Fraud and the Hire Purchase Act

In Shogun Finance†Limited v Hudson (FC),†the House of Lords†considered the effect of a†purported hire purchase†agreement in relation to a†car. The purported†agreement was made†between a fraudster†pretending to be a third†party and a finance†company, Shogun Finance†Limited ("Shogun). The†House considered in†particular whether a third†party purchasing the car†had obtained good title†from the fraudster.

The fraudster had dishonestly obtained the†driving licence of a Mr Durlabh Patel, of 45†Mayflower Road in Leicester. He went to a car†dealer showroom with it, introducing himself†to the sales manager as Mr Durlabh Patel of 45†Mayflower Road. The fraudster said he wished†to buy a particular car on display in the†showroom and agreed a price with the sales†manager, subject to obtaining hire-purchase†finance. The fraudster completed Shogun's†standard form hire-purchase agreement,†entering the name, address and driving licence†number of Mr Durlabh Patel and forging his†signature on it. The sales manager gave the†details supplied to him by the fraudster to†Shogun's sales support centre which checked†those details with at least one credit reference†agency. Shogun found Mr Patel to be†creditworthy and considered the signatures on†the driving licence and draft hire-purchase†agreement to match. Shogun accepted the†proposal purported to be made by Mr Patel and†following payment of a deposit by the fraudster†to the motor dealer - partly in cash and partly†by cheque which was later dishonoured - the†fraudster obtained possession of the car. The†fraudster subsequently sold it to a Mr Hudson†who bought it in good faith, in his private†capacity. The fraudster later disappeared and†could not be traced.

Shogun argued that the car belonged to it†and claimed its return or value in lieu. Mr†Hudson, however, claimed that he was†entitled to keep the car since the fraudster†had passed good title to him under one of†the statutory exceptions to the nemo dat rule†that a seller of goods cannot pass to a†purchaser better title to those goods than he†himself possesses. The statutory exception†relied upon is to be found in Section 27 of†the Hire Purchase Act 1964 ("HPA") as†substituted by the Consumer Credit Act†1974. It reads as follows:

"(1) This section applies where a motor†vehicle has been bailedÖunder a hire-purchase†agreement, or has been agreed†to be sold under a conditional sale†agreement, and, before the property in†the vehicle has become vested in the†debtor, he...