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Defective Transfers Where there is a defect in the transaction underlying a transfer of title the basic principle is one of abstraction.
Principle of abstraction The validity of the transfer of title does not depend on the validity of any underlying transaction or contract. There is not a causal system whereby the underlying transaction must be valid for the transfer of title to be effective. There is an exception in the sale of goods context where the Sale of Goods Act 1979 s.18 Rule 1 has the effect of making title pass purely based on the validity of the contract. In that situation it is essential for the underlying contract to be valid without delivery. In all other situations the validity of the transfer is dependent on the effectiveness of the intent by which the transferor transfers to the transferee. There must have been an act of delivery and an intention to pass ownership. If these criteria are satisfied then it will not matter if the underlying contract is void or unenforceable. An intention to pass legal title coupled with delivery is sufficient to pass legal title to goods regardless of the validity of the underlying contract (Belvoir Finance)
Abstraction and transfers of money Transfers of money are generally governed purely by the principle of abstraction in an unmodified form. Title to money can only be passed by delivery with intention to transfer title. The invalidity of the underlying contract has no effect on the derivative transfer of title to money (Westdeutsche) Aside from the principle of abstraction, receipt of money which was then mixed with the recipients money would mean that legal title has passed anyway (Westdeutsche) It may not matter whether the transfer is effective, even if the recipient is solvent then they will be liable to repay the amount on the basis of unjust enrichment due to a total failure of consideration.
Abstraction and incorporeal money Even if the underlying transaction is void, it is still possible to have a valid transfer of incorporeal money. It will not affect the title which is received when the balance is erroneously credited to his account as, provided the credit is complete and irrevocable, the recipient will have primary legal title to that money. So long as the original bank is unaware of the defect in the underlying transaction then the mandate is valid and this means the original bank can transfer money to the recipient bank and also debit the balance of the original account (Adamson v. Jarvis) Adamson v. Jarvis means that the bank is able to indemnify itself even if the underlying transaction is void provided that it was not aware that the transaction was void.
Vitiation of intention is one of the fundamental aspects of the transfer Because a derivative transfer of title depends on intention, if the intention is defective then there will not be an effective intent to pass title and so ownership will be retained. There are various factors which could mean that there is not a fully formed intention to pass title:
1. Outright theft Where property is stolen then there is no intent at all so the transfer will be ineffective and ownership will remain with the victim both in law and in equity
2. Fundamental mistake as to recipient's identity To be a fundamental mistake there must be a belief that the recipient is entirely different (Cundy v. Lindsay) In face to face dealings the intention is to deal with the person in front of them (Phillips v. Brooks) Where there are not face to face dealings then the presumption is that the intention was to deal with the party named in the contract (Shogun Finance)
3. Fundamental mistake as to the identity of the asset transferred Where an asset is transferred believing it to be a different asset, e.g. a sovereign instead of a shilling (Ashwell) Fox disagrees with Ashwell, he believes that a coin is a medium of exchange and this is what was intended to be transferred. Today, as all money is merely token, essential identity arguments in relation to money cannot succeed in Fox's view.
4. Fundamental mistake as to the nature of the transaction A mistake as to the fundamental nature of the contractual nature of the transaction can be a fundamental mistake (Bell v. Lever Bros) Fox asserts that this reasoning cannot apply to a payment contract, the intention is to pass title to the money regardless of the underlying contract. The invalidity of an underlying transaction does not invalidate the transfer of title (Belvoir Finance)
5. The amount of the asset (quantity) If the transferor does not intend to transfer the same quantity as they in fact transfer then there is no intention to pass title in relation to the excess. Handing over more money than had believed were handing over, there is no intention to hand over the excess so ownership retained as that is a fundamental mistake (Ilich)
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