Car & Universal Finance Company Ltd v Caldwell [1963] EWCA Civ 4 (19 December 1963)

A car was sold to a rogue who paid with a fraudulent cheque. The original owner, upon discovering the fraud, immediately informed the police. This action was held to be a valid rescission of the contract, preventing title from passing to a subsequent innocent purchaser.

Facts

On 12th January 1960, Mr Caldwell, the defendant, sold his Jaguar motor car to a man named Norris. The sale was induced by fraudulent misrepresentation, as Norris paid with a cheque that was later dishonoured. Upon discovering the fraud the next morning, Mr Caldwell immediately reported the matter to the police and the Automobile Association (A.A.), requesting their assistance in recovering the car. Norris, the rogue, had absconded and could not be found. Following the fraudulent purchase, the car was sold by Norris to a firm of motor dealers, Motobella Company Limited, who had some notice of the potential title defect. The car was then sold to another dealer, and ultimately to the plaintiffs, Car & Universal Finance Co. Ltd., who purchased it in good faith and without notice of the fraud.

Issues

The central legal issue was whether Mr Caldwell had effectively rescinded the contract of sale before the car was acquired by an innocent third party, the plaintiffs. The question hinged on whether an unequivocal act of election to rescind, such as informing the police, is sufficient to avoid a voidable contract when the fraudulent party has deliberately absconded, making direct communication of the rescission impossible.

Judgment

The Court of Appeal unanimously dismissed the appeal from the plaintiffs, upholding the decision that Mr Caldwell had validly rescinded the contract. The court created an important exception to the general rule that rescission must be communicated to the other party.

Lord Justice Sellers

Lord Justice Sellers acknowledged the general principle that for a rescission to be effective, the intention to rescind must be communicated to the other party. However, he drew a critical distinction for cases involving fraud where the misrepresentor intentionally makes such communication impossible.

He who has a right to rescind a contract may do so either by notifying the other party to it or by taking some overt step which is justifiable only on the basis that he has chosen to rescind it … It is, however, a general principle of law that a man cannot take advantage of his own wrong. The rogue, by his own wrongdoing, had put it out of the power of the defendant to communicate his election to rescind to him, and it would be strange if that fact should be to the advantage of the wrongdoer and to the detriment of the innocent party.

He concluded that Mr Caldwell’s actions in immediately contacting the police and the A.A. constituted a sufficient and unequivocal act of rescission in the circumstances.

Lord Justice Upjohn

Lord Justice Upjohn agreed, emphasizing that the right to rescind belongs to the innocent party. He reasoned that a fraudulent party should not be entitled to insist on receiving notice when their own actions have made it impossible.

…if one party to a contract has been guilty of fraud, and has absconded so that the innocent party cannot find him, it is quite impossible for the innocent party to give notice of his election to rescind to the fraudulent party. In those circumstances, what is the innocent party to do? … he may not be able to do what the general rule says he ought to do, that is, communicate his election to the other party. In my judgment he can establish his election by taking all possible steps to regain the goods…

He affirmed that by informing the authorities, Mr Caldwell did all he could to demonstrate his intention to rescind the contract, thereby effectively voiding the rogue’s title.

Implications

This case establishes a significant exception to the requirement of communicating rescission. It holds that where a fraudulent party absconds, the innocent party can rescind the contract by an overt act demonstrating an unequivocal intention to rescind, such as reporting the fraud to the police. This decision protects the original owner at the expense of a subsequent bona fide purchaser for value without notice. The judgment is rooted in the principle of ‘nemo dat quod non habet’ (no one can give what they do not have). Once Mr Caldwell rescinded the contract, title to the car revested in him. Consequently, Norris had no title to pass on, and the subsequent purchasers, including the plaintiffs, acquired no legal ownership of the vehicle.

Verdict: Appeal dismissed.

Source: Car & Universal Finance Company Ltd v Caldwell [1963] EWCA Civ 4 (19 December 1963)