Supreme Court of Canada
Prudential
Trust Company Ltd. v. Cugnet, [1956] S.C.R. 914
Date:
1956-10-02
Prudential Trust Company Limited And Canuck Free
Hold Royalties Limited (Plaintiffs) Appellants;
and
Edmond G. Cugnet And Raymond A. Cugnet (Defendants)
Respondents.
1956: May 25; 1956: October 2.
Present: Taschereau, Locke, Cartwright, Fauteux and Nolan JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN
Contracts—Validity and binding effect—Non est factum—Circumstances
supporting plea—Whether plea may be asserted against subsequent assignee for
value of other party's rights under contract.
H, acting as agent for A. Co., persuaded C to sign what was
represented to be a mere grant of an option of mineral rights, but was in fact
an assignment and transfer of a share in those rights. A. Co. later assigned
all its rights of this nature to one of the plaintiff companies (the other
company being a bare trustee for it). In an action brought to establish the
plaintiffs' rights under the agreement, the defendants (C and his son, the
purchaser under an agreement for sale), pleaded non est factum.
Held (Cartwright J. dissenting): The defendants were
entitled to succeed, and the assignment should be held void ab initio.
Per Taschereau, Fauteux and Nolan JJ.: The
representation having been as to the nature and character of the document, and
not merely as to its contents, the mind of the defendant did not go with his
hand, although he knew that he was dealing with his mineral rights. Carlisle
and Cumberland Banking Company v. Bragg, [1911] 1 K.B. 489, applied; Howatson
v. Webb, [1907] 1 Ch. 537; [1908] 1 Ch. 1, distinguished. The document was
void ab initio, and any option contained therein and which, admittedly,
the defendant agreed to grant and for which he received payment, could not be
severed and must fall with the rest of the transaction.
Per Locke J.: The plea of non est factum would
clearly have been available to the defendants if the action had been brought by
A. Co., on whose behalf H was acting. Negligence on C's part would not estop
him from setting up that defence as against the plaintiffs, since a person
signing a document other than a negotiable instrument owed no duty to the
public at large, or to other persons unknown to him who might suffer damage by
acting upon the instrument on the footing that it was valid in the hands of the
holder. Carlisle and Cumberland Banking Company v. Bragg, supra, followed.
In any event the proximate cause of the damage was the fraudulent act of H.
Per Cartwright J. (dissenting) : Even if
the misrepresentation could be said to have been as to the nature of the deed,
the negligence (i.e. lack of reasonable care) of the defendant in
signing and sealing it without reading it prevented him from asserting the
defence of non
[Page 915]
est factum as against the plaintiffs which gave
valuable consideration on the strength of the deed. The rule is that, generally
speaking, a person who executes a document without taking the trouble to read
it is liable on it and cannot plead that he mistook its contents, at all events
as against a person who acting in good faith in the ordinary course of business
has changed his position in reliance on such document. The defence operates in
the case of a blind or illiterate person as an exception to that rule, but does
not extend to a case such as the present.
In so far as the Bragg case decides that the rule that
negligence excludes a plea of non est factum is limited to the case of
negotiable instruments and does not extend to a deed such as the one at bar, it
should not be followed.
APPEAL by the plaintiffs from the judgment of the Court
of Appeal for Saskatchewan ,
affirming the judgment at trial .
Appeal dismissed.
J. L. McDougall, Q.C., for the
plaintiffs, appellants.
D. G. McLeod, for the defendants, respondents.
The judgment of Taschereau, Fauteux and Nolan JJ. was
delivered by
Nolan J.:—This
is an appeal from the judgment of the Court of Appeal for Saskatchewan , unanimously affirming the
judgment of the learned trial judge .
The appellant Prudential Trust Company Limited (hereinafter
referred to as the appellant Prudential) is a trustee on behalf of the other appellant
Canuck Freehold Royalties Limited. The respondent Edmond Cugnet is a retired
farmer who emigrated in 1902 from France to the Weyburn district in Saskatchewan.
The respondent Raymond Cugnet is his son.
On October 31, 1949, the respondent Edmond Cugnet granted
petroleum and natural gas leases to Rio Bravo Oil Company Limited in respect of
the south-east quarter of section 27 and to Bandy Lee in respect of the
north-west quarter of section 27, both in township 7, range 13, west of the
second meridian.
On November 1, 1950, the appellant Prudential entered into
an agreement with one Lamarr, whereby the company agreed to act for him as
trustee of such mineral rights in petroleum, natural gas and related
hydrocarbons as he
[Page 916]
might purchase or lease from owners in Saskatchewan and
agreed to file caveats in its own name in the various land titles offices
against the titles of the registered owners to protect such interests as he
might acquire.
Subsequently Lamarr incorporated Amigo Petroleums Limited,
in which he owned all the shares, which company sent out agents to purchase
petroleum rights and to obtain oil leases from the owners, the documents being
taken in the name of the trustee, the appellant Prudential.
One Nickle acquired, by assignment, the beneficial interest
of Amigo Petroleums Limited in the petroleum rights so purchased or leased and,
in turn, assigned his interests so acquired to the appellant Canuck Freehold
Royalties Limited.
On May 1, 1951, an agreement was entered into between the
appellant Canuck Freehold Royalties Limited and the appellant Prudential,
whereby the latter agreed to hold in trust properties which had already been
acquired.
It is not in dispute that the appellant Prudential is a bare
trustee for the appellant Canuck Freehold Royalties Limited.
On January 26, 1951, one Edward W. Hunter, acting as an
agent of Amigo Petroleums Limited, called upon the respondent Edmond Cugnet at
his home in Weyburn, Saskatchewan. At the time of this visit the respondent was
playing cards in the sitting room and Hunter told him that he wanted to talk
about mineral rights, whereupon they both went into another room. Hunter then
told the respondent that he wanted an option in respect of the mineral rights on
the north-west quarter and the south-east quarter of section 27 and offered to
pay $32 on each of the quarter-sections for an option to take a petroleum and
natural gas lease, such lease to take effect upon the expiration of the leases
previously granted to Rio Bravo Oil Company Limited and Bandy Lee, and $32
yearly rental for each of the quarter-sections when the option was exercised
and the petroleum and natural gas lease granted.
After a short conversation between them, the respondent Edmond
Cugnet signed a document entitled "assignment", wherein he assigned
and transferred to the appellant Prudential an undivided one-half interest in
all petroleum,
[Page 917]
natural gas and related hydrocarbons in and under the said
lands, subject to the terms and conditions of the petroleum and natural gas
lease covering the said lands, and agreed to deliver to the appellant
Prudential, as assignee, a registrable transfer of such interest. The
respondent also granted to the appellant Prudential an exclusive option to acquire
a petroleum and natural gas lease covering the said lands for a term of 99
years, to be computed from the date of the assignment, upon the termination of
the current petroleum and natural gas lease. At the same time the respondent Edmond
Cugnet executed a transfer, in favour of the appellant Prudential, of an
undivided one-half interest in all of the mines and minerals within, upon or
under the lands in question, reserving thereout all coal.
After the execution of the documents by the respondent Edmond
Cugnet, Hunter left, taking the documents with him, and on January 29, 1951, the respondent Edmond Cugnet received from the appellant Prudential a copy of the
assignment and also a cheque for $64. The respondent Edmond Cugnet did not read
the assignment or the transfer when they were executed by him, nor did he read
the copy of the assignment when it was returned to him by the appellant
Prudential.
On February 2, 1951, the appellant Prudential registered a
caveat against the lands in question in the land titles office at Regina as
instrument no. F.C. 2281.
On September 21, 1951, a letter was sent by the solicitors
of the respondent Edmond Cugnet to the appellant Prudential, complaining about
the transaction and requesting that the assignment and transfer be returned to
them. On April 3, 1952, the respondent Raymond Cugnet, a son of the other
respondent, filed a caveat against the titles of the lands in question, based
upon an agreement for sale between his father as vendor and himself as
purchaser, which agreement was entered into on November 12, 1945. On January 22, 1953, the registrar of land titles at Regina, pursuant to a requirement
directed to him by the respondent Raymond Cugnet, gave notice to the appellant
Prudential that the caveat of that company would lapse unless there was filed
with him within 30 days a judge's order providing that
[Page 918]
the caveat continue beyond that period. The appellant
Prudential obtained a judge's order continuing the caveat for an additional
period of 30 days and providing for further continuance if, within the said 30
days, it brought an action to establish its rights under the caveat and filed
with the registrar a certificate of lis pendens issued in the same
action. In the result, this action was commenced and the certificate of lis
pendens filed.
At trial it was contended on behalf of the appellants that
the evidence adduced on behalf of the respondents did not establish a plea of non
est factum as to the documents in question and that the transaction between
Hunter, in the name of the appellant Prudential, and the respondent Edmond Cugnet
was voidable and not void and that the appellant Canuck Freehold Royalties
Limited was a bona fide purchaser for value without notice and was
entitled to the interest in the lands in question specified in the assignment
and to a transfer of an undivided one-half interest in the petroleum and
natural gas within, upon or under the said lands. In the alternative, the
appellants contended that the appellant Canuck Freehold Royalties Limited was
entitled to the option as specified in the assignment.
The respondents took the position that the transaction was
not merely voidable, but void ab initio, and that a plea of bona fide
purchaser for value was of no assistance to the appellant Canuck Freehold
Royalties Limited. They further contended that in any event, irrespective of
misrepresentation, there was no consensus ad idem between the parties
and no agreement between them, or that the agreement, if any, was void for
uncertainty.
The learned trial judge, who was favourably impressed with
the evidence of the respondent Edmond Cugnet, found that he never intended to
complete the assignment and transfer, as they now appear in the record, and
relied on the misrepresentation of Hunter that the documents he was asked to
sign constituted only the granting of an option. Hunter was not called as a
witness at the trial, his whereabouts being unknown. The learned trial judge
further found that the respondent Edmond Cugnet was mistaken as to the nature
and character of the assignment and transfer and that this mistake was induced
by the fraudulent
[Page 919]
misrepresentation of Hunter, the agent of the appellant
Prudential. In the result, the learned trial judge held that : the plea of non
est factum was established and that the documents were void.
With respect to the submission on behalf of the appellants
that Canuck Freehold Royalties Limited was a purchaser for value without notice
of the fraud inducing the signing of the documents, the learned trial judge
held that, while the evidence supported this submission, the rights of Canuck
Freehold Royalties Limited were invalid and unenforceable because the documents
were void. Further, the learned trial judge refused to give effect to the
submission on behalf of the appellants that in any event Canuck Freehold
Royalties Limited was entitled to the rights under the option granted by the
respondent Edmond Cugnet and contained in the assignment, on the ground that
the whole transaction, as evidenced by the documents, was void and the
documents themselves were in a like position. The judgment of the learned trial
judge, dismissing the action of the appellants, declared that the assignment
and transfer were void and of no effect and ordered that they be delivered up
to the respondent Edmond Cugnet for cancellation, and directed that the caveat
and certificate of lis pendens be vacated.
From that judgment an appeal was taken to the Court of
Appeal and by a unanimous judgment the appeal was dismissed on the ground that
the plea of non est factum, as found by the learned trial judge, must be
sustained. The Court of Appeal granted special leave to appeal from that
judgment to this Court.
In the Courts below the appellants relied on Howatson v.
Webb ,
affirmed on appeal .
In that case the defendant Webb, who was formerly the managing clerk to one
Hooper, acted as his nominee in a building speculation relating to certain
property of which Hooper was the owner. Shortly after leaving Hooper's
employment he was requested by Hooper to execute certain deeds, and, on asking
what those deeds were, he was told by Hooper that they were deeds transferring
the property in question, and the defendant thereupon signed them. One of the
deeds
[Page 920]
so signed was a mortgage between the defendant, as
mortgagor, of the one part, and one Whitaker, of the other part, and contained
the usual covenant by the mortgagor for payment of principal and interest. In
an action by the transferee of the mortgage for payment of the principal debt
and interest the defendant pleaded non est factum. It was held that the
misrepresentation being only as to the contents of a deed known by the
defendant to deal with the property, the plea failed and that the defendant was
liable on the covenant. Warrington J. at p. 549 said:—
What does the evidence in the present case shew? I may go so
far in the defendant's favour as to say that Webb, having regard to his
knowledge of Hooper, when Hooper said that the deeds were "deeds for transferring
the Edmonton property," was justified in believing that they were deeds
such as a nominee could be called upon to execute either in favour of a new
nominee or for the purpose of putting an end to his own position of nominee,
and certainly not a deed creating a mortgage to another person. But in my
opinion that is not enough. He was told that they were deeds relating to the
property to which they did in fact relate. His mind was therefore applied to
the question of dealing with that property. The deeds did deal with that
property. The misrepresentation was as to the contents of the deed, and not as
to the character and class of the deed. He knew he was dealing with the class
of deed with which in fact he was dealing, but did not ascertain its contents.
The deed contained a covenant to pay. Under those circumstances I cannot say
that the deed is absolutely void. It purported to be a transfer of the
property, and it wars a transfer of the property. If the plea of non est
factum is to succeed, the deed must be wholly, and not partly, void. If
that plea is an answer in this case, I must hold it to be an answer in every
case of misrepresentation. In my opinion the law does not go as far as that.
The defence therefore fails.
The appellants contend, on the authority of Howatson v.
Webb, that, while the respondent Edmond Cugnet was indifferent and careless
as to what he signed, nevertheless he is bound by what he did sign and cannot
successfully maintain a plea of non est factum.
The respondents rely on Carlisle and Cumberland Banking
Company v. Bragg ,
where the facts were that the defendant, who pleaded non est factum, signed
a document which purported to be a continuing guarantee by him, up to a certain
amount, of the payment by one Rigg of any sum which might, at any time
thereafter, be or become due from Rigg to the plaintiff, a banking company, on
the general balance of his banking account with them. In fact the defendant had
been induced by the fraud of Rigg
[Page 921]
to sign the document, without reading it, and not knowing
that it was a guarantee, but believing it to be a document of a different
character; namely, an insurance paper. Buckley L. J. said at p. 495:—
The true way of ascertaining whether a deed is a man's deed
is, I conceive, to see whether he attached his signature with the intention
that that which preceded his signature should be taken to be his act and deed.
It is not necessarily essential that he should know what the document contains:
he may have been content to make it his act and deed, whatever it contained; he
may have relied on the person who brought it to him, as in a case where a man's
solicitor brings him a document, saying, "this is a conveyance of your
property," or "this is your lease," and he does not inquire what
covenants it contains, or what the rent reserved is, or what other material
provisions in it are, but signs it as his act and deed, intending to execute
that instrument, careless of its contents, in the sense that he is content to
be bound by them whatsoever they are. If, on the other hand, he is materially
misled as to the contents of the document, then his mind does not go with his
pen. In that case it is not his deed. As to what amounts to materially
misleading there is of course a question. Howatson v. Webb was a case in
which the erroneous or insufficient information was not enough for the purpose.
Kennedy L.J. said at p. 497:—
The principle involved, as I understand it, is that a
consenting mind is essential to the making of a contract, and that in such a
case as this there was really no consensus, because there was no intention to
make a contract of the kind in question.
In order to determine the effectiveness of the plea of non
est factum as applied to the facts of this case, it is necessary to examine
the authorities.
The old cases on misrepresentation as to the contents of a
deed were based upon the illiterate character of the person to whom the deed
was read over, and on the fact that an illiterate man was treated as being in
the same position as a blind man. Sheppard's Touchstone, 8th ed. 1826, p. 56.
An early instance of the application of the plea is to be
found in Thoroughgood's Case ,
where it was held that a deed executed by an illiterate person does not bind
him, if read falsely either by the grantee or a stranger; (2) that an
illiterate man need not execute a deed before it be read to him in a language
which he understands, but if the party executes without desiring it to be read,
the deed
[Page 922]
is binding; (3) that if an illiterate man execute a deed
which is falsely read, or the sense declared differently from the truth, it
does not bind him.
It appears in more recent cases that the application of the
plea has been extended beyond the earlier cases, which turned upon the question
of illiteracy or blindness.
This extension is well illustrated in Foster v. Mackinnon
, where the facts were that the
defendant had been induced to put his name upon the back of a bill of exchange,
making himself liable as indorser, on the fraudulent representation of the
acceptor that he was signing a guarantee. The bill got into the hands of a bona
fide holder for value, who sued the defendant as indorser, and the result
of the action was that the defendant, having signed the document without
knowing it was a bill and under the belief that it was a guarantee, and not
having been guilty of any negligence in so signing it, was held not liable on
the indorsement. Byles J. at p. 711 said:—
It seems plain, on principle and on authority, that, if a
blind man, or a man who cannot read, or who for some reason (not implying
negligence) forbears to read, has a written) contract falsely read over to him,
the reader misreading to such a degree that the written contract is of a nature
altogether different from the contract pretended to be read from the paper
which the blind or illiterate man afterwards signs; then, at least 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 contemplation of law never did sign,
the contract to which his name is appended.
In Bagot v. Chapman , a
married woman, entitled to a reversionary interest, was induced by her husband
to execute a document which he represented to be a power of attorney enabling
him to raise money at some future time. It was, in fact, a mortgage for £12,000
of a reversionary interest to which she was entitled, containing a personal covenant
for payment by the wife. The wife knew that if her husband did eventually raise
money under the document it would be raised out of her reversionary interest.
She did not intend to create a present charge or incur any personal liability. In
an action brought by
[Page 923]
the mortgagees against the husband and wife for foreclosure
and judgment on their covenants the wife pleaded, amongst other defences, non
est factum, which was upheld. Swinfen Eady J. said at p. 227:—
It is well settled that where a person is induced to execute
a deed by a false representation as to the nature and character of the document
he is signing—where the document is of a totally different character from what
he was told it was—such a deed does not bind him.
The learned judge distinguished Howatson v. Webb at
p. 227:—
The present case is different from the recent case of Howatson
v. Webb, where the grantor was told that the deeds signed by him related to
the property to which they did relate, and were deeds transferring that
property, and his mind was applied to the question of dealing with that
property.
The principle that ignorance of the contents of a deed will
not support a plea of non est factum was applied in L'Estrange v. F.
Graucob, Limited . In
that case the buyer of an automatic slot machine alleged that when she signed
the order form she had not read it and knew nothing of its contents and that
the clause excluding warranties could not easily be read owing to the smallness
of the print. There was no evidence of any misrepresentation by the sellers to
the buyer as to the terms of the contract. Scrutton L.J. said at p. 403:—
When a document containing 'contractual terms is signed,
then, in the absence of fraud, or, I will add, misrepresentation, the party
signing it is bound, and it is wholly immaterial whether he has read the
document or not.
In Marks v. The Imperial Life Assurance Company of Canada
,
affirmed on appeal , the
facts were that the wife of an insured, named as beneficiary in certain
insurance policies, signed with the insured a borrowing agreement in respect of
each policy. It was found as a fact that the insured misrepresented to his wife
the nature of the documents she was signing, telling her that they were merely
for the purpose of changing, to her advantage, the scheme of payment of the
insurance moneys. It was held that the wife was entitled to succeed upon the plea
of
[Page 924]
non est factum, since it was clear that the two
documents signed by her bore no relation in class or character to the documents
described to her by the husband when she signed them McRuer C.J.H.C., after a
valuable review of the authorities, said at p. 68:—
It would appear to be clear from these authorities that
where a person signing a document is misled by the misrepresentation of another
as to its true nature and character, as distinct from the purport and effect of
its contents, it is invalid and the plea of non est factum is a good
plea.
In Curtis v. Chemical Cleaning and Dyeing Co. , the dispute was as to whether or not
the plaintiff; who had1 taken a dress to the defendants' shop to be
cleaned and had signed a paper headed "receipt", was bound by a
condition that the cleaners accepted no liability for any damage however
arising. It was held that the defendants could not rely on the exemption clause
because their assistant, by an innocent misrepresentation, had created a false
impression in the mind of the plaintiff as to the extent of the exemption and
thereby induced her to sign the receipt. Denning L.J., referring to the L'Estrange
case, supra, said at p. 808:—
If the party affected signs a written document, knowing it
to be a contract which governs the relations between them, his signature is
irrefragable evidence of his assent to the whole contract, including the
exempting clauses, unless the signature is shown to be obtained by fraud or
misrepresentation.
and again at p. 808:—
In my opinion any behaviour, by words or conduct, is
sufficient to be a misrepresentation if it is such as to mislead the other
party about the existence or extent of the exemption. If it conveys a false
impression, that is enough. If the false impression is created knowingly, it is
a fraudulent misrepresentation; if it is created unwittingly, it is an innocent
misrepresentation; but either is sufficient to disentitle the creator of it to
the benefit of the exemption.
The question for determination is whether the principle
contained in Carlisle and Cumberland Banking Company v. Bragg, supra, or
that contained in the earlier case of Howatson v. Webb, supra, should be
applied to the facts of this case.
It is to be observed; as was pointed out by the Court of
Appeal in the present case, that in Howatson v. Webb, supra, the
misrepresentation was made by a solicitor and that the defendant, also a
solicitor, should have realized
[Page 925]
that he was signing a mortgage and not a transfer. Hals-bury,
3rd ed. 1955, Vol. 11, p. 360, note (o), also makes reference to the
fact that the defendant was a solicitor and could not have been misled if he
had read the document, but chose to execute it without doing so. When the
defendant Webb asked what the deeds were that he had been asked to sign he was
told that they were just deeds transferring the Edmonton property. In fact one
deed was a mortgage, but it is to be remembered that in England a mortgage
operates as a conveyance and is a transfer of property by way of mortgage. The
Court may have been influenced by the fact that the document signed by Webb was
not of a character "wholly different" from what was represented to
him.
The principle contained in Carlisle and Cumberland
Banking Company v. Bragg, supra, was approved in this Court in Minchau
v. Busse .
Sir Lyman Duff C.J.C. said at p. 294:—
The law is stated in the most satisfactory way in the
judgment of Buckley L.J. in Carlisle & Cumberland Banking Co. v. Bragg, [1911]
1 K.B. 489 at p. 495.
In my view, while the respondent Edmond Cugnet knew that he
was dealing with his petroleum and natural gas rights, the representation made
to him was as to the nature and character of the document and not merely as to
its contents. It was represented to be an option to grant a petroleum and
natural gas lease, when, in fact, it was an assignment and transfer to the
appellant Prudential of an undivided one-half interest in the petroleum and
natural gas rights of the respondent Edmond Cugnet in the lands in question in
the action.
Applying the principle contained in Carlisle and
Cumberland Banking Company v. Bragg, supra, as I do, I have come to the
conclusion that the mind of the respondent Edmond Cugnet did not go with his
hand and that the plea of non est factum has been established.
It was contended on behalf of the appellant Prudential, in
the alternative, that, in any event, the appellant Canuck Freehold Royalties
Limited was entitled to the option con-
[Page 926]
tained in the document in question, which, on the evidence,
the respondent Edmond Cugnet agreed to grant and for which he received payment.
With this contention I am unable to agree. The option is
predicated upon the assignment and transfer to the appellant Prudential of an
undivided one-half interest in the petroleum and natural gas upon or under the
lands in question. It is an option given jointly by the respondent Edmond Cugnet
and the appellant Prudential to grant a petroleum and natural gas lease to the
appellant Prudential or its nominee.
Moreover, the option provided that, in addition to the share
of the production to which the appellant Prudential, or its nominee, would
become entitled as lessee under the terms of any lease obtained under the
option, the appellant Prudential should be entitled to its share of production
reserved by the respondent Edmond Cugnet and the appellant Prudential as
lessors under such lease.
In my view, if the assignment of the one-half interest is
void, then that portion of the document granting the option cannot be severed
and falls with the rest of the transaction.
Having come to the conclusion that
the plea of non est factum has been established and that the whole
transaction is void, it is unnecessary to consider the other points raised in
argument on the appeal.
I would dismiss the appeal with costs.
Locke, J.:—The
question as to whether the respondents in the present matter are entitled to
rely upon the plea of non est factum is not determined by deciding
whether that plea would succeed if this action had been brought by the
principals on whose behalf Hunter acted in obtaining the signature of Edmond Cugnet
to the disputed documents: there remains the further and, to my mind, the more
difficult question whether they are entitled to assert that defence as against
the present appellants.
Hunter, at the time, appears to have been acting on behalf
of Amigo Petroleums Limited, for which company the trust company was simply a
bare trustee. Considering the matter, first, from the standpoint as to whether
the agreement would have been enforceable if the action had been brought by the
latter company, it is my opinion that
[Page 927]
either a defence of non est factum, or that Edmond Cugnet
had been induced to sign the documents by fraudulent misrepresentation made to
him by Hunter would have defeated the claim, though the first would have
rendered the agreement void ab initio while the latter would merely
render it voidable. Despite statements in some of the decided cases such as Howatson
v. Webb ,
which would suggest that the plea non est factum cannot succeed if the
person signing the document is aware that the instrument he is asked to sign
disposes of some interest in his property, where as here documents represented
as being simply an option on mineral rights to be operative in the event of an
outstanding option being dropped, include in fact an out and out sale of an
undivided half interest in the mineral rights, the defence is, in my opinion,
an answer.
The question as to whether the respondents are entitled to
rely upon the defence is raised by the plea of estoppel by conduct in the reply
to the statement of defence. The basis for the contention is that Edmond Cugnet
having, by his conduct, enabled Hunter and his principals to sell what appeared
on the face of it to be a half interest in the mineral rights to a purchaser
for value acting in good faith, he cannot dispute the validity of the
instruments as against the latter. The estoppel, it is said, arises by reason
of the negligence of Edmond Cugnet. The question is the same as that referred
to by Buckley L.J. in Carlisle and Cumberland Banking Company v. Bragg , in the following terms:—
There has been so much discussion during the argument as to
the plea of non est factum, and the relevance of negligence in relation
to it under the circumstances of this case, that I wish to say a few words
expressing -my view of the law on the subject. In an action upon a deed, the
defendant may say by way of defence that it is not his deed, non est factum.
If it is found to be his deed, the plaintiff gets judgment and there is an
end of the case. But suppose that it is found not to be his deed, and he
succeeds on non est factum, the case is not necessarily over, because
the plaintiff may say, "True you have established that this is not in fact
your deed ; but you are estopped by your conduct from saying that it is not
your deed, and I can recover against you, although it is not your deed."
It is only in this latter case that the question of estoppel comes into action.
Negligence has nothing to do with the question whether the deed is in fact the
deed of the defendant. Negligence has only to do with the question of estoppel.
[Page 928]
That negligence of the nature suggested would preclude a
person from relying upon the defence non est factum if the document were
a negotiable instrument appears to have been suggested, if not decided, in Foster
v. Mackinnon . The
instructions to the jury in that case which were approved by the unanimous
decision of the court said in part:—
If the defendant's signature to the document 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 he was not guilty of any negligence in so signing the
paper, he was entitled to the verdict.
In the earlier case of Swan v. The North British
Australasian Company , a
decision referred to by Byles J. when delivering the judgment of the court in Foster's
Case, there is a review of the earlier authorities to be found in the
judgment of Martin B. at pp. 644 et seq. At p. 649 that learned judge
said in part:—
I think it may be said with certainty that there is not one
of them which is an authority for the proposition that, where a deed is not the
deed of the party, he may be estopped by negligence or carelessness on his part
from being permitted to aver that it is not.
Channell B. who agreed with Martin B. said at p. 658:—
It would seem that an estoppel may arise out of
circumstances having reference to a bill of lading or negotiable instrument
taking effect by virtue of the law and custom of merchants, where no estoppel
could arise from nearly similar circumstances with respect to a document not
operating by virtue of the law and custom of merchants.
and referred to what had been said by Lord Chancellor
Cottenham in William M'Ewan and Sons v. James and Archibald Smith et al. .
In Bragg's Case, Vaughan-Williams L.J. and Kennedy
L.J. expressed the opinion that what had been said in Foster's Case as
to the possible effect of negligence was applicable only to the case of a
negotiable instrument.
In France v. Clark where the question was as to the
effect of a transfer of shares signed in blank which had been fraudulently made
use of by the person with
[Page 929]
whom they had been deposited as security, Selborne L.C., at
p. 262, referred to the rule relating to negotiable instruments in these
terms:—
The person who has signed a negotiable instrument in blank,
or with blank spaces, is (on account of the negotiable character of that
instrument) estopped by the law merchant from disputing any alteration made in
the document, after it has left his hands, by filling up blanks (or otherwise
in a way not ex facie fraudulent) as against a bonâ fide holder
for value without notice.
That reason has no application to documents such as
those signed by Edmond Cugnet in the present ease.
It is my opinion that the result of the authorities was
correctly stated in Bragg's Case. To say that a person may be estopped
by careless conduct such as that in the present case, when the instrument is
not negotiable, is to assert the existence of some duty on the part of the
person owing to the public at large, or to other persons unknown to him who
might suffer damage by acting upon the instrument on the footing that it is
valid in the hands of the holder. I do not consider that the authorities
support the view that there is any such general duty, the breach of which
imposes a liability in negligence. I think the validity of the contention may
be tested by asking whether, in a case such as this, an action for damages
would lie at the suit of Canuck Freehold Royalties Limited against Edmond Cugnet.
The answer to that question must, in my opinion, be in the negative: Bank of
Ireland v. Evans Trustees ,
Parke B. at p. 410; Swan's Case, supra, at p. 650. If, indeed, there
were such a duty, I think, for the reason pointed out by Channell B. in Swan's
Case, that such an action would fail since the proximate cause of the
damage was the fraudulent act of Hunter.
For these reasons, it is my opinion that the appeal should
fail and be dismissed with costs.
Cartwright J.
(dissenting) :—The question raised for decision in this appeal is which
of two innocent parties is to suffer for the fraud of a third.
The relevant facts and the view of the Courts below are
fully set out in the reasons of my brother Nolan and I propose to give only a
brief summary of the salient points on which the rights of the parties depend.
[Page 930]
On January 26, 1951, the respondent Edmond G. Cugnet,
hereinafter called "Cugnet Senior" signed and sealed a document
whereby he conveyed an undivided one-half interest in all petroleum, natural
gas and related hydrocarbons in and under two quarter-sections owned by him to
Prudential Trust Company Limited, hereinafter called "Prudential",
and granted to that company an option to acquire upon the termination of an
existing petroleum and natural gas lease a petroleum and natural gas lease
covering the said lands for a term of 99 years from January 26, 1951, on the
same terms as those contained in the existing lease except that the cash rental
was to be 25 cents per acre. Cugnet Senior was induced to sign this document by
the fraudulent representation made to him by one Edward Hunter that it
contained only the grant of an option. Cugnet Senior is literate, has had
experience in buying and selling properties, has been successful, and, in his
own words, has "lots of money". He signed the document without
reading it. He does not suggest that anything was done to prevent him reading
it but appears to have been anxious to return without delay to the game of
cards which had been interrupted by Hunter's arrival. He had not met Hunter
previously. Hunter took the document away with him but two or three weeks later
Cugnet Senior received a copy of it together with a cheque for $64 the amount
of the consideration which he had agreed to accept. He did not read this copy
until some months later when his son, the respondent Raymond A. Cugnet, called
his attention to its contents. In the meantime the copy had been hanging up on
a spike in the kitchen at the home of Cugnet Senior: Prudential in taking the
conveyance was acting as bare trustee for Amigo Petroleums Limited. During
February 1951, the last-mentioned company transferred the one-half interest and
the option to one Nickle who, in turn, transferred them for value to the
appellant Canuck Freehold Royalties Limited, hereinafter called
"Canuck", for which Prudential holds as bare trustee. Canuck had no
notice or knowledge of the fraud practised by Hunter.
In upholding the respondent's plea of non est factum the
learned trial judge distinguished the case at bar from Howatson v. Webb , on the ground that the misrepresen-
[Page 931]
tation was in the latter as to the contents of the document
and in the former as to the nature and character of the document. I must
confess that I find difficulty in discerning a difference between a conveyance
of a half interest in the oil and gas under specified lands and the grant of an
option to obtain a 99-year lease of such oil and gas which is greater or more
fundamental than the difference between a reconveyance by a bare trustee of the
legal estate in specified land to the beneficial owner thereof and a mortgage
of such land containing a personal covenant to pay. The following words of
Warrington J. at the trial ,
might well be applied in the case at bar:
… but it seems to me that these dicta contained in the
judgments clearly point to this, that if a man knows that the deed is one
purporting to deal with his property and he executes it, it will not be
sufficient for him, in order to support a plea of non est factum, to
shew that a misrepresentation was made to him as to the contents of the deed.
The deed in the present case is not of a character so wholly different from
that which it was represented to be as to come within the principle within
which Lord Hatherley held that the case before him did not fall.
It is clear that Cugnet Senior knew that the deed which
he was executing was one purporting to deal with the petroleum and natural gas
under two correctly specified quarter-sections owned by him. On the assumption
that a distinction can validly be drawn between the facts in Howatson v.
Webb, supra, and those in Carlisle and Cumberland Banking Company v.
Bragg , it
is my view that on its facts the case at bar falls within the class of cases of
which the former is an example.
If, however, it be assumed that the Courts below were right
in holding that the document of January 26, 1951, was entirely different in
nature from what Cugnet Senior believed it to be, it is my opinion that in
signing and sealing the document without reading it he was guilty of such
negligence that as between himself and Canuck, which gave valuable
consideration on the strength of the deed which he had in fact signed and
sealed, he must bear the loss.
The general principle was stated as follows by Lord Halsbury
sitting in the Court of Appeal in Henderson & Co. v. Williams :—
I think that it is not undesirable to refer to an American
authority, which, I observe, was quoted in the case of Kingsford v. Merry,
Root v. French in which, in the Supreme Court of New York, Savage C.J.
makes
[Page 932]
observations which seem to me to be well worthy of
consideration. Speaking of a bona fide purchaser who has purchased property
from a fraudulent vendee and given value for it, he says: "He is protected
in doing so upon the principle just stated, that when one of two innocent
persons must suffer from the fraud of a third, he shall suffer, who, by his
indiscretion, has enabled such third person to commit the fraud. A contrary
principle would endanger the security of commercial transactions, and destroy
that confidence upon which what is called the usual course of trade materially
rests."
In Farquharson Brothers & Company v. King &
Company ,
Lord Halsbury L.C. presiding in the House of Lords reaffirmed the above passage
and pointed out that in the case then before the House the Court of Appeal had
fallen into error through disregarding the words "who, by his
indiscretion".
A branch of the principle so stated is the rule that,
generally speaking, a person who executes a document without taking the trouble
to read it is liable on it and cannot plead that he mistook its contents, at
all events, as against a person who acting in good faith in the ordinary course
of business has changed his position in reliance on such document. But it is
said that the plea of non est factum operates as an exception to this
salutary rule. That this is so in the case of a blind or illiterate person may
be taken to be established by Thoroughgood's Case , but whether the exception extends to
an educated person who is not blind is a question which was treated by Mellish
L.J. in Hunter v. Walters and
by Warrington J. and the Court of Appeal in Howatson v. Webb, supra, as
being still open. In the former case at pp. 86-7, Mellish L.J. says:—
Now, I am of opinion that there is evidence that both Hunter
and Darnell were induced by the fraud of Walters to execute that deed ; but the
mere circumstance that they were induced to execute it by fraud does not make
it a void deed in point of law. But it is said that there is something more
than this, and that where a deed is procured by an actual false representation
respecting the contents of the deed itself, or respecting the legal effect of
the deed, there the deed is not only voidable, but is actually void at law,
and, being void, the parties are in the same position as if it had never been
executed at all. Thence, no doubt, it would follow, that Mr. Walters never got
any estate in these premises at all, and therefore that an equitable mortgage
by him would be altogether invalid.
Now, in my opinion, it is still a doubtful question at law,
on which I do not wish to give any decisive opinion, whether, if there be a
false representation respecting the contents of a deed, a person who is an
educated person, and who might, by very simple means, have satisfied him-
[Page 933]
self as to what the contents of the deed really were, may
not, by executing it negligently be estopped as between himself and a person
who innocently acts upon the faith of the deed being valid, and who accepts an
estate under it.
This passage is quoted by Warrington J. in Howatson v. Webb
and in the Court of Appeal ,
Farwell L.J. says:—
I think myself that the question suggested, but not decided,
by Mellish L.J. in that case will some day have to be determined, viz., whether
the old cases on misrepresentation as to the contents of a deed were not based
upon the illiterate character of the person to whom the deed was read over, and
on the fact that an illiterate man was treated as being in the same position as
a blind man: see Thoroughgood's Case, and Sheppard's Touchstone, p. 56;
and whether at the present time an educated person, who is not blind, is not
estopped from availing himself of the plea of non est factum against a
person who innocently acts upon the faith of the deed being valid.
While he does not refer specifically to the question
suggested by Mellish L.J., Buckley L.J. gives an answer to it in Carlisle v.
Bragg, supra, at p. 496, where, speaking of the plea of non est factum, he
says:—
I do not think myself that cases of this kind are to be
confined to the blind and illiterate. Blindness and illiteracy constitute a
state of things of which the equivalent for this purpose may under certain
circumstances be predicated of persons who are neither blind nor illiterate. If
a document were presented to me written in Hebrew or Syriac, I should for the
purposes of that document be both blind and illiterate—blind in the sense that,
although I saw some marks on the paper, they conveyed no meaning to my mind,
and illiterate as regards the particular document, because I could not read it.
It seems to me that the same doctrine applies to every person who is so placed
as that he is incapable by the use of such means as are open to him of
ascertaining, or is by false information deceived in a material respect
as to, the contents of the document which he is asked to sign.
With the greatest respect, it appears to me that
instead of the word "or" which I have italicized in this passage the
word "and" ought to have been used. In a case where the deed in
question has in fact been executed by the person raising the plea it is of the
essence of the plea of non est factum that such person shall have been
deceived as to its contents. I do not, of course, suggest that Buckley L.J.
used the word "or" by inadvertence, for it seems clear
[Page 934]
that Bragg was capable by the use of such means as were
open to him of ascertaining the contents of the document which he was asked to
sign. All that he had to do was to read it.
An anxious consideration of all the authorities referred to
by counsel and in the Courts below has brought me to the conclusion that, in so
far as Carlisle v. Bragg decides that the rule that negligence excludes
a plea of non est factum is limited to the case of negotiable
instruments and does not extend to a deed such as the one before us, we should
refuse to follow it. I do not read the judgment of Sir Lyman Duff C.J. in Minchau
v. Busse and
particularly his reference at p. 294 to the judgment of Buckley L.J. as binding
us to follow everything that was decided in Carlisle v. Bragg.
In my view the effect of the decisions prior to Carlisle
v. Bragg is accurately summarized in Cheshire and Fifoot on Contract, 4th
ed. 1956, at pp. 206-7, as follows:—
The rule before 1911 was that if A., the victim of the fraud
of C, was guilty of negligence in executing a written instrument
different in kind from that which he intended to execute, then he was estopped
as against innocent transferees from denying the validity of the written
contract.
That rule was, I think, laid down by Byles J. delivering the
unanimous judgment of the Court in Foster v. Mackinnon as being applicable to all written
contracts. It appears to me that the Court of Appeal in Carlisle v. Bragg misinterpreted
the following passage in the judgment of Byles J. at p. 712:—
Nevertheless, this principle, when applied to negotiable
instruments, must be and is limited in its application. These instruments are
not only assignable, but they form part of the currency of the country. A
qualification of the general rule is necessary to protect innocent transferees
for value. If, therefore, a man write his name across the back of a blank
bill-stamp, and part with it, and the paper is afterwards improperly filled up,
he is liable as indorser. If he write it across the face of the bill, he is
liable as acceptor, when the instrument has once passed into the hands of an
innocent indorsee for value before maturity, and liable to the extent of any
sum which the stamp will cover.
In these cases, however, the party signing knows what he is
doing: the indorser intended to indorse, and the acceptor intended to accept, a
bill of exchange to be thereafter filled up, leaving the amount, the date, the
maturity, and the other parties to the bill undetermined.
[Page 935]
But, in the case now under consideration, the defendant,
according to the evidence, if believed, and the finding of the jury, never
intended to indorse a bill of exchange at all, but intended to sign a contract
of an entirely different nature. It was not his design, and, if he were guilty
of no negligence, it was not even his fault that the instrument he signed
turned out to be a bill of exchange.
This does not say that the rule, that the signer if
guilty of negligence will be estopped from denying the validity of a document
as against a purchaser for value in good faith, is confined to the case of
negotiable instruments; but rather that a person who knows he is signing a
negotiable instrument cannot deny its validity to a holder in due course
although he was guilty of no negligence in affixing his signature.
It may be said that the term negligence is inappropriate
because it presupposes a duty owed by Cugnet Senior to Canuck, but in the
passages quoted the term is, I think, used as meaning that lack of reasonable
care in statement which gives rise to an estoppel. As it was put by Sir William
Anson in
an article on Carlisle v. Bragg:—
And further, there seems some confusion between the
negligence which creates a liability in tort, and the lack of reasonable care
in statement which gives rise to an estoppel. Bragg might well have been
precluded by carelessness from resisting the effect of his written words,
though the Bank might not have been able to sue him for negligence.
On the facts in the case at bar it cannot be doubted that
Cugnet Senior failed to exercise reasonable care in signing the document in
question. He executed a deed which he knew dealt with the oil and gas under his
property without reading it, relying on the statements as to its contents made
by Hunter who was a stranger to him. It does not appear that anything was done
to prevent his reading the document. He chose to sign it unread rather than to
absent himself for a few more minutes from the game of cards. His conduct, in
my opinion, precludes him from relying on the plea of non est factum as
against Canuck which purchased relying on the deed, in good faith, for value,
and without notice or knowledge of any circumstance affecting the validity of
the deed.
The terms of the deed appear to me to be sufficiently clear
and I think that the plea that it is void for uncertainty must be rejected.
[Page 936]
In the result I would allow the appeal with costs throughout
and direct that judgment be entered for the relief claimed in the amended
statement of claim.
Appeal dismissed with costs.
Solicitors for the plaintiffs, appellants: Thorn,
Bastedo, McDougall & Ready, Regina.
Solicitor for the defendants, respondents: D. G.
McLeod, Regina.
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