Saunders v Anglia Building Society [1970] UKHL 5
Citation:Saunders v Anglia Building Society [1970] UKHL 5
Rule of thumb:Is there sometimes a duty on one party to explain the nature of the contract to the other person and check they understand it? Yes, there is. However, they have to have had no clue about what they were entering - where someone enters a contract by mistake because they did not read the finer points of detail in the contract carefully, because they understood its fundamental terms already, this is not an essential error, the duty to explain is fulfilled, and the contract stands.
Background facts:
The facts of this case were that Mrs Gaille, the pursuer, agreed to gift her house to her nephew, Mr Lee, on the condition that she was allowed to live there rent free for life. This was done so that Lee could remortgage the house and obtain some capital from it for another venture he had. Lee did this and then defaulted on the re-mortgage, and then the bank put procedures in place to repossess the house.
Arguments:
Gaille/Saunders argued that she made an essential error about the nature of the contract because she did not understand the full implications of it. Gaille argued that banks must explain to people in language they can understand what they are entering into. The bank argued that Gaille's lack of understanding was her own fault and that essential error did not apply. The bank argued that the principle of uninduced unilateral error applied to ensure that essential error did not apply.
Judgment:
The Court found in favour of the bank. However, they developed the principle of uninduced unilateral error and held that there can be a positive obligation on people to explain the nature of a contract and a failure to explain the nature of the contract could in some circumstances be deemed to be an induced error capable of breaching the essential error principle. They deemed that Gaille did know more or less what she was entering into, she just did not understand it fully - they stated that where someone is impaired mentally, then measures have to be taken to ensure that they do know what they are getting into basically. However, in this case, it was deemed that Gaille did not radically misunderstand what she was entering so the essential error principle did not apply, but the Court held there was.
Ratio-decidendi:
‘it must also apply in favour of those who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate incapacity... There must, I think, be a radical difference between what he signed and what he thought he was signing - or one could use the words “fundamental” or “serious” or “very substantial.” But what amounts to a radical difference will depend on all the circumstances’, Lord Reid , 'must also apply in favour of those of those who are ... unable... to have any real understanding of a particular document... There must I think be a radically different between what ... signed and what ... thought ... was signing', Lord Reid
Warning: This is not professional legal advice. This is not professional legal education advice. Please obtain professional guidance before embarking on any legal course of action. This is just an interpretation of a Judgment by persons of legal insight & varying levels of legal specialism, experience & expertise. Please read the Judgment yourself and form your own interpretation of it with professional assistance.