Unilateral Mistake Identity - Essay Example

?UNILATERAL MISTAKE “IDENTITY” The current leading case on unilateral mistake as to mistaken identity in contract law is currently the Shogani case. That case, carefully considered case by the House of Lords, seemed to resolve the conflicting Appellate opinions on the issue. That case will be discussed below but to fully understanding their reasoning a review of prior law is appropriate. In an older case Cundy v Lindsayii Lindsay & Co were manufacturers of linen handkerchiefs. They received correspondence from a rogue named Blenkarn who purported to be 'Blenkiron & Co',. Lindsay & Co knew of a business named as 'Blenkiron & Co', and knew them to be reputable and residing at the address represented. Under this guise, and the rogue's signing of his letters as 'Blenkiron & Co', Lindsay & Co sold the rogue a large order of handkerchiefs. Blenkarn then sold the goods - 250 dozen linen handkerchiefs - to an innocent third party, Cundy. Cundy sued Lindsay & Co for conversion of the goods. The lower court held that Lindsay could not recover the handkerchiefs from Cundy. Blackburn J,. They reasoned: “The rule of law has been thoroughly established—the cases are numerous, and I need not cite them—that where a contract is voidable on the ground of fraud, you may avoid it, so long as the goods remain in the man's hands who is guilty of the fraud, or in the hands of anybody who takes them from him with notice; but where a person has bona fide acquired an interest in the goods, you cannot, as against that person, avoid the contract. Where the goods have come into the hands of a bona fide purchaser you cannot take them back”. The Appellate court affirmed in part and ruled that Lindsay & Co had meant to deal only with Blenkiron & Co. There could therefore had been no agreement or contract between them and the rogue. Accordingly, title did not pass to the rogue, and could not have passed to Cundy. They were forced to therefore return the goods. Where the lower court held there was a voidable contract with the rogue, the Appellate court ruled there was no contract with the defrauding party at all and therefore no third party remedy. A different result was reached in another case.iii where a similar situation occurred. Here however, the company name that the rogue used did not exist, as it did in Cundy v Lindsay. A rogue called Wallis pretended to be an imaginary firm which he called 'Hallam & Co.' and had pretentious notepaper bearing that name printed. He ordered goods from the plaintiffs by writing to them on this notepaper and they sent the goods to him. He then sold the goods to the defendant. The claim was denied. Wallis' personality could not have affected the minds of the plaintiffs - if they were willing to give credit to 'Hallam & Co.', a non-existent entity, they were willing to give it to anyone. Though there was fraud, there was no operative mistake. Therefore the contract was merely voidable for fraud, and the third party obtained good title to the goods. In Phillips v Brooks (1919] 2 KB 243) A man entered the plaintiff’s shop and asked to see some pearls and some rings. He selected pearls at the price of ?2550 and a ring at the price of ?450 He produced a cheque book and wrote out a cheque for ?3000 In signing it, he said: ‘You see who I am, I am Sir George Bullough,’ and he gave an address in St. James’s Square. The plaintiff knew that there was such a person as Sir George Bullough, and finding on reference to a directory that Sir George lived at the address mentioned, he said, ‘Would you like to take the articles with you?’ to which the man replied: ‘You had better have the cheque cleared first, but I should like to take the ring as it is my wife’s birthday tomorrow,’ whereupon the plaintiff let him have the ring. The cheque was dishonoured, the person who gave it being in fact a fraudulent person named North who was subsequently convicted of obtaining the ring by false pretences. In the meantime, North, in the name of Firth, had pledged the ring with the defendants who, bona fide and without notice, advanced ?350 upon it. The court held “In this case, I think, there was a passing of the property and the purchaser had a good title, and there must be judgment for the defendants”. In other words, contrary to Cundy, a valid contract was created. A more recent treatment of the issue took place in Lewis v Averay [1971] 3 All ER 907; [1972] 1 QB 198. Mr Lewis’ car was for sale. A rogue, who represented himself as the famous actor Richard Greene, offered to buy the car for the agreed price of $450. He proffered a cheque for this amount but Mr Lewis was reluctant to hand over the car until the cheque cleared. The rogue purported to establish his identity by showing a special admission pass to Pinewood Studios. This satisfied Mr Lewis who handed over the car and log books in return for the cheque. The cheque was worthless. The rogue sold the car to Mr Averay, an innocent purchaser. The issue of law is (per Lord Denning at 205) was: “Was there a valid contract of sale between Mr Lewis and the rogue?” To decide this, the following issue needs to be decided (per Lord Denning, at 206): “What is the effect on the contract of a mistake by one party as to the identity of the other”? Per Lord Denning (at 207) and Phillimore LJ ( at 208) mistake as to the identity of the rogue did not prevent the formation of a valid contract. But it did render it voidable, “that is liable to be set aside at the instance of the mistaken person, so long as he does so before third parties have in good faith acquired rights”. The reasoning of another Judge was different: Megaw LJ said: “mistake as to the identity of the rogue did not prevent the formation of a valid contract because it was a mistake as to attributes (creditworthiness), not identity”. In any event, The Court held that the appeal be allowed. The contract between Mr Lewis and the rogue was voidable, but could not be avoided once the car had been on sold to a bona fide purchaser for value without notice. So there was no remedy for the third party in in any event. Thus the current state of the law was in flux by the time the issue reached the Shogan court. Some courts had found that a valid contract had been formed with the thief and he could thus pass good title to the third party. Others found that a voidable contract had been formed but could not be avoided if the thief passed the property to a bona fide third party. Still others found that no contract had been formed and thus no third party remedy although the defrauded party had a cause of action against the thief for fraud, not mistake. Analysis to this point reveals the following, which narrowed the issues for Shogan. Mistake as to identity occurs when one party believes themselves to be bargaining with another, uninvolved, third party. In these situations cases have held the contract will either be void for mistake, or voidable for fraud. This decision depends frequently on the manner in which the contract was made. Cundy v Lindsay [supra] demonstrates this principle: a firm contracted by post to sell handkerchiefs to a rogue, masquerading as a legitimate company. The contract was held to be void for mistake the third party had right to recover. This can be contrasted with the case of King's Norton Metal Co v Edridge Merrett & Co, [above] where a similar situation occurred. Here however, the company name that the rogue used did not exist; as in Cundy v Lindsay, Kings Norton Metal Co could not claim they relied upon the false company name to contract. Therefore the contract was merely voidable for fraud, and the third party obtained good title to the goods. A further distinction has been drawn in the cases where a contract is made face to face. When a contract is concluded this way, there is a strong presumption inferred by the courts that the seller intends to contract with the person in front of them. Thus in this situation it is much harder for the seller to claim a contract is void for mistake to identity. The principle is well demonstrated in the case of Phillips v Brooks [supra] However, the law becomes somewhat convoluted and less certain when considering subsequent decisions. The court in Shogan, supra, aptly stated the conflict, the statement of the court worth quoting here even though Their decision may not yet be the final word (at 63): “This appeal raises a difficult problem about the effect of fraudulent misrepresentation on the formation of a contract. If a crook (C) fraudulently represents to the owner of goods (O) that he is another identifiable person (X) and on that basis O parts with goods to C by way of sale, is there in law a contract between O and C? Does the answer to this question differ according to whether O and C communicated face to face, or by correspondence, or over the telephone, or by e-mail? The law on cases involving this type of fraudulent conduct, euphemistically described as cases of 'mistaken identity', is notoriously unsatisfactory. The reported decisions are few in number and they are not reconcilable. In the present case Sedley LJ said the law has tied itself into a Gordian knot. Brooke LJ said the law is in a 'sorry condition' which only Parliament or your Lordships' House can remedy: see [2002] QB 834, 847, 855” The court undertook a detailed evaluation, case by case, on the issues raised, above. They rejected the distinction between face to face transactions vs. long distance contact (calling this a “difference not a distinction”). They also discussed why a contract may be formed even in the case of fraud: “This distinction, between negativing intention or consent and negativing the rights otherwise flowing from intention or consent, is important. It explains why the law treats a contract induced by fraud as voidable, not void. The necessary coincidence of intention, or consensus ad idem, may exist even where the intention and consent of the victim were induced by fraud. An intention thus induced is regarded by the law as sufficient to found a contract, even though the victim may repudiate the contract as soon as he discovers the fraud”. The case should be thoroughly read to gain a more detailed state of contract law in the UK but to quote those references here is space and time prohibited. What occurred was that the court reached a place where they had to make a clearly defined choice in deciding the issues before them. The court said (at 34) “Accordingly, if the law of contract is to be coherent and rescued from its present unsatisfactory and unprincipled state, the House has to make a choice: either to uphold the approach adopted in Cundy v Lindsay and overrule the decisions in Phillips v Brooks Ltd and Lewis v Averay, or to prefer these later decisions to Cundy v Lindsay” The court decided at 35:  “I consider the latter course is the right one, for a combination of reasons. It is in line with the direction in which, under the more recent decisions, the law has now been moving for some time. It accords better with basic principle regarding the effect of fraud on the formation of a contract. It seems preferable as a matter of legal policy. As between two innocent persons the loss is more appropriately borne by the person who takes the risks inherent in parting with his goods without receiving payment. This approach fits comfortably with the intention of Parliament in enacting the limited statutory exceptions to the proprietary principle of nemo dat non quod habet. Thus, by section 23 of the Sale of Goods Act 1979 Parliament protected an innocent buyer from a seller with a voidable title. The classic instance of a person with a voidable title is a person who acquired the goods by fraud: see Bramwell LJ in Babcock v Lawson (1880) 5 QBD 284, 286. Further, this course is supported by writers of the distinction of Sir Jack Beatson: see Anson's Law of Contract, 28th edition, p 332. It is consistent with the approach adopted elsewhere in the common law world, notably in the United States of America in the Uniform Commercial Code, 14th edition, section 2-403. And this course makes practical sense. In a case such as the present the owner of goods has no interest in the identity of the buyer. He is interested only in creditworthiness. It is little short of absurd that a subsequent purchaser's rights depend on the precise manner in which the crook seeks to persuade the owner of his creditworthiness and permit him to take the goods away with him. This ought not to be so. The purchaser's rights should not depend upon the precise form the crook's misrepresentation takes. In the case before the court, the facts were: “The crucial issue is whether Norman Hudson, who bought a Mitsubishi Shogun SWB motor car from a crook who promptly disappeared, can bring himself within section 27 of the Hire-Purchase Act 1964. Mr. Hudson was a private purchaser who bought the vehicle in good faith. His right to retain this vehicle depends upon whether he can establish that the crook acquired possession of the vehicle under the written hire-purchase agreement which on its face was made between the finance company, Shogun Finance Ltd, and a Mr. Durlabh Patel. When signing this agreement the crook pretended to be Mr Durlabh Patel, living at an address in Leicester. As proof of his identity the crook produced Mr Patel's driving licence which he had obtained improperly. The finance company checked Mr Patel's credit rating. Finding this to be satisfactory the finance company instructed the motor dealer who had been dealing with the crook to let the crook have the car. Mr Patel knew nothing about any of these goings on”. The court ultimately found for the third party Appellant. Unfortunately the finding was narrow in that it was applied to statutory contract law. The court; “I would set aside the orders of the assistant recorder and the Court of Appeal, and dismiss this action. Mr Hudson acquired a good title to the car under section 27 of the Hire-Purchase Act 1964. However this case is the latest and certainly the most thorough treatment of this issue. Read More