Legal Blog

Don’t Understand

One of the most over-used and, perhaps, the least understood defence in the arsenal of a defendant is the defence of non est factum. That Latin nugget literally means, “It is not my deed.” More generally, it means, “I did not understand the nature of the document I executed.” The latest case to discuss the concept was National Bank of Canada v. Picton, a 2002 Ontario Superior Court of Justice decision.

Trust 

In 1990, purchaser X purchased a rooming house and took title “in trust.” Purchaser X executed a trust declaration that indicated that purchaser X was purchasing the land in trust for both purchaser X and purchaser Y. Part of the purchase price was the assumption of a mortgage. The mortgagee approved the purchase and the approval was in the names of both of the purchasers. However, purchaser Y did not actually sign any documents.

The mortgagee renewed the mortgage in 1996 and both purchasers executed the renewal. The renewal stated that all terms and conditions of the mortgage remained in force except as amended by the renewal agreement.

At the beginning of the renewed term, purchaser X went bankrupt. Purchaser Y continued making the mortgage payments and collecting the rent but, in 2000, failed to make the payments. The mortgagee sold the property under the power of sale provisions in the mortgage and sued purchaser Y for the deficiency of  $28,000. 

One would have thought that purchaser Y would have attempted to make the best deal he could get and take his losses with stoicism. Not a chance, he defended.

Can’t Remember 

Remember that 1996 mortgage renewal to which we referred? Purchaser Y could not remember it, although he acknowledged his signature on it. He certainly could not recall whether he read it and, of course, complained that he received no independent legal advice. Therefore, in all the circumstances, he argued, he should not be bound by it. Non est factum.

The mortgagee read this wonderful defence and brought a motion for summary judgment, alleging that purchaser Y did not raise a genuine issue for trial.

Wasted Money 

The judge noted that a defence based only on an allegation that the defendant did not read a document was no defence at all. There must be something more; for example, an allegation that the defendant was tricked and thought he was signing a lease when it was really a mortgage renewal. There was no allegation that the document was fundamentally different from the document purchaser Y knew he was signing. The fact that he was irresponsible in not reading the document was not the mortgagee’s problem.

Once the judge disposed of the non est factum issue, the issue of no independent legal advice followed on its heels. The concept of independent legal advice arises only in the context of a substantive defence, such as non est factum or duress; it is not a defence unto itself. A defendant can claim that he did not understand the document and lacked independent legal advice. However, if the defendant knew the nature of the document, the lack of independent legal advice is irrelevant.

It was not mentioned in the reasons for decision but we think that the entire issue regarding the renewal was a red herring. Purchaser Y was a beneficial owner of the property. Purchasers X and Y purchased the property and assumed the mortgage. Section 20(2) of the Mortgages Act states that a mortgagee has a right to recover the mortgage debt against a grantee in title, if the original mortgagor has, by express covenant or otherwise, a right to require the grantee to indemnify it for any liability it has under the mortgage. This has been liberally interpreted and, accordingly, the section catches almost every purchase in which a mortgage is assumed. Therefore, purchaser Y became liable to the mortgagee upon the purchase in 1991.

Half Liable 

As a last-gasp bit of nonsense, purchaser Y asserted that since he was only a 50% beneficial owner in the property, he was, therefore, only liable for 50% of the debt. Unfortunately for him, the standard charge terms stipulated that the liability for the debt was joint and several. The judge held that if purchaser Y had wanted to limit his liability, he ought to have made that limitation part of the assumption agreement before the purchase was completed.

Result 

This case should never have been defended. It cost purchaser Y his own legal fees and probably all of the legal fees of the mortgagee’s lawyers. The defence was doomed to fail from the outset.