Undue Influence Flashcards
What does undue influence mean in the context of a mortgage?
A) When a borrower is misled about the terms of a loan
B) When a lender refuses to give a mortgage due to poor credit history
C) When one party pressures or unfairly persuades another to enter a mortgage agreement
D) When a borrower voluntarily offers security for another person’s loan
C) When one party pressures or unfairly persuades another to enter a mortgage agreement
Explanation:
Undue influence occurs when a person is unfairly pressured into signing a mortgage agreement, making it unenforceable against them.
If a person successfully proves undue influence, what is the legal consequence?
A) The bank automatically loses all rights over the property
B) The borrower must prove financial loss before the mortgage is void
C) The entire loan is cancelled, and no one has to repay it
D)The mortgage is unenforceable against them
D) The mortgage is unenforceable against them
Explanation:
If undue influence is proven, the mortgage cannot be enforced against the affected party, as seen in Barclays Bank v O’Brien (1993).
How can a bank prevent a mortgage from being set aside due to undue influence?
A) Ensure the affected party receives independent legal advice
B) Require the borrower to sign the agreement twice
C) Offer a lower interest rate in return for a no-claim clause
D) Ask the borrower to confirm in writing that they trust their partner
A) Ensure the affected party receives independent legal advice
Explanation:
In RBS v Etridge (No 2) (2001), the court ruled that a bank must ensure independent legal advice is given to prevent future claims of undue influence.
In which situation must a bank require independent legal advice before proceeding with a mortgage?
A) When a borrower is refinancing their existing mortgage
B) When a business owner takes out a mortgage for commercial expansion
C) When an individual offers their property as security for someone else’s debt
D) When a couple takes a joint mortgage for their shared home
C) When an individual offers their property as security for someone else’s debt
Explanation:
The Etridge guidelines apply in non-commercial cases where a person uses their property as security for another’s loan, e.g., spouses, parents, or friends.
Scenario:
Emma and Jack own a home together. Emma runs a business, and Jack is not involved. Emma takes out a business loan and secures it against their home. Jack later claims he was pressured into signing the mortgage.
What is the most likely outcome?
A) The bank can enforce the mortgage without further investigation
B) Jack must continue paying the mortgage, as he signed the agreement
C) The mortgage may be unenforceable against Jack if undue influence is proven
D) The bank will automatically lose its security over the hom
C) The mortgage may be unenforceable against Jack if undue influence is proven
Explanation:
As in Barclays Bank v O’Brien (1993), if Jack was unfairly pressured into signing, the mortgage may not be enforceable against him.
A bank grants a loan secured against a parent’s home to finance their child’s business. The parent claims they did not understand the risks.
What should the bank have done to protect itself?
A) Sent a letter to the borrower explaining the loan terms
B) Ensured the child co-signed the mortgage
C) Made sure the loan was for business purposes only
D)Required the parent to seek independent legal advice before signing
D) Required the parent to seek independent legal advice before signing
Explanation:
In RBS v Etridge (No 2) (2001), the court ruled that banks must insist on independent legal advice before accepting security from a non-benefiting party.
A husband is asked to provide security for his wife’s business loan. He sees a solicitor, but his wife attends the meeting with him.
What is the most likely legal issue?
A) The solicitor should have met with the husband alone
B) The solicitor must advise both spouses together
C) The solicitor does not need to get involved in business-related loans
D) The husband must sign a waiver of undue influence before proceeding
A) The solicitor should have met with the husband alone
Explanation:
Etridge requires that an independent solicitor meets the affected party alone to prevent external pressure during the meeting.
A lender follows Etridge guidelines and arranges independent legal advice for a borrower. However, the borrower later claims they still felt pressured.
What is the most likely outcome?
A) The mortgage will be unenforceable because the borrower still felt pressured
B) The mortgage will still be enforceable, as long as the solicitor confirmed the advice was given
C) The lender must conduct an internal investigation before enforcing the mortgage
D) The borrower can demand that the mortgage be restructured instead of voided
B) The mortgage will still be enforceable, as long as the solicitor confirmed the advice was given
Explanation:
In Etridge, once proper independent legal advice is confirmed, the borrower cannot later claim undue influence unless fraud is involved.
A company director offers his personal property as security for a business loan. He later claims he was pressured into doing so.
What is the most likely legal position?
A) The mortgage is unenforceable due to undue influence
B) The mortgage will likely be upheld because commercial borrowers are treated differently
C) The lender must refund any mortgage payments made so far
D) The director can claim damages for emotional distress
B) The mortgage will likely be upheld because commercial borrowers are treated differently
Explanation:
Etridge principles apply mainly to non-commercial cases. Company directors are expected to understand financial risks, so undue influence is harder to prove.
A bank grants a mortgage without ensuring independent legal advice for the affected party. The borrower later claims undue influence.
What is the most likely outcome?
A) The mortgage is unenforceable against the affected party
B) The borrower must still repay the loan in full
C) The bank can enforce the mortgage but with reduced interest
D) The borrower must prove financial loss before challenging the mortgage
A) The mortgage is unenforceable against the affected party
Explanation:
If a bank fails to follow Etridge guidelines, the mortgage is unenforceable against the party who was unduly influenced.
