© 1995 Karen Selick
 A Law for the Imprudent
An edited version of this article first appeared in the July, 1995 issue of Canadian Lawyer.  If you wish to reproduce this article, click here for copyright info.


 A Law for the Imprudent

The trend these days is that no-one is ever to be held responsible for his or her own actions, no matter how reckless or imprudent--unless, of course the person happens to be a business with deep pockets, in which case it is held responsible not only for its own foolish deeds but for everyone else's as well.  The recent case MacKay v. Bank of Nova Scotia is the latest example of this trend.

Thelma MacKay was a 57-year-old woman with an adult daughter Sheriann.  Sheriann cohabited with a man named Michael, who had previously been bankrupt.  He helped Sheriann fritter away $42,000 of her savings and rack up $30,000 more in debts.  Then the couple decided to buy a recreational trailer.  When they tried to borrow yet another $15,000, the bank said they'd need a co-signer with security.  Sheriann asked her mother, who agreed.

The bank suggested consolidating the couple's existing debts with the new loan.  Mrs. MacKay would be shown as the borrower and would give a $45,000 mortgage on her condominium.  

The bank also suggested that she get independent legal advice (ILA).  The loan officer testified that he even went so far as to phone a lawyer for a fee quote and an immediate appointment, but that Mrs. MacKay declined, saying ILA was unnecessary and too costly.  She signed a waiver of ILA instead, got the loan, and on-lent the money to her daughter.

Sheriann and Michael promised to make the loan payments, but  eventually went bankrupt, saddling Mrs. MacKay with the debt.  She sued for a declaration that the mortgage was invalid, and won.  The court would not permit the bank to collect its $45,000.

The reasoning in this decision is flabbergasting.  The court did not find that Mrs. MacKay had any misunderstanding about the transaction.  On the contrary, her evidence was that she knew there would be some risk and that her condo would be collateral.  In fact, she had hesitated about helping Sheriann, suggesting that other family members be approached first, but Sheriann had already tried that unsuccessfully.

The court's decision was based entirely on the fact that Mrs. MacKay did not get ILA:  "...the glaring omission in this case [is] that no one ever said to the plaintiff in blunt terms that the transaction is entirely improvident and that she should not go ahead with it."  

The bank should simply have refused to grant the loan, said the judge, unless she got ILA.  If she had got ILA and then gone ahead foolishly anyhow, she would have been on the hook.

Now hold on just a minute.  It didn't take extraordinary perspicacity to see that Sheriann and Michael were not models of fiscal responsibility.  Neither the bank nor any lawyer had a better opportunity than Mrs. MacKay to be aware of that.  A lawyer giving ILA would have had no better information about the likelihood of them keeping their promise than Mrs. MacKay could herself provide.  Besides, lawyers are not particularly qualified to give advice on this subject.  It is not a question of law.  It's a question of good judgment and common sense.  There are no courses in these subjects at law school, as demonstrated by the fact that lawyers (and the professional liability insurance companies they run) sometimes go bankrupt themselves. 

The complaint is sometimes made that there is one law for the rich and another law for the poor.  This case demonstrates that there is one law for the imprudent and another law for the super-imprudent.  The imprudent (who enter into bad deals without seeing a lawyer) don't have to pay their debts.  The super-imprudent (who enter into bad deals even after seeing a lawyer) do have to pay their debts.   Hmmm...perhaps the imprudent aren't so imprudent after all.  

In fact, if the implications of this judgment become common knowledge among the general public, the rational course of action for all similar borrowers will be never to get ILA, and never to pay their debts.  They needn't worry about the morality of this behaviour; the Ontario Court (General Division) has already given it the official seal of approval.

How far will the rationale of this case be extended?  Would Mrs. MacKay have needed ILA if she had taken the loan because she had received an unsolicited call from a stockbroker and wanted to invest in a hot new issue of penny mining stocks?  Such a transaction would probably be just as improvident as lending to Sheriann and Michael.  Are we coming to the point where no-one will be permitted do anything without consulting a lawyer first?  Are lawyers going to have the final say on the wisdom of all financial transactions?  Will they run the whole economy?

Will the next step in our crusade to exonerate the shallow-pocketed be to scrutinize the sufficiency of the ILA?  Suppose the lawyer says tactfully (rather than bluntly) that a proposed transaction is "inadvisable" (rather than "entirely improvident") and that the client "might want to reconsider" (rather than "should not go ahead with it").  If the client goes ahead anyhow and loses money, would he then have a claim over against the lawyer for giving insufficiently harsh advice? 

It's time we went back to recognizing that people sometimes make foolish mistakes, and that justice consists in ensuring that they, not someone else, bear the consequences.

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June 11, 2000