Chapter 2 – Agreement Problems

Essay question

Critically analyse the extent to which the House of Lords’ decision in Shogun Finance v Hudson (2003) has brought coherence to the law governing mistakes as to identity.

Essay question answer guidance

You should recognise that the main issue in Shogun concerned the law of mistake as to identity.  You should demonstrate an understanding of the common fact pattern relating to claims in this context, namely that goods are acquired by a rogue under a contract with a mistaken party and then sold to an innocent third party, before the rogue disappears.  The question then arises whether the contract between the mistaken party and rogue is void for mistaken identity, so that the mistaken party can recover the property from the innocent third party.

You should explain the significance of the distinction – following Shogun – between contracts in writing (Shogun and Cundy v Lindsay (1878)) and contracts made face-to-face (Phillips v Brooks Ltd (1919) and Lewis v Averay (1972)).  With contracts made in writing, the presumption is that the contract is with the person named in the written agreement, and thus it can be void for mistaken identity, which protects the mistaken party.  With contracts made orally face-to-face, the presumption is the contract is with the person physically present and so merely voidable, not void. 

Is the distinction between face-to-face and written contracts an arbitrary one?  Shogun was a decision by a 3:2 majority and is not without controversy.  You should demonstrate an appreciation of the different speeches, including the majority’s policy objective of protecting lenders against the consequences of identity theft, and the dissenting position in which there is a clear concern to protect innocent third parties.

Problem question

Advise the parties in relation to the following scenarios:

1. Tahmina was negotiating the sale of her business to Ben. In return for an assurance from Ben’s bank that Ben has the appropriate funds, Tahmina promises to stop negotiating with another party and negotiate only with Ben. Three days later, Tahmina changes her mind and sells the business to the other party and not to Ben. Ben is furious and claims Tahmina is in breach of her agreement with him.
2. Jermaine made an oral agreement with Esther to sell his car to Esther, because Esther represented that she is Bianca Green, a famous football goalkeeper. Jermaine allowed Esther to take the car after Esther promised to make the full payment in cash after she had finished football training the following day. In the meantime, Esther sold the car to Rodwell and is now untraceable. Esther told Rodwell she required a quick sale because she needed money for her struggling business. Jermaine has not been paid and, having now discovered what has happened, wants the return of the car.
3. Nina wanted to sell her business and was introduced to Amir, who was to introduce potential buyers to Nina. Amir explained his commission would be 3% of the sale price. Nina sold her business to a party introduced to her by Amir but claims she is not bound to pay a commission to Amir because they never agreed the exact circumstance in which Amir would become entitled to payment.

Problem question answer guidance

1. On similar facts in Walford v Miles (1992), the HL held that the promise to negotiate with only one party was not enforceable (despite the existence of consideration via a comfort letter from a bank) because there was no fixed time for the negotiating period. The HL rejected the suggestion that this hurdle could be overcome through implying an obligation that the parties will negotiate in good faith. Applying this to Tahmina and Ben, Tahmina was free to sell to the other party.
2. The issue is Jermaine’s mistake as to Esther’s identity. Following Shogun Finance v Hudson (2003), it is significant that the contract between Jermaine and Esther was a face-to-face oral contract because, in such circumstances, it is presumed Jermaine intended to deal with the person in front of him i.e. Esther (Phillips v Brooks Ltd (1919) and Lewis v Averay (1972)). It follows that the contract is voidable (not void) and, as it appears Rodwell has acquired the car without knowledge of how Esther acquired it, Rodwell (an innocent third-party purchaser) is entitled to it.
3. There is an incomplete agreement where a term (the event triggering a commission payment) is missing. You should recognise the significance of performance (Amir has introduced a buyer to Nina) (RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co. (UK Production) (2010)). On similar facts in Wells v Devani (2019) it was held that the unspecified event triggering an estate agent’s entitlement to commission would be the completion of a sale. Applying this, it is likely that there is a binding contract and Nina is obliged to pay the commission to Amir once the sale is completed.