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CONTRACT Flashcards

Agreement / Consideration/Intention to Create Legal Relations/ Capacity/ Duress/ Undue Influence

1
Q

Three Requirements of Binding Contract

A
  1. Offer and Acceptance
  2. Intention to create legal relations
  3. Consideration
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2
Q

Offer requirement

A

Clear + Certain Offer displaying intention to be bound

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3
Q

What do you distinguish between re Intention to be bound?

A

Offer and Invitation to Treat

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4
Q

What is an advert

A

I2T, except unilateral offer

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5
Q

Requirements of a unilateral offer

A
  1. Prescribed Act, 2. Clear Intention to be bound
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6
Q

Display of Goods?

A

I2T (shop window, self-serve, website)

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7
Q

Invitation to Tender?

A

I2T, except unilateral contract to accept highest/lowest bidder.

Note: contractual duty to consider compliant tenders where:
1. Solicited tenders from known parties
2. Absolute Deadline
2. Absolute conditions for submission

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8
Q

Auction?

A

I2T (if w reserve), except without reserve

For without reserve, two contracts - bilateral contract for sale only when offer accepted, and unilateral promise that auction will be without reserve - if goods then withdrawn, bidder entitled to compensation for breach of unilateral contract, but not entitled to goods.

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9
Q

Three ways to terminate an offer

A
  1. Rejection
  2. Lapse
  3. Revocation
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10
Q

What must happen for valid rejection?

A

Must be COMMUNICATED - then = counter offer

** be careful to check that the reply is a counter-offer rather a request for further information

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11
Q

Requirements for Lapse of offer?

A
  1. Prescribed time + not accepted within this time
  2. No prescribed time in contract but not accepted within reasonable time
  3. Death
    a. death of offeree - Lapse
    b. death of offeror - known - Lapse
    c. death of offeror - unknown - Valid
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12
Q

Revocation requirements?

A

Must be communicated BEFORE:
1. Acceptance; or
2. Performed act complete (in case of unilateral contract).

**Note: may be that x valid where act started and offeree willing to complete and would suffer hardship if withdrew.

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13
Q

FOUR requirements of Acceptance

A
  1. In response
  2. Unqualified
  3. Prescribed Mode
  4. Communicated
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14
Q

Acceptance - In Response - for bilateral offer?

A

Only the offeree can accept the offer

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15
Q

Acceptance - In Response - for unilateral offer?

A

Anyone with notice of the offer can accept.

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16
Q

Unqualified acceptance of offer?

A

Must mirror the terms of the offer. If qualified - need to ask Q whether it is a counter-offer or a request for more information.

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17
Q

Prescribed Mode of Acceptance included in offer (Q1)

A

Is the stipulation of this mode for the benefit of the offeree

YES - Offeree can WAIVE stipulation and use ANY mode of acceptance

NO - Is the stipulation as to mode mandatory/ excluding all other options:

        YES - The offeree must use mandatory mode
        NO - The offeree can use any mode which is no 
                  less advantageous for the offeror.
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18
Q

What is the postal rule?

A

A posted acceptance is effective upon posting (Adams v Lindsell)

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19
Q

FIVE situations where the postal rule does not apply?

A
  1. Letter not properly posted
  2. Manifest inconvenience or absurdity
  3. It was not contemplated that post would be used
  4. Offeree misaddressed the letter
  5. Postal rule ousted (excluded in contract)
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20
Q

Does the postal rule apply even if post lost/delayed?

A

YES

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21
Q

Instantaneous communication of acceptance rule?

A

Contract created when notice or acceptance is RECEIVED by offeror.

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22
Q

Certainty Requirement re binding contract?

A

All terms must be certain and complete

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23
Q

TWO types of consideration

A
  1. EXECUTORY
  2. EXECUTED
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24
Q

What is executory consideration?

A

parties promise to do something in future AFTER contract formed

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25
Q

What is executed consideration?

A

@ time of formation, consideration ALREADY BEEN performed

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26
Q

FOUR key rules of consideration?

A
  1. Must not be past
  2. Must move from promisee
  3. Need not be adequate
  4. Must be sufficient
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27
Q

What is the rule (and an example) if PAST consideration?

A

🎒A supported B’s education, B married C, C promised A would repay A’s loan for education, C failed to do it.

Not good consideration

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28
Q

What are the THREE exceptions to the rule that past consideration is not good consideration?

A
  1. Act done at promisor’s request
  2. Parties understood act to be rewarded by payment/benefit
  3. Payment must have been legally enforceable had it been promised in advance
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29
Q

What is the general rule (and an example) of needing consideration to move FROM the promisee?

A

TP who x provided consideration, cannot bring action to enforce contract.

💍 Promise between fathers or bride and groom to pay money to bridegroom, not paid, groom could not enforce as not provided any consideration - consideration was between fathers.

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30
Q

What is the example for the rule that consideration need not be adequate?

A

🍬Nestle wrapper had no value and thrown away upon receipt, but this irrelevant - peppercorn = good consideration even if don’t like pepper.

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31
Q

What is the rule that consideration must be sufficient (and example)?

A

Must have some value in eyes of law

🏠Executor agreed to transfer house to deceased’s widow in return for payment of £1/year and widow’s agreement to keep house in good repair

^^irrelevant that value of consideration vs value of house not equal

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32
Q

THREE situations where consideration can be made of existing obligations

A
  1. Exciting Contract with Same Parties
  2. Public Duty
  3. Existing Contract with Third Party
33
Q

General Rule around whether performance of existing contract with same parties can be good consideration?

A

✅If goes beyond contractual requirements (legal consideration)
❌Not if just do what contractually bound to do

34
Q

What is the exception to the rule that without legal consideration, there is no good consideration?

A

⚡Except - Williams v Roffey introduce PRACTICAL BENEFIT idea (i.e. Factual consideration) - practical benefits in that case where avoidance of late completion payment in main contract, more efficient working arrangement and avoiding need to find alternative contractor to do work:

35
Q

FIVE requirements of PRACTICE BENEFIT (factual causation)?

A
  1. If A has entered into a contract B to do work for, or to supply goods or services to, B in return for payment by B; and
  2. At some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and
  3. B thereupon promises A an additional payment in return for A’s promise to perform his contractual obligations on time; and
  4. As a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and
  5. B’s promise is not given as a result of economic duress or fraud
    on the part of A; then
  6. The benefit to B is capable of being consideration for B’s promise, so that the promise will be legally binding
36
Q

Rule around whether performance of public duty can be good consideration (and example)?

A

General rule: merely carrying out public duty imposed by law will not amount to sufficient consideration

Case where a private individual offered reward for information - police officer came forward with information - contract enforceable as although police have duty to prevent crime, no duty to provide information to private individuals so went beyond public duty.

37
Q

Rule re whether existing contract with third party can provide good consideration?

A

✅ Promisee obtains benefit of direct obligation which can enforce - performance of pre-existing duty owed to TP will be sufficient consideration for promise given by promisor.

38
Q

General rule around whether PART PAYMENT OF A DEBT can be good consideration?

A

⛔Part payment of a debt is not good consideration (Foakes v Beer)

39
Q

THREE exceptions to general rule that part-payment of a debt is not good consideration?

A

Foakes will not apply where:

  1. Introducing new element - e.g. if the creditor requests some new element be introduced, this will be a good consideration, court will not question the value of new element – might be a different place, different time, different thing in place of money.
  2. Payment of lesser sum BY THIRD PARTY - e.g if agreement between TP and creditor for TP to pay less sum than debt in full satisfaction of debtor’s obligation, creditor cannot sue for difference.
  3. Practical Benefit - Has been held that Roffey does not apply to cases where creditor agrees to accept lesser sum in settlement of debt - this created 🧠 Clear dividing line – between promises to pay more for an existing contractual obligation, where practical benefit can be applied, and promises to accept less than your legal rights, where it cannot. Note though, various cases questioning whether practical benefit in absence of duress is sufficient to make a promise to accept less binding. MWB case blurred lines saying the landlord’s oral agreement to reschedule rent payments was binding as got practical benefit of keeping the tenant in property rather than having vacant space.
40
Q

What is PROMISSORY ESTOPPEL in context of consideration?

A

Equitable doctrine: allows promise to be enforced despite no consideration

Where a promise made that intended to create legal relations and which, to the knowledge of the person making the promise, was going to be acted on, then the promise would be binding. Tenants could rely on defence of promissory estoppel to prevent landlords going back on their promise to accept reduced rent during war years when flats were not let.

41
Q

Can you found an action of promissory estoppel?

A

NO - cannot be used as a cause of action, can only act as a SHIELD, not sword

42
Q

FOUR requirements of promissory estoppel?

A
  1. Acts as SHIELD not sword
  2. CLEAR and UNEQUIVOCAL promise that strict legal rights will not be fully enforced
  3. Change in POSITION in RELIANCE on the promise
  4. INEQUITABLE to allow promisor to go back on their promise.
42
Q

Is DETRIMENTAL reliance required for promissory estoppel?

A

NO - enough that promisee made change in position on reliance on promise so that inequitable for promisor to go back on promise

43
Q

What are the two likely scenarios of promissory estoppel applying?

A

▶️ Scenario 1: right to periodic payments may resume once period over which promissory estoppel operates ceases (as envisaged in High Trees e.g. landlord could recover rent for last 2 quarters of 1945)

▶️ Scenario 2: Promisor may resume their full legal rights after giving reasonable notice of their intention to do so [💼 Tool Metal v Tungsten].

44
Q

What is the test for intention to create legal relations (and what standard is it)?

A

OBJECTIVE test = would REASONABLE person regard agreement as intending to be binding, in light of actions of parties and circumstances.

45
Q

Presumption re COMMERCIAL agreement (Intention to create legal relationship?

A

⏩ PRESUMPTION THAT INTENTION EXISTS!
Rebutting required clear words - ‘subject to contract’ is strong inference not intend to be bound until formal contract

46
Q

Presumption re DOMESTIC agreement (Intention to create legal relationship?

A

⏩ PRESUMPTION THAT INTENTION DOESN’T EXIST!

Agreement before relationship breakdown = generally upheld

Agreement between spouses in process of separating or separated when agreement reached = willing to rebut

Lack of formality indicated no intention to be bound re mother’s promise to daughter that if left job in USA and came to Bar in london mother would pay her

47
Q

General Rule re minors - capacity to contract?

A

⭐General rule: under 18s 🔞not bound, even if other party not know their age, or minor lied about it

48
Q
A
49
Q

Exceptions to general rule re minors - capacity to contract?

A
  1. Necessaries - goods suitable to condition in life of minor - minor bound by contract to supply necessaries to them if contract is for their benefit
  2. Contracts of Employment/Education - only bound if for their benefit - e.g. onerous football club not enforceable against minor

Only if one of the TWO exceptions apply can contract be enforced against minor.

50
Q

Can a minor enforce a contract they are party to against other party even if do not fall within one of the TWO exceptions - capacity to contract as minor?

A

YES

51
Q

Can minors ratify contract at 18? If so, what is the effect?

A

YES - if they ratify contract at 18, then it is binding on them.

52
Q

What is the rule re mental incapacity and contracts?

  1. What is definition of lacking capacity?
  2. What does whether/not have capacity depend upon?
A

Person lacks capacity if ‘he is unable to make a decision for himself in relation to the matter’ at the time the contract is made, whether impairment is permanent or temporary.
Unable to make decision for self = unable to:
Understand information relevant to the decision
Retain information
use/weigh that information as part of process of making decision; or
Communicate decision (whether by talking/sign language/other)
Information relevant to decision includes info about reasonably foreseeable consequences of:
Deciding one way or another; or
Failing to make a decision.

Note, whether or not someone has capacity has to be asked in relation to a particular decision

🧑‍⚖️Court can make declarations re person’s capacity and ability to contract in specific citations.

  1. Necessities - If supplied to person lacking capacity to contract for supply, they must pay reasonable price for them.
  2. OTHERWISE, contract BINDING unless person claiming incapacity can establish:
    They did not understand what they were doing; and
    That other party knew that to be the case.
    If this is established contract VOIDABLE
53
Q

Rule on intoxication - capacity to contract

A

If so intoxicated (drink or otherwise) do not understand what doing, will have to pay reasonable price for necessaries BUT
Will not be bound by any other contract they make

54
Q

What is Duress?

A

A coercing B into contract: consent not present or not given freely in some way.
Contract entered into under duress is voidable -> wronged party may be able to take action to have it set arise and to have parties returned to position they were in before contract was entered into.

55
Q

What are the THREE types of Duress?

A
  1. DURESS TO PERSON
  2. DURESS TO PROPERTY
  3. ECONOMIC DURESS
56
Q

Requirements of DURESS TO PERSON?

A

Must amount to actual or threatened violence

Duress NEED ONLY BE ONE FACTOR influencing wronged party’s behaviour

57
Q

Requirements of DURESS TO PROPERTY?

A

Threat to seize owner’s property or to damage it ([ 💼 The Sibeon & The Sibotre].

BUT FOR TEST: Must show contract would not have been entered into if there had not been the duress (i.e. ‘but for’ test. Unlikely to be enough to show that duress is one factor (but not decisive factor) that influenced the wronged party’s behaviour.

58
Q

Requirements of economic duress?

A

[ 💼 DSND Subsea v Petroleum Geo Services:
Pressure…
Whose practical effect is that there is compulsion on, or a LACK OF PRACTICAL CHOICE, for the victim,
which is ILLEGITIMATE, and
which is a SIGNIFICANT CAUSE

SIGNIFICANT CAUSE inducing the claimant to enter into the contract = BUT FOR TEST (note: must be shown that agreement would not have been entered into if there had not been the duress).

59
Q

Legal Effect of Duress

A

Duress makes contract VOIDABLE i.e. it still remains in force unless some action is taken, the party subject to duress may choose to avoid the contract after the duress has ceased. The remedy is rescission (i.e. basically returning parties to the situation that each was in prior to the contract being entered into).

Note, if the party AFFIRMS THE CONTRACT, then remedy of rescission may be lost as affirmation acts as bar to rescission.

NOTE: court might conclude contract is affirmed if, after duress has ceased, innocent party fails to challenge the contract in a timely way and/or acts in compliance with its terms.

60
Q

Economic duress - lack of practical choice?

A

I.e. no practical alternative but to acquiesce to the demand 🌬️ 🔒

🛢️🛢️🛢️[ 💼 Carillion Construction Ltd v Felix: CC subcontracted work for F, F’s work delayed, F got CC to agree to pay ++. Held: CC had paid sum under duress. If CC were to complete the main project on time, and avoid heavy fees for late completion, it had no viable alternative to agree to F’s demand.
^^ There was an illegitimate pressure or a threat, the practical effect of which was that CC had no practical choice but to enter into the agreement

🚚🚚🚚 [ 💼 Atlas Express v Kafco: C contracted w D to deliver cartons to different UK stores. . Manager of C’s firm fixed the contract price based on an estimate that each load would consist of 400-600 cartons, but the first load was only about 200. C wanted lower price, D agreed as was small organisation, heavily reliant on contract with store, and unable to find another carrier. Later refused to pay and C sued, D lodged claim of economic duress. where a party has no alternative but to accept revised terms that were detrimental to its interest, this amounted to economic duress.

🧍🧍🧍 [ 💼 B & S Contracts and Design Ltd v Victor Green Publications Ltd: since cancellation of contract would have caused serious damage to D’s economic interests, they had no practical choice but to pay the sum demands by Ps. Ps therefore not entitled to extra £4500 which Ds paid under economic duress - situation where stands being put up before big event, P’s workmen went on strike week before exhibition refusing to work until pay demand met.

🍶🍶🍶[ 💼 Kolmar Group AG v Traxpo Enterprises PVT Ltd: D agreement to sell methanol to C at fixed price within set time. D gave C a ‘take it or leave it’ proposal of less methanol for higher price, knowing D dependant. Held: C had no alternative but to accept the revised proposal. Ds had made demands that they knew would cause Cs loss that were backed by coercive and unlawful threats that they would not perform their obligations, and the Cs had complied with those demands as a result of those threats.

61
Q

Economic duress - illegitimate pressure: FOUR factors court will take into account?

A

Court will take into account a range of factors, including:

  1. WHETHER THERE HAS BEEN AN ACTUAL OR THREATENED BREACH OF CONTRACT

BOC = failure to comply with terms of contract/ Could also be threat to
Examples: 💼Carillion (Felix’s late completion of works was BOC) and 💼 Atlas (refusal to carry further loads of goods).

  1. WHETHER THE PERSON ALLEGEDLY EXERTING THE PRESSURE HAS ACTED IN GOOD OR BAD FAITH?

Threat made in bad faith will = finding of duress
In 💼Carillion and 💼Atlas, party exerting pressure was threatening to breach its contract. Threat made to extort money from the other contracting party that they were not entitled to. No legitimate basis for demand; it was a claim in bad faith amounting to duress.

CONTRAST: 💼 DSND - pressure found to be exerted in good faith. DSND threatened to suspend its work under contract with PGS until PGD provided insurance and indemnity covering the safety of deep-sea divers under contract was clarified. Court said pressure exerted by DNSD was ‘reasonable behaviour by a contractor acting bona fide in a very difficult situation’

  1. WHETHER VICTIM PROTESTED AT THE TIME?
    Victim should demonstrate evidence of protest at time alleged duress exerted

[💼Carillion - before paying money, CC wrote letter protesting against F’s demands. CC registering their dissatisfaction was material to claim succeeding

[💼 North Ocean Shipping v Hyundai Construction Co: H agreed to build tanker for NO but refused to deliver ship unless NO paid 10% more than contract price. Held: This was an illegitimate threat to breach the contract, but NO’s claim failed as they had failed to protest at threatened breach - not until 18 months later that claimed return of extra 10%.

  1. WHETHER VICTIM AFFIRMED AND SOUGHT TO RELY ON THE CONTRACT?

Fact that the shipping company waited 18 months before taking steps to avoid the contract meant they lost the right to have a new contract for increased payments set aside. They had, in effect, affirmed variation to contract.
Unless the victim of duress takes immediate action once pressure has ceased to operate, they may be taken to have affirmed the contract.

Good example: 💼 B&S Contracts v Victor Green - VG deducted extra £4500 paid under duress from B&S Contracts’ invoices, thereby avoiding new agreement and satisfying criterion that victim takes steps to avoid contract as soon as possible.

62
Q

Economic Duress - Significant Cause - requirements?

A

💼 Huyton SS v Peter Cremer GmbH & Co: The minimum basic test of subjective causation in economic duress ought, it appears to me, to be A ‘BUT FOR’ TEST. The illegitimate pressure must have been such as to actually cause the making of the agreement, in the sense that it would not otherwise have been made either at all or, at least, in the terms in which it was made. In that sense, the pressure must have been DECISIVE or CLINCHING.

63
Q

What is the link between economic duress and consideration?

A

If variation is to be binding, it must demonstrate all characteristics of valid contract - consideration, intention to create legal relations and agreement

If X does something above and beyond its original contractual obligations, it may amount to good consideration.

In 💼 Williams v Roffey Bros & Nicholls CA shows willingness to look imaginatively at doctrine of consideration, identifying practical benefit as good consideration to make Roffey’s promise to pay more binding. However, even where such practical benefit exists, the promise will not be enforceable where duress has been exercised to extract the promise to pay more ❗

64
Q

What is undue influence

A

Where transaction produced in such way that CONSENT OUGHT NOT FAIRLY TO BE TREATED AS EXPRESSION OF A PERSON’S FREE WILL, THEN TRANSACTION WILL NOT BE ALLOWED TO STAND -> Aim: ensure influence of one person over another is not abused ❗

Undue Influence: developed in COURTS OF EQUITY (vs Duress: common law doctrine)

Where there is doubt as to whether a particular act of coercion is duress or undue influence, C should bring action on both grounds.

65
Q

RBS v Etridge (No2) definition of Undue Influence?

A

Undue influence exists where ‘a person’s consent to a transaction was produced in a way such that the consent ought not fairly to be treated as the express of their free will’.

66
Q

TWO TYPES of Undue Influence

A
  1. OVERT ACTS OF IMPROPER PRESSURE OR COERCION SUCH AS UNLAWFUL THREATS
  2. SITUATION WHERE A HAS INFLUENCE/ASCENDANCY OVER B, AND A TAKES ADVANTAGE OF THAT INFLUENCE/ASCENDANCY
67
Q

TWO requirements of Type-1 Undue Influence (Overt acts of improper pressure or coercion such as unlawful threats)?

A
  1. 🤥😞🤡 Deceitful/fraudulent behaviour = must be ‘one’ of factors inducing C, but not need to be decisive factor
  2. NOT deceitful/fraudulent = but-for test applies
68
Q

TEST for type-2 undue influence (i.e. situation where A’s influence/ascendancy over B and A takes advantage of this)?

A

Here, the underlying relationship is sufficient for undue influence to be exercised. Note: lack of coercion of pressure make this quite distinct from duress ❗

TEST:
Relationship of trust and confidence (or presumably one of the categories of irrebuttable presumption)
AND
also a ‘transaction which requires explanation’

Party wishing to allege they are victim of UI = must prove❗❗
If both present, then UI present, unless wrongdoer can produce evidence to convince court no such UI exists.

69
Q

Relationship of trust and confidence - presumption? when? requirement?

A

NOTE: 🧠 Some relationships introduce IRREBUTTABLE PRESUMPTION that one party has influence over another - no definitive list but includes e.g.
✅ parent and child,
✅ guardian and ward,
✅ parent and adult child
❌ husband and wife (do not give rise to presumption)

⚠️ Must be that relationship is TAKEN ADVANTAGE of in said transaction, not just that relationship exists ⚠️

70
Q

Transaction requiring explanation?

A

Where does not fit with what usually expected of relationships e.g.
Suspicious TYPE of transaction
Suspiciously HIGH VALUE

Note: in most cases, husband/wife offering their interest in 🏠 as security for loan to spouse’s business is ❌ transaction requiring explanation - so party arguing UI would need to prove that unfair advantage taken of relationship

Note even when someone fully understands a transaction having received independent legal advice, it is possible that their consent to it is still being given only as a result of undue influence.

71
Q

What is the impact of Undue Influence

A

IMPACT: Undue influence once proved can mean a contract (or gift by deed) can be set aside , but relief is equitable and therefore discretionary.
Court may not allow relief:
if innocent party has DELAYED making claim as ‘delay defeats equity’ OR
where the C’s CONDUCT has been underhand as those who come to equity must come with clear hands 🖐️⏲️

72
Q

When can undue influence arise in the context of third parties?

A

E.g. victim persuader to enter into guarantee/surety contract with bank/other creditor on basis of some UI, misrep or other legal wrong, not by bank/creditor (i.e. not by party to transaction) but by some TP e.g. spouse.

73
Q

What is actual notice - undue influence context?

A

Actual Notice: If a contracting party (e.g. the bank) has actual notice i.e. is aware of the undue influence, the contract will be affected.
However, it is highly unlikely the bank will have actual notice of undue influence.
More likely = that there are circumstances which might lead the bank to realise that transaction carried risk of UI

74
Q

What is constructive notice - undue influence context?

A

Constructive Notice: Important to know when a bank/creditor will have constructive notice.

🧠 Two important reminders:
Relationship between spouses is not one where there is an irrebuttable presumption. Spouse will therefore need to prove such a relationship most likely by establishing that they placed trust and confidence in their spouse.
parties offering security must show more explicitly how their spouse’s influence has been used unduly.

If undue influence is shown, issue of notice of bank will be relevant…

💼 Barclays Bank pls v O’Brien:
Held: Bank was aware that parties were husband and wife and as such were put on notice that influence may be exercised. Bank had failed in its duty to take reasonable steps to warn the wife of the risks she ran in entering into the surety contract nor had it properly advised her to seek independent legal advance. On this basis, the bank was fixed with constructive notice of the misrepresentation made by husband to induce his wife into the surety contract and therefore the wife was entitled to have the legal charge set aside.
🪃 🪃Creditor would be put on notice when: ‘a wife offers to stand surety for her husband’s debts by the combination of 2 factors:
Transaction is on its face not to the financial advantage of the wife; and
There is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction
It follows that unless the creditor who is put on inquiry takes reasonable steps to satisfy himself that the wife’s agreement to stand surety has been properly obtained, the creditor will have constructive notice of the wife’s rights.

75
Q

Expansion of Barclays v O’Brien and Constructive Notice?

A

ANY NON-COMMERCIAL: 💼 RBS v Etridge (No 2) - extended principles of constructive notice beyond cases of spouses stating ‘the only practical way forward is to regard banks as put on inquiry in every case where the relationship between surety and debtor is non-commercial’. Bank is put on inquiry whenever one party in a non-commercial setting is standing as surety for the other party.
^^ confirmed the approach taken in CIBC Mortgages plc v Pitt - husband used borrowed money to speculate on stock market, lost everything, wife tried to set aside mortgage on family home on grounds of undue influence, signed mortgage without reading it under pressure from husband. Held: rejected wife’s claim. Loan was for a holiday cottage, there was nothing to put the lender on notice that the transaction was anything other than a normal advance for the couple’s joint benefit.

76
Q

With constructive notice, what THREE steps should the bank take?

A

Reasonable steps are:

  1. No obligation on the creditor to have seen the wife itself as it is ordinarily reasonable to rely on a confirmation from a solicitor that they have advised the wife in an appropriate manner, unless the creditor is aware that this has not been done. It is for the solicitor to determine whether there is a conflict of interest if the wife’s solicitor also advises the husband.
  2. Creditor must provide solicitor with sufficient information about the transactions for the solicitor to be able to explain it fully to the wife
  3. If the creditor is aware, either actually or constructively, that the wife may have been misled, then the creditor must tell the solicitor of this.
77
Q

Solicitor’s steps re undue influence scenario and constructive notice of bank?

A

Solicitor should warn wife that their involvement may be relied upon by bank to counter allegations that she could not properly understand the transaction or had given her consent to it
If wife consents to advice being given, core minimum:

  1. Explanation of documents and their practical consequences, including the risk that the wife may lose her home
  2. Seriousness of risk, including the duration and terms of the security and the wife’s assets and means
  3. Fact the wife has a choice

Solicitors should then obtain any necessary information from the lender/creditor.
If the solicitor fails in duty to the wife, the wife will have access to negligence against the solicitor, but she will have no recourse to the lender/creditor which is entitled to assume that the solicitor has properly advised the wife.

78
Q
A

SQE (12 decks)

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