(1989)1989Februaiyl3 (A LO1Z0U,Ρ, DEMETRIADES,-KOURRIS,JJ) THECYPRUSDEVELOPMENT BANK LTD, Respondents-Piamtifk, ν KRINIEVANGELOU KYR1ACOU, Respondent-Defendant (CivilAppeal No 7440) Contract— Signature of document — Defence of *non est factum»— Burden of proof rests on party relying on such defence — The necessaryprerequisites for successfullyestablishing the defence Theappellant sued the respondent on thebasisof a guarantee The respondent opposed appellant's - plainhff's applicabon for summary judgment on the ground that when she signed the guarantee she thought by reason of fraud or misrepresentation of one of theotherguarantors,who was, also, adirectorof thepnncipal debtor company, that she was signing a contract for the transfer to her of shares in the pnncipal debtor in consideration of services rendered The tnal Judge gave the respondent an uncoundinonal leave to defend Hence this appeal, where the issue is when as a result of somebody's fraud which has nothingtodowith the plaintiff absolves a defendant from the duty to take care and precautions before signinga document Held,allowingthe appeal
(1)Forthedefence of «non est factum» the defendant, inordertobe successful, he mustprove that{
- a)there was undue influence by theplaintiff or aperson acting as his agent, (
- b)the defendant had exercised reasonable care in the circumstances in connectionwith the transaction,and (c)Where a creditororintendedlender desires theprotectionof a guarantee from athirdparty andthe circumstances aresuch thatthe debtor could be expected tohave influence over thatthirdparty,the 96 1C.L.R. CyprusDcvd.Bankv.Kyriacou creditor must,forhisownprotection, insistthatthethirdpartyhad independent advice (see, inthisrespect, the Kingsnorth case atp. 428). 5
(2)Inthe present case,nonoftheaboveprerequisitesappearin theaffidavit oftherespondent tohaveexistedwhenshesignedthe guarantee. Appeal allowed.Judgment for the plaintiffs-appellantsasperclaim with costshereandintheCourtbelow. 10 Casesreferredto: L·Estrangev. CraucobLtd. [1934]2K.B.394; Blayv. PollardandMoms[1930]1 K.B.628; Thoroughgoodv. Cole,
(1584)2Co.Rep.9a; Fosterv.McKinnon, [1869]L.R.4C.P.704;38L.J.C.P.310; 15 CarlisleandCumberlandBankingCo.v. Bragg[1911]1 K.B. 489; MuskhamFinanceLtd.v.HowardandAnother[1963]1AllE.R.81; Howatsonv.Webb[1908} 1 Ch.1; UnitedDominion TrustLtd. v.Westerna.o.[1975]3AllE.R.1017; AvonFinanceCo.Ltd. v. Bridger[1985] 2AllE.R. 281; 20 Kingsnorth TrustLtd.v. Bell[1986]1 AllE.R. 423; ColdunellLtd. v.Gallon [1986]1 AllE.R. 429. Appeal. Appeal by plaintiff against the ruling of the Distric Court of Nicosia (N.Nicolaou, D.J.) dated the 10thJuly, 1987 (ActionNo. 25 1844/86) whereby leave was granted tothe defendant to defend theaction broughtagainst her. P.Polyviou, forthe appellant. A. Andreou, forthe respondent. Cur. adv. vult. 30 A.LOIZOU P.:Thejudgment of the Court willhe delivered by H.H. Demetriades, J. 97 CyprusDevel.Bankv. Kyriacou
(1989)DEMETRIADESJ.: Thisisan appeal made by the appellants plaintiffs against the Ruling of a Judge of the District Courtof Nicosia by which unconditional leave was granted to the respondent in the appeal -the first defendant in the action -to defend theactionbroughtagainsther. ** Thefactsthatledtotheproceedings,astheseappearfrom the recordofthetrialCourtwhichwasbefore us,arethefollowing: Byvirtueofawrittencontractdatedthe24thMay,1980,which was made in Nicosia between the appellants, Zoyanna Meat MarketLtd.(hereinafter referredtoasthecompany)andanumber 10 of other persons as guarantors ofthe company, amongstwhom the respondent in this appeal, the appellants loaned to the companythesumof£8,000.Thisloanofthecompany,according tothetermsoftheagreement,hadtobepaid byinstalmentsand hadtobefullypaidbythe30thJune,
- 15 Asitappearsfrom thespeciallyindorsed writtotheaction the companyfailedtomeetitsobligationsforthepaymentofitsdebts. An action was filed bythe plaintiffs against the company and a number oftheguarantorstotheagreement. Therespondentwas notmadeapartyasdefendant tothataction. 20 After the appellants obtained judgment intheir favour against thecompanyandanumberofpersons,excludingtherespondent whoguaranteed paymentoftheloancontractedbythecompany, theyfiledanactionagainstherbywhichtheyclaimed£10,047.26 plusinterestattherateof9%perannumasfromthe 1stJanuary, 25
- The writwasfiled onthe25th February, 1986and onthe2nd June, 1986counselfortheplaintiffs filedanapplicationbywhich they prayed for summary judgment. Their application was opposedbytherespondent. The trial Court, after hearing submissions by counsel for the parties,granted unconditional leavetotherespondentto defend theaction. The trial Judge found that the defendant based her case for leavetodefend ontwogroundsandIquotefrom thejudgment: 35 «
- Denial of paragraphs 1, 2 and 3 of the affidavit filed in supportoftheapplication forsummaryjudgment. 98 30 1 C.L.R. 5 10 CyprusDevel.Bankv.Kyriacou DemetriadesJ.
- Ifdue execution oftheloan agreement isproved toexist defendant's signature as guarantor was obtained due to the false and/or fraudulent misrepresentations which were made to her by the Director of the principal debtor company Zoyanna MeatMarketLtd.namelyYiannakisDemetriou who at all material times was a co-guarantor onto this loan agreement labouring under the belief that by this document she wasgivensharesinthesaidprincipaldebtorcompany for servicesrendered totheaforesaid YiannakisDemetriou. Due totheabove,therespondent contended, thisloan agreement isnulland void and/or of nolegal effect». He then ruled that asthe first issuewas«merelya denial, itwas groundless and unfounded» and proceeded to deal with the second ground thatthedefendant putforward which,hesaid,was 15 based on «thewellknown defence of non estfactum». Thefirstground putforward bytherespondent inopposingthe application of the appellants for summary judgment was indeed groundlessand unfounded astheaffiant has,intheaffidavit which wasfiled insupport of theapplication, said the following: 20 «1.1am intheemployment ofthePlaintiffs and authorisedby them tomakethis affidavit. 2.1am personally wellaware of the facts and detailsof the plaintiffs' claimandallthedocumentsrelevanttothiscaseare inmypossession and custody. 25 3.The claimoftheplaintiffs istrue and genuine.» Withregardtothesecondground,thetrialJudgehadthistosay: 30 35 «Although she never, not even for a moment, alleged that plaintiffs themselves either defrauded her or induced her or even fraudulently misrepresented to her as to the true contents, nature and legal effect of the document she admitted signing, she nevertheless insisted that she was misled by the said Yiannakis Demetriou making her believe that she was signing a document radically different from the one she signed thus rendering it in Law null and void. The general rule of Law isthat a person isbound bythe termsof anyinstrumentwhichhesignsorsealseventhoughhedidnot read it or did not understand its contents (L'Estrange v. Graucob Ltd., [1934] 2 K.B. 394 and Blay v. Pollard and Morris,[1930] 1K.B.628). 99 DemetriadesJ. CyprusDevel.Bankv. Kyriacou
(1989)An exception to this general rule arises where a person signs or seals a document under a mistaken belief as to the nature of the document and the mistake wasdue to either:(a)theblindness, illeteracy orsenilityofthepersonsigning, or, 5 (b)a trickorfaudulent misrepresentation astothenatureof the document, provided that person took all reasonable precautions before signing. Where therefore, a person signsa document orexecutes a deed inthesecircumstances,hemayraisetheancientdefence 10 of non estfactum (itisnot hisdeed). Until the decision of the House of Lords in Saunders v. Angiia Building Society [1970]3 AllE.R.961 itwas thought that the defence was available even where there had been negligence, unlesstheinstrument signedwasnegotiable». 15 After he referred to and quoted from the Saunders' case he made reference to a number of other authorities, namely Thoroughgood v. Cole,
(1584)2 Co. Rep. 9a; Foster v. Mackinnon, [1869]L.R. 4C.P. 704;38 L.J.C.P.310;Carlisleand Cumberland Banking Co. v.Bragg, [191111K.B.489;Muskham 20 Finance Ltd. v. Howard and Another, [1963] 1All E.R. 81 and Howatson v. Webb, [1908]1Ch. l.\ The trial Judge then concluded his Ruling by saying the following: «Before concluding this subject I feel I owe to make 25 reference totheheadnote oftheSaunders case (supra)which givesaclearpictureofthesitutationfrom thepracticalpointof viewinanutshellandonwhoseshoulderstheburdenofproof lieswhenever asituation arisesasthepresent one. The plea of non estfactum can only rarely be established 30 bya person of full capacity and although itisnot confined to the blind and illeterateany extension ofthe scope ofthe plea would be keptwithinnarrow limits.Inparticular, itisunlikely that the plea would be available to a person who signed a document without informing himself ofitsmeaning. 35 Theburden of establishingaplea ofnon estfactum falls on thepartyseekingtodisownthedocumentandthatpartymust show that in signingthe document he acted with reasonable 100 1C.L.R. 5 10 15 CyprusDevd. Bankv.Kyriacou DemetriadesJ. care. Carelessness (or negligence devoid of any special, technical meaning) on the part of the person signing the document would preclude him from later pleading non est factum ontheprinciplethatnomanmaytakeadvantageofhis own wrong; it is not, however, an instance of negligence operating bywayof estoppel. In relation to the extent and nature of the defference between the document as it is and the document as it was believed to be, the distinction formerly drawn between the character and the contents of the document is unsatisfactory and itisessential, iftheplea istobe successful, toshow that there isa radicalorfundamental distinction. It follows from all the above and perusing the facts and allegations existing in the respective rival parties' affidavits andtheableargumentsadvancedbybothcounsel,Iarrivedat the conclusion thatinexerciseof mydiscretion, Irulethatthe second issueraisedbythedefendant isonewhichoughttobe triedand leavetodefend oughttobe giventoher». The plaintiffs appealed against the Ruling of the trialJudge by 20 whichthefirstdefendant -respondentinthisappeal -wasgranted leaveto defend on thefollowing grounds: «1. The learnedjudge erredinrulingthatdefendant ought tobe givenleaveto defend. 25 2. The learned judge erred inrulingthat defendant should be granted unconditional leaveto defend. 3. The learned judge erred in holding that defendant satisfied the court that she had a good defence and/or that defendant haddisclosedsufficient factsentitlingherto defend the action. 30 35 4.The learned courterred inholdingthatthesecond issue raised by defendant (i.e.the defence of non est factum) was onewhich oughttobe tried. 5.Thelearnedcourtfailedtoconsiderthecredibilityand/or persuasiveness ofdefendant's affidavit, inviewparticularlyof therejection bythecourtofthefirstlineof defence advanced by defendant, i.e. the denial of the facts, as averred by plaintiffs. 101 DemetriadesJ. CyprusOevd.Bankv. Kyriacou
(1989)6.Thelearnedjudgeerredinformulating thematterasone of discretion, and,in any event, in exercisingsuch discretion as hepossessedinfavour of defendant. 7.Thelearnedjudgeerredinfailingtoholdthat defendants affidavit utterly failed to put forward sufficient facts and/or 5 condescend uponsufficient particulars,especiallywith regard to defendant's only remaining defence, i.e. the defence on non est factum.» Before proceeding todealwiththesubmissionsand arguments made before us, it is useful to refer to the affidavit of the 10 respondent which was filed in support of her opposition and in particular to those paragraphs of itthatsupposedly put hercase before thetrial Court.Theyare:«
- Ουδέποτε έχω υπογράψη την εις την Ε/Α αναφερομένη συμφωνίανως εγγυητής ήάλλως. 15
- Εάνήθελεν αττοδειχθή ηύτταρξιςυπογραφήςειςτο αναφερόμενον ως άνω εγγραφον ισχυρίζομαι ότι προέβηκα ειςτην υπογραφήνστηριζομένη επί ψευδών και δολίων παραστάσεωνγενομένων προςεμέ υπότου διευθυντού των πρωτοφειλέτων και εγγυητού 20 Γιαννάκη Δημητρίου ότι υπέγραφα εγγραφον παραχωρήσεως εις εμέ μετοχών της πρωτοφειλέτιδος Εταιρείας λόγω της μακράς υπηρεσίας μου εις τας εργασίας του ρηθέντος ΓιαννάκηΔημητρίου την 6ε εν λόγω υπογραφήν έθεσα εν τη πεποιθήσει ότι 25 υπέγραφα εγγραφον παραχωρήσεως και/ή μεταβιβάσεως μετοχών χωρίς να γνωρίζω ότι ήτο εγγύησις καιχωρίς οιανδήποτεαμέλεια εκ μέρους μου. ΛΕΠΤΟΜΕΡΕΙΑ ΨΕΥΔΟΝ ΚΑΙ ΔΟΛΙΠΝ ΠΑΡΑΣΤΑΣΕΟΝ ΤΟΥ ΔΙΕΥΘΥΝΤΟΥ ΤΗΣ 30 ΠΡΠΤΟΦΕΙΛΕΤΙΔΑΣ ΕΤΑΙΡΕΙΑΣ ΖΟΥΑΝΝΑ MEAT MARKETLTD. α. Παρέστησε εις εμέν εν γνώσει του ψευδώς και δολίως ότι το αναφερόμενον εις την Ε/Α εγγραφον αποτελούσεν εγγραφον παραχωρήσεως και/ή 35 μεταβιβάσεως μετοχών. β. Απέκρυψεν δολίως και ψευδώς εν γνώσει του από εμέ ότι το ρηθέν εγγραφον ήτο συμφωνία 102 1C.L.R. CyprusDevd. Bankv. Kyriacou DemetriadesJ. δανειοδοτήσεως της πρωτοφειλέτιδας εταιρείαςκαιθα υ π έ γ ρ α φ α ως εγγυητής.» («
- I have never signed as a guarantor of the agreement referred to intheStatementof Claim. 5 10 15 20
- If the existence of the signature is proved on the said document Iallege that I have put my signature after false representationstomeby Yiannakis Demetriouthedirectorof the debtors and one of their guarantors that Iwas signing a document by which shares in the debtor company were transferred tome because of the long services offered by me to the said Yiannakis Demetriou and that Iput my signature believing thatI was signing adocumentof assignment and/or transfer of shares withoutknowing thatitwas aguaranteeand without negligence on mypart. PARTICULARSOFFALSEANDFRAUDULENTREPRE SENTATIONS BY THE P'TECTOR OF THE DEBTOR COMPANY ZOYANNA MEATMARKET LTD. a. Heknowingly falsely andfraudulently represented tome that the documentmentionedinthe Statementof Claim was one for the assignment and/ortransfer of shares. b. Falsely and fraudulently failed todisclose tome thatthe said document was one for the financing of the debtor company and thatI was tosign as a guarantor.») The allegation made by the respondent inhersaid affidavit, by 25 which she denied thatshe ever signed thedocumentthesubject of these proceedings, was withdrawn by her counsel during the hearing of the application and any reference to itis immaterialto theseproceedings. Forthisreason we donotpropose todeal with the argument of counsel for the appellants on this issue that was 30 argued before us. Counsel for theappellants argued before us thatthedefence of «non est factum» is avery specialized defence; thatitcanonly be invoked in very special circumstances on demonstration of exceptional facts andthattherewas noindicationintheaffidavit of 35 the respondent of either special circumstances or exceptional facts. Counsel further submitted thatthenonest factum can apply only when three elements have been shown tothe satisfaction of the Court: Firstly that the instrument or docurhent signed is radically different from that which the signer thought it to be. 103 DemetriadesJ. CyprusDevd.Bankv. Kyriacou
(1989)Secondly,thepersoninvoking thedefence ofnonestfactummust fall into a particular category of vulnerability, low mental intelligence, very old and so on and so forth. And, thirdly, sufficient facts mustbe showntotheCourtthatthesignerwasnot careless buttookthereasonable precautionsrequired toreadthe document and that is why the two last elements are connected because ifyou have takenthestepof reading thedocumentand youarenotoflowintelligence,youwillrealizethatyouaresigning a particulartype of document, ι 5 Counselfortherespondentinaddressing ussubmitted thatthe 10 trialCourtwasrightinreachingtheconclusionthatthedefenceof «non est factum» was made out in that there were enough particulars to set up this defence. There is no allegation by the respondentthattheManagingDirectoroftheprincipaldebtorwas actingastheagentoftheappellants.Whatsheisallegingisthatshe 15 was misled in signing as guarantor believing that shares in the companyweretobe transferred toher. Having heardthearguments of counsel, we find thattheissue thatposes for decision is when, as a result of somebody's fraud which has nothing to do with the plaintiff absolves a defendant 20 from the duty to take care and precautions before signing a document. Asitappears from theauthoritiescitedby counsel andthetrial court,as wellasfrom later authoritiestotheSaunders case, (see United DominionTrust Ltd.v. Western a. o., [1975]3 All E.R. 25 1017;AvonFinanceCo.Ltd.v.Bridgera.o., (1985]2AllE.R.281; Kingsnorth TrustLtd. v. Bell a.o., [1986] 1 All E.R. 423, and Colduneli Ltd. v. Gallona.o., [1986] 1 All E.R. 429), for ihe defence of «non est factum» the defendant, in order to be successful, hemustprove mat^" (a)therewas undueinfluence by theplaintiff oraperson acting ashisagent; (b) the defendant had exercised reasonable care in the circumstancesinconnectionwith thetransaction; and (c)where acreditororintendedlenderdesires theprotectionof 35 aguaranteefrom athirdpartyandthecircumstancesaresuchthat the debtor could be expected to have influence over thatthird party,thecreditormust,forhisownprotection,insistthatthethird partyhadindependentadvice (see,inthisrespect,theKingsnorth caseatp.428). 40 104 1C.L.R. Cypr®Devd.Bankv.Kyriacou DemetriadesJ. Inthepresent case,noneoftheaboveprerequisites appearin theaffidavit oftherespondenttohaveexistedwhenshesignedthe guarantee securing the payment of the loan thatthe appellants intended to make tothe company of heremployers.Therefore, 5 the defence put forward byherof «non estfactum» waswithout meritandthetrialJudgeoughtnottogiveherunconditionalleave ·' todefend theclaimoftheappellants." In the result, the appeal isallowed and judgment is givenin favouroftheplaintiffsandagainstdefendantNo.1fof£10,047.26 10 withinterestat9%perannumfrom 1.1.86,withcostshereandin theCourtbelow. Appealallowedwithcosts. 105