This week I had to deal with a fictitious problem question on mistake. Presented here is the precise question and my advice.

The Problem:
Mrs. Caring advertised in a ladies magazine for a well-qualified nurse to assist her in looking after her baby son, Albert. She received a visit from someone in nurses’ uniform who, she thought, introduced herself as Miss Nappybucket, a well-qualified nurse known to Mrs. Caring by reputation. In fact, the visitor was Miss Nappyrash, who was completely unqualified but hoped to learn the job as she went along. Mrs. Caring was rather deaf and misheard the name given by her visitor. Mrs. Caring offered the visitor a two-year contract at a salary of £ 20,000 per annum. Miss Nappyrash accepted, and Mrs. Caring paid her two months salary in advance. Miss Nappyrash then produced a form which she said it was necessary for Mrs. Caring to sign in connection with the payment of National Insurance contributions. Mrs. Caring signed what she thought was the form, not noticing that Miss Nappyrash had hidden another form underneath, which Mrs. Caring in fact signed. The form was a guarantee of Miss Nappyrash’s overdraft with Floyd’s Bank.

Mrs. Caring has discovered her mistake concerning Miss Nappyrash’s identity and terminated the contract with her. She wishes to recover the two months salary paid in advance. Meanwhile, she has received a letter from Floyd’s Bank demanding payment of sums due under the guarantee of Miss Nappyrash’s overdraft.

Advise Mrs. Caring.

My advice:

The case in question requires Mrs Caring to plead under unilateral mistake of identity for her contract with Nappyrash and non est factum, namely 'it is not my deed', for the guarantee she signed. A plea of unilateral mistake of identity involves the claimant proving that he/she made a mistake of “identity” which caused him/her to contract; that it was not a subjective mistake, and to satisfy an objective appreciation of the parties' face to face dealings and circumstances. The existence of an operative/actionable mistake of identity will render the contract ‘void’, although ‘voidable’ for misrepresentation. The rule non est factum is restrictive. A successful plea under this rule renders the document void ab initio.

A contract may be oral or written and culminates in an offer by one party that is accepted by the other. Whether the contract is ‘in writing’ is a crucial question, so as to attract the presumption upheld by the majority in the Shogun Finance Limited v Hudson^[1] case that if the mistake is sufficient to constitute an actionable mistake of identity, the consequence is that the contract is void. Construed narrowly, this is confined to dealings which are “exclusively conducted in writing”, and where there is “some form of personal contact”, the presumption in the “face-to-face” cases should be applied.^[2]

The minority speeches delivered by Lords Nicholls and Millett in Shogun suggest a general result in the contract being not void for mistake but only voidable for the fraudulent misrepresentation of identity. They approved the approach used in the face-to-face cases and proposed to extend it to all contracts: “a person is presumed to intend to contract with the person with whom he is actually dealing, whatever be the mode of communication”.^[3] As long as there is in fact an offer and acceptance between the parties, and one party has not intercepted a communication directed at another person,^[4] there will normally be a contract (although voidable for fraud) whether the transaction is negotiated orally or in writing.^[5] In their speech they further suggest that the presumption may be in practice, or even in law, irrebuttable, approving the approach of Lord Denning in Lewis v Averay^[6], which appeared to deny that a contract can ever be void for mistake.

The three distinct elements of misrepresentation are that the representation must be an unambiguous false statement of fact or law, it must be addressed to the party misled, and it must be an inducement to entry into the contract and possibly it must also be material. In Derry v Peek, ^[7] Lord Herschell established three propositions. The first is that there must be proof of fraud and nothing short of that is sufficient. The second is that fraud is proved when it is shown that a false representation has been made (i) knowingly or (ii) without belief in its truth or (iii) recklessly, careless whether it be true or false. Unreasonableness is evidence of dishonesty and does not of itself constitute fraud (Angus v Clifford ^[8]). Thirdly, if fraud is proved the motive of the person guilty of it is immaterial.

Inducement to entry into the contract requires a reasonable person test. If the misrepresentation would have induced a reasonable person to enter into the contract, then the court will presume that it did induce the representee to enter into the contract and the onus of proof is then placed on the representor to show that the representee did not in fact rely on the representation (County NatWest v Barton^[9])

Where the contract is in writing, there is a heavy burden on a party seeking to displace the normal and objective meaning of the written document and a greater degree of objectivity in its interpretation is needed. The rule in L' Estrange v Graucob^[10] holds that in general a person is bound by their signature to a document, whether or not they have read or understood the document. In the unlikely event of a fundamental mistake about the nature of the document, the plea of non est factum, namely that 'it is not my deed' may sometimes be available. The rule applies in circumstances where a person had signed a document believing it to be something totally different from what it actually was. Inducement to sign a contractual document by fraud or misrepresentation, means that the transaction will only be voidable.

A successful plea under non est factum renders a document void. For this two factors have to be established: (1) the signer was not careless in signing and (2) there is a radical difference between the document which was signed and what the signer thought he was signing.

A case where there was no positive mistake but mere ignorance is the case of Gillman v Gillman^[11] and where the requirement of care disqualifies a claimant who signs a document in blank leaving another to fill in the details (United Dominion’s Trust Ltd v Western^[12]). The decision of the House of Lords in Saunders v Anglia Building Society^[13] is the leading case and demonstrates the difficulty of applying a defence of non est factum.

In 3-party cases where the contest is between two innocent parties, the claimant’s carelessness is directly relevant to the question of who should bear the loss. Waddams (1999) provides a helpful example: A is induced to sign an irrevocable guarantee of a loan to B for £ 10,000 with interest at 25%, having been told by B that the document is an application for a library card. If C advances £ 1,000 to B in good faith of the document without knowledge of A’s mistake, C should be protected to the extent of the advance. But there is no reason to allow C, after knowledge of the fraud, to advance the remaining £ 9,000 (thereby inflating A’s liability under the guarantee). This, according to Chen-Wishart (2007), is consistent with the defence of change of position in the law of unjust enrichment where A’s claim to avoid the guarantee for mistake should be subject to C’s innocent change of position in respect of the £ 1,000. No further sums advanced qualify once C knows of A’s mistake.

In light of the authorities cited hereinbefore, the facts of the present case are evaluated here.

Mrs. Caring advertised in a ladies magazine for a well-qualified nurse to assist her in looking after her baby son, Albert. Subsequently she received a visitor named Miss Nappyrash and offered the visitor a two-year contract at a salary of £ 20,000 per annum, which she accepted.

It is well to state at once an important point with regard to contracts which seems to be well established. It is of paramount importance that contracts should be observed, and that if parties honestly comply with the essentials of the formation of contracts, they are bound by them.^[14]

Questions that arise are whether (1) Mrs. Caring’s clear and unequivocal offer matched an equally clear and unequivocal acceptance to form a contract^[15] and (2) there was “some form of personal contact”.

On the facts it cannot be construed that the dealings between Mrs. Caring and Nappyrash were conducted in writing so as to constitute to an actionable mistake of identity. Conversely the present case is one that involved face-to-face dealing. The law as it stands is found in Shogun^[16] and holds that where there is some form of personal contract, the presumption in the “face-to-face” cases should be applied.^[17]

Thus, although Mrs. Caring entered into the contract believing that the visitor was Miss Nappybucket, a well-qualified nurse known to her by reputation, it will be presumed that she intended to contract with Nappyrash with whom she was actually dealing, identified by sight and hearing.^[18] In such a case there will normally be a contract. Rebuttal will only be possible in wholly exceptional cases (e.g. Where the fraudster impersonates a person known to the mistaken party whose senses are impaired). Furthermore, there is no indication of Nappyrash physically intercepting a communication that was sent to another person in the concerned offer and acceptance process. This in Shogun was construed to be different from cases where A directs his communication B, but (because of the mistake of identity) intends it for C (e.g. Bolton v Jones^[19]).

Nappyrash introduced herself by her own name and on this point it is clear that she as the user of the name intended to identify herself by the name, as the specific individual who she is. Even so, completely unqualified and hoping to learn the job as she went along, she did not have to wear a nurse's uniform in visiting Mrs. Caring, but she represented herself as a nurse on the occasion in question. Nappyrash was not a nurse and by wearing a nurse's uniform she has made a false representation of her status. The advertisement sought to contract with a well-qualified nurse and nothing less to assist Mrs. Caring in looking after her baby son. Hence, to contract with a nurse was a materiality. It is possible that a reasonable person seeking a qualified maternity nurse would be induced to enter into contract with a visitor in nurses’ uniform. A uniform represents and symbolizes a person with a particular and identifiable group of people with specific skills. Therefore the court is likely to presume that Nappyrash in wearing a nurses’ uniform did induce Mrs. Caring to enter into the contract. It is then upon Nappyrash to prove that Mrs. Caring did not in fact rely on her representation.

For the knowledge which it is existed here Nappyrash made a false representation by wearing a nurses' uniform which in itself proves fraud. Once fraud is proven her motive is immaterial^[20] and she can be found to have misrepresented herself.

The present contract is thus voidable for misrepresentation. The representee, in this case Mrs. Caring, can elect either to rescind or to affirm the contract. If Mrs. Caring decides to rescind by way of ‘Rescission for misrepresentation’, the contract can be set aside for all purposes, both retrospectively and prospectively to restore, as far as possible, the parties to the position which they were in before they entered into the contract, and hence the two months salary paid to Nappyrash in advance is fully recoverable.

Mrs. Caring’s signature on the gurarantee form is certainly an entry into a completely separate and written contract. As a general rule whether or not she read or understood the document, she is bound by her signature. The words in a written/formal document are capable of (objective) interpretation, and courts are reluctant to allow a party to adduce evidence of the negotiations, or of her own understanding about the document, to add to, vary or contradict the written terms.^[21] No doubt a guarantee is very different from a National Insurance Contributions form which she thought she had signed. Mrs. Caring may be able to rely on the only exemption to the strict rule in L' Estrange v Graucob^[22] which is the defence of non est factum. The doctrine of non est factum (‘this is not my deed’) can void a contract and any transfer of rights under it. It is very restrictively available and for a successful plea under the rule, Mrs. Caring must prove that (1) she was not careless in signing and (2) there is a radical difference between the document which was signed and what she thought she was signing.

Although in point of fact, the present case satisfies the second limb of the test, that there is a clear and radical difference between the form she thought she was signing and the guarantee form she in fact signed, Mrs. Caring must meet the first requirement of the test, that she was not careless in signing. The only impairment Mrs. Caring claimed to have suffered from was that she was rather deaf. However, being rather deaf alone it is unlikely to meet the very high threshold of the impairment of the claimant set in other successful cases.

In Saunders v Angilia^[23] it was held that non est factum cannot normally be relied upon by literate persons of full capacity and holds that it applies to ‘those who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate incapacity’, or from being tricked. The present case, so far as the facts are concerned, exactly resembles the case of Saunders v Anglia^[24] in which the court rejected relief for the widow for her carelessness in not reading the document that she signed. It seems but reasonable that the requirement of care would disqualify Mrs. Caring for relief under a defence of non est factum. 

In a three party case like that of the present, the relief is much weaker and the Court is likely to balance against protection of the innocent third party. The bank that relies on the document as a good-faith creditor ought to be protected and Lord Wilberforce in Saunders v Anglia^[25] said that:

“A party who has induced another to contract by misrepresentation should not be better off than an innocent third party to whom he has sold the property acquired under the contract”.^[26]

Shewed that where Waddam’s (1999) hypothetical example resembles the present and is consistent with the defence of change of position in the law of unjust enrichment, Mrs. Caring’s claim to avoid the guarantee for mistake should be subject to the Bank’s innocent change of position in respect of sums overdrawn by Nappyrash; no further sums advanced qualify once the Bank knows of Mrs. Caring’s mistake.

On the facts, the contract with Nappyrash is voidable for misrepresentation and Mrs. Caring will be allowed to rescind the contract. A defence of non est factum is likely to be rejected for the guarantee signed. Mrs. Caring is liable for the sums overdrawn by Nappyrash until the mistake is brought to the bank’s notice.

End of file.