The disagreement between majority and dissent in Lewis v. Central Credit Union Ltd. refined the equitable doctrine of presumed undue influence. At issue was a surety's liability for her adult son's defaulted loan. The Prince Edward Island Court of Appeal dismissed the respondent’s cross-appeal from a ruling vitiating a guarantor’s consent to mortgage her life estate as surety for her son’s loan. The majority found the bases for presumed undue influence in the reasons of the applications judge despite that he had failed to name that doctrine as the basis for his ruling. McQuaid J.A.’s dissent proceeds from a conflicting apprehension of the doctrine.
The co-appellant Ella Lewis had signed a mortgage against her life estate as surety for her son’s loan, as required by the respondent Credit Union. She did not receive independent legal advice, though the Credit Union had insisted that she do so on similar transactions, previous and subsequent. When the Credit Union moved to enforce its surety, the applications judge cited Mrs. Lewis’ lack of independent legal advice along with other factors as justification for denying the respondent’s claim. On the cross-appeal, the majority found that those factors gave rise to a presumption of undue influence, despite the applications judge’s statement that he saw no evidence of actual undue influence. Thus the reasons of Jenkins C.J.P.E.I. invigorate the doctrine of presumed undue influence as distinct from actual undue influence, adopting Feldman J.A.’s recent statement of those doctrines in CIBC Mortgage Corp.v. Rowatt, [2002] O.J. No. 4109 (Ont. C.A.) with the following refinements:
a) A proven “special relationship,” as one of trust and emotional interdependence, between two parties to a transaction, e.g. debtor and surety, is a sufficient basis to presume undue influence. If that relationship is non-commercial, then the transaction itself need not call for explanation, i.e. for conferring no financial benefit to one party.
b) The inquiry concerning the commercial nature of the relationship pertains to the relationship between alleged influencer and the party allegedly unduly influenced.
c) Equity does not impose a duty on a third party which has knowledge of such a “special relationship”; rather, it fixes that party with constructive notice that its claim will be subject to an equity unless it takes reasonable measures to ensure informed and independent consent.
d) Proof that the potentially influenced party obtained independent legal advice will generally be sufficient, though not necessary, to rebut the presumption of undue influence.
The majority held that the facts as found by the applications judge revealed both a “special relationship” between surety and debtor, and a transaction of no financial benefit to Mrs. Lewis, giving rise to presumed undue influence which the respondent failed to rebut; therefore Mrs. Lewis was entitled to equitable relief from liability without proving actual undue influence.
McQuaid J.A., in dissent, thought that the applications judge’s finding of no actual undue influence precluded any presumption of undue influence, following Sopinka J’s solo concurring opinion in Geffen v. Goodman Estate, [1991] 2 S.C.R. 353. Therefore he found that the applications judge erred by treating lack of independent legal advice as a stand-alone defence. Considering the commercial nature of the creditor-debtor relationship – instead of the non-commercial surety-debtor, mother-son relationship – McQuaid J.A. held that Mrs. Lewis could not raise a presumption of undue influence unless she was unduly disadvantaged or the Credit Union unduly benefited, neither being the case in his view.
Aaron SanFilippo
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