NON EST FACTUM SOME RECENT DEVELOPMENTS (Based on Gallie v. Lee and appeals)*

NON EST FACTUM SOME RECENT DEVELOPMENTS (Based on Gallie v. Lee and appeals)* THE COMMON law doctrine of non est factum the plea by which a man sought to be charged in some action or proceeding upon a writing alleged to have been sealed and delivered by him avers that it is not his deed on the applicability of which judicial opinion has been in conflict, was reviewed and restated by the House of Lords in the recent case of Saunders (Executrix of the Estate of Rose Maud Gallie, deceased) v. Anglia Building Society. 1 Their Lordships made a wide ranging review of the doctrine from its inception in the sixteenth century. 2 to the present. In the course of the judgement 17 cases were referred to. 3 Having found that the earlier law on the subject was "in a state of some confusion" their Lordships proceeded to formulate clear general propositions for the future. The propositions are significant for their bearing on the plea of non est factum and on the law of contract in general. A study of the propositions would, therefore, be profitable both from the academic and practical point of view. The appellant was the executrix of one Mrs. Rose Maud Gallie who executed a deed which she believed was a gift of her house to her nephew Parkin, but which was in fact an assignment of sale ofthe house to one Lee for 3,000 (the money was never paid). Lee mortgaged the property to the respondents, Anglia Building Society, for 2,000, but defaulted on mortgage instalments. The Building Society claimed possession of the house. Gallie filed an action and asked for a declaration that the assignment was void. She pleaded non est factum on the ground that she had mislaid her spectacles and did not read the document, but signed it on the faith of the representations made to her by Lee. Stamp, J., found that Mrs. Gallie was misled by Lee as regards the character and contents of the deed and held that "... the deed which the plaintiff signed was not her deed...", non est factum* The Court of Appeal reversed the decision of Stamp, J., and gave judgement for the building society. 6 The House of Lords affirmed the decision of the Court of Appeal and held that the plea of non est factum which would make the assignment void against the building society had not been established. 6 * (1968) 1 W.L.R. 1190; (1969) 1 All E.R. 1062; (1970) 3 W.L.R. 1078, 1. (1970) 3 W.L.R. 1078. 2. See, the Thoroughgood case (1582) 2 Co. Rep. 9b. 3. In addition, 20 cases were cited in arguments. 4. Gallie v. Lee (1968) 1 W.'L:R. 1190 at 1199, 5. (1969) 1 All E.R. 1062. 6. (1970) 3 W.L,R, 1078,

596 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 13:4 Stamp, J., found that the assignment was of a different character and class from that which it was represented to be and from that which Gallie intended to execute. Relying on Cundy v. Lindsay, 1 where a misrepresentation as to the identity of a contracting party was held to result in there being no contract, Stamp, J., observed that the identity of parties is one of the factors to be considered in ascertaining its character and description. In the Court of Appeal Lord Denning, M.R., rejected the character and contents approach ; he considered the distinction to be not valid because "a document takes its class and character from its contents." Instead he differentiated the consequences between non est factum on the one hand and fraud or mistake an the other, on the basis of two propositions : (a) where the document is not that of the signatory, i.e., non est factum, it is a nullity, and not even an innocent third party who takes without notice can claim title under it. (b) where the signature is not denied but was obtained by fraud or mistake, the document is only voidable and not void; if an innocent third party pays out money on faith of it, he can enforce it against the maker. Lord Denning's view was that a man who failed to read a document and signed it should not be allowed to repudiate it as against an innocent purchaser, and that the signer's remedy was against the person who actually deceived him. The rule was formulated by Lord Denning thus : Whenever a man of full age and understanding, who can read and write, signs a legal document then if he does not take the trouble to read it, but signs it as it is relying on the word of another as to its character or contents or effect, he cannot be heard to say that it is not his document. By his conduct in signing it he has represented to all into whose hands it may come, that it is his document; and once they act upon it as being his document, he cannot go back on it and say it was a nullity from the beginning. 8 The House of Lords arrived at the same conclusions though their reasonings were different. According to the House of Lords, Lord t)enning's statement ofthe rule was "too absolute and rigid" and needed amplification as well as qualification. In tracing the development of non est factum, their Lordships approved the formulation of the doctrine given by Byles, J., a hundred years ago in Foster v. Mackinnon, 9 as containing the "essential features" of the doctrine. In Foster v. Mackinnon, the defandant was induced to put his name upon the back of a Bill of Exchange by the fraudulent representation of 7. (1878) 3 App. Cas. 459. 8. Supra note 5 at 1072. 9. (1869) L.R. 4 C.P. 704,

1971] NON EST FACTUM SOME RECENT DEVELOPMENTS 597 the acceptor that he was signing a guarantee. In an action against him as indorsee at the suit of a bona fide holder for value the defendant pleaded non est factum. The jury were directed that if the indorsement was not the signature of the defendant, or if, being his signature it was obtained upon a fraudulent representation that it was a guarantee and the defendant signed it without knowing that it was a bill and under the belief that it was a guarantee, and if the defendant was not guilty of any negligence in so signing the paper, he was entitled to the verdict. The jury returned a verdict for the defendant. Allowing the defendant's plea of non est factum to succeed, Byles, J., laid down the rule thus : " if there be no negligence, the signature so obtained is of no force; and it is invalid not merely on the ground of fraud where fraud exists, but on the ground that the mind of the signer did not accompany the signature; in other words, that he never intended to sign, and therefore in comtemplation of law, never did sign, the contract to which his name is appended." 10 This statement ofthe doctrine, however, was not complete, and needed further development to suit the more complex situations which arose in modern life. The developments considered by their Lordships in the present case related to the problem of ascertaining (a) whether the signer intended to sign the document as it actually was, (b) whether there was negligence on the part of the signer, (c) the difference between the actual document and that which the signer believed it to be. A. Intention According to the views expressed by the Court of Appeal in Carlisle and Cumberland Banking Co. v. Bragg, 11 the true test otnon est factum was whether signature followed the consenting mind or intention ofthe signer. Kennedy, L.J., said " a consenting mind is essential to the making of a contract '\ 12 According to Buckley, L.J., the true way of ascertaining whether a deed was a man's deed was to see whether he attached his signature "with the intention that which preceded his signature should be taken to be his act and deed". 13 In Saunders v. Anglia Building Society, the House of Lords distinguished the subjective test from the objective test to ascertain the intention of the signer, i.e., the intention which a man has in his own mind, as distinct from the intention which he manifests to others. According to Lord Pearson, the doctrine of non est factum inevitably involved the application of the subjective test though in certain cases both subjective and objective tests produced the same results for the reason that the signer's intention was to sign the deed placed before him whatever it might be, e.g., when a person signed a deed placed before him by dis solicitor. 10. Id. at 711. 11. (1911) 1 K.B. 489. 12. Id. at 497. 13. Id. at 495.

50$ JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 13 :4 In a case where the intention of the signer is clear there is no basis on which non est factum can be successfully pleaded. For instance, where a busy managing director, while signing "blind" a pile of documents arranged before him by his secretary, signs also a document fraudulently inserted in the pile which involves him in unexpected personal liability, he should not be entitled to shift the burden of loss to an innocent third party. The plea would thus be limited to cases where the intention of the signer is not clear. B. Negligence The second development which needed consideration related to negligence. Negligence meant only carelessness and had no special connotations. Further, it was always a question of fact. As regards the legal effect of negligence, their Lordships cited with approval and regarded as "simple and satisfactory" the rule in Foster v. Mackinnon, namely, that a person who had signed a document differing fundamentally from what he believes it to be would be disentitled from successfully pleading non est factum if the signing was due to his own negligence, i.e., carelessness and overruled the principles laid down in the more recent case of Carlisle and Cumberland Banking Co. v. Brdgg. u The action in the latter case was upon a document which purported to be a continuing guarantee by the defendant up to a certain amount, of the payment due to the plaintiffs, by one Rigg, of any sum which might at any time thereafter become due from him to the plaintiffs on the general balance of his banking account with them. The defendant denied that he signed the guarantee upon which the action was brought, non est factum, and alleged that if he did, his signature was fraudulently obtained by Rigg, who falsely represented to him that the document was a mere proposal for an insurance. The evidence showed that the signing took place when the defendant Bragg, and Rigg were drinking together and that Bragg did not read the document. Affirming the decision of Pickford, J., the Court of Appeal gave judgment for the defendant. The Court of Appeal was of the view that the rule regarding negligence as laid down in Foster v. Mackinnon was not one of general applicability. It had reference only "to the particular case of a negotiable instrument". According to Vaughan Williams, L.J., the finding of negligence by thejury was immaterial. Buckley, L.J., said that negligence had nothing to do with the question whether the deed was in fact the deed of the defendant, and that "Negligence has only to do with the question of estoppel". The House of Lords rejected these views and held that Carlisle and Cumberland Banking Co. v. Bragg was wrongly decided, inasmuch as a "distorted" view of the meaning and effect of negligence was adopted in deciding the case. Their Lordships observed that negligence in the context of non est factum had to be distinguished from estoppel. Negligence distinguished from estoppel: It was not correct to say 14. Supra note 11.

1971] NON EST FACTUM SOME RECENT DEVELOPMENTS 599 that in relation to the plea of non est factum, negligence operated by way of estoppel. The term 'estoppel' was unsuitable, in this context for several reasons: (a) Estoppel in the normal sense of the word does not arise from negligence; it arises from a representation made by words or cpnduct; (b) the requirement that the representation must be intended to be acted upon may cause difficulties; (c) Estoppel does not accord with the rule that an innocent third party who paid money on the faith of a negligently signed document should not have to prove that the signer owed a duty to him or that the signer's negligence was the proximate cause ofthe money being paid; (d) the rule that estoppel must be pleaded and proved by the party relying on it could, in a plea of non est factum, put the burden of proof on the wrong party. In this context their Lordships approved the statement of Salmon, L.J., in the Court of Appeal that when a person was precluded, on account of his own negligence in signing a document, from escaping from the consequences thereof it was not a true estoppel but an illustration of the principle that no man might take advantage of his own wrong. Though negligence meant only lack of care, their Lordships observed that it was difficult to define what amounted to a lack of care. What was required of a person who signed a legal document was "reasonable care", and what amounted to reasonable care depended on the circumstances of each case and the nature of the document that was being signed. The onus of proof that reasonable care was taken rested upon the signer. C. What should be the degree of difference between the actual document and what the signer believed it to be? Their Lordships explained in some detail to what extent or in what way there must be a difference between the actual document and that which the signer believed he was signing. Older authorities had made a distinction between the character or class and contents ofthe documents. A difference in the character or class ofthe actual documents from what the signer thought it was would be sufficient for the plea of non est factum to succeed, while a difference only in contents of the two documents would be insufficient. This distinction stemmed from the decision of Warrington, J., in Howatson v. Webb 15 where the defendant, a solicitor's clerk, pleaded that a mortgage deed executed by him was not his deed but that he did it under the belief that it was an ordinary conveyance which transferred property he held as a nominee of the solicitor. The plea was not accepted. Warrington, J., said that if the signer was aware of the essential nature of the document and was only mistaken as to its contents, he could not rely on non est factum. 15. (1907) 1 Ch. 537. ~~

600 JOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 1J : 4 The distinction between character and contents as the basis for deciding whether a plea of non est factum may be allowed to succeed was followed in later cases also. In Muskham Finance Ltd. v. Howard and Another, n where the defendant, hirepurchaser of a motor car, signed an indemnity form in the belief that it was release of his rights as hirepurchaser of the same car under another hirepurchase agreement, the Court of Appeal held that the plea of non est factum must be allowed because the actual document was "wholly different in its class and character" from that which the signer intended to sign. Dovovan, L.J., observed that the misrepresentation had to be of the character and class of the document and not simply as to its contents. 17 The House of Lords observed that though the distinction was sometimes helpful it was not satisfactory for two reasons : (d) It has been difficult to apply in practice; (b) If applied as a rigid rule it was likely to produce unreasonable results. Further the greater importance given by the older authorities to difference in practical result than to difference in the legal character of the documents made the rule more unsatisfactory. Thus the question as to what extent or in what way there must be a difference between the document which the signer thought he was signing and the document as it actually was had to be answered by the application of some other criteria. The criteria as laid down by their Lordships are based on the principle of "fundamental difference" between the two documents. The principle was expressed in different ways by the Law Lords. According to Lord Reid, there must be a "radical" difference between what the signer signed and what he thought he was signing. " one could use the word 'fundamental' or 'serious' or 'very substantial'. But what amounts to a radical difference will depend on all the circumstances." 18 Lord Hodson said that the difference to support a plea of non est factum must be "in a particular which goes to the substance of the whole consideration or to the root of the matter." 19 According to Viscount Dilhorne, the document should be "entirely or fundamentally different" from what it was thought to be; it would not suffice if in some respect the document would have a different legal effect from what it had, or if in some respects it departed from what the signer thought it would contain. 20 Lord Wilberforce said that a document should be held to be void only when the element of consent to it was totally lacking, i.e., when the transaction which the document purported to effect was essentially different "in substance or in kind" from the transaction intended. Other adjectives 16. 17. 18. 19. 20. (1963) 1 All. E.R. 81. Id. at 83. (1970) 3 W.L.R. 1078 at 1082. Id. at 1084. Id. at 1087.

1971 ] NON EST FACTUM SOME RECENT DEVELOPMENTS 601 viz., "basically" or "radically" or "fundamentally" could also be used in relation to the degree of difference required. 21 Lord Pearson said that one had to use a "more general phrase such as 'fundamentally different' or 'radically different' or 'totally different," but did not expand the term. 22 The new principle of 'fundamental difference' was, however, only a general test and needed to be amplified in three ways: (a) where a person was induced by fraud to sign a document it was void for lack of consent though fraud by itself might only make the contract voidable. (b) where innocent third parties paid money on the strength of a document, the signer could not escape the consequences if he did not inform himself of is purport and effect. (c) the signer was not excused if he did not care to take ordinary precautions against being deceived. 23 On the basis of the principles discussed above, it would appear that while there may be cases in which non est factum can be successfully pleaded such cases are likely to be extremely rare. The rules as regards non est factum which would emerge from the House of Lords' judgment in Saunders v. Anglia Building Society may be summarised as follows: (1) The broad principle underlying the doctrine, that when a person of full capacity signed a legal document which was intended to have legal consequences without caring to read it but relying on the word of another as its character he could not deny that he signed it or say that it was a nullity, was too absolute and rigid and hence needed qualification. (2) The plea of non est factum would not succeed if either there was negligence of the signer, or if there was no fundamental difference in character between the actual document and that which the signer believed it to be. (3) There would be a proper case if the person who signed the document was, for permanent or temporary reasons, incapable both of reading and sufficiently understanding the document. (Incapability to detect a fundamental difference between the actual document and what the signer believed it to be would be a sufficient reason.) (4) In a plea of non est factum the person who signed the document should have the burden of proving that his signature was not brought about by negligence on his part. (5) For the plea of non est factum to be available there should be a fundamental or radical difference between what the signer believed he was signing and the document as it actually was. 21. 22. 23. Id. at 1090-1091. Id. at 1103. Id. at 1091.

662 JO URNAL OF THE INDIAN LA W INSTITUTE [Vol. 13:4 (6) 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 document. (7) The plea cannot be available to a person whose mistake was really a mistake as to the legal effect ofthe document. (8) The signer is not excused for not taking such precautions as he reasonably can. He cannot be heard to say that he signed in reliance on someone he trusted. Changes effected Prima facie the plea of non est factum would apply when the person sought to be held liable did not in fact sign the document. But it is the extensions made in the application of the doctrine so as to enable a person who in fact signed a document to say that it was not his deed that gave rise to confused state of the doctrine. Since it was not possible to reconcile all the decisions, their Lordships tried only "to extract the principles on which most ofthe authorities were based." It was also necessary to see that possible extensions were kept within "narrow limits" so as not to shake the confidence of those who rightly relied on signatures when there was no ostensible reason to doubt their validity, e.g., a creditor relying on the signature of a company director. In the earlier stages of the development of the doctrine only those unable to read owing to blindness or illiteracy and who, therefore, had to trust someone to tell them what they were signing could benefit by the rule. The rule has now been extended by the present decision to apply also to those who are permanently or temporarily unable by reason of (a) defective education, (b) illness, (c) innate incapacity to understand the purport of a particular document. The decision has emphasized that there would be no excuse for persons who sign any document without taking all reasonable precautions, and that a heavy burden of proof would lie on the person who sought to plead non est facum, especially in cases where an innocent third party would suffer loss if the plea was allowed to succeed. Their Lordships have pointed out that, in general, a person of full capacity could not be heard to say that he was too busy or too lazy or that he signed relying on someone he trusted. The existing rule that a person of full capacity could, however, plead that the document was not his in very exceptional circumtances, e.g., when he was led to believe that it was not one which affected his legal rights, has been retained. According to earlier authorities, a person's deed was not his if his mind did not go with his pen. This would no longer be a statement of the rule since their Lordships considered it to be far too wide. Instead it would be for the person who sought the remedy to prove conclusively why he should have it. The present decision is particularly important as regards the effect of "negligence" in relation to the plea of non est factum. It had been laid

19711 NON EST FACTUM SOME RECENT DEVELOPMENTS 603 down in Carlisle and Cumberland Banking Co. v. Bragg that negligence in signing would not prevent a person from denying that the document was his unless the document was a negotiable instrument. This dictum is now overruled. In future negligence (i.e. carelessness) will be relevant irrespective of the nature of the document. A person who signs a legal document has to take care what he signs. No extra care, however, is required but only that of a "normal man" of prudence. It has also been pointed out that negligence in relation to a plea of non est factum is different from estoppel. The decision has made it clear that the plea of non est factum requires "clear and positive evidence" before it can be established, and that it must necessarily be kept within "narrow limits." The "fundamental difference" approach adopted by the House of Lords provides a development in the rule. The five Law Lords have individually explained what they meant by "fundamental difference." The definitions, however, it is respectfully submitted, are not sufficiently clear. No objective criteria to decide whether there is a 'fundamental' difference have been laid down, and it is left to the Courts to determine in each case in the light of all the circumstances. The new approach does, however, make it clear that the plea of non est factum should be available only in fewer cases or circumstances. In substance the test of "fundamental difference" does not differ from that which was applied in Thoroughgood's case and in Foster v. Mackinnon (1869). It has, however, moved from the 'character' and 'contents' distinction and can be better understood in modern practice. The character and contents approach, however, does not appear to be completely disregarded. There has been no unanimity of opinion in this regard. Lord Hodson thought that "The distinction is a valid one in that it emphasizes that points of detail in the contents of a document are not to be relied upon in support of a plea of non est factum." 1 * But according to Lord Wilberforce the distinction was " terminologically confusing and in substance illogical..." 25 One aspect of the present decision is that Carlisle and Cumberland Banking Co. v. Bragg will no longer be an authority as regards non est factum. Lord Wilberforce has mentioned that that case was wrong both in the principle it stated and in its decision, and that "it should no longer be cited as an authority for any purpose". 26 The effect of a mistake as to the identity of one of the parties to a contract has also not been made clear. One ofthe grounds for the decision of Stamp, J., in Gallie v. Lee was mistaken identity. But in the Court of Appeal Lord Denning, M.R., was emphatic that the plea of non est factum would not be acceptable simply because there was a mistake in the identity of the contracting party. The Master of the Rolls said that he had doubts about the theory that in the law of contract mistake as to the identity ofthe 24. Id. at 1084. 25. Id. at 1090. 26. Id. at 1092.

664 SOURNAL OF THE INDIAN LA W INSTITUTE [Vol. 13:4 person rendered the contract a nullity, but that whatever might be the merits ofthe rule in contract, he was clear that "it has no application to the plea of non est factum.'" A ruling on this point by the House of Lords would have been welcome. The decision of the House of Lords is on the whole welcome. It sounds a caveat to those who sign documents relying on the word of someone else, and makes it clear beyond any doubt that a person of full capacity who signs a legal document without taking the trouble to inform himself of what the documents purport to do cannot be heard to say that it is not his deed. K. G. Phillip* * M.A., LL.M. (Bombay), M. Phil. (London),