COURT OF APPEAL
HUDSON v SHOGUN FINANCE LIMITED  EWCA Civ 1000
28 June 2001
Editor’s comments et cetera in red
1. A man goes into a motor dealer’s to buy a new vehicle which is on display.
He wants to take it on hire purchase. The dealer telephones the finance
company with whom he ordinarily deals and gives them the details on the
driving licence which the man produces as proof of his identity. The finance
company verify from the electoral register the licence-holder’s name and
address and check that no outstanding debts are registered against him. They
approve the transaction; the dealer completes the forms; the man makes a
down-payment and either drives off in the vehicle or collects it when the
documentation is ready. He then sells it to an innocent buyer.
2. The fraud is one which must happen every day of the year - especially if it is
as easy to perpetrate as it was in this case. It causes the finance company a
good deal of trouble and some loss, but provided the vehicle can be traced
they can reclaim it and re-sell it. It is the end-buyer who, having parted with a
large sum of money, now finds himself either parting with the vehicle for
which he has paid it or, if he wants to keep it, parting with a similar sum over
again to the finance company. This, at any rate, is the situation if the decision
in the present case of Mr Assistant Recorder D.E.B. Grant, sitting at Leicester
County Court on 13 January 2000, is correct. It may seem remarkable that the
law governing the consequences of a fraud as common as this is still in doubt,
but it is.
3. The assistant recorder’s clear and methodical judgment sets out the key
evidence and his essential findings of fact. They include these:
(a) On 10 June 1996 a rogue went into the showrooms of Chris Varieva Ltd in Leicester. He told the sales manager, Mr Bailey, that his name was Patel and that he wanted to buy a Mitsubishi Shogun which was on display. They agreed a price, subject to the obtaining of hire purchase finance.
(b) The rogue produced a driving licence in the name of Durlabh Patel of 45 Mayflower Road, Leicester. The licence was genuine but had been stolen or otherwise unlawfully obtained. Mr Bailey telephoned the claimants’ sales
support centre, gave their new business clerk the details which the rogue had provided and faxed to them a copy of the driving licence followed by the draft agreement signed by the rogue using Mr Patel’s name. The claimants made a computer search, first to check the name and address against the electoral register, then to check whether any county court judgments or bankruptcy orders were registered against him, then to check his credit rating with one or more credit reference agencies. It took, as it generally does, about 5 minutes. (c) The information to which they had immediate access (some people might be disturbed to learn) included the length of time Mr Durlabh Patel had lived at his address, where he worked and how long he had worked there, his bank account number and how long he had held the account, his date of birth and his driving licence number. It also confirmed that there were no adverse credit references and gave Mr Patel a credit score which resulted in automatic acceptance of the proposal. It did not apparently include any information about his capacity to pay the instalments on the agreed price of ?22,250. (d) The claimants compared the signatures on the faxed copies of the driving licence and the agreement form and evidently believed them to match. They told the dealer that the proposal was accepted. The dealer accepted a 10 per cent deposit in the form partly of cash and partly of a cheque, which was of course dishonoured, and handed the vehicle over to the rogue with complete documentation.
(e) The rogue sold the Shogun to the defendant, Mr Hudson, for ?17,000…[T]he assistant recorder found as a fact that…although he acted carelessly in undertaking a poorly documented transaction, he bought the vehicle in good faith. These findings and their legal consequences are not challenged by the claimants.
5. S.27 of the Hire Purchase Act 1964, as amended, provides:
‘(1) This section applies where a motor vehicle has been bailed…under a hire purchase agreement ... and, before the property in the vehicle has become vested in the debtor, he disposes of the vehicle to another person.
(2) Where the disposition referred to in subsection (1) above is to a private purchaser, and he is a purchaser of the motor vehicle in good faith, without notice of the hire purchase ... agreement ..., that disposition shall have effect as if the creditor’s title to the vehicle had been vested in the debtor immediately before that disposition.’
S.29(1) defines a private purchaser as - for present purposes - one who, at the time of purchase, does not carry on a business of buying cars in order to sell them.
S.29(4) defines the debtor as - for present purposes - the person to whom the vehicle is bailed.
6. The effect is that a person, other than a car dealer, who in good faith buys a car from someone who turns out only to have it on hire purchase, obtains a good title. The question in the present case is therefore whether the rogue had the vehicle on hire purchase, or whether the transaction he had induced the claimants to enter into was a legal nullity, making him not a bailee of the vehicle until the agreement was terminated but a thief from the start. Only then ... would the claim against the defendant be sound ...
25. The issue in this case is whether the rogue was the ‘debtor’ under a ‘hire
purchase agreement’ within the meaning of the Hire Purchase Act 1964. Only if he was, would his purported sale of the car to the defendant on 11 June 1996 have been effective to pass title. Mr Bompas QC on behalf of the claimant
submits that the rogue was not the debtor under the hire purchase agreement of 11 June 1996 on the grounds that
(a) the agreement was a nullity (Mr Patel’s signature having been forged); alternatively,
(b) in so far as the agreement was valid and enforceable, it was only valid and enforceable by and against Mr Patel; alternatively,
(c) the agreement was void because the claimant company intended to contract only with Mr Patel, and the identity of Mr Patel was a matter of vital importance to it: see Cundy v Lindsay  3 App Cas 459, and the various authorities on mistaken identity to some of which Sedley LJ has referred [see
26. In support of (a), Mr Bompas referred to Re De Leeuw, Jakens v Central Advance and Discount Corporation  2 Ch 540, 553, and also to Gallie v Lee  2 Ch 17, 30, where Lord Denning MR said: ‘If the deed was not his deed at all (non est factum), he is not bound by his signature any more than he is bound by a forgery. The document is a nullity just as if a rogue had forged his signature. No one can claim title under it, not even an innocent purchaser who bought on the faith of it, nor an innocent lender who lent his money on the faith of it. No matter that this innocent person acted in the utmost good faith, without notice of anything wrong, yet he takes nothing by the document.’
27. Mr Bompas did not develop this argument, and in view of the conclusion that I have reached on his second and third submissions, I do not propose to express a view on it.
28. In support of his second submission, Mr Bompas relies on Hector v Lyons  P & CR 156, and in particular on the passages which Sedley LJ has cited at paragraph 20 of his judgment [see below]. At page 159, Sir Nicolas
Browne-Wilkinson V-C said that the principle enunciated in the cases concerned with mistaken identity where two parties make an oral agreement face to face: ‘... has no application to a case such as the present where there is a contract and wholly in writing. There the identity of the vendor and of the purchaser is established by the names of the parties included in the written
contract. Once those names are there in the contract, the only question for the court is to identify who they are.’
29. In Hector v Lyons, Mr Hector senior, the person seeking to enforce the contract, was not named as a contracting party in the written instrument. The named purchaser was his son. As Sedley LJ points out, if one translated the result in Hector v Lyons to the present case, the rogue would not be able to make any claim against the finance company under the hire purchase agreement. Sedley LJ suggests that the Vice- Chancellor’s reasoning is
confined to cases where a person not named in a written contract is seeking to enforce it. I do not think that his judgment can be read in this restricted way.
Nor do I consider that the judgment of Woolf LJ can be so read either. He said at page 160: ‘This was a contract in writing for sale of land. Parties to the contract are normally to be ascertained from the document or documents containing the contract. There can be limited circumstances where it is possible to allow oral evidence to be given in relation to a written contract, but those circumstances are recognised as being exceptional and should, in my view, be strictly confined.’
31. It seems to me that the reasoning in Hector v Lyons is of application in the present case. The question here is whether the rogue was the debtor under the written hire purchase agreement, notwithstanding that he was not named as the hirer in that agreement. In my view, the answer is clearly: no ...
32. I agree that the claimant could not hold Mr Patel liable under the hire purchase agreement. That is because his signature was forged, and he would be able to say that the agreement was not his contract. Nothing in Hector v Lyons would compel the conclusion that Mr Patel was a party to the contract simply because he was named as the party. The fact that his signature was forged makes all the difference. In Cundy v Lindsay [in the Library], Lord
Cairns LC said (page 465) that dishonest Blenkarn was ‘acting here just in the same way as if he had forged the signature of Blenkiron & Co, the respectable firm’. In such a situation, there could be no contract.
35. Accordingly, I would dismiss this appeal on the short ground that the
rogue was not the hirer named in the written hire purchase agreement, and was
therefore not the debtor under that agreement. In the event, section 27(1) of
the 1964 Act cannot avail the defendant.
36. In case I am wrong as to that, I must consider whether the agreement was
void for mistake or merely voidable for fraudulent misrepresentation without
regard to the fact that the agreement was wholly in writing. It is common
ground that the agreement had not been avoided before the rogue purported to
sell the car to the defendant. As Pearce LJ said in Ingram v Little  1 QB
31, 55 [in the Library]: ‘The question here is whether there was any contract,
whether offer and acceptance met. For, as Gresson P. said in Fawcett v Star
Car Sales Ltd, ‘a void contract is a paradox; in truth there is no contract at all.’
37. In Ingram, all three members of the court were influenced by Professor
Goodhart’s classic article ‘Mistake as to identity in the law of Contract’ 57
LQR 228, which identified the relevant question in cases of mistaken identity
as being objective viz: ‘How would a reasonable man placed in the position of
the offeree have interpreted the offer?’ ... Despite the criticisms by Megaw LJ
in Lewis v Averay  1 QB 198, 208F to H [in the Library], the
importance of the Goodhart article and the approach adopted in Ingram v
Little was to show that in deciding whether an apparent contract is
non-existent owing to mistake in identity, the court applies an objective test,
and does not examine the motives or subjective intentions of the parties.
38. Much has been said about ... the ‘inter praesentes principle’ ... I shall refer
to it as the ‘face to face principle’. It has variously been referred to as a ‘principle’ and a ‘presumption’. In Ingram v Little, at page 57, Pearce LJ said:
‘An apparent contract made orally inter praesentes raises particular
difficulties. The offer is apparently addressed to the physical person present.
Prima facie, he, by whatever name he is called, is the person to whom the
offer is made. His physical presence identified by sight and hearing
preponderates over vagaries of nomenclature. ‘Praesentia corporis tollit
errorem nominis’ [the presence of the body cures error in the name] said Lord
Bacon (Law Tracts (1737), p.102. Yet clearly, though difficult, it is not
impossible to rebut the prima facie presumption that the offer can be accepted by the person to whom it is physically addressed.
‘To take two extreme instances. If a man orally commissions a portrait from some unknown artist who had deliberately passed himself off, whether by disguise or merely by verbal cosmetics, as a famous painter, the imposter could not accept the offer. For though the offer is made to him physically, it is obviously, as he knows, addressed to the famous painter. The mistake in identity on such facts is clear and the nature of the contract makes it obvious that identity was of vital importance to the offeror. At the other end of the scale, if a shopkeeper sells goods in a normal cash transaction to a man who misrepresents himself as being some well-known figure, the transaction will normally be valid. For the shopkeeper was ready to sell goods for cash to the world at large and the particular identity of the purchaser in such a contract was not of sufficient importance to override the physical presence identified by sight and hearing. Thus the nature of the proposed contract must have a strong bearing on the question of whether the intention of the offeror (as understood by his offeree) was to make his offer to some other particular identity rather than to the physical person to whom it was orally offered. In our case, the facts lie in the debatable area between the two extremes.’
At page 66, Devlin LJ said: ‘The presumption that a person is intending to contract with the person to whom he is actually addressing the words of contract seems to me to be a simple and sensible one and supported by some good authority.’
So too in Lewis v Averay, Lord Denning MR at page 207C said: ‘Applied to the cases such as the present, this principle is in full accord with the presumption stated by Pearce LJ and also Devlin LJ in Ingram v Little  1 QB 31, 61, 66. When a dealing is had between a seller like Mr Lewis and a person who is actually there present before him, then the presumption in law is that there is a contract, even though there is a fraudulent impersonation by the buyer representing himself as a different man than he is. There is a contract made with the very person there, who is present in person.’
The ‘principle’ to which Lord Denning was referring to in the passage that I have just quoted was that stated by him at page 207B in these terms: ‘When two parties have come to a contract - or rather what appears, on the face of it, to be a contract - the fact that one party is mistaken as to the identity of the other does not mean that there is no contract, or that the contract is a nullity and void from the beginning. It only means that the contract is voidable, that is, liable to be set aside at the instance of the mistaken party, so long as he does so before third parties have in good faith acquired rights under it.’
In my view, despite what Lord Denning said at page 207C, this principle is not in full accord with the decision in Ingram v Little, nor is it consistent with Cundy v Lindsay, to which no reference was made, although it was cited in argument.
40. ... It is important to keep in mind that the face to face principle is no more than an aid to determining the issue which arises where a contract has apparently been made orally by parties face to face: to whom should the offeree reasonably have interpreted the offer as having been made? Applied to the facts of this case, the question is: viewed objectively, should the rogue have interpreted the offer by the finance company as an offer to enter into the hire purchase agreement with him or with Mr Patel ? If with him, then there was a contract which could be avoided by the claimant company for misrepresentation. If with Mr Patel, there was no contract at all, because there was no acceptance by the party to whom the company’s offer, properly understood, was made.
As Pearce LJ pointed out in Ingram v Little, the nature of the proposed contract has a strong bearing on the question of whether the intention of the offeror (reasonably understood by the offeree) was to make his offer to some third person, rather than to the person to whom it was orally made. The nature of the contract may well indicate whether the identity of the other contracting party is of vital importance to the offeror - all relevant circumstances must be considered. I have already referred to the important passage in the judgment of Pearce LJ in Ingram v Little at page 61, which was cited in the judgment of Phillimore LJ in Lewis v Averay.
41. Two questions, therefore, arise:
(i) should the agreement that was apparently made between the company and the rogue be regarded, in effect, as having been made face to face? and (ii) whether the answer to (i) is yes or no, to whom should the offer made by the finance company be interpreted as having been made?
42. As regards (i) ... the dealer was not the company’s general agent for the purpose of making the agreement [if the dealer had been Shogun’s agent, then
we would have been talking about a face-to-face agreement because there would have been a presumption that the dealer, as agent, had intended to make the contract with the person to whom it made the offer face to face i.e. the rogue] ...
44. ... The basis of the [face-to-face] presumption is that, where two parties,
both enjoying authority to make a contract, make an apparent agreement face to face, they intend to contract with each other, and not with someone else. The dealer in the present case was no more than a conduit pipe for the purposes of communicating information to enable the finance company to decide whether to enter into a hire purchase agreement. This emphasises the critical difference between what happened in this case and a straightforward oral agreement made face to face. I would, therefore, reject the submission ... that the agreement between the claimant and the rogue was one to which the face to face principle applied.
45. As regards (ii), even if it had been correct to view this case as one to which the face to face principle applied, I consider that it would have been displaced on the facts. The evidence of Janet Sentence, the company’s sales support manager, was read at trial. It was not challenged. It included the following:
‘4. Although I am unable to comment on issues of law, I can say that for the purposes of a hire purchase agreement, the identity of the customer is absolutely crucial. This is because every individual has a credit rating and the finance company will only agree to provide credit to the customer if it is satisfied about the customer’s credit rating ... ’
46. The [trial] Judge accepted this evidence ... [and] that at all material times
the claimant intended to hire the vehicle to Mr Patel. That finding of fact was no doubt based on the evidence of Ms. Sentence. In my view, it is unassailable. It follows that, even if ... the transaction brought the face to face principle into play, that principle was displaced on the facts of this case.
47. For all these reasons, I would dismiss this appeal.
SEDLEY LJ [Dissenting]:
7. The textbook principles of common law, at which it is going to be necessary to look again below, are in summary these:
(a) A dealer who, by post, is induced by a rogue, A, to believe that he is dealing with B, with whom he is willing to deal, makes no contract at all and ... can recover the goods he has parted with from an innocent purchaser: Cundy v Lindsay (1878) 3 App Cas 459 (HL).
(b) A dealer who, by post, is induced by a rogue, A, to believe that the rogue is B, when B in truth has no separate identity, contracts with A. The contract is voidable, but until avoided enables a good title to be passed to an innocent purchaser: King’s Norton Metal Co. Ltd v Edridge Merrett & Co Ltd (1879) 14 TLR 98 (CA).
(c) A dealer who sells face-to-face is presumed (absent strong rebutting evidence) to be selling to the person before him, even if the person is a rogue, A, who has induced the dealer to believe that he is B, and it is only to B that the dealer is willing to sell. A good title consequently passes to an honest purchaser through the rogue: Phillips v Brooks  2 KB 243 (Horridge J).
(d) The presumption is rebutted where A’s fraud, albeit committed
face-to-face, was such that the seller’s offer was in truth directed to B, not to
A. The rogue can consequently not pass on a good title even to an honest purchaser: Ingram v Little  1 QB 31 (CA, Devlin LJ dissenting).