The plaintiff, being in embarrassed circumstances, in pursuance of an agreement between him and A, made over all his stock-in-trade to A, and fictitious bills of exchange were given by A in plaintiff’s favour. Possession of the goods was given to A, together with an inventory, but no bill of sale was executed by plaintiff. The object of the transaction was to prevent plaintiff’s creditors getting hold of the goods, and so being paid in full. Defendant was a creditor for 100 pounds and was cognisant of what was concocted between plaintiff and A.
After A had removed the goods from plaintiff’s premises, two meetings of plaintiff’s creditors were held, but no compromise was effected with the creditors.
Some months afterwards A executed a bill of sale of the goods to defendant, for the alleged purpose of securing the debt due from plaintiff to defendant, but plaintiff was not party to the bill of sale, nor did he sanction or know of it. Plaintiff having demanded the goods from A and defendant, brought an action against defendant for the detention. Held, by the Queen’s Bench and Court of Appeal, that, the fraudulent purpose not having been carried out, plaintiff was not relying on the illegal transaction, but was entitled to repudiate it, and recover his goods from A, and defendant had no better title than A, as he knew how A had become possessed of the goods.
Cockburn CJ said at first instance that it was ‘well established’ that ‘where money has been paid, or goods delivered, under an unlawful agreement, but there has been no further performance of it’, then ‘the party paying the money or delivering the goods may repudiate the transaction, and recover back his money or goods’
The Court of Appeal agreed, and Mellish LJ, with whom Baggallay JA and Grove J agreed, said this:
‘To hold that the plaintiff is enabled to recover does not carry out the illegal transaction, but the effect is to put everybody in the same situation as they were before the illegal transaction was determined upon, and before the parties took any steps to carry it out …’
Mellish LJ Baggallay Ja and Grove J
(1875-1876) 1 QBD 291,  UKLawRpKQB 29
England and Wales
Cited – Patel v Mirza SC 20-Jul-2016
The claimant advanced funds to the respondent for him to invest in a bank of which the claimant had insider knowledge. In fact the defendant did not invest the funds, the knowledge was incorrect. The defendant however did not return the sums . .
Lists of cited by and citing cases may be incomplete.
Updated: 02 May 2022; Ref: scu.676819