commercial law Cases

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Cundy v Lindsay, (1878) 3 App Cas 458 HL

Introduction

The foundation of contract law is premised on mutual agreement, i.e., agreeing on the same thing in the same sense, popularly referred to as consensus ad idem.1 As a general rule, where such an agreement is prima facie found, contract is mostly sought to be enforced for the sake of commercial convenience and brevity.2 However, such enforcement is not devoid of exceptions, for instance - in situations where it is found that the mutual consent is negative or nullified due to, inter alia, fraud, coercion, undue influence, misrepresentation and/or mistake.3

Mistake principally negatives consent in a contract, as explained by Lord Atkin- "If mistake operates at all, it operates so as to negative or in some cases to nullify consent".4 Having said that, such mistake must be fundamental to the contract, and the scope of which has been interpreted by courts in a much restrictive sense.5 The origin of law in this context may be traced back to the early case of Cundy v Lindsay,6 discussed in detail below.

Facts

The claimant received an order for sale of handkerchiefs from a person named Blenkarn, who signed in his name in a manner resembling "Blenkiron & Co."- a reputed firm located at "123, Wood Street". The purchaser further mentioned his address to be at "37, Wood Street, Cheapside", to which the claimant sent the goods. Although no payment was made by Blenkarn, he sold the goods to a third person- the defendants.

Later, the claimants alleged that, as they sold the goods to Blenkarn under the mistaken assumption that they were selling it to Blenkiron & Co., there was no real consent to the contract of sale. Consequently, there was no valid transfer of title, which remained with the claimants, and accordingly, they sued the defendants for conversion of goods.

Issues

The case concerned whether a mistake as to the identity of a contracting party was so fundamental so as to negate the consent of the other party, and thereby, causing the contract to be void. In other words, the question was whether there was any contract between the claimant and Blenkarn at the first place, and if not, could the third party defendants procure a valid title to the goods.

Ruling

It was held that, as the claimant did not intend to sell the handkerchiefs to Blenkarn but to Blenkiron & Co., there was no consent of the claimant to the contract with the former. Accordingly, as no contract was concluded between the claimant and Blenkarn so as to constitute a valid transfer of title which the latter could rightfully convey to the defendants, the title remained with the claimant. Hence, the defendants, being in possession without a good title over such goods, were held liable for conversion.

This rationale found support in later cases of Ingram v Little,7 and Hector v Lyons.8 In the former case, it was held that although the sale was undertaken face-to-face, as the seller agreed to receive payment by cheque from only "Mr. Hutchinson" situated at a specified address, and not from the actual purchaser who wrongfully transacted on his name, the contract was void. Likewise, in the latter case, the court did not allow a father to enforce a contract against the vendor in which his son was named as the contracting party.

Implications

The above ruling, in effect, meant that an honest and bonafide third party purchaser could be prejudiced due to the dishonest dealings of one contracting party in the original nullified contract. In other words, following Cundy v Lindsay and Ingram v Little, a seller can nullify a contract as void and retain title of goods sold if the sale happens under a mistaken identity of the purchaser, notwithstanding that such goods may have been transmitted by such purchaser to a bonafide third party for value in the interim.

Due to the serious repercussions on honest third party dealers, the above principle of Cundy v Lindsay has been subject to much criticism, and has subsequently been "confined within very narrow limits".9 For instance, the ruling was contrasted in King's Norton Metal Co. Ltd v Edridge, Merrett & Co. Ltd.,10 where the court distinguished between mistake of identity and mistake of attributes, stating that while the former rendered a contract void, the latter did not. Similar views were upheld in Lewis v Averay,11 where the claimant had sold the car to one falsely claiming to be a renowned actor. Ruling that there was no mistake of identity (but of the attribute of credit worthiness), the contract was held to be not so void. However, such distinction is not always definite and ascertainable, as highlighted in Lake v Simmons.12

Another exception made was in respect of mode of the contract, i.e., whether executed face-to-face or in writing.13 There lies a presumption in the event of face-to-face dealings that the seller intended to contract with the person physically before him identified by sight and person, and accordingly, there can be no mistake of identity so as to render the contract void.14 On the contrary, in a written contract, the identity of the parties is ascertained as per the express terms of the contract,15 as also advanced in Shogun Finance Ltd v Hudson.16

Finally, the scope of "mistake as to identity" has been further curtailed to only such mistakes which are operative and induce the contract.17 For instance, in Mackie v European Assurance Soc,18 an insurance policy executed with an insurer company believing it to be another was held not void, as the claimant intend to get insurance so long as the insurer company would meet its requirements.

Conclusion

It is clear from the above that the traditional principle of mistake of identity rendering a contract void, as laid down by Cundy v Lindsay, stands much eroded to give way to several exceptions, more particularly, where the interests of a bonafide third party is involved. This is further acknowledged by the exceptions to the doctrine of nemo dat quad non habet under the Sale of Goods Act, 1979, which bestows a valid title to an honest third party purchaser regardless of any specified irregularities in the original sale.19 All in all, Cundy v Lindsay, although not formally overruled, has been much diluted and holds little relevance today.20 The overall position on "mistake as to identity" in contract law remains ambiguous and continues to be a vexed issue.

Footnotes

1Smith v Hughes, (1871) LR 6 QB 597.

2G. Treitel, The Law of Contract (11th edn, Sweet & Maxwell 2003).

3Ibid.

4Bell v Lever Bros, [1932] AC 161, 217.

5The Great Peace Shipping Ltd v Tsavliris (International) Ltd, [2002] EWCA Civ 1407.

6(1878) 3 App Cas 458 HL.

7[1961] 1 QB 31 (CA).

8(1989) 58 P & CR 156.

9G. Treitel (n 2), 286.

10(1897) 14 TLR 98.

11[1972] 1 QB 198.

12[1927] AC 487.

13Phillips v Brooks Ltd, [1919] 2 KB 243.

14Ibid.

15Hector (n 8).

16[2004] 1 All ER 215.

17Wales v Wadham, [1977] 1 WLR 199.

18(1869) 21 LT 102. See also, Boulton v Jones, (1857) 2 H&N 564.

19Sections 21-25.

20Dissenting Opinion of Lord Nichols and Lord Millet in Shogun (n 16). See also, Jill Poole, Casebook on Contract Law (OUP 2014) 109.