Undue Influence

Question 1

General Rule?

Answer 1

Equitable Doctrine: If a contract if formed as a result of one party exerting an influence over the other
that prevents them from exercising an independent judgment in the matter, then it can be set aside.

Question 2

Barclays Bank v O’Brien [1993] Identified two classes of undue influence:

Answer 2

Class 1: Actual undue influence.

Class 2: Presumed undue influence.

Question 3

Actual Undue Influence

O’Flanagan v Ray-Ger Ltd [1983]

Answer 3

Where it is affirmatively proven as fact that the defendant exerted undue pressure. No need to prove a special relationship, just undue pressure. Quite hard to prove so doctrine isn’t used v often.
A and B only shareholders in co. A terminally ill. B aware. B more dominant personality. Brought A to pub and proposed agreement that when one dies, their shares pass to the other.
Not to A’s best interests as it was unlikely he’d survive B. Set aside as B exercised UI over him.

Question 4

Presumed Undue Influence

Barclays Bank v O’Brien [1993] Identified two sub-categories of presumed undue influence

Answer 4

Class 2A: Presumption arises automatically based on their confidential relationship and the contract was to their manifest disadvantage
Class 2B: Presumption arises when a relationship is proven to be one of trust and confidence
and the contract was to their manifest disadvantage

Question 5

Presumed Undue Influence - Class 2A: Presumed Relationship + Proof of Manifest Disadvantage

Lawless v Mansfield [1841]:

Answer 5

Solicitor and client presumed to be a confidential relationship

Question 6

Presumed Undue Influence - Class 2A: Presumed Relationship + Proof of Manifest Disadvantage

White v Meade [1840]

Answer 6

W joined religious group as disciple and transferred most of wealth and prop to them.
The relationship created a presumption the transaction was influenced by improper pressure.

Question 7

Presumed Undue Influence - Class 2A: Presumed Relationship + Proof of Manifest Disadvantage

McMackin v Hibernian Bank [1905]

Answer 7

M signed guarantee in favour of mum who had debts. M lived with mum and had just turned 18.
Held despite the transaction being explained to her, she’d not got benefit of independent advice.

Question 8

PUI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage - T & C

Royal Bank of Scotland v Etridge [2002]:

Answer 8

Held the character of the relationship must be one of trust, confidence, reliance, dependence or vulnerability on one hand, and ascendancy or control on other.

Question 9

PUI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage - T & C

McGonigle v Black [1988]

Answer 9

M elderly, alcoholic farmer living in squalor in caravan on his farm. Relied heavily on nephew.
M transferred ownership of entire farm to him. Transaction set aside for UI.
Heavily reliant on N, entered contract not to his advantage and w/o benefit of independent advice

Question 10

PUI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage - T & C

Lloyd’s Bank v Bundy [1975

Answer 10

Parties may seem equal in strength of character, but one puts trust in other in certain area e.g. finance
Elderly farmer mortgaged his farm at undervalue to help son. Clear
from his relationship w bank that he’d put his trust in LB re fin matters so a presumption of UI arose.

Question 11

PUI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage - T & C

Credit Lyonnais Bank v Burch [1997]:

Answer 11

The improvident nature of a transaction may be evidence the relationship was of trust and confidence:
Junior employee w employer for 10 yrs gave guarantee in favour of his debts incl. a charge on her
flat. No direct evidence of rel of T&C, but court held it was entitled to infer one from the circs.

Question 12

PUI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage - MD

Cheese v Thomas [1994]

Answer 12

The transaction must be such that it requires an explanation or is thoughtless:
Old man paid neph life savings for right to live in house he’d just sold him

Question 13

PUI - Class 2B: Must Prove Relationship of Trust and Confidence + Manifest Disadvantage - MD

Bourke v O’Donnell and Bank of Ireland [2010]

Answer 13

B in home, mentally ill, no kids, neighbours were close friends visited often, B relied on them
One day went to bank, took out €100k and gave to them. Later claimed no recollection of this.
Transaction wholly improvident Held she gave them an unconditional gift w no consideration. Basically all her savings. Set aside.

Question 14

Transactions with Married Couples and Effect on Third Parties

General rule re category?

Answer 14

Married couples don’t fall into 2A i.e. no automatic presumption of undue influence.

Question 15

Transactions with Married Couples and Effect on Third Parties

Barclays Bank v O’Brien [1993]

Answer 15

H agreed to secure his co’s debts by executing a charge over the matrimonial home (H + W own)
H lied re length and amount to W. W signed docs w/o reading them or taking independent advice.
Bank sought to enforce the guarantee against W when H defaulted. W pleaded undue influence.
Where W left financial decisions to H, UI can be inferred. Held guarantee couldn’t be enforced.
NB: Held whether a creditor (B) is bound by wrongdoings of main debtor (H) and can enforce the guarantee depends on if B had actual or constructive notice of the facts giving rise to W’s claim.
B is put on enquiry as to the existence of UI where the transaction is, on its face, not to W’s financial advantage
B should take reasonable steps to protect its security Meet W, advise her to get separate advice, warn of liability and risks. If fail to take reasonable steps, fixed w constructive notice

Question 16

Transactions with Married Couples and Effect on Third Parties

Royal Bank of Scotland v Etridge [2002]

Answer 16

Held a creditor is “on inquiry” whenever W offers to stand as surety for H’s (or his co’s) debts
He is put on inquiry as he knows there is a risk that W’s agreement may been as a result of H’s UI
If on inquiry and fails to take reasonable steps, he’s fixed w notice. Recommendations to banks:
If a W deals through a solicitor, he’s not ordinarily put on inquiry. Can assume the solicitor considered if there’s a conflict of interest to make it necessary for W to get indep legal advice
If not dealing through a solicitor, it’s sufficient if the bank urged her to get indep legal advice
Bank is not concerned re the sufficiency of the advice. If defective, B isn’t affected.
Bank entitled to rely on fact the solicitor undertook the task of explaining the transaction to W

Question 17

Transactions with Married Couples and Effect on Third Parties

S.3 Family Home Protection Act 1976

Answer 17

Where a spouse, w/o consent of other, purports to convey any interest in the fam home to any person except the other, the purported conveyance shall be void.

Question 18

Transactions with Married Couples and Effect on Third Parties

Bank of Ireland v Smyth [1993]

Answer 18

W signed consent form during meeting w bank manager (H present) lasting 15 mins.
Bank manager failed to explain to W she could lose her home if repayments not made and did not suggest she get indep legal advice. In fact, W thought it only affected the land & not her home
Was her consent valid for the purposes of s.3? SC held no. Dismissed B’s possession claim.
Held B had constructive notice of her lack of knowledge as any reasonable inquiry would have discovered this. Rejected that there is a duty to explain the transaction, but in B’s best interests.

Question 19

Transactions with Married Couples and Effect on Third Parties

Bank of Nova Scotia v Hogan [1996]

Answer 19

H borrowed money from B & as security took an equitable mortgage over a property owned by W
Before transaction, a solicitor explained to W that B would be able to sell her property if H defaulted repayments. Solicitor happened to be one that also acted for H and bank
W claimed the security was improperly obtained.
SC held two things needed for s.3 consent: (1) a B must in his own interest ensure the necessary statutory consent is forthcoming & (2) the consent is true consent (free exercise of indep will)
Held the fatal flaw in W’s case was there was no UI exercised by her H. Thus notice is irrelevant if there is no UI affected. Held the legal advice was good and independent (weird)

Question 20

Transactions with Married Couples and Effect on Third Parties

Ulster Bank Ireland v Fitzgerald [2001]

Answer 20

W guaranteed debts of a business w income she, H & kids relied on. Before signing, B explained the meaning to W & why B required it. B told W she can get legal advice, but she signed on spot
When H defaulted, W argued (i) she’d a right to rescind the guarantee on grounds of H’s UI and (ii) this right prevailed over B’s right to enforce the guarantee as B had notice of the UI.
HC accepted evidence of UI: feared if she didn’t guarantee it existing marital probs’d get worse
BUT B not on notice of W’s right to have it rescinded due to UI as W had a financial stake in H’s business i.e. she relied on the income of it. Thus no obligation on B to urge her to get legal advice

Question 21

Transactions with Married Couples and Effect on Third Parties

Ulster Bank Ireland Ltd v Roche [2012] Change in law

Answer 21

Ms B in relationship w R. Hairdresser but also a director of R’s motor co but not a shareholder and played no role in mgmt. UB got a personal guarantee from all directors in co for co’s debts
Evidence given from psychologist that Ms B was under R’s UI at the time of signing.
Test: (1) Was D acting under UI of another? (2) Did B have actual/constructive notice of the UI?
Accepted she’d no real involvement in the co and was in an abusive relationship. She was in counselling at the time of signing. Held she was unduly influenced. Did this give her a defence?
Split 2nd limb into two issues: (1) What factors place a B on inquiry? (2) what is the nature of that inquiry or action that may then required? So if B on inq and fails to take steps, fixed w notice.
Criticised Fitzgerald as it put no obligation on banks to take steps to ensure free will exercised
Noted Etridge held a party should be on notice in every case where the relationship bw surety and debtor is non-commercial, but Clarke J didn’t go as far.
Held 3 factors should have put UB on inquiry: (1) Ms B wasn’t a shareholder in the co even tho a director (2) UB aware they were in a personal relationship (3) Ms B had no active role in the business and UB only contacted R re the business. Sufficient to put UB on inquiry

Question 22

Transactions with Married Couples and Effect on Third Parties

EBS v Campbell [2013]

Answer 22

W guaranteed loan for H. Claimed UI as H told her they’d lose everything if she didn’t sign
Rejected: No financial pressure as they’d assets of €77m at the time and wasn’t to her manifest disadvantage as the property was subject of a trust which she was also a beneficiary.

Question 23

Unconscionable Bargain

General Rule

Answer 23

Equitable doctrine related to undue influence and duress. Transaction can be set aside in equity where
one dominant party takes advantage of weaker one and does so unfairly w/o using duress or UI.

Question 24

Unconscionable Bargain

Boustaney v Piggott [1995] TEST for UB:

Answer 24

There must be a bargaining impairment between the parties
The other party must have exploited that disadvantage
The transaction is manifestly improvident to the weaker party
The weaker party lacked adequate advice regarding the transaction

Question 25

Unconscionable Bargain - Bargaining Impairment

Grealish v Murphy [1946]

Answer 25

Old farmer lived on his own and was mentally deficient. Left property to younger man he knew.
Transaction v disadvantageous to him. Although told the nature of it by a solicitor, didn’t appear
to understand it. Held it should be set aside: hadn’t met on equal terms and was manifestly disadv.

Question 26

Unconscionable Bargain - Exploitation

Rae v Joyce [1892]

Answer 26

It must involve the dominant party exploiting the weaker. Mere acceptance of offer at disad enough:
Woman who mortgaged her property at a less than beneficial rate entitled to have it set aside when it was shown at the time of entering it she was pregnant and had no commercial experience
Unless the other party could prove the transaction wasn’t improvident, it would be set aside.

Question 27

Unconscionable Bargain - Manifestly Improvident

Rooney v Conway [1992]:

Answer 27

P must prove the transaction was a poor one e.g. by showing it took place under market value. Sale of a farm for a quarter of its value was held manifestly improvident.

Question 28

Unconscionable Bargain - Lack of Adequate Advice

Grealish v Murphy [1946]

Answer 28

It’s necessary to show the weaker party wasn’t given independent advice re the transaction.
Solicitor’s advice insufficient as not aware of client’s mental deficiencies