UK: Fraud and the Hire Purchase Act

Last Updated: 17 May 2004

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 bailed…under 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 disposes of the vehicle to another person.

(2) 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 or conditional sale agreement…that disposition shall have effect as if the creditor’s title to the vehicle has been vested in the debtor immediately before that disposition."

For the purposes of Section 27, "creditor" means the person by whom goods are bailed under a hire-purchase agreement and "debtor" means the person to whom a motor vehicle is bailed under such an agreement.

The issue in the appeal was whether there was a hire-purchase agreement between Shogun and the fraudster. If so, the fraudster was a "debtor" thereunder and passed good title to the car to Mr Hudson. If not, Mr Hudson would not have obtained good title.

It was held that Shogun had only been prepared to contract with the Mr Durlabh Patel who had identified himself in the manner required by the standard form hire-purchase agreement and met the requisite credit requirements. Therefore, Mr Durlabh Patel was the debtor under the agreement. Oral or other extrinsic evidence was not admissible to contradict the terms of the written agreement and show that it was not made between Mr Patel and Shogun but in fact between Shogun and the fraudster.

The argument that extrinsic evidence is always admissible to demonstrate who the contracting parties are was rejected. Lord Hobhouse held that,

"The rule that other evidence may not be adduced to contradict the provisions of a contract contained in a written document is fundamental to the mercantile law of this country; the bargain is the document; the certainty of the contract depends on it."

It was however held that there was no consensus ad idem or "meeting of minds" between Shogun and the fraudster, an essential ingredient in the formation of a contract. Lord Phillips of Worth Matravers explained that each of the parties to a contract must be shown to have agreed with the other, so that if, for example, A makes an offer to B, but C purports to accept it, there will be no contract. In deciding whether the parties have reached an agreement, the courts ask whether each intended to contract with the other. Where the identity of a party to a purported contract which is in writing, is in issue, this should be determined by construing the contract itself. Lord Phillips said that where a contract is made orally, he would suggest a strong presumption that each party intends to contract with the other. However, no such presumption was needed where dealings were conducted exclusively in writing. In this case, the agreement was stated to be between Shogun and Mr Patel, and neither the fraudster or Shogun had intended to contract with the other. The fraudster could not be said to be a party to the agreement and therefore could not be the debtor under it.

The motor dealer was acting as Shogun’s agent in making delivery of the car. However, the dealer’s authority was to deliver the car to Mr Durlabh Patel. In delivering to the fraudster it acted outside that authority and there had therefore been no bailment of the car by Shogun to the fraudster. Furthermore, such delivery would not have been a delivery "under a hire-purchase agreement" since there was no such agreement between Shogun and the fraudster.

Lord Hobhouse made the final point that since Mr Patel’s signature on the hire-purchase agreement was a forgery, there had never been an offer capable of acceptance by Shogun. It would therefore follow that there had been no legally binding contract. Similarly, Lord Phillips held that, although Mr Patel was stated to be the hirer under the agreement, since it had been concluded without his authority it was null and void. Therefore, the fraudster had no title to transfer to Mr Hudson.

It is interesting to note that this case, which was unreported at county court level, made its way up to the House of Lords. Several of the law lords grappling with the issues noted that the law in this area is problematic and many of the reported cases difficult to reconcile. However, as Lord Walker pointed out, a recurring issue in the authorities is the need for the court to decide which of the two innocent parties (original seller and ultimate purchaser of the goods) should bear the loss resulting from the fraud of a third party. Often, the court is more sympathetic to the ultimate purchaser since, in the words of Lord Denning MR in the case of Lewis v Avery [1972], "it was the seller who let the rogue have the goods and thus enabled him to commit the fraud". Sellers beware!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.