Saunders v Anglia Building Society (sub nom Gallie v Lee) [1970] UKHL 5 (09 November 1970)

An elderly widow assigned her leasehold property to a fraudster believing she was signing a deed of gift to her nephew. The building society had advanced money on the property's security in good faith. The House of Lords dismissed her plea of non est factum, holding the document was not fundamentally different from what she intended.

Facts

Mrs Gallie, aged 78, owned a long lease of a house. She intended to give the property to her nephew Parkin so he could raise money on it. Lee, a friend of Parkin, presented a deed of assignment to Mrs Gallie for her signature. Lee fraudulently told her it was a deed of gift to her nephew. Mrs Gallie had broken her spectacles and could not read the document. Without asking for it to be read to her, she signed it, trusting her nephew who was present. The document was actually an assignment of the property to Lee for a fictitious price of £3,000. Lee subsequently mortgaged the property to the Anglia Building Society, obtaining a loan of £2,000. The Building Society acted in complete good faith with no knowledge of any irregularity.

The Arrangement

Parkin had arranged with Lee that the property would be transferred to Lee, who would raise money on it and make payments to Parkin or his partner. However, Lee failed to honour this arrangement and used the borrowed funds to pay his own debts.

Issues

The central legal question was whether Mrs Gallie could successfully plead non est factum against the innocent Building Society, thereby rendering the assignment void rather than merely voidable. This required consideration of:

Key Questions

• Whether the document Mrs Gallie signed was fundamentally or radically different from what she believed she was signing
• Whether the distinction between ‘character’ and ‘contents’ of a document remained a valid test
• Whether Mrs Gallie’s failure to take precautions precluded her from relying on the plea
• Whether negligence in signing a document should be assessed by reference to a duty of care owed to third parties

Judgment

The House of Lords unanimously dismissed the appeal, holding that Mrs Gallie could not succeed on the plea of non est factum against the Building Society.

The Character/Contents Distinction

Their Lordships rejected the rigid distinction between the ‘character’ and ‘contents’ of a document that had developed since Howatson v Webb. Lord Reid stated that there must be a ‘radical difference’ between what the signer signed and what they thought they were signing, using equivalent terms such as ‘fundamental’ or ‘very substantial’. Lord Wilberforce held that a document should be void only when the transaction it purports to effect is ‘essentially different in substance or in kind’ from the transaction intended.

Application to the Facts

Russell LJ’s reasoning in the Court of Appeal was approved. The essential character of the document Mrs Gallie intended to execute was one that would divest her of her property so that the transferee could deal with it, particularly by borrowing money on its security. Her evidence showed she understood Lee and Parkin were jointly concerned in raising money on the property. The identity of the transferee (Lee instead of Parkin) did not make the deed of a ‘totally different character’ from what she intended. The ‘object of the exercise’ – enabling money to be raised on the property – would have been fulfilled had Lee honoured his arrangement with Parkin.

Negligence and Care

Their Lordships overruled Carlisle & Cumberland Banking Co v Bragg [1911] 1 KB 489, which had held that negligence could only defeat the plea if there was a duty of care owed to the third party. Lord Wilberforce stated that the correct rule is that a person who signs a document and parts with it has a responsibility to take care what he signs, which if neglected prevents him from denying liability under the document. The onus of proving the absence of negligence rests on the person seeking to invoke the plea.

Scope of the Plea

The plea of non est factum must be kept within narrow limits. Lord Pearson confirmed it should be available for relief of persons who, for permanent or temporary reasons (not limited to blindness or illiteracy), are not capable of both reading and sufficiently understanding the document. However, there would not be a proper case if the signature was brought about by the signer’s negligence or the actual document was not fundamentally different from what the signer believed it to be.

Implications

This decision significantly clarified and reformed the law on non est factum. The abandonment of the rigid character/contents distinction in favour of a more flexible test of ‘fundamental’ or ‘radical’ difference allows courts to consider all circumstances, including the practical effect of the transaction intended versus the transaction effected. The overruling of Bragg removed the requirement that negligence be established by reference to a specific duty of care owed to third parties, instead placing the burden on the signer to show they took reasonable care in the circumstances. The case emphasises that persons who sign legal documents must bear responsibility for them, and the plea will rarely succeed for those of ordinary understanding who fail to read documents they are capable of reading.

Verdict: Appeal dismissed. The plea of non est factum failed. Mrs Gallie could not avoid the assignment against the innocent Building Society because the document was not fundamentally different from what she intended to sign, and she had not taken reasonable precautions before signing.

Source: Saunders v Anglia Building Society (sub nom Gallie v Lee) [1970] UKHL 5 (09 November 1970)