non est factum plea on mortgage by a functional adult

In a surprise decision the NSW Court of Appeal allowed a functional adult who claimed to be intellectually impaired to escape a mortgage on the plea of “not my deed” instead of the usual plea of diminished capacity.


15 August 2009

On 8 July 2008 in Ford v Perpetual Trustees Victoria [2009] NSWCA 186 the Court of Appeal determined that a Father who was was illiterate, intellectually disabled but lived alone and had married twice had been hoodwinked into signing the mortgage by his son and so could claim he never did sign it.

Non est factum

The father argued non est factum (literally ‘not my deed’) and succeeded before the trial judge. On appeal the lender argued that all highest defence that could be raised by the father was incapacity, which requires the lender to know about the incapacity and so commit fraud for it to succeed.

Young AJ conducted an exhaustive and valuable review of the law of non est factum particularly as it relates to the alternate defence of incapacity.  He concluded, in view of the factual findings made by the judge as to the intellectual impairment, that non est factum was made out.

One cannot read this case without observing that the law has been followed but the facts stretched to fit the law. Given the descriptions of lack of capacity made by the House of Lords and the High Court it is clear that the sort of transaction impugned as non est factum should be restricted to where the signer is paralytic or completely insane. The trial judge used the formula of words prescribed by the authorities to describe the father’s condition but they simply do not ring true of a man who has married twice, held down a job as a coal miner, lives alone, cares for dogs and has discussions with brokers about buying cleaning businesses. Such a person might well lack legal capacity but to say their mind did not follow the pen and that he “had no real purport of the documents that he was signing and that he was in conscious and intellectual terms a stranger to the transaction,” is not believable.


The lender claimed restitution and Young JA held:

The enquiry is as to the injustice of the retention of any money or benefit. This lies at the root of the claim and of any defence such as change of position. The question of request, payment, receipt and benefit should be viewed as matters of substance and not form or legal technicality. Mr Ford was a manipulated intermediary with no understanding of any aspect of the overall transaction. In substance, he received no benefit from the loan, beyond the receipt and retention in his account of $24,857. Looking at the matter as one of substance, Mr Ford was the innocent, mentally incapable dupe of his son. In all these circumstances, as a matter of substance, apart from the $24,857 placed in his account, Mr Ford did not receive the benefit of the funds in circumstances that would make it unjust for him not to pay to Perpetual the balance of the loan.

The money that did not go to his benefit went to pay for the purchase of a business which he had signed for. However as those transactions could have been set aside on the basis of non est factum or contracts Review Act they were in substance regarded as having not been paid to the father’s benefit. His Honour added that three other considerations reinforced that conclusion:

  1. The loan was not for necessaries.
  2. The conduct of Perpetual was relevant to the question – that a payer who assumes the risk of the relevant mistake will be denied recovery. Here, Perpetual made no enquiry of the borrower and was prepared to lend pursuant to documentation that requested the loan be assessed without documentary evidence of the financial position of the borrower.
  3. Generally speaking, if recovery is against public policy, restitution cannot be employed to gain the same object as if the impugned contract were valid.

Contracts Review Act

The court held that the Contracts Review act defence is incompatible with a finding of non est factum. Young JA noting:

There appears, however, to be no basis to apply the Act to circumstances where there is no contract formed. Here, the only basis for the contract of loan and the mortgage was the signing by Mr Ford of the documents in question. The success of the plea of non est factum means that there was no signature. Thus, there was no relevant contract for the purposes of the Contracts Review Act.

The court then considered what the outcome would have been had Contracts Review Act been raised without a non est factum plea. The conclusion was that the father would have been able to raise the defence successfully, but would have also had to give credit for the $24,857 benefit he received.

The success of the Contracts Review Act defence would not have required the lender to have been on notice of the Father’s intellectual disability. The liability would be based on the fact of the improvident circumstances (even though unknown to the lender) and the fact that the lender was ‘asset lending’. Young JA noting:

Perpetual took no step to investigate the borrower. It propounded documents which contemplated a request (that was made here) that the loan be assessed without regard to documentary evidence of the borrower’s income and financial position. Those facts are indisputable. No doubt there were sufficient commercial reasons for Perpetual to deal in this way. No criticism is to be levelled against Perpetual from these facts alone… Given the helpless position of Mr Ford, the plain injustice of the loan and mortgage contracts from his perspective for the reasons that we have given, we would make an order varying the contract of loan and mortgage to limit his liability to $24,857 plus interest. This conclusion is reinforced by the recognition that Perpetual took no steps whatsoever to ascertain the circumstances of the borrower.


This ‘policy’ of supporting the non est factum judgment by not allowing restitution to undermine it, would not apply to indefeasibility. Had the lender used an all monies mortgage the finding of non est factum would have strengthened its argument to claim the security property not weakened it. Bransgroves continually warns lenders not to use all monies mortgages.

Scroll to Top