The Defence of non est factum – When It Will (and Won’t) Succeed

Published on: May 2021 | What's Trending

A man explaining terms of a contract to a woman at a desk

A recent decision has highlighted what it takes to succeed in an unfortunate, yet all-too-common scenario: After a party enters into a contract, they fail to live up to their end of the bargain and then allege that they did not fully appreciate what they were getting into when they signed the agreement in the first place. As such, they claim that they should not be bound by the contract at all. This defence is known as non est factum and it is frequently used, but seldom successful.

From the Latin meaning “it is not my deed”, non est factum is rightfully a difficult defence to use. After all, there is little point to a contract if a party cannot be held to live by what they sign. However, in some instances, a party can get out of a contract on the basis of non est factum if they can show that they were led into entering an agreement that is fundamentally different from what they thought they were signing.

Such was the case in Sutton Group-Admiral Realty Inc. v. Taborovska, 2021 ONSC 2837, which dealt with a Buyer Representation Agreement (a “BRA”) between a real estate agent and a home buyer.  A BRA is a standard document which sets out the nature of the relationship between the agent and the client and often provides terms for the payment of the agent’s commission. Real estate agents often require their home buyer clients to enter into a BRA at the outset of the relationship.

In Taborovska, a real estate agent (the “Agent”) worked with a couple to find a house in the Greater Toronto Area to purchase for their daughter, Ganna. Ganna’s parents lived in Kiev, Ukraine, and they initially decided to make an offer for a Mississauga home. The offer was made in Ganna’s name to avoid a foreign tax levy, but she was not involved in any of the decisions regarding the purchase.

Ganna signed an Agreement of Purchase and Sale for the Mississauga property and a BRA with the Agent on November 12, 2018. The BRA entitled the Agent to a 2.5 percent commission on any single-family home Ganna bought in the Greater Toronto Area between November 12, 2018 and March 11, 2019.

Ganna’s father and the Agent spoke for about an hour over the phone on the night the BRA was signed, but Ganna was not involved in the call. The BRA was written in English and Ganna’s father testified that he did not know enough English to read the offer documents and had to rely on the Agent’s explanation in Russian. The Agent told both Ganna and her father that the documents were standard form documents used for all real estate deals in Ontario and that they related to the Mississauga property only.

The Agent attempted to translate the documents, but the evidence suggested that he eventually gave up midway and did not explain them in their entirety. In particular, the Agent did not explain that the BRA would entitle him to a commission even if Ganna bought a different home through another agent within four months.

The offer for the Mississauga property was ultimately rejected and a few days after signing the BRA, Ganna placed another offer for $3.0 million on a Toronto property through a different real estate agent. The second offer was accepted and the deal closed on January 4, 2019.

The Agent and his brokerage then brought an application to require Ganna to pay them the 2.5% commission on the Toronto property transaction that they alleged were owed under the BRA. Ganna brought a responding application for a declaration that the BRA was void and unenforceable on the basis of non est factum.

Justice Davies explained that, in order to succeed on non est factum, Ganna had to prove three elements: (1) she was mistaken about the nature and character of the BRA; (2) her mistake about the nature of the BRA was the result of a misrepresentation by the Agent; and (3) she was not careless when she signed the BRA.

For the two branches of the test, it was held that both Ganna and her father were mistaken about the nature and character of the BRA as a result of the Agent’s misrepresentation. The Agent did not sufficiently explain the BRA to Ganna or her father before Ganna signed it, and he misrepresented the nature of the documents. Justice Davies noted that an agreement for a commission on the Mississauga property is fundamentally different from an agreement for a commission on any single-family dwelling Ganna purchased during a four-month period.

Ganna also successfully established that she was not being careless when she signed the BRA. She testified that she went through the documents quickly and signed where there was a checkmark. She also did not read the document before she signed it, but her English was good enough that she was able to read it. In spite of this, Ganna knew that her father was reviewing the documents in detail with the Agent and that the Agent was translating for him. She knew her father was exercising due diligence in his review of the documents and she received an explanation of the documents through him. Justice Davies held that it was reasonable for her to rely on the information she received from the Agent through her father as the basis of her understanding of the documents.

The court distinguished a line of case law which stands for the general rule that a person who executes a document without taking the time to read it cannot later argue that she was mistaken as to its contents. First, unlike in those cases, the BRA was for the sole benefit of the Agent rather than for the benefit of Ganna’s father. Secondly, the Agent had misled Ganna’s father and indirectly misled Ganna, so he was not an innocent party acting in good faith. Lastly, and perhaps most importantly, Justice Davies stated that the Agent, as a licensed real estate agent, had an obligation to explain the documents to his client and failed to do so.

This case demonstrates what is takes to succeed on a non est factum defence. It also shows that parties like real estate agents cannot always rely on executed standard form documents if they do not adequately explain the content to their clients.

A party cannot always escape a standard-form agreement by claiming that they didn’t fully appreciate what they signed. However, in cases like this, which involve language barriers, evidence of indirect misrepresentations and a finding that the agreement is for the sole benefit of the party seeking to enforce it, the contract may not always bind them.

Author: Daniel Waldman, Lawyer

The author would like to thank Allan Tung, Articling Student, for his assistance with this article.