Monthly Nutshell: Mistake relating to documents (Contract law)

No comments, posted on October 31, 2012

This month in our series of monthly bitesize extracts from Nutshells revision guides,  we have an outline of Mistake Relating to Documents in Contract Law.

Non Est Factum

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As a general rule, a person is bound by his or her signature to a document, whether or not they have read or understood the document; L’Estrange v Graucob, 1934. Where a person has been induced to sign a contractual document by fraud or misrepresentation, the transaction will be voidable.

In the absence of such mistake, the plea of non est factum (not my deed) may be available. The plea is an ancient one and was originally used to protect illiterate persons. It eventually became available to literate persons who had signed a document believing it to be something totally different from what it actually was.

Thus, in Foster v Mackinnon, 1869, the defendant, a senile man with poor eyesight, was induced to sign a document which he was told was a guarantee. In fact, it was a bill of exchange upon which the claimant ultimately became entitled. It was held that the defendant, who had not been negligent, was not liable on the bill; the plea of non est factum succeeded.

An unrestrained right to raise the plea would lead to abuse and uncertainty and so the courts have placed two restrictions on the right to raise the plea,

(i) the signer’s mistake as to the nature of the document must be fundamental or radical; and

(ii) the signer must not have been careless in signing the document.

With regard to (i), the courts originally took the view that the plea was not available where the signer’s mistake was merely as to the contents of the document rather than as to its character or class; Howatson v Webb, CA, 1908. This test was not a realistic one and was substituted by the House of Lords in Saunders v Anglia Building Society, HL, 1971. The test is now that there must be a fundamental or radical difference between the document actually signed and what the signer believed it to be.

With regard to (ii), the Court of Appeal had ruled in Carlisle and Cumberland Banking Co v Bragg, CA, 1911 that negligence on the part of the signer only defeated the plea if the document was a negotiable instrument. The distinction was illogical and Bragg’s case was overruled by Saunders; the position is now that the plea cannot be raised by a signer who has been careless.

Example: In Saunders v Anglia Building Society, an elderly widow wished to transfer the title of her house to her nephew by way of gift. Her nephew and a man named Lee prepared a document assigning the property to Lee and asked her to sign. She signed it unread as she had lost her spectacles and trusted her nephew. Lee mortgaged the property to the Building Society and disposed of the moneys raised for his own use. He defaulted on the repayments and the Building Society sought possession of the house. Saunders (the widow’s executrix) sought a declaration that the assignment to Lee was void by reason of non est factum.

In the view of both the Court of Appeal and the House of Lords, the plea could not be raised because:

(i) the transaction the widow had entered was not fundamentally different from what she intended at the time she entered it; and

(ii) she had been careless in signing the document; she could at least have made sure that the transfer was to the person intended by her.

The effect of Saunders v Anglia Building Society is, if anything, to restrict further the circumstances in which the plea of non est factum can be successfully raised.

Rectification

Where the parties are agreed on the terms of the contract but by mistake record them incorrectly in a subsequent written document, the remedy of rectification may be available. The court can rectify the error and order specific performance of the contract as rectified. The remedy is an exception to the parol evidence rule as oral evidence is admissible to show that the written document is in error.

In order to obtain rectification the following must be established:

(1) There must be a concluded antecedent agreement upon which the written document was based. The agreement need not necessarily be a finally binding contract; Josceleyne v Nissen, 1970.

(2) The written document must fail to record what the parties had agreed.

In Frederick E. Rose (London) Ltd v William H. Pim Co Ltd, CA, 1953, the parties had contracted for the sale of a type of horsebean and the written contract referred to “horsebeans”. The goods delivered were not of the type the parties had in mind. Rectification was refused since the written contract correctly recorded what the parties had agreed.

(3) The written document must fail to express the common intention of the parties. However, if one party mistakenly believes the document gives effect to that intention and the other party is aware of this mistake but nevertheless is guilty of sharp practice in allowing the contract to be executed, rectification may be ordered; A. Roberts Co v Leicestershire CC, 1961.

(4) It must be equitable to grant the remedy; in particular, it will be refused where third parties have acquired rights on the faith of the written contract.

This is an extract from Nutshells Contract Law by Robert Duxbury, available from bookstores and Amazon.co.uk.

Nutshells and Nutcases are the original revision and starter guides with content from Sweet & Maxwell and Westlaw UK. Nutshells are an ideal starter guide to the subject, giving a full overview, while Nutcases give an in-depth case analysis of the facts, principles and decisions of the most important cases.

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