Shogun Finance Ltd v Hudson [2003] UKHL 34
Shogun Finance Ltd v Hudson [2003] UKHL 34 is a landmark case in English contract law, specifically dealing with the distinction between contracts concluded inter praesentes (face-to-face) and inter absentes (at a distance). The House of Lords grappled with the issue of mistaken identity and the implications for title to goods sold under fraudulent circumstances.
The case revolved around a fraudster named Mr. Patel, who misrepresented himself as Mr. Hudson to purchase a Mitsubishi Shogun from a car dealer. He provided a false driving license in Mr. Hudson’s name and a (forged) address. Shogun Finance, relying on credit checks performed under the name of Hudson, agreed to provide hire purchase finance. Patel took possession of the car and subsequently sold it to Mr. Hudson, an innocent third party who was unaware of the fraud.
Shogun Finance, upon discovering the fraud, sought to recover the vehicle from Mr. Hudson. The crucial question before the court was whether the contract of sale between Shogun Finance and the fraudster Patel was void for mistake. If the contract was void, then Patel never acquired title to the car, and therefore could not pass good title to Mr. Hudson, regardless of Hudson’s good faith.
The House of Lords, by a 3-2 majority, held that the contract was void, not merely voidable. The crucial factor was that the transaction was considered to be inter absentes. While Patel physically appeared in the showroom, Shogun Finance intended to contract with the person identified in the credit agreement and the documents provided – Mr. Hudson. Their intention was not simply to contract with the individual standing before them, but with the specific individual identified through the documentation. The finance company’s willingness to extend credit was based entirely on the (fraudulent) creditworthiness associated with Mr. Hudson’s identity.
The majority distinguished this case from previous cases like Ingram v Little, where the contract was considered to be inter praesentes. In such cases, the courts are more inclined to find that the intention is to contract with the person physically present, even if there is a mistaken belief about their identity. A face-to-face contract is generally only voidable for misrepresentation, meaning title can pass to a bona fide purchaser before the contract is rescinded.
The dissenting judges argued that the contract should be considered inter praesentes. They believed the finance company’s intention was to contract with the person standing before them, regardless of the name used. They highlighted the practical difficulties this decision posed for innocent purchasers like Mr. Hudson.
The decision in Shogun Finance v Hudson remains controversial. It creates a significant risk for those purchasing goods from individuals they do not know, as they may be unknowingly purchasing stolen property. The case emphasizes the importance of careful verification of identity and the potential for significant hardship when dealing with fraudulent transactions. It underscores the complexities of contract law and the delicate balance between protecting the rights of the original owner and the rights of innocent third-party purchasers.