Bank of Montreal v Stuart

Jane Stuart, the respondent to the action, was a resident of the province of Ontario. She owned considerable property in her own name. Her father had been a successful businessman and had given her a substantial house during his lifetime, and left his entire estate to her. The estate was estimated to be in the neighbourhood of $250,000,[1] (which would be approximately $5,892,000 in 2021 dollars).[2]

Jane Stuart was married to John Stuart, a businessman who was a shareholder in the Maritime Sulphite Company, Limited, of Chatham, New Brunswick in Canada. That company had never turned a profit.[3] Stuart and the other shareholders in the company were heavily indebted to the Bank of Montreal in relation to the company. In the 1890s, the bank exerted commercial pressure on John Stuart and the other shareholders to provide additional guarantees for their liabilities to the bank.[4]

John Stuart did not have much remaining assets himself, and his fellow shareholders were reluctant to invest any more money in the company. John Stuart suggested to the bank that he obtain money and a guarantee from his wife, originally in the amount of $100,000.[5] This he duly did, and Jane Stuart executed the guarantee on 24 February 1896. At the same time she also granted mortgages 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. All of the property in question was Jane Stuart's personal property, inherited from her father. In exchange for mortgages and guarantees in the neighbourhood of $240,000, she received shares in the company from her husband and the other investors, worth about $24,000.[6]

Jane Stuart did not have any independent legal advice in these transactions. The only lawyer involved in the transactions was Alexander Bruce, QC, who was simultaneously acting for the bank and for John Stuart. Bruce was also a business associate of John Stuart and a shareholder in the company in question. Bruce drew up all of the various documents requested by John Stuart, and Jane Stuart signed them. Bruce made some changes to the documents that John Stuart did not request, which favoured the bank and exposed Jane Stuart to greater liability than originally planned.[7]

The company did not prosper and the bank sought to enforce the guarantees. Bruce, the bank's solicitor, acknowledged that Jane Stuart was "absolutely cleaned out."[8]

At that time, the Judicial Committee of the Privy Council was the ultimate appellate body for the British Empire, including appeals from the Supreme Court of Canada.[13] The Bank of Montreal appealed the Supreme Court's decision to the Judicial Committee. On 2 December 1910, the Judicial Committee rejected the bank's appeal.

The judgment was delivered by Lord Macnaghten. He began by stating that the Supreme Court's principle from Cox v Adam could not be supported. However, he took a fundamentally different view of the case from that taken by the trial judge.

Rather than setting out a detailed narrative of the facts, Lord Macnaghten quoted in full the letters of the transaction which the Bank itself had put in evidence, although noting that one of John Stuart's letters mentioned in that correspondence had not been put in evidence.[14] He also noted that Bruce, in drawing up the documents, stated that he was acting for the Bank, and acknowledged that neither John Stuart nor Jane Stuart had any other legal advisor.[15]

Having reviewed the evidence, Lord Macnaghten concluded that Jane Stuart had simply accepted 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."[16] He added "She was ready to sign anything that her husband asked her to sign and do anything he told her to do." He also discounted her contrary assertion that she had acted of her own free will, 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."[17]

He then added:

It may well be argued that when there is evidence of overpowering influence and the transaction brought about is immoderate and irrational, as it was in the present case, proof of undue influence is complete. However that may be, it seems to their Lordships that in this case there is enough, according to the recognized doctrine of Courts of Equity, to entitle Mrs. Stuart to relief.

Lord Macnaghten concluded that John Stuart had taken unfair advantage of his wife's confidence in him.[18] He also strongly criticised the actions of Bruce, who was acting for the Bank, but also for John Stuart, and would also benefit personally from the guarantees given by Jane Stuart. He added that: "The Bank left everything to Mr. Bruce and the Bank must be answerable for what he did." Bruce's intervention in giving advice to Jane Stuart left her worse off than if he had not intervened at all. He should have insisted on independent legal advice. Failing that, he should have withdrawn entirely, and advised the Bank why he did so.[19]

Lord Macnaghten therefore concluded that the appeal from the Supreme Court should be dismissed, although for different reasons, and confirmed the order of the Supreme Court, which had directed that the matter go to trial.[20]

• Undue influence in English law