Every so often, a debtor is faced with the inevitable, but holds
on to any defence available, no matter how untenable it might be.
The non est factum defence, which we have discussed previously (see
October 2014, October 2011, June 2002, and April 2002), is used
when a person signs a debt obligation, but does not understand what
was being signed. The latest case in which the debtor raised this
defence was Bulut v. Carter, a 2014 decision of the Court
of Appeal for Ontario.
Creditor had various business dealings with debtor. In 2006,
debtor's corporation signed a $300,000 promissory note in
favour of creditor. Debtor personally guaranteed the note. In
addition, three other members of debtor's family also
guaranteed the note. It seems that creditor did not have faith in
the financial ability of debtor's corporation to repay the
note. Creditor's fears were realised when debtor's
corporation defaulted under the note. Creditor made demand under
the note and guarantees in October 2006, a mere six months after
the loan was given, and two months later, debtor's corporation
Debtor's corporation claimed that creditor had advanced
funds to debtor's corporation in 2004 and that the 2006 note
related to the 2004 advance. Accordingly, debtor claimed that the
promissory note and guarantees did not arise out of a fresh advance
of money. The trial judge found that creditor had advanced the
$300,000 in 2006. In addition, the trial judge and the Court of
Appeal noted that the 2006 promissory note was given to ensure that
debtor's corporation could continue to engage in business
dealings with creditor. Accordingly, both levels of court held that
there was a valid and enforceable promissory note.
The real defence arose from the claim of debtor's family
members that, when they signed the promissory note, they did not
understand what they were signing. The trial judge accepted that
defence and dismissed the action against the family members.
The Court of Appeal noted that the defence of non est factum
"is available to someone who, as a result of
misrepresentation, has signed a document mistaken as to its nature
and character and who has not been careless in doing
The court had to determine whether the family members had set
out sufficient facts to fall within that test. The family
members testified that they believed they were signing the
guarantee in their capacity as shareholders of the corporation,
rather than personally. They said that debtor had instructed them,
on an urgent basis, to go to the office of the lawyer who
represented all parties, for the purpose of signing some documents.
They did so. They said that they did not know what they were
signing and did not understand that they were personally
guaranteeing the indebtedness of the debtor's corporation.
The court first noted that, "on their own evidence, the
Carter family members were careless in signing the document that
consisted of one page. The Carter family members did not read it.
They did not ask any questions about it. They did not ask for an
opportunity to obtain independent legal advice. The court then
noted that misrepresentation is essential to a defence of non est
factum and that the family members could not demonstrate they
signed the guarantee due to any misrepresentation. They testified
that they were not told anything about the document other than to
The court held that, based on the evidence of the family
members, they failed to meet both of the pre-conditions necessary
to establish the defence. Accordingly, the court allowed the appeal
and granted judgment against the family members.
This case was unusual in that the defence actually made it past
the trial judge. Normally, it does not get that far.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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