The effect of a successful plea of non est factum in respect of a signed agreement is that it is void, there having been a complete absence of consent by the signatory. Practitioners will no doubt have seen this plea made with increasing regularity but the test is a very stringent one as this article hopes to explain.
A person is bound by his or her signature
In Danske Bank A/S (t/a National Irish Bank Plc) v Madden, the plaintiff Bank sought judgment against the defendant in relation to a loan agreement. The plaintiff issued a facility letter dated December 8, 2005 which set out the terms on which a loan of some €1.3 million would be made available. The defendant signed this on December 12, 2005. In his judgment delivered on July 3, 2009, Mr Justice McGovern did not accept the defendant’s claim that he was the victim of undue influence on the part of his solicitor at the time when he entered into the loan agreement. The court found no evidence to show that the defendant was either a “vulnerable or dependent person”. The defendant was an established business man who retained his solicitor in the usual way. The court found that the defendant had applied for the loan, signed documents in support of the application, permitted his solicitor to make representations for that purpose and subsequently drew down the loan to the extent that it was paid to his solicitor with the defendant’s consent. The fact that the defendant signed the loan agreement was not disputed, although he claimed not to have read relevant documents. Subsequent to the drawing-down of the loan, the defendant was the victim of a fraud perpetrated by his solicitor, a Mr Thomas Byrne. However, in respect of his obligations to the plaintiff Bank, the court found the defendant to be liable. In the penultimate paragraph of his judgment, Mr Justice McGovern stated:
"In the absence of special circumstances, a person will be bound by their signature. The defendant signed a number of formal documents in order to obtain the loan from the plaintiff but claims that he did not read these documents. By signing these documents, he gave assent to their contents. He cannot simply repudiate these documents by saying he did not read them. If the courts were to permit this to happen, it would lead to chaos in the day-to-day workings of commercial life."
Accepting the consequences
In the later case of ACC Bank Plc v Kelly & Anor, the plaintiff sought judgment in relation to the outstanding balance of a loan entered into by the defendants which was expressed to be “repayable on demand”. At the trial, the defendants argued that they were unaware of the demand nature of the loan. In his decision delivered on January 10, 2011, Mr Justice Clarke found that the loan was clear in its terms and he was “not satisfied that any person taking the trouble to read the clause in question could have any difficulty in understanding what it meant”. His Lordship went on to state:
"It is ... no defence on the part of someone who has decided, for whatever reason, to sign a commercial banking document for that person to later turn around and say they did not understand what they were signing. If the person does not have an opportunity to properly read the document then they should insist on such an opportunity and should not sign the document until they have been given an adequate opportunity to read it. If they sign it without adequately reading it then they must accept the consequences. If having read it there are terms or provisions which they do not properly understand then again they should not sign it unless and until they have taken advice. If they do sign a document whose terms they do not fully understand without taking advice then again they must accept the consequences."
Of course, this general rule is not absolute, as Mr Justice Clarke made clear by stating:
"[I]f a bank or its officials actively mislead someone as to what the terms mean then matters may be different. If the written terms of a bank facility letter do not correspond with what was discussed between the parties in the sense that something different was agreed or where the financial institution concerned misrepresents the meaning of the agreement then the situation may again be different."
Special circumstances
This issue was considered again by Mr Justice Clarke in the more recent case of Ulster Bank Ireland Ltd v Roche & Anor. The second-named defendant, a Ms Buttimer, executed a personal guarantee in respect of a business run by the first-named defendant through a corporate entity. Both defendants were directors of the company, but while the second-named defendant was Mr Roche’s partner in the personal sense, she took no role in the business which concerned the motor trade. At all material times she was employed as a hairdresser on a modest salary. In evidence, Ms Buttimer accepted that the signature on the guarantee was hers. In his judgment delivered on March 29, 2012, and having referred to his decision in ACC Bank Plc v Kelly & Anor, Clarke J. stated:
"The fact is that Ms Buttimer signed a document without making any attempt to ascertain what it was or what its consequences might be. In the ordinary way, she has to bear responsibility for her own actions in so doing … She signed banking documents on behalf of a company which was owned by her partner and of which she was a director. Any bank receiving those documents is entitled to assume that she has committed herself to guarantee the loan referred to in the documentation."
In addition to misrepresentation, as identified by Clarke J, Ms Buttimer signed the guarantee in question while under the undue influence of the first-named defendant and that the relevant facts had placed the plaintiff Bank on inquiry. In the absence of the Bank having taken steps to ensure that the guarantee was openly and freely given, its claim against Ms Buttimer failed. In addition to misrepresentations, as identified by Clarke J. in ACC Bank Plc v Kelly, we see that undue influence may be one of the special circumstances where a person may not be bound by his or her signature. In other circumstances, even though a document undoubtedly carries his or her signature, a defendant may be able to plead that it is not his or her deed.
Non est factum - the test
The defence of non est factum was considered by Mr Justice Morris in Tedcastle McCormack & Co Ltd v McCrystal. The case concerned the plaintiff’s application for summary judgment in relation to oil products sold and delivered. The plaintiff relied on a guarantee dated August 20, 1996, whereby the defendant agreed that in consideration for the plaintiff supplying oil products to his company, he would personally pay any sum due and owing. By way of a defence to the claim under the guarantee, Mr McCrystal said that it was signed at a time when he was both physically and mentally ill. He claimed that he did not know he was signing a guarantee. He claimed that, at the relevant time, the plaintiff’s representative indicated to him that he was signing a “loyalty agreement” which should have been executed years earlier and he believed he was signing this. Evidence was given in relation to the defendant’s kidney transplant in 1996 and the fact that, two weeks after signing the document in question, he underwent surgery for a hiatus hernia. Evidence from the defendant’s consultant surgeon was that, in all probability, the defendant was suffering anxiety and depression at the time he signed the guarantee and was psychotic on some occasions when seen by his surgeon in 1996 and 1997. In examining the proofs required in relation to the defence of non est factum, Mr Justice Morris considered the House of Lords decision in Saunders v Anglia Building Society, and on the second page of his judgment, set out a three-part test as follows:
“… a person seeking to raise the defence of non est factum must prove:
- That there was a radical or fundamental difference between what he signed and what he thought he was signing;
- That the mistake was as to the general character of the document as opposed to the legal effect;
- That there was a lack of negligence i.e. that he took all reasonable precautions in the circumstances to find out what the document was.”
Applying the foregoing tests to the facts in the case, the court was satisfied that there was a radical difference between what the defendant signed and what he thought he was signing and that the mistake was as to the general character of the document. The court was also satisfied that, in view of his possible mental condition, there was a lack of negligence on his part and the defendant was granted liberty to defend the case at a plenary hearing.
A heavy burden of proof
The defence of non est factum was considered more recently by Mr Justice Kelly in Allied Irish Bank Plc v Higgins & Ors. Here, the plaintiff sought summary judgment for over €6 million against four defendants who were members of a partnership formed to acquire and develop certain lands in Co. Meath. Among the defences raised by the third-named defendant, a Mr Mansfield, was the plea of non est factum. Mr Mansfield contended that he signed the relevant letters of sanction believing them to be something else. Significant reliance was placed by him on evidence to the effect that his reading fluency had been assessed as that of a 7-year-old child. Tests by an educational psychologist found Mr Mansfield to have a very severe reading difficulty and to exhibit many characteristics of a person with dyslexia. Notwithstanding this, he recounted to the psychologist carrying out the test that he could fly a helicopter, although he could not take a written examination for a licence. The court heard, despite his alleged disability, that Mr Mansfield was a director of some 25 companies and had a good deal of experience in understanding commercial and financial matters. Intellectually, the defendant was of at least average intelligence as regards non-verbal reasoning. For the purpose of the application, Mr Justice Kelly accepted “that Mr. Mansfield is indeed under the considerable disability of having the reading age of a 7 year old”. The learned judge went on to repeat the three-part test set out in Tedcastle and quoted key passages from the 1971 decision in Saunders, emphasising the heavy burden of proof:
"In the course of his speech in Saunder’s [sic] case, Lord Reid having pointed out that there is a heavy burden of proof on the person who seeks to invoke this remedy went on to say: ‘The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the documents. Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisers without making any inquiry as to their purpose or effect. But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have such a belief unless he had taken the steps or been given information which gave him some grounds for his belief …"
Lord Hodson in the same case said:
"Want of care on the part of the person who signed a document which he afterwards seeks to disown is relevant. The burden of proving non est factum is on the party disowning his signature; this includes proof that he or she took care. There is no burden on the opposite party to prove want of care."
Applying the principles to the facts, Mr Justice Kelly found that AIB knew nothing of Mr Mansfield’s reading difficulty and the defendant did not tell the bank about it. The court held that Mr Mansfield could not be said to have taken any, still less all reasonable precautions to find out what the relevant documentation was before signing it. On that basis, the third element of the test set out in Tedcastle was absent and no arguable defence of non est factum was made out. Summary judgment, in full, was granted.
Non est factum re-stated
The High Court has recently re-stated the elements required for the defence of non est factum. In Friends First Finance Ltd v Lavelle & Anor, two related cases, being against a Mrs Charlotte Lavelle and her husband, Mr Peter Lavelle, were heard together before Mr Justice Charleton. The claim against the former was on foot of a loan agreement, and against the latter, on foot of his guarantee concerning his wife’s indebtedness to the plaintiff. It was accepted that Mrs Lavelle’s signature appeared on the relevant facility letter. The defendant’s signature was purportedly witnessed but the court accepted Mrs Lavelle’s evidence that she did not sign in front of the named witness. Mrs Lavelle pleaded non est factum whereas Mr Lavelle argued that his guarantee was dependent upon the validity of the principal contract. In his judgment, Mr Justice Charleton stated:
"For the correct legal application of the defence whereby a defendant in general is able to plead successfully in answer to a written contract that it is not his deed, I need go no further than the judgment of Kelly J. in Allied Irish Bank plc v. Higgins & Others [2010] IEHC 219."
Charleton J. quoted at length from Mr Justice Kelly’s decision including the three-part test identified in the Tedcastle case and the House of Lords decision in Saunders. The learned judge described the decision in Allied Irish Bank Plc v Higgins as “based on sound authority and of its origin is in itself firm precedent”. On the evidence before him, Mr Justice Charlton found that the financial institution in question had abrogated to Quinlan Private Investments responsibility in relation to the checking of, witnessing of, and personal signature of documents. The learned judge found that there was no meeting of minds and no meeting in person whereby Mrs Lavelle could truly be called a borrower as a matter of contract. He also held that the defence of non est factum had been made out. Having regard to the particular and somewhat unusual facts in the case, the court made it clear that, even if a non est factum defence had failed, Mrs Lavelle would have had a defence under s.38 of the Consumer Credit Act 1995.
Summary
In any given case where a non est factum defence is raised, other principles may well fall to be considered, such as mistake, misrepresentation or undue influence. Some commentators have suggested that such concepts may be more appropriate as a means of addressing the issues which arise in cases where non est factum is pleaded. Nevertheless, this stand-alone defence is undoubtedly one which can be raised. That said, the test is a stringent one and it is rare for the defence to succeed given the tension between the need for certainty in contractual relations and the potential that an agreement signed by one party is not theirs. Mr Justice Charleton summed up this point as follows:
"There are strong policy reasons underpinning the requirement for care in signing legal documents. The stringency of the test whereby liability may be resiled from reflects the proposition that those who enter into contractual relations on the basis of documents must take care as to what they are signing. I accept the commercial sense of the propositions which underpin the defence and note that chaos might be the result were defendants held to a less stringent circumscription of the defence."