Undue Influence Flashcards
Royal Bank of Scotland v Etridge
The case concerned a number of conjoined appeals concerning banks seeking possession of homes where a wife had signed a charge or mortgage agreeing to secure the debts of the husband on the family home. The House of Lords reviewed the current authorities and restated some of the principles. The main changes:
- Manifest disadvantage
This term should no longer be used as it is ambiguous and leads to many misunderstandings and is often misapplied. Instead the transaction must be one which can not readily be explained on ground of friendship, relationship or charity.
- Constructive notice
A bank will be put on enquiry whenever a wife offers to stand surety for her husband’s debts.
There is no need to show that the bank was aware of the relationship capable of giving rise to a presumption of influence.
There is no absolute obligation on a bank to have a private meeting with the wife provided they take other steps to satisfy themselves that the wife has been appropriately advised. This may be achieved through confirmation from a solicitor that she has been advised.
The steps a solicitor should take as a core minimum:
(1) He will need to explain the nature of the documents and the practical consequences these will have for the wife if she signs them. She could lose her home if her husband’s business does not prosper. Her home may be her only substantial asset, as well as the family’s home. She could be made bankrupt.
(2) He will need to point out the seriousness of the risks involved. The wife should be told the purpose of the proposed new facility, the amount and principal terms of the new facility, and that the bank might increase the amount of the facility, or change its terms, or grant a new facility, without reference to her. She should be told the amount of her liability under her guarantee. The solicitor should discuss the wife’s financial means, including her understanding of the value of the property being charged. The solicitor should discuss whether the wife or her husband has any other assets out of which repayment could be made if the husband’s business should fail. These matters are relevant to the seriousness of the risks involved.
(3) The solicitor will need to state clearly that the wife has a choice. The decision is hers and hers alone. Explanation of the choice facing the wife will call for some discussion of the present financial position, including the amount of the husband’s present indebtedness, and the amount of his current overdraft facility.
(4) The solicitor should check whether the wife wishes to proceed. She should be asked whether she is content that the solicitor should write to the bank confirming he has explained to her the nature of the documents and the practical implications they may have for her, or whether, for instance, she would prefer him to negotiate with the bank on the terms of the transaction. Matters for negotiation could include the sequence in which the various securities will be called upon or a specific or lower limit to her liabilities. The solicitor should not give any confirmation to the bank without the wife’s authority.
The solicitor’s discussion with the wife should take place at a face-to-face meeting, in the absence of the husband. The solicitor’s explanations should use non-technical language.
The solicitor should obtain from the bank any information he needs. If the bank fails for any reason to provide information requested by the solicitor, the solicitor should decline to provide the confirmation sought by the bank.
National Westminster Bank v Morgan
A wife gave a charge over her house as security of a loan from a bank to refinance an existing loan. The husband failed to repay the loan and the bank then tried to possess the house, the wife said she had only done this from undue influence from the bank manager. The court held that the relationship between the wife and the bank was not a normal relationship (no dominant relationship) and anyway the transaction was not disadvantageous to the wife because it was the only way to save her home from repossession. Morgan then confirmed the second qualification of it having to be disadvantaged.
CIBC Mortgages v Pitt
For notice on the bank, it is how the transaction appeared to the creditor. As he said he was buying a holiday home, they were not put on notice.
Allcard v Skinner
Presumed undue influence, presumed relationship - religious adviser and follower.
Re Brocklehurst
Sir Phillip Brocklehurst is an owner of an ancestral home near Macclesfield. In the post war years (1972) his second wife left him and he was in his 80s. He became friends with the local garage man, he died in 1974. 8 months prior he had changed his will. He severed the shooting rights from the estate by granting a 99 year lease to the garage man (Mr Roberts). This devalued the estate greatly.
Undue influence on sir Phillip by Mr Roberts?
Majority said no presumption of undue influence because far from Roberts being in a position of dominance, it was the other way round. In those circumstances there was no domination relationship to give rise to undue influence. Lord Denning dissented.
O’Sullivan v Management Agency
Relationship of trust and confidence.
Pop star wanted to get out a contract with a manager that he had entered when he was younger and wasn’t aware of was he would be expected to do.
Held: he succeeded in undue influence.
Hammond v Osborn
Hammond was a 72 year old man. Mrs Osborn, his neighbour, helped him (did his shopping, visited him in hospital when he had a fall, he was disabled and suffered from Parkinson’s disease). He raised the question of a gift and made gifts to her – 4 cheques were drawn by Mrs Osborn, amounting to £300,000. He then died and his personal representatives then discovered it. Mrs Hammond, his cousin, took action against Mrs Osborn for undue influence.
Court decided that there was a relationship of trust… he had received no advise, no consideration given as to whether his remaining assets would be sufficient for him to live off, had he lived there would have been fiscal consequences (Inland Revenue). Mrs Osborn acquitted of any wrong doing by only one judge. The presumption was not rebutted, it couldn’t be shown as full free and informed consent. Her failure to provide advice and information may be seen as an abuse of her position in relation to the weaker party.
Credit Lyonnais v Burch
There can be a relationship of trust and confidence in a commercial situation.
junior employee asked to guarantee and give property security for lendings to the employer company. She wasn’t aware of the financial situation in which the company was in. If she signed she was giving an unlimited personal guarantee, both in terms of time and price. She didn’t receive personal advice, the company collapsed and didn’t pay its debt – could the bank enforce the securities given by the employee? There was a presumption of undue influence, simply on proof of the facts that she didn’t have an interest in the company other than the fact that she was a junior employee, yet she risked bankruptcy for them. The court was reluctant to allow this transaction to stand – not enforceable agreement in this case. No relationship of trust and confidence based on the facts of this case
Banco v Mann
Even when the where a bank had not specifically stressed the importance of receiving independent advice, they were protected by the fact that the wife had received earlier advice about the effect of legal advice by her husbands solicitor.
O’Brien
It was stressed here that it was important to obtain legal advice. Lord Browne Wilkinson stressed not just to obtain independent legal advice but for a prior meeting with the bank.
Lord Brown Wilkinson introduced the concept of constructive notice and set out the steps required to be taken by banks to avoid being fixed with constructive notice:
“Therefore in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) 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.
What, then are the reasonable steps which the creditor should take to ensure that it does not have constructive notice of the wife’s rights, if any? Normally the reasonable steps necessary to avoid being fixed with constructive notice consist of making inquiry of the person who may have the earlier right (i.e. the wife) to see whether such right is asserted. It is plainly impossible to require of banks and other financial institutions that they should inquire of one spouse whether he or she has been unduly influenced or misled by the other. But in my judgment the creditor, in order to avoid being fixed with constructive notice, can reasonably be expected to take steps to bring home to the wife the risk she is running by standing as surety and to advise her to take independent advice. As to past transactions, it will depend on the facts of each case whether the steps taken by the creditor satisfy this test. However for the future in my judgment a creditor will have satisfied these requirements if it insists that the wife attend a private meeting (in the absence of the husband) with a representative of the creditor at which she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice. If these steps are taken in my judgment the creditor will have taken such reasonable steps as are necessary to preclude a subsequent claim that it had constructive notice of the wife’s rights. I should make it clear that I have been considering the ordinary case where the creditor knows only that the wife is to stand surety for her husband’s debts. I would not exclude exceptional cases where a creditor has knowledge of further facts which render the presence of undue influence not only possible but probable. In such cases, the creditor to be safe will have to insist that the wife is separately advised.”
National Westminster Bank v Amin
Parent/child case. Parents mortgage their house to the bank to receive a loan from the bank, the parents were acting under a disadvantage because they did not speak english, the bank wrote to the solicitor requesting them to give advice. The bank then got confirmation.It was held that the defence should go to trial because there was a question who the solicitor was acting for, it has to be held that they were acting not for bank. The bank knew the parents were not competent in english so the bank should have warned the solicitor that special care was needed. So the case should go to trial
BCCI v Aboody
Actual undue influence : her husband burst into the room, interrupting the solicitor and shouting at his wife to sign
Drew v Daniel
Actual undue influence: forceful man bullied aunt without opportunity to seek legal advice.
R v A-G for England
The confidentiality contract entered into by the SAS soldier was a simple one and he understood its terms. The most that an independent legal adviser could be expected to tell him would be to reflect on the matter. Moreover, there was no presumption of undue influence. Therefore no undue influence
Noriah v shaik
Here an aged women made a gift of land to her nephew who managed her affairs. A lawyer gave her independent and honest advice but he did not know that the gift included all her property and did not explain that a will would be wiser method to benefit the nephew.
The gift was set aside as she did not recover adequate legal advice.
