Fraudulent deals on wheels

Appeal judges dissent over the effects of a credit fraud, writes Feliks KwiatkowskiOn 28 June 2001 the Court of Appeal - including Lords Justices Brooke, Sedley and Dyson - addressed a situation common in motor trade work, which will also interest those involved in general contract law.

In June 1996 a fraudster using the name of Durlabh Patel, a real individual, sought to acquire a Mitsubishi Shogun for 22,250 from a Leicester dealer, subject to finance.

He produced a genuine driving licence in Mr Patel's name, obtained by means unknown.

The dealership's sales manager gave Shogun Finance the details provided and faxed in a copy of the licence and a draft finance agreement signed in the name of Mr Patel.

The claimant duly researched the real Mr Patel, and judged him creditworthy.

Furthermore, the signatures on the licence and on the draft agreement matched.

Finance was duly granted.

The dealer handed over the Shogun to the fraudster.

He sold it to Mr Hudson for 17,000.

The trial court held that Mr Hudson had bought the vehicle in good faith.

Shogun Finance sued for the vehicle or its value, 18,374.52.

On 13 June 2000 at Leicester County Court, Assistant Recorder Grant found for the claimant.

Mr Hudson appealed and lost.Principal issues.The effect of section 27 of the Hire Purchase Act 1964, as amended, is that where a person in possession of a vehicle by the terms of an HP agreement sells it to a private purchaser, who buys it in good faith and without notice of the agreement, then that purchaser obtains good title.

Was the fraudster here in possession of the vehicle under the terms of an HP agreement, despite having signed it in another's name?There is a rebuttable presumption that a vendor who sells face-to-face intends to sell to the person before him, even if that person has misled the vendor as to his identity.

Did Shogun Finance, through the dealer, intend to contract with the person before the dealer?The judgmentsLord Justice Sedley, dissenting, said the facts were commonplace, but the law was still in doubt.

There was no logic in the cases.

He evidently considered that the merits lay with Mr Hudson.

He condemned the claimant's checking procedures as 'cavalier', dismissed the claimant's trial evidence that the customer's identity was vital and made it plain that he would find for Mr Hudson if he could.

He accepted that Cundy v Lindsay [1878] 3 App Cas 459, HL, was an obstacle.

The case decided that a dealer who, by post, is induced by a rogue to believe that he is dealing with another person with whom he is willing to deal, makes no contract at all, and can recover from an innocent buyer the goods he had parted with.

He evaded that decision by accepting the appellant's submission that this was a face-to-face contract, with the dealer acting as an ad-hoc agent for the claimant, its eyes and ears for the purposes of ascertaining the identity of the hirer and submitting the licence and draft agreement to the claimant.

He found nothing in the facts to rebut the face-to-face presumption.

A further obstacle was Hector v Lyons [1988] 58 P&CR 156, CA, where a man had contracted to buy a house using his own son's name.

He was denied specific performance when the vendor failed to complete, as it was held he was neither the purchaser nor his agent.

It was held that the rules which had developed over mistaken or concealed identities in face-to-face sales had no application to a contract made wholly in writing, where the identity of the vendor and purchaser were established by the names written in the contract.

Lord Justice Sedley distinguished that case by restricting it to situations where a person not named in the contract was seeking to enforce it.He commented that the face-to-face presumption was only one of a number of rules for distributing loss among innocent parties, but found that it did justice on the facts.

It gave him little pleasure to arrive at his conclusion on a jurisprudentially unsatisfactory basis and he called for a reform of the law.

He would allow the appeal.Lord Justice Dyson analysed whether the fraudster was the 'debtor' under a 'hire purchase agreement'.

The claimant's arguments were: the fraudster was not the debtor under the agreement as it was a nullity, Mr Patel's supposed signature being a forgery; alternatively insofar as the agreement was valid and enforceable, it was enforceable only by and against the real Mr Patel; alternatively that the agreement was void because the claimant intended to contract only with the real Mr Patel, whose actual identity was vital to the claimant.

In support of that submission Cundy had been cited, together with other authorities on identity.

He expressed no view on the first submission, in view of his findings on the second and third submissions.The second submission was supported by Hector v Lyons [1988] P&CR 156, CA.

Lord Justice Dyson accepted that its reasoning applied to the present case.He dismissed the appeal because the fraudster was not the hirer named in the HP agreement.

He rejected Lord Justice Sedley's attempt to restrict that judgment to instances where a person not named in a written contract was seeking to enforce it, pointing out passages which showed that Hector was of general application.He proceeded to consider whether the agreement was void for mistake.

He accepted that in law a dealer could sometimes be the agent for a finance house.

However, on the facts here, the dealer acted merely as a conduit for the purposes of communicating information to enable the claimant to decide whether to enter into an agreement.

Therefore, he rejected the appellant's argument that the face-to-face presumption applied.

Furthermore, even if it had applied, the facts would have displaced it.

The claimant's unchallenged trial evidence was that the customer's real identity was vital.

The trial judge had accordingly found that the claimant had intended to hire the car to the real Mr Patel.

That finding was unassailable and, for all these reasons, he dismissed the appeal.Lord Justice Brooke delivered a short judgment agreeing with Lord Justice Dyson that the court was bound by Hector v Lyons.

For once, a hard case did not further confuse a messy body of case law.

The court rightly adhered to Hector.

Furthermore, the credit industry would have been most surprised had the court found that the standard checks performed here were 'cavalier' or that the true identity of the hirer is not of critical importance to the finance house in every HP agreement.

l Shogun Finance Ltd v Norman Hudson [2001] EWCA Civ 1000.

Reported in The Times, 4 July 2001, and on the Court Service Web site.

Jeremy Cousins QC and Nicholas George, instructed by Rich & Carr, for the appellant, Mr Hudson.

George Bompas QC and Sunil Iyer, instructed by Sechiari Clark & Mitchell, for Shogun.Barrister Feliks Kwiatkowski practises at the Chambers of Marie-Claire Sparrow, London