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Shogun Finance Ltd v Hudson

23 Dec 2016Business Essays

The case of Shogun clearly demonstrates the consequences of a fraudulent buyer’s acts. It presents the conflicting interest of parties in good faith after a fraudulent buying and selling by a crook. In addition, it clearly makes evident the importance of weighing the conflicting interests in order that justice is delivered in the end. More importantly, it leaves a clear responsibility on both seller and buyer to ensure the veracity of the buyer’s and seller’s identity and intention.

The case primarily involves a contract involving the buying of a Mitsubishi Shogun car from a car dealer of a man who was found to be a crook afterwards. The dealer phoned Shogun Finance Ltd. to determine the truthfulness of the identity of the man and his potentiality in acquiring a car for instalment. The man presented himself as Mr. Durlabh Patel and gave his driver’s license as a proof of his identity. The financing company checked through electronic searching the credit background and the authenticity of the existence of the said name. Afterwards, the car was given to the man at a price of £22,250 on a hire purchase agreement.

Eventually, the man offered the car to a particular Norman Hudson who was involved in car alteration at a price of £17,000. The finance company then filed a suit against Hudson for damages and tort of conversion for buying the car from the man known as Mr. Patel. It was soon discovered that the man who originally bought the car stole Mr. Patel’s driver’s license and his signature for the completion of the contract. In defence, Mr. Hudson asserted the he acquired the vehicle in good faith in accordance with section 27 of the Hire Purchase Act 1964. Section 27 of the Act provides;

“this section applies where a motor vehicle has been bailed … under a hire purchase agreement … and, before the property in the vehicle has become vested in the debtor, he disposes of the vehicle to another person.” It further states;

“Where the disposition referred to in subsection (1) above is to a private purchaser, and he is a purchaser of the motor vehicle in good faith, without notice of the hire purchase … agreement …, that disposition shall have effect as if the creditor's title to the vehicle had been vested in the debtor immediately before that disposition.”

However, in the resolution of the case, the high court dismissed the appeal of Mr. Hudson and decided in favour of Shogun. In dismissing the appeal, the court concluded that there was no hire purchase agreement and that Mr. Hudson is not a debtor. Hence he is not covered by the exemption as provided in the act. The decision, however, have attracted some criticisms because the court has not settled the problem caused by such circumstance.

On the part of Mr. Hudson and other third party in a contract, it is necessary to check the veracity of the seller and the circumstances surrounding the goods to be bought. The title is very important factor that should be ensured in buying a car. Aside from good faith, the buyer should extend extra effort in ensuing that the car to be bought is not a subject of a fraudulent contract. It is necessary to anticipate and deter future problems by clarifying matters at the very beginning.

On the part of the finance company, it is necessary that the identity of the buyer or purchaser be verified by additional means. In such a kind of business, the existence of fraudulent purchasers should be anticipated, like in the present case. Hence, it is necessary to apply additional method in checking the background of the purchaser. Aside from electronic checking, the personal appearance should also be required in finalizing the transaction. This could possibly avoid forging signatures. In addition, the identification cards required should be those bearing the pictures of the person named in the card.

Looking into the context of the decision, it could be concluded that the decision is unfair on the part of the innocent buyer. While it may be true that the finance company have acted in good faith, the decision could have been rendered upholding both the good faith of both. It is clear in the case that both are innocent and in good faith when they entered into the contract. Thus, it could have been favourable to both when the first contract have been found to be voidable and gave chance to Mr. Hudson and the finance company a compromising contract.

Interestingly, the case of Phillips v. Brooks may be applicable in the present case. In this case, a good title has been transferred to the innocent purchaser after the establishment of a presumption that the previous contract involved a face-to-face transaction. If Mr. Hudson could have established such, there could have been a chance to attain the exemption provided in the Act.

Furthermore, it is quite unconvincing that the court found the Mr. Hudson, an innocent purchaser totally liable without finding fault on the part of the finance company and the dealer. Notably, it has been recognized in the case and in several cases that the dealer was the way by which the crook perfected his fraudulent acts. It is therefore justifiable that both innocent parties should bear the liabilities instead of leaving alone to the innocent purchaser.

With regard to joint liabilities, it could be applicable to adopt the Law Reform Acts of 1935, 1943, and 1945 which deals with joint tortfeasor, frustrated contracts, and contributory negligence, respectively. Instead of merely relying on the logic of law and on common law, it would be justifiable when new law reforms protecting the victims of fraud be enacted and implemented. By looking at the result of the decision, Mr. Hudson has been burdened by the disarrays of law which may happen again in the future. At this point, it should have been repaired by an outstanding decision. It is noticeable that both Mr. Hudson and the finance company are in good faith. They both believed the truthfulness of the offer made by the man who was found to be crook. However, in weighing as to the responsibility of verifying the person of the man, it is the finance company that has the greater responsibility.

As a creditor, it is necessary to ensure the company that the debtor is capable of paying by checking not only the credit standing but also the income capacity of the debtor. More importantly, there should be identity investigation to ensure that the person is not misrepresenting himself to the detriment of the company. The finance company should have more method to ensure itself as to the reliability and credibility of the debtor or purchaser. Thus, it could have been more justifiable when the liability has been equally pided between the finance company and Mr. Hudson. Interestingly, there has been conflict as to the declaration of the contract as void and the identity of the man.

It was said that the contract should be declared void when the signature has been forged. However, the forgery was not fully established as it was not fully found that the man was not really Mr. Patel. In such a case, it should have been presumed that contract is valid and the exception could have been extended to Mr. Hudson. But it was not the case. Nevertheless, the decision is still found unfair because of the failure to distribute liabilities among parties who acted in good faith.

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