Cundy v Lindsay (1878) 3 App Cas 459

A rogue named Blenkarn fraudulently posed as the reputable firm 'Blenkiron & Co' to obtain handkerchiefs from Lindsay & Co, then sold them to innocent purchaser Cundy. The House of Lords held the contract void for mistake as to identity, meaning title never passed and Cundy had to return the goods.

Facts

Lindsay & Co, manufacturers of linen handkerchiefs, received correspondence from a man named Blenkarn who had rented premises at 37 Wood Street, Cheapside. Blenkarn fraudulently purported to be ‘Blenkiron & Co’, a reputable business located at 123 Wood Street. Believing they were dealing with this reputable firm, Lindsay & Co delivered a large order of handkerchiefs to Blenkarn. Blenkarn then sold 250 dozen linen handkerchiefs to Cundy, an innocent third party purchaser. When Blenkarn failed to pay, Lindsay & Co sued Cundy to recover the goods.

Issues

The central legal issue was whether a contract existed between Lindsay & Co and Blenkarn, and consequently whether title to the goods had passed to Blenkarn enabling him to transfer good title to Cundy. This raised the question of whether a mistake as to the identity of a contracting party renders a contract void (meaning no contract ever existed) or merely voidable (meaning the contract exists but can be set aside).

The Innocent Third Party Problem

The case presented the difficult question of which of two innocent parties should bear the loss caused by the fraud of a third party.

Judgment

Divisional Court

The Divisional Court initially held that Lindsay could not recover the handkerchiefs from Cundy, applying the principle that where a contract is voidable for fraud, it cannot be avoided against a bona fide purchaser who has acquired an interest in the goods.

Court of Appeal

The Court of Appeal overturned the Divisional Court, holding that the mistake about identity voided the contract from the start, allowing Lindsay to recover the goods.

House of Lords

The House of Lords upheld the Court of Appeal’s decision. Lord Cairns explained the consequences of the mistake as to identity:

Now, my Lords, stating the matter shortly in that way, I ask the question, how is it possible to imagine that in that state of things any contract could have arisen between the Respondents and Blenkarn, the dishonest man? Of him they knew nothing, and of him they never thought. With him they never intended to deal. Their minds never, even for an instant of time rested upon him, and as between him and them there was no consensus of mind which could lead to any agreement or any contract whatever.

The House of Lords held that Lindsay & Co had intended to deal only with Blenkiron & Co. Therefore, no contract existed between them and Blenkarn. Title never passed to Blenkarn and consequently could not have passed to Cundy, who was required to return the goods.

Implications

This case established the principle that where a party is mistaken as to the identity of the person with whom they are contracting, and that identity is of crucial importance, the contract may be void ab initio rather than merely voidable. This has significant consequences for innocent third party purchasers, who cannot acquire good title to goods obtained through such fraud.

The distinction drawn between void and voidable contracts in cases of mistaken identity has been subject to considerable criticism. Subsequent cases involving face-to-face transactions, such as Phillips v Brooks [1919], have been distinguished on the basis that parties dealing in person are presumed to contract with each other. In Shogun Finance Ltd v Hudson [2003], Lord Nicholls (dissenting) described the Cundy v Lindsay principle as ‘eroded’ and the law in this area as being in ‘a state of disarray’.

Verdict: Appeal dismissed. Lindsay & Co were entitled to recover the handkerchiefs from Cundy. The contract between Lindsay & Co and Blenkarn was void for mistake as to identity, meaning no title passed to Blenkarn and consequently no title could pass to the innocent purchaser Cundy.

Source: Cundy v Lindsay (1878) 3 App Cas 459