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Case Study: Lack of ILA is not an escape route for debtors

LAWPRO has seen many claims brought against solicitors by lending institutions where guarantors or mortgagors attempt to escape liability to the lender on the basis on non est factum, or lack of independent legal advice when they entered into the transaction.

Several recent judgment have shown a refreshing tendency to see these cases for what they are attempts to avoid responsibility by individuals who knowingly and willingly entered into the original transactions.

Case A
In the first case, a couple were defrauded by their own son of $150,000 which they received from the sale of their home. They had to take a substantial mortgage on the house they were purchasing to finance the transaction. Several years later, they alleged that the mortgage was null and void by reason of non est factum. They claimed they signed the mortgage documents in the lawyers' office without having any idea or explanation about what they were signing.

The court's decision
The trial judge rejected their evidence, but said that even if their version of events was correct, their conduct in blindly signing numerous documents without questioning their content, especially when they were in a lawyer's office for the express purpose of signing important legal documents for the largest transaction in their lifetime, constituted the clearest case of blatant carelessness, which disentitled them to plead non est factum against the innocent mortgagee.

(Mihajlovic v. Quirt, unreported, Ontario Court General Division, Langton, J. July 31, 1996)

Case B
In the second example, the Court of Appeal of Prince Edward Island held that a mortgage against the matrimonial home was enforceable against a wife, notwithstanding that the lawyer who advised her was not independent and her husband exercised duress in order to obtain her signature. The Credit Union had no notice of the duress, and owed the wife no fiduciary duty to ensure independent legal advice since there was no "dependency" or "vulnerability" in the relationship between the Credit Union and the wife.

(Tignish Credit Union v. Murphy, (1996) 2. R.P.R. (3d) 67 (PEI C.A.)

The court's decision
An Ontario Court held that a mortgage on a matrimonial home was enforceable against a wife who had received only "perfunctory and ineffectual independent legal advice." There was no need for independent legal advice since she understood what she was doing, had the opportunity to ask for further clarifications, and the mortgage supported the family business, which in turn supported the wife.

(Banca Commerciale Italiana v. Fasciani [1996] O.J. No. 2631)

Case C
In Sun Life Trust v. Lebofits [1995] O.J. No. 4067. Lissaman, J. rejected a wife's contention that she required independent legal advice when she mortgaged the matrimonial home to raise money for the family business, which supported the family.

Case D
In the fourth case, a middle-aged woman who gave a mortgage on a rental property she lived in to support the indebtedness of her son-in-law was held to be liable on it, even though she was unrepresented and obtained no independent legal advice. She understood the consequences of failing to pay. The mortgagee's solicitor owed her no fiduciary duty. (Vass v. Marcil; C. Bruce Willson et al [Third Parties], unreported, Ontario Court General Division, Loukidelis, J. March 7, 1996; supplementary reasons May 15, 1996).

The ILA Checklist & Other Information Resources on ILA

While each of these four cases was successfully defended, the cost of funding the defence for these types of claims is substantial. Even if we are awarded costs, they are usually on a party-party basis, and quite frequently are uncollectible. The lawyers who are sued lose time from their practices, and suffer considerable anxiety and stress. Effective January 1, 1995, they also are responsible for funding defence costs to the extent of their deductibles. Furthermore, not every claim for defective ILA is successfully defended.

The ILA Checklist, is one tool that practitioners may want to use to help prevent such claims in the future. LAWPRO is not suggesting that solicitors need to ask all questions on the checklist to give competent legal advice. However, mortgagors or guarantors may be reluctant to litigate against a solicitor who can produce a completed copy of this or a similar checklist. They also will be less likely to assert a defence against the lender based on non est factum or allegedly defective ILA, thus reducing the chances that the lender's solicitor will be drawn into litigation.

Other resources available to lawyers interested in this topic include:

* "Independent Legal Advice A Practical Guide" by Brian Bucknell Q.C.; published in 49 R.P.R. (2d) 49.

* The Ontario Bar Association's November 1996 program on "Conflicted Clients: An Examination of Independent Legal Advice, Conflicts of Interest and the Standards of Practice" featured a number of excellent papers that give practitioners additional insights into the ramifications of ILA. Available from the OBA (website: www.oba.org).

 

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