This section is from the book "The Law Of Contracts", by William Herbert Page. Also available from Amazon: Commercial Contracts: A Practical Guide to Deals, Contracts, Agreements and Promises.
One who signs a written contract in ignorance of its contents, being able to read but relying on the representations of a third party, is bound thereby,1 as the doctrines of mistake apply, and not those of fraud.2 Thus where A signed a guaranty payable to B, relying on the representation of C, the principal debtor, that it was an application for a license, A can not avoid liability on the contract of guaranty.3 A agreed to sell a certain tract of land to X or order. X showed to B a different tract of land which was much more valuable than the tract which A had agreed to convey to X; and by means of such fraud A induced B to agree to purchase such land. A conveyed directly to B with the agreement of all the parties; and B paid to A the amount which X had agreed to pay, and paid the difference to X. It was held that B was not entitled to rescission of such transaction because of X's fraud.4 If A has a legal title to property of which B is the equitable owner, and B induces A to sign a mortgage containing a covenant by which A agrees to pay the principal and interest of the mortgage debt, by representing to A that such instrument is a deed, and A relies upon B's representation and does not read such instrument, A is bound by such covenant.5
4 California. Placer County Bank v. Freeman, 126 Cal. 90, 58 Ac. 388.
Iowa. Shenandoah First National Bank v. Hall, 169 la. 218, 151 N. W. 120.
Minnesota. Mackey v. Peterson, 29 Minn. 208, 43 Am. Rep. 211, 13 N. W. 132.
Missouri. Shirts v. Overjohn, 60 Mo. 305.
Nebraaka. Dinsmore v. Stimbert, 12 Neb. 433, 11 N. W. 872.
Ohio. Ross v. Doland, 29 O. S. 473; Winchell v. Crider, 29 O. S. 480.
In some of the foregoing jurisdictions, such contract would be enforceable in the hands of the wrongdoer because of the negligence of the defrauded party; and the negotiable character of the instrument is immaterial. See Sec. 234.
5 Martindale v. Harris, 26 O. S. 379.
Indiana. Rogers v. Place, 29 Ind.
577; Insurance Co. v. McWhorter, 78 Ind. 136; Robinson v. Glass, 94 Ind. 211.
Iowa. Meka v. Brown, 84 la. 711 [sub nomine: Meca v. Brown, in 45 N. W. 1041, 50 N. W. 46].
Kansas. Roach v. Karr, 18 Kan.529, 26 Am. Rep. 788; Greenfield's Estate, 14 Pa. St. 489.
Pennsylvania. Pennsylvania Ry. Co. v. Shay, 82 Pa. St. 198.
Vermont. Bishop v. Allen, 55 Vt. 423.
Wisconsin. Sanger v. Dun, 47 Wis. 615, 32 Am. Rep. 789, 3 N. W. 388, See to the same effect Spurgin v. Traub, 65 111. 170 (semble); Page v. Krekey, 137 N. Y. 307, 33 Am. St. Rep. 731, 21 L. R. A. 409, 33 N. E. 311.
2 See Sec. 336.
3 Page v. Krekey, 137 N. Y. 307, 33 Am. St. Rep. 731, 21 L. R. A. 409, 33 N. E. 311.
4 Reeves v. McCracken, 103 Tex. 416, 128 S. W. 805.
If not misled by the negligence or fault of the drawer, a banker must ascertain the identity of the payee of a check at his own peril.6 A owned a tract of land; and X wrongfully using A's name made an offer to B to act as agent for A in selling such land. B borrowed the money for the purchase from C and had the deed made to C as grantee; and mailed such deed to A. X obtained possession of such deed, executed it as A, acknowledged it, and presented such deed to the bank D with a demand for payment. As there was no money for that purpose in the bank, X requested the bank to telegraph to another bank with which B did business, demanding an immediate transmission of money by telegraph. To this such other bank replied by direction by telegraph to pay such amount to A, "if warranty deed is regular." D paid to X part of the payment in cash and part in a draft. X's deceit was subsequently discovered and payment on the draft was stopped. B demanded of D repayment of the amount of cash paid to X. It was held that D's mistake was due to B's lack of diligence and that B could not recover such amount from the bank.7
If the third party, however, is the agent of the adversary party to the contract, his fraud will be considered to be that of his principal.8
It has been said, however, that if the maker of the instrument owes no duty to the adversary party, he may avoid such instrument because of the fraud of a third person. If X has overdrawn his account with his banker A, and X thereupon induces B to sign a contract of guaranty for such overdraft by representing to B that such instrument relates to insurance, B is not liable to A on such contract, although he was negligent in signing it; since he owes no duty to A.9
5 Howatson v. Webb (1908), 1 Ch. 1, 4 B. R. C. 642, 77 L. J. Ch. N. S. 32, 97 L. T. N. S. 730 [affirming Howatson v. Webb (1907), 1 Ch. 537].
6 Murphy v. Metropolitan Natl. Bank, 191 Mass. 159, 114 Am. St. Rep. 595, 77 N. E. 693.
TBoataman v. Stockmen's National
Bank, 56 Colo. 496, 50 L. R. A. (N.S.) 107, 138 Ac. 764.
8 La Marche v. Ins. Co., 126 Cal. 496, 58 Ac. 1053.
9Carlisle & Cumberland Bkg. Co. v. Bragg (1911), 1 K. B. 489, 4 B. R. C. 653, 80 L. J. K. B. N. S. 472, 104 L. T. N. S. 121.