India: "Non Est Factum" The Paradox in Contract Law

Every contract springs from a legally enforceable agreement between the parties reflecting the identity or meeting of minds, generally referred by the Latin phrase, consensus ad idem. If either or both the parties to the contract err in the understanding of any essential term of the contract, apparently, there would not be any consensus ad idem. To have a blanket rule categorically rendering such agreements unenforceable, may actually trigger more problems than it may aim to solve by the blatant abuse of the rule with impunity. To prevent such abuse of the legal provisions, the common law has evolved some sophisticated set of rules dealing with mistake.

One kind of mistake that give the courts difficulty involves a party who mistakes the kind of contract being signed. Suppose a person signs away the deed to a house, thinking that the document signed was only a guarantee for another person’s debt or an attestation of a will as a witness. Under contract law, in such situations, the person who has signed, under the mistaken impression as to the nature of the document, might be able to plead non est factum in a court and on that basis seek the assistance of the court to avoid the contract. The Latin phrase non est factum literally means "it is not his/her deed." It is a special defence in contract law to allow a person to avoid the stipulations in a contract that she may have signed because of certain reasons such as mistake as to the kind of contract.

The "more-than-a-century-old" doctrine was applied to circumstances when people were illiterate and therefore could not read what they were signing. The doctrine provided a remedy when a document had been forged, when it was quite "literally" true to say that "it was not my deed". But the doctrine also applied to situations where someone had signed due to fraudulent representations or had not an inkling of an idea as to what she was signing.

The case of Foster v. Mackinnon¹, led to the evolution of the modern approach to non est factum. The defendant was induced to affix his signature on the reverse of a bill of exchange under the mistaken belief that he was signing a guarantee. The rationale and essential aspects of this doctrine are best described by Byles, J.:

The judiciary in almost all the common law countries were consistent in their averments that "the plea of non est factum is a plea which must necessarily be kept within narrow limits" applicable only when the element of consent to it (contract) is totally lacking, i.e. more concretely, when the transaction, which the document purports to effect is essentially different in substance and in kind from the transaction intended. The judiciary has limited its application with abundant caution and strictness so as "not to shake the confidence of those who habitually and rightly rely on signatures when there is no reason to doubt their validity."

In modern times, it has very limited application³ and the law on this subject was completely reviewed and restated by the House of Lords in Sounders v Anglia Building Society.⁴ In that case it was held that in exceptional circumstances, the plea was available so long as the person signing the document had made a fundamental mistake as to the character or effect of the document. Their Lordships appear to have directed their minds to the disparity between the effect of the document actually signed and the document as it was believed to be. It was also held that the disparity must be "radical", "essential", "fundamental", or "very substantial".

However, as the Supreme Court of India has opined, "(T)he distinction based on the character and contents of a document is not without its difficulties in its practical application; for, in conceivable cases the 'character' of the document may itself depend on its contents."⁵ Hence, it becomes imperative to resolve this difficulty on a case by case basis depending on the facts of each case rather than by applying any generic principle uniformly governing all cases.

In all cases where the plea of non est factum is raised, the judiciary will have to strike a balance between the two conflicting needs – viz., relief to the signer of a document (whose consent is totally lacking) and protection to innocent third party (who may have acted on the "apparently regularly and properly executed document"). Consequently, a heavy onus is placed on the person who pleads non est factum to prove that not only was there a lack of consent but also there was no lack of negligence.

The position regarding the allowance of the plea of non est factum has been well-established and is followed with regular uniformity in several common law countries. In a recent case from Singapore, The First National Bank of Chicago v How Lee Realty Pte Ltd [1981] 1 MLJ 183, an illiterate lady had signed a deed of guarantee but she was not aware that it was for an unlimited amount. The contents were never explained to her by either the attesting lawyer or the bank. D'Cotta, J of the Singapore High Court held that the signer of the document succeeded in establishing non est factum and the plaintiff's claim against the illiterate defendant was dismissed. The learned Judge said that the burden of establishing non est factum is a heavy burden which lies on the person seeking to avail himself of it.

Even in the remote Solomon Islands in the Pacific Ocean, the law is the same as can be seen from, Maeaniani v Saemala, [1982]. The defendant had signed a document stating that he had received money from the plaintiff as full settlement for his land. He later refused to execute the transfer document and the plaintiff sued for specific performance. The defendant said that he had not read the document, as he was illiterate. He alleged that it had been explained to him as being a document concerning a loan by the plaintiff to the defendant to purchase tools and equipment to build a house on the land as a joint enterprise. Daly, C.J. of the Solomon Islands High Court took account of the fact that the defendant was a carpenter and builder, who had lived and worked in the capital for twenty-five years, before returning to Malaita Island. He operated a number of taxis in the capital, was articulate and intelligent, and could be described in the broader sense as a business man. The court based the decision on policy: to allow rescission in such a case would breed uncertainty in the market place.

Avon Finance Co. Ltd. v. Bridger⁶ illustrates the strict application of the plea of non est factum. In this case, the parents had signed a document drafted by their only son purportedly for their mortgage with the building society which in actuality was a charge on their retirement home for loan borrowed by the son from a finance company. Their plea for non est factum was not accepted by the Court of Appeal as the parents had not exercised reasonable care in entering into the transaction.

Similar is the English Court of Appeal’s judgment in Norwich & Peterborough Building Society v. Steed (1993). In that case, A, the owner of a property signed a power of attorney authorizing his mother B to represent him in all matters during his stay in the US. C, the sister of A tricked the mother B to sign a deed transferring the property to C. C then mortgaged the property. Here, the mother pleaded non est factum claiming that the transfer and the subsequent charge on the property were void ab initio. From the evidence adduced, it was clear that the mother had no opinion at all as to what the document was about and as such she had not been under any mistake as to the nature or character of the document that she had signed. The court went further to comment that the owner A had been careless in appointing his mother B as his attorney, since it was clear that she had been incapable of understanding the legal significance of the powers conferred on her by the power of attorney or the implications of signing the document transferring title to her daughter, C!

In In re Beanev. Decd⁷., the deceased, who was suffering from an advanced state of senile dementia for three years, had executed a transfer to her eldest daughter of a house which represented her only asset of value. Her other two children sought the declaration that the transfer was void on the ground that the mental state of the deceased was such that the deceased was unable to understand that she was giving away her only asset of value absolutely to her eldest daughter. Martin Nourse, QC, (as he then was) granted the declaration and explained the legal principle to apply in such cases:

In India, the Supreme Court turned down the application of this plea in Ningawwa v. Byrappa Hirekurabar, where a husband had obtained without any misrepresentation as to the nature of the deed the signature of his wife to a gift deed, but had altered the contents of the deed to include two more plots of land under the gift deed.

In Dularia Devi v. Janardan Singh⁹, the plaintiff affixed her left thumb impression to a document under the bona fide belief that she was executing a gift deed only. But in fact she had executed two documents, one, a gift deed and another, a sale deed. She honestly believed that the instrument which she executed and got registered was a gift deed in favour of her daughter. She did not know that she executed two documents, one of which alone was the gift deed, but the other was a sale of the property in favour of all the defendants. The Supreme Court held that it was a case of fraudulent misrepresentation as to the character of the document executed by her and not merely as to its contents or as to its legal effect. "The plaintiff-appellant never intended to sign what she did sign. She never intended to enter into the contract to which she unknowingly became a party. Her mind did not accompany her thumb impressions."

In Selvarasu Kounder v.Sahadeva Kounder¹⁰, when an eighty- years old, illiterate man signed an already written document with "absolute faith and confidence" in his only son’s representation that the document was a will to come into effect after his death whereas in reality it was a document of partition of his property, the Madras High Court held the execution of the partition deed was void.

In Mathu v. Cherchi, the Kerala High Court held that the plea of non est factum would not be available to an able bodied person too busy to read the contents and had not taken sufficient care, except where he had been a victim of fraud.

Thus, it can be seen that the plea of non est factum can be used only as a shield for protecting innocent signatories to a contract and cannot act as a sword to harm the interests of innocent third party.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.