The defence of non est factum renders a signed agreement void and unenforceable. It is commonly pleaded by desperate defendants trying to evade a contract. However, because of its strict requirements the defence is generally confined to cases where the defendant was unable to read the agreement - for example, due to illiteracy. Two cases show that even illiteracy, by itself, may not be enough.
The first, Gadhri1, is an extremely complex BC case that involved three separate actions and took five years to resolve. It arose from a real estate development and joint venture between Raj Gupta (a realtor) and Harmadan Gadhri (a developer), two formerly close friends. Mr. Gadhri asked the court to declare several agreements void because he did not know the English language or real estate development well enough to understand the agreements he had signed.
The British Columbia Supreme Court considered the defence of non est factum and noted that the defence has three elements: 1) the defendant bears the burden of proving the defence on a balance of probabilities; 2) the defendant must show the signed document is fundamentally different from what the defendant believed he or she was signing; and 3) even if such a fundamental difference is shown, the defendant must not have been careless in failing to take reasonable precautions before signing the document.
The Court in Gadhri ultimately held that the defence was not made out. The testimony at trial showed that Mr. Gadhri was an experienced businessperson, capable of understanding agreements and documents in English. He was also advised to seek legal advice before signing any of the agreements. Thus, his claim that he would sign a document without reading or understanding it was not believable.
Interestingly, the Court noted that even if Mr. Gadhri truly had substantial difficulties with English, he had access to people who could advise him in Punjabi (his primary language). Ultimately, the Court found that various signed agreements were binding.
The second case, 1468025 Ontario2, involved two companies controlled by a son and father, respectively. The plaintiff son sought to enforce a loan agreement against the defendant company and his father. The defendants pleaded non est factum. In particular, the father claimed that at the time he signed the loan agreement, he was 68 years old with a limited capacity to read English, and a grade one education (having spent four years at that grade level).
The Ontario Supreme Court accepted that the father had a limited education and limited reading skills. Despite that, the Court held that the father was literate enough be able to (and in fact did) understand the general nature of the signed agreement. In any event, the father’s own version of events was no better. He signed the agreement without attempting to read it and without asking any questions, despite the fact that he was in a law office at the time, with a lawyer he was comfortable with. Under this version of events, the Court found he was careless.
Lenders should of course still follow all of their existing internal protocols to ensure illiterate individuals understand the general nature of the loan and security documents presented to them to sign. However, these two cases show that in the majority of cases, pleading non est factum will be the legal equivalent to pulling the goalie for an extra attacker in a hockey game; reserved for special circumstances and only rarely successful.
1 Gadhri v. 0760815 B.C. Ltd., 2016 BCSC 521 [Gadhri]
2 1468025 Ontario Limited v. 998614 Ontario Inc., 2015 ONSC 7216, aff’d 2016 ONCA 504 [1468025 Ontario]