Shogun Finance Limited v Hudson (FC) Summary

Shogun Finance Limited v Hudson (FC)[2003] UKHL 62

Facts:

  • H bought car from a crook (C) who soon disappeared
  • To finance the hire-purchase agreement for the car, C had fraudulently misrepresented himself to Shogun Finance (S) as P
  • To establish his legal right to the car, H sought to show that the C acquired possession of the vehicle under the written hire-purchase agreement
  • Issue was whether C was a debtor under the hire-purchase agreement relating to the car
  • HC: C was not, so purchase by H was void
  • CA: C was not, so purchase by H was void
  • HL: C was not, so purchase by H was void.

Parties:

Plaintiff/Respondent: Shogun Finance Ltd
Defendant/Appellant: Hudson

Issues:

What is the effect of fraudulent misrepresentation of contracts.

i.The presence of fraud does not negative the existence of the buyer and seller’s intention to transact. (Nicholls LJ)

ii. Fraud does not negative intention. A person’s intention is a state of mind. Fraud does not negative a state of mind. (Nicholls LJ)

iii. Until the fraud is exposed and it is discovered that A is not C, the existence of a contract is not in doubt. The fraud is relevant to the question whether the contract is enforceable against B rather than its existence. (Millet LJ) (dissenting)

iv. The existence of a fraudulent misrepresentation means that a person’s intention is formed on a false basis – a basis, moreover, known by the other party to be false. (Nicholls LJ)

v. The effect of fraud is to negative legal rights or obligations otherwise flowing from an intention to enter into a contract. (Nicholls LJ)

vi. Fraud enables the victim of the fraud to decline to proceed with a contract into which, by reason of the fraudulent misrepresentation, he was induced to enter, and he has a claim for damages for any loss he may suffer. (Nicholls LJ)

vii. Fraud does not have the consequence of negativing the formation of a contract. The mere fact that a creditor agrees with a joint debtor to accept payment from him alone of his proportionate share does not result in a binding agreement. (Nicholls LJ)

viii. The distinction between negativing intention or consent and negativing the rights otherwise flowing from intention or consent explains why the law treats a contract induced by fraud as voidable, not void. (Nicholls LJ)

ix. The necessary coincidence of intention 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 (Nicholls LJ)

x. 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. (Nicholls LJ)

xi. The mode of communication in a fraudulent misrepresentation case is irrelevant (Nicholls LJ)

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