun Finance Limited and the real Mr. Patel so that buyer assuming Mr. Patel’s identity was not the intended contracting party when Shogun checked Mr. Patel’s identity and approved the agreement. The buyer was not the hirer mentioned in the hire purchase agreement so that Mr. Hudson cannot be considered as a debtor under section 27(2) of the Hire Purchase Act 1964.
In relation to the applicability of the inter praesentes principle, the court held that this does not apply to the present case involving a written contract because the context of this principle contemplates the situation where the parties are negotiating through sight or sound[16]. In face-to-face negotiations, the intention is to deal with the person physically present during the formation of the agreement so that it excludes written agreements where there was no physical contact between the buyer and the finance company. Since the contract is in writing, the determination of the intention of the parties should be deduced from the document itself. According to the majority opinion, the contract explicitly identifies Mr. Patel as one party and Shogun Finance Limited as the other party so that Shogun only intends to contract with Mr. Patel. However, since the person who signed the contract was not the real Mr. Patel, the contract is void. Based on this, Mr. Hudson had not acquired good title to the car.
In relation to the role of the car dealer as agent, the majority decision held that whether or not the dealer acted as agent for the finance company, this cannot belie the fact there was a written agreement stating the identity of the person to whom the finance company intends to contract to the exclusion of any other person. In the case where there is an identified person in a written contract, the court cannot accept oral evidence—the communications between the car dealer and the buyer—to bring the case within the face-to-face principle. The document is the basis of the intentions of the parties. In this case, the contract is void and Mr. Hudson does not have good title over the car.
In relation to the nature of the mistake made by Shogun Finance Limited that invalidates the contract, the intention of the finance company in the written contract again applies. Shogun Finance Limited specifically named Mr. Patel as the intended contracting party so that it was Mr. Patel’s identity and financial records that the company searched before approving the agreement. This means that there was no intention to contract with other people other than Mr. Patel. Since the party who signed the contract purporting to be Mr. Patel is not the real Mr. Patel but another person then the agreement is nullified by mistake in identity.
Analysis of the Judgment
The House of Lords had differing opinions over the case. On one hand, the majority opinion upheld the existing rule on the strict implementation of the face-to-face rule requiring physical contact by sight or hearing. This means that the inter praesentes does not apply to written contracts and to the case at hand. On the other hand, the dissenting opinion called for the application of the face-to-face rule in the case in order to offer greater protection to the rights of the innocent third party.
Nevertheless, the decision has provided a guide for the application of the law relating to mistaken identity and provided suggestions on the direction of jurisprudence. The decision in Shogun Finance Limited v Hudson (2003)[17] constitutes a precedent by giving the rule on mistake of identity in the case of inter absentes with written contracts contrary to the situation contemplated by the face-to-face rule. It has also provided a manner of clearing up the divergent decisions on mistake of identity.
Shogun Finance Limited v Hudson is a precedent because it provided the rule involving inter absentes with the agreement expressed in a written contract setting apart the difference between face-to-face contract and a written contract without face-to-face transaction. The hire purchase agreement was made through the dealer faxing the driver’s license and the draft contract to the finance company for the latter to check the identity and credit rating of the buyer. There was no face-to-face interaction between the parties. In this context, the House of Lords deviated from inter praesentes and relied upon the intention of the parties expressed in the written contract to determine the validity of the contract. The contract is void on the ground of mistaken identity because the finance company intended to contract only with the real Mr. Patel and not the crook so that no good title was acquired by the innocent third party. The Shogun case distinguished the rule on contract validity in case of face-to-face contract and written contract without face-to-face transactions.
Apart from providing the rule for determining the validity of contracts relative to mistaken identity in written contracts, the Shogun case redefined the rule set out in Cundy v Lindsay (1878)[18] by not accepting extrinsic evidence and deriving intention from the provisions of the agreement. The case made it clear that in written contracts where there is no face-to-face transaction, the intention of the parties is determined from the provisions of the contract, particularly if the intended contracting party has been clearly identified in the written document[19]. The decision in the case provided for the importance of written document in ascertaining intention.
Another contribution of the Shogun case to the law on mistaken identity is the affirmation of the use of extrinsic evidence in face-to-face contracts because of the lack of written contract or the existence of a written contract only as a formality or culminating act after the conclusion of oral negotiations. The Shogun case also identifies the general assumptions in both face-to-face and written contract without contact through sight or hearing between the parties. In inter praesentes the general assumption is that it is the intention of the parties physically present or meeting face-to-face to contract with each other. As a result, the general assumption favours the existence of a valid contract subject to nullification in case extrinsic evidence shows otherwise.[20] In the case of inter absentis with a written contract the general assumption is that the parties to the contract are the people explicitly mentioned in the written contract. This means that in instances where there is mistaken identity, the contract is void because the party signing the contract was not the intended party.
The House of Lords also put little stress towards the distinction of the two types of fraud in the case of inter absentes agreements with a written contract. In the context of the case, there was no need to determine the difference because according to the high court, the basis of intention that in turn determines the validity of the contract is the written contracts itself.
However, the decision has also spurred a dissenting opinion giving a suggesting of a possible new mode of reconciling the differences in the previous decisions on mistaken identity. The dissenting opinion states that as a solution to the inconsistencies of previous judgments it should be held that between two contracting parties regardless of the medium used in the transaction, the contract should be deemed concluded between them, despite the fact that one party has deceived the other. This decision would rid the innocent third party of liability from a deceitful action to which that person has no part. It would also protect the rights of the party who made the mistake by making the contract subject to being voidable because of the presence of fraud. This decision would invalidate the decision in Cundy v Lindsay (1878)
Research Methods
Data Gathering Methods
Accomplishing this involves an organized process that starts with the determination of the data requirements for the paper. Obtaining a copy of the case Shogun Finance Ltd v Hudson [2003] UKHL 62 decided by the House of Lords as well as the case Shogun Finance Ltd v Hudson [2001] EWCA Civ 1000 adjudicated by the Court of Appeal as well as related cases, was the initial step in completing the assignment. After reading these two cases, the facts relevant to the paper are segregated from the plethora of facts in the recording of the proceedings in these cases. After determining the facts, the key issues answered by the Court of Appeal and the House of Lords are identified. As it turned out, there are both factual and principled issues involved in the case. The determination of the issues is followed by reading the decision of the House of Lords relative to the decision in the appellate court regarding the key issues identified as supported by existing jurisprudence. Having gathered all the information necessary to capture the important points in the case, the next step is to determine the impact of the decision on the jurisprudence covering mistaken identity by looking at both the majority and dissenting opinions. After the mental organization of all the necessary data, the write-up of the draft paper ensued followed by a reading and checking of the paper prior to finalization.
Data Sources
Both primary and secondary cases are necessary to develop a thorough understanding of the topic and the particular case. Primary sources cover the original text of the Shogun case as decided by the appellate court and the House of Lords and texts of related cases. Copies of the texts were obtained from BAILII at the following URL address: http://www.bailii.org/. Another primary source is the original provisions of the Hire and Purchase Act 1964. Secondary sources cover textbooks on contract law made through a search of the online library in order acquire an understanding of the principles governing mistaken identity and the implication of these principles to the outcome of the Shogun case.
Data Presentation
The paper was organized into four headings: material facts of the case, issues, decision of the court, and analysis of the judgment. These enabled the author to present all aspects of the case before providing an analysis of the impact of the judgment in the case to the law on mistaken identity. The author also hopes that the organization of the paper would make it easier for readers to follow through the train of through of the author in writing the paper as well as appreciate the contributions of the Shogun case to legal studies as well as the practical application of the decision to actual purchase transactions and contracts.
