Contract Law in the United Kingdom - Essay Example

?CONTRACT LAW Contract Law In general terms, a contract is defined as an agreement entered by two or more parties and can be enforced by law.1 Ideally, parties in a contract have to meet their expressed or implied legal obligations. The law has provided for remedy in an event one or both parties breach the contract; the remedy for breach of contract is damages or monetary compensation. Basically, there are three types of contracts: contracts that require written evidence, written or specialty contract, and simple contracts.2 Of particular importance to this paper is simple contracts; simple contracts are those which are formed without any legal formalities and they can be written, implied, or oral such as in partnership agreements and sale of goods contract. In some cases, it occurs that an individual fraudulently represents themselves to the other party as the owner of goods of another identifiable person. The law on the cases relating to such kind of conducts euphemistically describe them as cases of “mistaken identity”. However, such a description is often insufficient and unsatisfactory. A considerable number of judges are reported saying that the United Kingdom law is in a “sorry condition “regarding this legal aspect and that it is only the Parliament or the Lordship House that can remedy the situation.3 This paper focuses on these arguments by analyzing a case law, legal issues involved in it, and the legal issues involved in the case. Particularly, the paper will focus on Shogun Finance Ltd v Hudson [2003] UKHL 62 and the legal issues involved in the situation described by Lord Nicholls of Birkenhead. The law of contract describes a mistake as a belief erroneously created in a contract that specific facts relating to all or some parts of the contract are true whereas they are not. Usually, if such a mistake is found to exist in a contract, then that particular contract is rendered void.4 Lord Denning, in the case of Lewis v Avery held that a contract can be void if the plaintiff can prove that at the time of entering the agreement, he or she had believed that the identity of the defendant (the other party) was of critical importance because a plain belief is not adequate.5 The common law has identified only three forms of mistakes that can arise from a contract: the common mistake, the mutual mistake, and the unilateral mistake. From this identification it is clear that the mistake of identity does not exist. It is important to point out that none of the identified mistakes has adequately covered mistake of identity. This explains why there has been increasing concern regarding the description of the case by law as being unsatisfactory.6 A closer look of the case law shows that mistaken identity cases are few in number and do not occur in increasing frequency like the other types of mistakes. Nonetheless, this does not mean that mistaken identity is not a critical legal aspect in law of contract. As a matter of fact, mistaken identity cases are very crucial as they (just like other types of mistakes) amount to breach of contract if they occur and therefore it is important that it is addressed once and for all. Besides, a key objective of law is to achieve equity and justice. As such, failing to remedy the “sorry condition” of law covering mistaken identity cases will defeat the very of law as it may lead to unjust rulings.7 Often, cases of mistaken identity happen in simple contracts, that is, contracts formed without involvement of any legal formalities. Partnership agreements and sale of goods contract mostly take the dimension of simple contracts. Sales of goods are the most prone and mistaken identity cases frequently arise from sale of goods contract. The principle of nemo dat non quod habet forms the major interplay in the mistaken identity cases. This principle is a fundamental legal axiom that implies “no one [can] give what one does not have” and that “a person can only give as good a title as one possesses”.8 Under the English law, this principle is elucidated under the Sales of Goods Act 1979.9 The principle clarifies that goods sold by a person who is not the owner and who is not selling under the authority or with the approval of the owner renders the purchaser not to acquire no better title to the goods that the one possessed by the seller. Since common law states that the rightful owner of the goods retains the good’s legal title, the nemo dat rule thus applies to the successive bona fide purchasers. As such, failure to transfer the legal title of the goods to the bona fide purchaser, instead transferring it to an “impostor”, amounts to a breach of contract.10 However, even the principle of nemo dat quod non habet does not make provisions about an “impostor” purchaser as it dwells much on the seller. Similarly, Sales of Goods Act does not make provisions for damages to be accorded to the supposed “bona fide purchaser” thereby leaving him or her in a very precarious situation in an event of mistaken identity in contracting. It should not be lost that even though nemo dat rule does not make clear provisions for cases of non-bona fide purchasers and remedy for the bona fide purchaser, the rule seeks to protect the bona fide purchaser as well though in a negligible manner. The rule has some exceptions that aim at protecting the true owner and the bona fide purchaser. But the degree of protection granted by the nemo dat rule exceptions is very small. Since the English law has no sufficient provisions for mistaken identity cases, the bona fide purchaser often get a great deal of injustice as the defendants have it “easy” in terms of the rulings and damages sought from them.11 Numerous case laws have shown that it is virtually impossible to make a distinction between the principles of misrepresentation and principles of fundamental mistakes. In the case of Shogun Finance Ltd v Hudson, Lord Nicholls categorically states that this case presents a complex problem concerning the effect of fraudulent on the contract formation.12 He argues that the distinction in conclusion drawn between two types of fraudulent misrepresentation based on “identity” and “attributes” is unsatisfactory and unconvincing. He disagrees with the distinction made in the case of Cundy v Lindsay saying that it has been eroded.13 His disagreement is informed by the fact that it was decided many years ago and has been overcome by considerable developments in this aspect of case law. Noting these developments, Lord Nicholls is quick to add that unfortunately they have left this area of law in confusion. In the light of this he questions whether the distinction made in the aforementioned case can still be considered as a good law. Lord Nicholls presents several aspects of distinction as it is in the case of Cundy v Lindsay. The first one is fraudulent misrepresentation and intention. This basis requires that analysis be made on the impact of fraudulent misrepresentation on an intention of a person entering into a contract. The second basis is fraudulent misrepresentation and identity which requires that an identity of a person be considered against the legal principle of fraudulent misrepresentation.14 In addition, Lord Nicholls stipulates that the issue of fraudulent misrepresentation: face to face dealings should be considered in mistaken identity cases. He points out that this issue is reasonably clear as declared by the authority preponderance. Lastly, he points to the issue of the fraudulent misrepresentation in regard to dealing by correspondence where the contract would be declared void if one party is mistaken as to the identity of others instead intends to deal with a third party who has been identified. It is against these distinctions that were made in the case of Cundy v Lindsay that Lord Nicholls offers a dissenting judgment arguing that they are unconvincing and unsatisfactory. The problem is further compounded by the fact that the Principles of European Contract Law under Article 4(103) concerning definitions and effects of fraudulent misrepresentation is proving to be difficult to reconcile with existing English law relating to this area of law.15 Lord Nicholls is against the arguments presented in the ruling in the case of Cundy v Lindsay that mistaken identity can cause the contract to be void only when one of the parties just identifies the other party, and not his attributes, with intention to entering into a contract. The position taken by Lord Nicholls is that if the contract is negotiated face-to-face, it should be presumed that the intention of the mistaken party is to enter into a contract with the person he is “facing” at that particular moment.16 Therefore, in a usual case, a plaintiff has to prove that: the party they entered into contract with was aware of mistaken identity “intention”; there were realistic measures taken to substantiate the identity of the other party; identity of the other party was important to the contract; and that they had an intention to enter into a contract with another party. In the case of Shogun Finance Ltd v Hudson, these elements were substantiated to a level that satisfied the majority of Lords in the case.17 However, the dissenting Lords (Lord Nicholls and Lord Millet) were quick to point out that relying on the distinction made in the case of Cundy v Lindsay violated contract law principles that protect the rights of the third party who is innocent, which also provides exception to right to invalidate the contract on the grounds of fraudulent misrepresentation or mistaken identity.18 It is evidently clear that the English law, in general, is unsatisfactory on mistaken identity. As a result, decisions arrived relating to mistaken identity cases is few and often irreconcilable. Lord Nicholls overruling of arguments made in Cundy v Lindsay is an indication that there is need for parliament and the Supreme Court to intervene in order to address the “unsatisfactory” nature of the law on cases involving mistaken identity. As aptly stated by Lord Nicholls, it is very important to protect the third party purchaser. He argues that overruling the decisions in Cundy v Lindsay is the best option is it is in line with fundamental principle relating to effect of fraud on contract formation and is more preferable as a legal policy matter.19 Therefore, Parliament should intervene in order to ensure that legal issues regarding mistaken identity fits in its intention when it was enacting statutes on exceptions to nemo dat non quod habet. The intention of this principle was not only to protect the true owner of the goods but also to protect the bona fide purchaser. As such, since law regarding the later is unsatisfactory it is important that the Parliament make amendments in the Sale of Goods Act 1979, particularly under the nemo dat rule to sufficiently protect the bona fide purchaser as well as the third party purchaser as well.20 Similarly, the Supreme Court can make an intervention in a bid to address the situation described by Lord Nicholls. As has been noted by Lord Nicholls, the law on fraudulent misrepresentation are unsatisfactory and unconvincing and fails to protect the third party purchasers. In addition, he noted that using the distinction made in Cundy v Lindsay amounts to reproach in law as a significant degree of the distinction has been worn away over the years. He notes that there have been considerable developments in this particular area of law. Thus, it is important that the Supreme Court intervenes and address this situation.21 The best way that the Supreme Court can address this is by overruling the decision held in Shogun Finance Ltd v Hudson. By doing this, the Supreme Court would have set a precedence upon which subsequent rulings relating to cases of mistaken identity will be based on. However, such interventions should ensure that they cover all the relevant aspects in order to fill all the possible “gaps” that may arise in the future relating to the case. Bibliography BOOKS Beatson J Anson’s Law of Contract (Oxford: Oxford University Press 2002) Burrows A A Casebook on Contract (Hart Publishing 2011) Chirelstein M Concepts and Case Analysis in the Law of Contracts (Foundation Press 2010) Elliot C and Quinn F, Contract Law (Longman 2003) Frey P and Frey M, Essentials of Contract Law (Delmar Cengage Learning 2000) Furmstan M et al Furmstan, Cheshire and Fifoot's Law of Contract (UK: LexisNexis 2001) Smith, S. (2006). Atiyah's Introduction to Contract Law (Oxford: Oxford University Press 2006) JOURNAL ARTICLES Chandler A., Devenney J. and Poole J "Mistake as to Identity and the Threads of Objectivity." Journal of Obligations and Remedies” 3(2004), 1: 7-22 Elliot C "No justice for innocent purchasers of dishonestly obtained goods: Shogun Finance v Hudson" [2004] Journal of Business Law. MacMillan, C "Mistake as to identity clarified?" [2004] Law Quarterly Review 120 Phang A., Lee P. and Koh P "Mistaken Identity in the House of Lords" 63[2004] Cambridge Law Journal 24 STATUTES CITED Principles of European Contract Law, 1998 Sale of Goods Act 1979 CASES CITED Cundy v Lindsay [1878] 3 AC 459 Lewis v Avery [1971] 3 All ER 907 Shogun Finance Ltd v Hudson [2003] UKHL 62; [2004] 1 AC 919 Read More