In-depth Case Study: Bank of Montreal v. Duguid (2000) - Business Law

This case study provides an analysis of the Bank of Montreal v. Duguid (2000) case, focusing on the legal implications of a wife co-signing a loan for her husband and the defense of undue influence. The analysis compares the Duguid case with similar cases like Barclays Bank v. O'Brien and McKay v. Bank of Nova Scotia, highlighting the concept of constructive notice and the responsibilities of banks in ensuring guarantors are fully aware of their liabilities and have access to independent legal advice. The study supports the court's decision, emphasizing the balance between protecting vulnerable guarantors and preventing fraudulent evasion of liabilities, while acknowledging the guarantor's awareness of their rights to seek independent advice. Desklib offers a platform to explore similar legal case studies and solved assignments.

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Date: 17 February 2019
Subject: Case Analysis of Bank of Montreal v. Duguid (2000) 47 O.R. (3d)
737 (C.A.)
In this case the defendant Mrs. Duguid signed a loan with the Bank
of Montreal on the persuasion of her husband. The bank sued the
defendant when her husband defaulted in paying back the loan. The
defendant put forwarded in her defence that she was made to sign the
loan under undue-influence by her husband. She had held that such an
action was taken to maintain the tranquillity of the marriage and without
considering the content and adverse consequence of the matter. She
alleged that she was deprived of receiving any sort of independent legal
advice as well as an independent financial advice before taking such step.
The Ontario Court (General Division) had accepted Mrs Duguid's prayer
and dismissed the Bank's action.
On appeal, the Ontario Court of Appeal set aside the order of the
General Division and delivered a judgment in favour of the Bank of
Montreal. In accordance to the court’s decision, the following essentials
would allow the presumption of undue influence:

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1. There needs to be a close relationship between the principal debtor or the
co- signatories and the guarantor;
2. The guarantor must have confidence and trust on the principal
debtor; and,
3. The transaction might be injurious or harmful for the guarantor.
However, in the absence of relevant evidence proving the
presumption, the guarantee is not enforced.
The decision of the Court of Appeal was in harmony of the decision
given in the case of Barclays Bank v. O'Brien [1994] 1 AC 180. In this
case, the husband being the principal debtor convinced his wife to sign a
security deed that comprised of her home for her husband's company.
Similar to the Duguid’s case, the wife did not receive an independent legal
or financial advice pertaining to the security deed that she signed. On the
failure to repay the loan amount, the Bank took-over the property. Here,
the wife brought the charges of misrepresentation and undue influence to
her defence. The court dismissed the allegation of undue influence and it
held that the wife was supposed to have used her independence of
thought pertaining to the financial consequences as she was not a novice
related to such matters as she have had experience of handling family
finances in her husband's absence. However, the charges of
misrepresentation were proved to be successful. The court held that the
bank was aware of the constructive notice of the misrepresentation yet it
failed to take measures to ensure that Mrs. O'Brien signed the security
without any influence along with the fact that she was aware of her full
liability on the company’s failure to repay the loan.

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Lord Brown Wilkinson, in Barclays Bank v. O'Brien [1994] 1 AC 180
put forwarded the concept of constructive notice and propounded certain
steps that are to be taken up by the banks for avoiding issues regarding
constructive notice. He stated that a creditor would be held responsible
under the following factors if a wife stands as a surety for her husband's
debt:
1. The transaction involves nothing that would amount to a financial gain for
the wife; and
2. There is a chance that the husband has committed an equitable
wrong in preparing his wife's consent to be the surety and have hid
material facts from her which might have set the transaction aside.
In such circumstances, the creditor has the responsibility to take
reasonable steps to ensure that the wife's consent has been obtained
without any influence and that the wife has the knowledge about the
adverse consequences of the transaction. The court held that the creditor
shall be deemed to have a constructive notice of the rights of the wife
that is the guarantor.
On another similar case yet with dissimilar judgment, in McKay v.
Bank of Nova Scotia (1994), 20 O.R. (3d) 698 (G.D.) an old mother was
made to co-sign a loan by her daughter to purchase a trailer. The
daughter had a poor credit rating and eventually failed to repay the loan
of the trailer as well. The Bank sued the guarantor claiming that they had
advised her to take independent legal advice before signing the
documents, which she wilfully refused. The court in this case held that the

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mother had acted under the influence of the love for her daughter and
along with it; she was not cautioned about the adverse consequences of
the transaction. The court also held that the bank had the duty to insist
the guarantor to obtain independent legal advice or it had the liberty to
refuse to pass the loan. Therefore, in this circumstance the entire debt
was written off, for the daughter was bankrupt. Subsequent to the
decision of this case, banks and other lenders were apprehended to give
out loans or mortgage to people where the contract was to be signed by a
co-signatory who was particularly a family member or friend of the
principal debtor along with the fact that the co-signatory or the guarantor
had refused to receive an independent legal advice.
Therefore, to justify whether to support or disagree with the court’s
decision, the principles held by the Court in Bank of Montreal v. Duguid
(2000) 47 O.R. (3d) 737 (C.A.) needs to be understood. The fact that even
though the Bank was aware that the husband and wife were in a
relationship of trust and confidence, it failed to ensure that the wife had
taken the decision to co-sign the document voluntarily and was aware of
her full liability on the company’s failure to repay the loan. Additionally, it
needs to be acknowledged that the bank failed to advise the wife to opt
for independent legal as well as financial advice before she signed the
document. It can also be seen in this circumstance that the transaction
was injurious and disadvantages for the wife and that the bank had a
constructive notice of the fact yet did not take any preventive measures
to caution the wife, that is the guarantor of the loan. However, the court
also put forwarded that the principal debtor would also be held liable for

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deceiving the guarantor for not making her aware of her full liability
pertaining to the loan. The guarantor would also be presumed to have
signed the document voluntarily and in full awareness as she did not
exercised her rights to be assisted by an independent legal and financial
advisor.
Therefore, the judgement delivered by the court in Bank of
Montreal v. Duguid (2000) 47 O.R. (3d) 737 (C.A.) is supported and
agreed with, as although the creditor had the responsibility to take
reasonable steps to ensure that the wife's consent has been obtained
without any influence and that the wife has the knowledge about the
adverse consequences of the transaction; however the fact that the wife
who is the guarantor was aware that she had the right to obtain
independent legal as well as financial advice, for she was acquainted with
financial matters cannot be ignored. It would be presumed that even
though Mrs. Duguid had taken the decision of signing document under the
pressure of maintaining the tranquillity of her marriage, she was well
aware of her rights and liabilities. In addition, a decision contrary to this
would boost severe fraudulent cases where people might try to evade
their liability to the banks by similar approach, thereby burdening the
courts with unnecessary and fabricated litigations.

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References
Bank of Montreal v. Duguid (2000) 47 O.R. (3d) 737 (C.A.)
Barclays Bank v. O'Brien [1994] 1 AC 180
McKay v. Bank of Nova Scotia (1994), 20 O.R. (3d) 698 (G.D.)