Bank of Montreal v Stuart

Facts

Mr John Stuart, the husband of the respondent to the action, was a shareholder in the Maritime Sulphite Company, Limited, of Chatham, New Brunswick in Canada. That company was indebted to the Bank of Montreal. The bank exerted commercial pressure on John Stuart to obtain a guarantee from the respondent, Mrs Jane Stuart in the amount of $100,000. This he duly did, and Mrs Stuart executed the guarantee on 24 February 1896. At the same time she also granted a security interest over land and other investments to the bank. On 11 April 1898 she gave a further guarantee, and on 2 October 1903 and 20 July 1904 she granted further mortgages. The company did not prosper and the bank sought to enforce the guarantees. The bank's solicitor stated that Mrs Stuart was "absolutely cleaned out." The only solicitor who Mrs Stuart had access to was Mr Alexander Bruce QC, who was also the bank's solicitor and her husband's.

In the judgment Mrs Stuart as described as simply accepting the demands made upon her: "The evidence is clear that in all these transactions Mrs. Stuart, who was a confirmed invalid, acted in passive obedience to her husband's directions. She had no will of her own. Nor had she any means of forming an independent judgment even if she had desired to do so."

Trial

The trial judge dismissed the action with costs, holding in effect that Mr Stuart exerted no undue influence over his wife, that she perfectly understood what she was doing and acted on her own uncontrolled judgment, and that no unfair advantage was taken of her.

On appeal the Court of Appeal for Ontario thought by a majority Mrs Stuart was entitled to relief, although the Chief Justice based his reasoning on the Canadian decision in Cox v Adams 35 Can SCE 393, in the Supreme Court of Canada, which decided that no transaction between husband and wife for the benefit of the husband can be upheld unless the wife is shewn to have had independent advice.

Judgment of the Privy Council

The sole judgment was delivered by Lord Macnaghten. A surprisingly large amount of the judgment is simply the judge recounting correspondence between the bank and the company's directors, and providing background as to the sources of Mrs Stuart's wealth and the general financial difficulties of the company. Strangely, having recounted all the correspondence, Lord Macnaghten then notes that much of the correspondence was not in evidence at trial. Lord Macnaghten was clearly not impressed by the fact Mrs Stuart asserted that she had acted of her own free will in her evidence at trial, noting: "Her declarations in the course of her cross-examination that she acted of her own free will and not under her husband's influence merely shew how deeprooted and how lasting the influence of her husband was."

He then added:

Chitty on Contracts cites the case as authority for the proposition that the person exercising undue influence over a person need not engage in any overt act at all. Mrs Stuart succeeded in establishing undue influence "even though her husband had put no pressure on her because none was needed, as 'she had no will of her own ... she was ready to sign and do anything he told her to do.'"

The case is also cited as authority for key propositions:

1. The court used the phrase "immoderate and irrational" to describe the character of a transaction which might of its nature suggest undue influence such as to put a third party on notice.
2. A solicitor who is advising a client about a transaction and has reason to suspect that the client is the victim of undue influence is placed under a duty to the client to try and protect her.
3. The relationship of husband and wife was not one which, as a matter of law, would raise a presumption of undue influence.

Commentary

Although the decision was an important one in the early development of the law of undue influence, the authority is rarely cited or relied upon today.