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Shogun Finance Ltd v Hudson [2003] UKHL 62, [2003] 3 WLR 1371

By Gary Wilson,2014-05-18 04:40
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Shogun Finance Ltd v Hudson [2003] UKHL 62, [2003] 3 WLR 1371

    Shogun Finance Ltd v Hudson [2003]

    UKHL 62, [2003] 3 WLR 1371

    House of Lords

The rogue had expressed an interest in purchasing a Mitsubishi Shogun car from a

    motor dealer. The rogue pretended to be a Mr Durlabh Patel, had given Mr Patel’s

    address and had produced Mr Patel’s stolen driving licence as proof of his identity. The dealer agreed the price for the car (?22,250) and had then faxed a draft hire

    purchase agreement to the claimant finance company with a copy of the driving

    licence. The written hire purchase had been signed by the rogue, forging the signature on Mr Patel’s driving licence. It also stated that it was to take effect as an offer by “the customer named overleaf”, and Mr Patel was named as the customer. The finance

    company checked Mr Patel’s credit rating and approved the finance. The dealer

    therefore allowed the rogue to take possession of the vehicle whereupon the rogue

    sold the car to Hudson, a purchaser in good faith, for ?17,000. [Note that the dealer sells the car to the finance company which then “hires” it to the purchaser].

The finance company brought a claim against the defendant, Hudson, for damages in

    the tort of conversion and the defendant counterclaimed that he had acquired good

    title in accordance with section 27 of the Hire Purchase Act 1964. If the rogue was a “debtor” under the hire purchase agreement for the purposes of section 27 then the

    defendant would have acquired good title. The judge at first instance held that the defendant was not a “debtor” and the majority of the Court of Appeal agreed on the

    basis that the hire purchase agreement had not been made with the rogue but with Mr Patel, the person whose identity he had taken. The real Mr Patel could not be liable on such an agreement because his signature had been forged so that the defendant was

    not protected. The majority of the Court of Appeal rejected the defendant’s alternative argument that this was a face-to-face contract made between the rogue and the finance company via the dealer as agent, thereby raising the presumption that the finance

    company intended to deal with the rogue, as the person present. The basis for this rejection was that the dealer was not the agent for the finance company.

On appeal to the House of Lords held: dismissing the appeal (3:2; Lords Nicholls and

    Millett dissenting) that the written agreement was made between the finance company and the real Mr Patel. However, this was a nullity because it had been made without Mr Patel’s authority. There was no valid contract between the rogue and the finance

    company. Accordingly the defendant was not protected by section 27 as he was not

    the “debtor”.

    The difficulty with the decision concerns the three majority speeches; the speeches of Lords Nicholls and Millett differ significantly in terms of the reasoning underpinning the decision when compared to the speech of Lord Hobhouse.

(Majority) Lord Hobhouse: This issue before the House was limited to one of

    construction of the written hire purchase agreement. The written contract explicitly named Mr Patel and was described as an offer by Mr Patel to the finance company.

    Therefore, the finance company’s acceptance related to that offer. Only the finance company and Mr Patel could be parties to the agreement. In accordance with the parol evidence rule, oral evidence was not admissible to contradict the terms of the writing

in order to demonstrate that in accordance with the face-to-face presumption the rogue

    was the true “debtor”.

(Majority) Lords Phillips and Walker: Formulated the issue as one of offer and

    acceptance objectively determined (so that in this respect their position accords with

    that of Lord Hobhouse)

    (1) Affirmed the presumption in face-to-face dealings that you intend to deal with

    the person who is physically present. This raised the question of what

    constitutes a face-to-face dealing. Lord Walker considered that it might

    include telephone dealings. (It seems to follow that Ingram v Little is wrongly

    decided).

    (2) This presumption did not apply to contracts made by means of written

    documents, including contracts made by post, email and the present situation.

    In these cases the offer and acceptance issue turned on the written documents.

    [However, this doesn’t address the question of what is the position where the

    offeror doesn’t exist? This is dealt with in King’s Norton Metal Co Ltd v

    Edridge, Merrett & Co Ltd (1897) 14 TLR 98 [Casebook page 80] : intention

    to deal with the writer of the letter] .

Lords Phillips and Walker rejected the opinion of Sedley LJ dissenting in the Court of

    Appeal that this was a face-to-face dealing conducted through the dealer as agent for

    the finance company. It appears that this was because the parties were expressly

    named in the written document.

Comment: There is a clear policy element in the result achieved in the majority

    speeches due to the perception that finance companies granting hire purchase facilities

    to car buyers need to be protected against fraud. If it was conceivable that they might

    end up in a position of losing both the car and the finance despite having carried out

    credit checks, this might prove to be a disincentive to lending in such circumstances.

    The primacy of the written document (taken literally) is evident in the speeches of the

    majority and accords with the distinction (albeit arbitrary on occasions) in the

    previous law between postal contracts (Cundy v Lindsay void) and face to face

    contracts (Lewis v Averay voidable). This distinction has been reinforced by the decision of the House of Lords.

Dissenting (Lords Nicholls and Millett):

    The dissenting speeches focus on the arbitrary distinction discussed above and the fact

    that, as the Court of Appeal had pointed out, the law in this area is unsatisfactory and

    full of anomalies. In particular, it had been hoped that the House of Lords would clear

    up the apparent anomaly between contracts made by post and face-to-face dealings.

    The context for contract formation is often a matter of chance and may well be

    determined by the rogue. However, if anything, this anomaly has been reinforced by

    the majority position.

     Lords Nicholls and Millett therefore favoured a more general principle to replace

    the presumption and the decision in Cundy v Lindsay, albeit that their principle

    achieves an extension of the results achievable by applying the presumption.

    Unfortunately, their suggested formulation may present its own problems. The

    suggested formulation is that “[a] person is presumed to intend to contract with the

    person with whom he is actually dealing” (per Lord Nicholls [36]). However, what is

meant by “dealing” in this context? And is this tantamount to adopting Lord

    Denning’s advocated position that mistakes as to identity should render the contract

    voidable in all cases so that the loss will fall on the vendor or finance company rather

    than an “innocent” purchaser from the rogue (the degrees of innocence debate)?

    The dissenting speeches also highlight the difficulty that exists in relying upon the name given in a written document: does this name refer to the rogue pretending to

    be the real Mr Patel or to the real Mr Patel? This means that the majority approach is

    not necessarily as clear as they assert. Although, as mentioned above, this is probably

    the simplest conclusion to achieve the policy objective, it may not stand up to close

    scrutiny at the theoretical level.

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