UNDUE INFLUENCE

Intro:
Undue influence exists where a contract has been entered as a result of pressure which falls
short of amounting to duress, the party subject to the pressure may have a cause of action in
equity to have the contract set aside on the grounds of undue influence. Undue influence
operates where there exists a relationship between the parties which has been exploited by one
party to gain an unfair advantage. Undue influence is divided into actual undue influence and
presumed undue influence. Where a contract is found to be entered into as a result of undue
influence, this will render the contract voidable. This will enable the person influenced to have
the contract set aside as against a party who subjected the other to such influence. In addition,
in some instances the party influenced may be able to have a contract set aside as against a
party who was not the person inflicting the influence or pressure.

Classes of undue influence:

There are three classes of undue influence which were set out in the case of:
Bank of Credit & Commerce International v Aboody [1990] 1 QB 923
Class 1 - Actual undue influence
Class 2a - Presumed undue influence
Class 2b - Presumed undue influence

Bank of Credit and Commerce International v Aboody [1990] 1 QB 923 Court of Appeal
A husband exerted actual undue influence over his wife in order to get her to sign a charge
securing the family home on the debts owed by the company in which the husband and wife
owned shares. The couple were unable to repay the mortgage and the bank sought to repossess
the home. The wife sought to have the mortgage set aside on the grounds that it was procured
by actual undue influence of the husband.
Held: The husband had exerted actual undue influence on the wife. However, the transaction
was not to the manifest disadvantage of the wife since she owned shares in the company. In
considering whether a transaction was to the manifest disadvantage the court was to have regard
to any benefits received in addition to the risks undertaken. Therefore, the bank was granted
possession.
NB - it is no longer necessary to establish manifest disadvantage in cases involving actual
undue influence.

The Court of Appeal set out the classes of undue influence:

1. Class 1 - Actual undue influence (requires proof of the influence)

2. Class 2 a - presumed undue influence (relationship as a matter of law gives rise to
presumption that influence was exerted)
3. Class 2 b - presumed undue influence (requires proof of relationship of trust and
confidence if established the presumption of influence arises)
 CLASS 1 - ACTUAL UNDUE INFLUENCE
Actual undue influence, as the name suggests, requires proof that the contract was entered into
as a result of actual influence exerted. The claimant must plead and prove the acts which they
assert amounted to undue influence.
This may include such acts as threats to end a relationship, continuing to badger the party where
they have refused consent until they eventually give in. There is no precise definition of undue
influence. Lord Nicholls, in RBS v Etridge described the concept as:

"Undue influence is one of the grounds of relief developed by the courts of equity as a court of
conscience. The objective is to ensure that the influence of one person over another is not
abused. In everyday life people constantly seek to influence the decisions of others. They seek
to persuade those with whom they are dealing to enter into transactions, whether great or small.
The law has set limits to the means properly employable for this purpose. The law will
investigate the manner in which the intention to enter into the transaction was secured: If the
intention was produced by an unacceptable means, the law will not permit the transaction to
stand. The means used is regarded as an exercise of improper or 'undue' influence, and hence
unacceptable, whenever the consent thus procured ought not fairly to be treated as the
expression of a person's free will. It is impossible to be more precise or definitive. The
circumstances in which one person acquires influence over another, and the manner in which
influence may be exercised, vary too widely to permit of any more specific criterion."

Manifest disadvantage?
Originally it was a requirement that the claimant seeking to find relief through actual undue
influence must also establish that they had suffered a manifest disadvantage (See BCCI v
Aboody above).

However, it was held in CIBC Mortgages v Pitt [1994] 1 AC 200 that manifest disadvantage
was not required in cases of actual undue influence.

CIBC Mortgages v Pitt [1994] 1 AC 200 House of Lords

Mr. Pitt wished to purchase some shares on the stock market. He pressured his wife into signing
a mortgage of £150,000 securing the family home. The stated purpose of the loan was to
purchase a holiday home and pay off the existing mortgage. The husband used the money to
purchase shares and then used those shares as collateral to purchase further shares. For a time,
the shares did very well and he was a millionaire on paper. The wife saw no benefit from these
shares as any income was always used to purchase more shares. In 1987 the stock market
crashed. The bank sought to enforce the security under the mortgage which at the time
exceeded the value of the home. The wife raised actual undue influence in defense.
Held: Overruling BBCI v Aboody - it is not necessary for a claimant to demonstrate manifest
disadvantage where a defense is based on actual undue influence. However, as the transaction
on its face did not seem to the manifest disadvantage of the wife, because the stated purpose
was to purchase a holiday home, the bank was not put on enquiry and therefore could not be
fixed with constructive notice.
 CLASS 2 A - PRESUMED UNDUE INFLUENCE
Establishing the presumption:
Under class 2a there is no requirement to prove that improper influence was actually exerted.
Instead it must be established:

1. There was a relationship which as a matter of law gives rise to a presumption of undue
influence
2. The transaction is one which cannot readily be explained by the relationship of the parties.

1. Relationships capable of giving rise to an automatic presumption of undue

influence are those of a fiduciary nature and include:

 Parent: child
 Solicitor: Client
 Religious advisor: disciple
 Doctor: Patient
 Trustee: beneficiary

2. The transaction is one which cannot readily be explained by the relationship of the
parties.
Where the transaction is obviously not to the benefit of the vulnerable party but confers a great
advantage to the party in a fiduciary position, the law will raise a presumption that the
transaction was entered as a result of some sort of abuse of the relationship. This requirement
used to be expressed in terms of manifest disadvantage. However, this lead to confusion
particularly where a wife had an interest in the husband's business see:

Natwest Bank v Morgan [1985] AC 686 House of Lords

The family home was subject to a mortgage for the purchase price (with Abbey National) and a
second charge securing a loan of the husband's business. The couple were unable to meet the
payments and got into arrears. Abbey obtained a possession order. Natwest offered a rescue
package to help the couple save the home whereby they would pay off the existing mortgages
and give a bridging loan which was to last 5 weeks for the purposes of aiding the husband’s
business. The manager called at the couples' home in order to explain the effect of the charge
and to obtain the signatures of both parties. He was at the house for 20 minutes and spent 5
minutes alone with the wife. The husband was reluctant to leave them alone and was said to be
hanging around close by at all times. The manager told the wife the charge was to pay off the
existing debt and to provide a bridging loan for a period of 5 weeks which was what the bank
had intended to provide, however, the actual document did not limit the amount or time. Mrs.
Morgan had told the manager that she did not want to be exposed to any extra risks of her
husband’s business as she had no faith in his ability as a business man. The manager assured
her that the risks were limited in the way he had described. At no time did the manager advise
her to get independent legal advice. She signed the charge. The bank later called in the charge.
In her defense the wife stated that the bank manager had exercised undue influence over her in
procuring her signature.
Held: The normal relationship between a customer and banker was not one so as to give rise to
a relationship of trust and confidence. Lloyds Bank v Bundy was confined to its facts but not
expressly overruled. The wife had not established a relationship of trust and confidence and
therefore no presumption of undue influence could arise.

Bank of Credit and Commerce International v Aboody [1990] 1 QB 923 Court of Appeal
A husband exerted actual undue influence over his wife in order to get her to sign a charge
securing the family home on the debts owed by the company in which the husband and wife
owned shares. The couple were unable to repay the mortgage and the bank sought to repossess
the home. The wife sought to have the mortgage set aside on the grounds that it was procured
by actual undue influence of the husband.
Held: The husband had exerted actual undue influence on the wife. However, the transaction
was not to the manifest disadvantage of the wife since she owned shares in the company. In
considering whether a transaction was to the manifest disadvantage the court was to have regard
to any benefits received in addition to the risks undertaken. Therefore, the bank was granted
possession.

NB - it is no longer necessary to establish manifest disadvantage in cases involving actual

undue influence.

The Court of Appeal set out the classes of undue influence:

 Class 1 - Actual undue influence (requires proof of the influence)

 Class 2 a - presumed undue influence (relationship as a matter of law gives rise to
presumption that influence was exerted)
 Class 2 b - presumed undue influence (requires proof of relationship of trust and
confidence if established the presumption of influence arises)

CIBC Mortgages v Pitt [1994] 1 AC 200 House of Lords

Mr. Pitt wished to purchase some shares on the stock market. He pressured his wife into signing
a mortgage of £150,000 securing the family home. The stated purpose of the loan was to
purchase a holiday home and pay off the existing mortgage. The husband used the money to
purchase shares and then used those shares as collateral to purchase further shares. For a time,
the shares did very well and he was a millionaire on paper. The wife saw no benefit from these
shares as any income was always used to purchase more shares. In 1987 the stock market
crashed. The bank sought to enforce the security under the mortgage which at the time
exceeded the value of the home. The wife raised actual undue influence in defense.
Held:
Overruling BBCI v Aboody - it is not necessary for a claimant to demonstrate manifest
disadvantage where a defense is based on actual undue influence. However, as the transaction
on its face did not seem to the manifest disadvantage of the wife, because the stated purpose
was to purchase a holiday home, the bank was not put on enquiry and therefore could not be
fixed with constructive notice.
Given the difficulties in relation to manifest disadvantage, the House of Lords in Royal Bank of
Scotland v Etridge [2001] 3 WLR 1021 held that the term should no longer be used and
replaced with the requirement that the transaction must be one which cannot be readily
explained by the relationship of the parties. This is intended to exclude trivial gifts but bring
within its realm substantial benefits even where the vulnerable party also receives a benefit. The
court should consider the transaction as a whole.

Royal Bank of Scotland v Etridge [1998] 4 All ER 705 House of Lords

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:
1. 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 cannot readily be explained
on ground of friendship, relationship or charity.
2. 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.
(5) 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.
(6) 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.

CLASS 2B - PRESUMED UNDUE INFLUENCE

Establishing the presumption:
Under class 2b there is no automatic presumption arising as a matter of law. Here it must be
established that there is a relationship of such a kind that one party in fact placed their trust and
confidence in the other to safeguard their interest. Any relationship is capable of amounting to
this examples include husband and wife, cohabitees, employer and employee. The important
distinction between class 2 an and 2b is the fact that the trust and confidence relationship must
be proved. In modern times it is no longer the case that wives will generally place all their trust
in their husbands to deal with the financial matters although in some marriages this may be the
case. If the wife exercises independence of mind in financial matters, then no presumption will
be established.

Barclays Bank V O Brien [1994] 1 AC 180 House of Lords

Mr. O'Brien was a chartered accountant and he also had a shareholding in a company in which
he was an auditor. The company was experiencing financial difficulty and the bank wished to
find security for the company debts. Mr. O'Brien offered the matrimonial home as security. He
told his wife that the charge was limited to £60,000 and that it was only to last for a few
weeks. Initially the wife refused to sign but was later persuaded to sign as the husband told her
that the company would fail if she did not and that her son, who also had an interest in the
company, would lose his home. In fact, the charge was not limited in the amount or time. The
wife agreed to sign the charge. The manager of the bank had left sent the documents to their
local branch with instructions that the wife was to be advised of the full extent of the liability
and that the wife should be advised to take independent advice before signing. However, the
bank clerk got the wife to sign and failed to carry out the instructions. The bank sought to
enforce the charge and the wife raised undue influence and misrepresentation in her defense to
have the charge set aside.
Held: The defense based on undue influence failed because the wife was held to exercise
independence of thought on financial matters and was used to dealing with the family finances
whilst her husband was working away. The wife was successful with regards to
misrepresentation. The charge was set aside as the bank had constructive notice of the
misrepresentation and failed to take reasonable steps to ensure that the charge had been
obtained without influence or that Mrs. O'Brien was aware of the full extent of liability.

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."

Exceptionally, it has been held that a relationship of trust and confidence existed between
a bank manager and his client:

Lloyds Bank v Bundy [1975] QB 326 Court of Appeal

A father secured the debts of his son's business on his farm which had been in the family for
generations. The father and son had both banked at the branch for many years and relied on
advice given. The son's company also banked at the same branch and the bank manager was
aware of the dire financial position of the company. The bank had allowed the son to run up an
overdraft exceeding security given thus far and was fearful that the company would go under
leaving them with an unsecured debt. The bank manager and the son called at the farm with the
forms already filled in. The father was told of the amount of the charge which was £11,000
and exceeded the value of the farm and he was also required to give a guarantee. The father
agreed to sign in order to help his son. He was not given the opportunity to think it over or to
obtain legal advice.
Held: There was a relationship of trust and confidence between the father and the bank
manager giving rise to a presumption of undue influence under class 2 b. The charge and
guarantee were therefore set aside.

NB the normal relationship between a banker and customer is not one of trust and confidence
but a business relationship whereby the bank is looking out for its own interest (See Natwest v
Morgan) however, the bank manager in giving evidence admitted that the father relied
implicitly and solely on the advice given by him and the father stated that he had trusted the
bank and had a long relationship with the bank and generally acted on advice given.

However, it has been held that the normal relationship between banker and client is not one of
trust and confidence:

Natwest Bank v Morgan [1985] AC 686 House of Lords

The family home was subject to a mortgage for the purchase price (with Abbey National) and a
second charge securing a loan of the husband's business. The couple were unable to meet the
payments and got into arrears. Abbey obtained a possession order. Natwest offered a rescue
package to help the couple save the home whereby they would pay off the existing mortgages
and give a bridging loan which was to last 5 weeks for the purposes of aiding the husband’s
business.
The manager called at the couples' home in order to explain the effect of the charge and to
obtain the signatures of both parties. He was at the house for 20 minutes and spent 5 minutes
alone with the wife. The husband was reluctant to leave them alone and was said to be hanging
around close by at all times. The manager told the wife the charge was to pay off the existing
debt and to provide a bridging loan for a period of 5 weeks which was what the bank had
intended to provide, however, the actual document did not limit the amount or time. Mrs.
Morgan had told the manager that she did not want to be exposed to any extra risks of her
husband’s business as she had no faith in his ability as a business man. The manager assured
her that the risks were limited in the way he had described. At no time did the manager advise
her to get independent legal advice. She signed the charge. The bank later called in the charge.
In her defense the wife stated that the bank manager had exercised undue influence over her in
procuring her signature.
Held: The normal relationship between a customer and banker was not one so as to give rise to
a relationship of trust and confidence. Lloyds Bank v Bundy was confined to its facts but not
expressly overruled. The wife had not established a relationship of trust and confidence and
therefore no presumption of undue influence could arise.

A relationship of trust and confidence has also been seen in employer and employee
relationship:

Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 Court of Appeal
Miss Burch started working for her employer at the age of 18. She became close to the director,
Mr. Pelosi, who was an Italian business man 10 years older and trusted him implicitly. She
often visited his home to do babysitting and went on holiday with the family to Italy. At the age
of 21 she purchased a flat. 5 years later, she was still working for him but the company was
experiencing financial difficulty. Mr. Pelosi asked her to put her flat up as security for a loan
taken out by the company. He told her that his home and villa in Italy were also secured on the
debt but they would not accept 100% mortgage on these properties and needed another £20,000.
She agreed to allow her home to be used as security believing that it was only £20,000 and that
Mr. Pelosi's properties would first be sold which would release the debt so that there was no
risk to her. The bank had written to her and informed her that the charge was unlimited in
amount and time and advised her to seek independent advice. She at no time was told of the
extent of the company's borrowings which stood at £270,000 neither did the bank satisfy
themselves that she had in fact received independent advice.
Held: The agreement of Miss Burch had been obtained by undue influence and the bank had
notice of this as the transaction was so obviously to her disadvantage. The bank had taken
insufficient steps to avoid constructive notice. Therefore, the transaction could be set aside.
There is no need to establish that the party subject to the influence would not have entered into
the contract but for the influence. There is also no need to establish a causal link in relation to
misrepresentation beyond reliance:

UCB v Williams [2002] EWCA Civ 555 Court of Appeal

The Williams family (Mr. & Mrs. Jack Williams and their three grown up children) ran a
garage business as a partnership with the benefit of a franchise from Toyota. Toyota threatened
to withdraw the franchise unless the showrooms were extended and improved. The cost for this
was £500,000. The Williams approached the bank for a loan which asked for security by way of
a charge on the three showrooms in addition to a charge on each of the partners' homes.
The defendant, Mrs. Williams, was the wife of one of the sons. She had signed the charge
without having been told the full extent of the liability. The signature was executed in the
presence of all the other partners and witnessed by Mr. Howells, the solicitor of the partnership.
The charge secured all debts present and future of the partnership and provided for joint and
several liabilities of all the partners. The business was unable to repay the loan and became
bankrupt. UCB sought to enforce the charge and Mrs. Williams raised undue influence and
misrepresentation in her defense. The trial judge, HHJ Hickinbottom, held that undue influence
and misrepresentation were established. However, he held that Mrs. Williams would have
signed the charge in any event had she known the full facts and also that UCB were not fixed
with constructive notice as a solicitor had witnessed the signature therefore they could assume
Mrs. Williams had been advised accordingly. Mrs. Williams appealed to the Court of Appeal.
Held: Mrs. Williams was successful on both grounds.

For both undue influence and misrepresentation there is no requirement to establish that a
person would not have entered the contract but for the influence or misrepresentation. It was
sufficient for undue influence, that an equitable wrong has been committed. For
misrepresentation it is sufficient to demonstrate the party relied on the false statement.

UCB were fixed with constructive notice. The fact that the signature was witnessed by a
solicitor does not necessarily mean that they would have advised her. The role of a solicitor will
depend upon what they had been instructed to do. If there were no instructions to advise Mrs.
Williams, they would not be expected to do so and it was wrong of UCB to assume this had
taken place. They were under a duty to check if she had in fact been advised.

REBUTTING THE PRESUMPTION IN CLASS 2A AND CLASS 2B

The party accused of exercising undue influence may rebut the presumption by demonstrating
that the vulnerable party exercised free will in entering the transaction. This is most commonly
established by demonstrating that they were fully aware of the risks involved and had received
legal advice before agreeing to the transaction.
Undue influence and third parties:
Generally, the undue influence is exercised between a husband and wife. Where a wife
establishes undue influence it will entitle her to have the transaction set aside as against her
husband, however, the transaction is generally with a bank who was not a party to the influence.
Following the decision in Natwest v Morgan, it became clear that banks were not acting in a
fiduciary capacity so as to give rise to a presumption of undue influence. There had to exist
another factor in order to have the contract set aside as against a bank. Barclays Bank v O'Brien
[1993] QB 109 introduced the concept of constructive notice.

Barclays Bank V O Brien [1994] 1 AC 180 House of Lords

Mr. O'Brien was a chartered accountant and he also had a shareholding in a company in which
he was an auditor. The company was experiencing financial difficulty and the bank wished to
find security for the company debts. Mr. O'Brien offered the matrimonial home as security. He
told his wife that the charge was limited to £60,000 and that it was only to last for a few
weeks. Initially the wife refused to sign but was later persuaded to sign as the husband told her
that the company would fail if she did not and that her son, who also had an interest in the
company, would lose his home. In fact, the charge was not limited in the amount or time. The
wife agreed to sign the charge. The manager of the bank had left sent the documents to their
local branch with instructions that the wife was to be advised of the full extent of the liability
and that the wife should be advised to take independent advice before signing. However, the
bank clerk got the wife to sign and failed to carry out the instructions. The bank sought to
enforce the charge and the wife raised undue influence and misrepresentation in her defense to
have the charge set aside.
Held: The defense based on undue influence failed because the wife was held to exercise
independence of thought on financial matters and was used to dealing with the family finances
whilst her husband was working away. The wife was successful with regards to
misrepresentation. The charge was set aside as the bank had constructive notice of the
misrepresentation and failed to take reasonable steps to ensure that the charge had been
obtained without influence or that Mrs. O'Brien was aware of the full extent of liability.

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.

Constructive notice:
Constructive notice arises where the bank is
1. Put on enquiry and
2. Fails to take reasonable steps to ensure that the transaction was entered freely without the
exercise of undue influence.
 ENQUIRY
Consideration of factors which put the bank on enquiry:

Bank of Scotland v Bennett 1998 Court of Appeal

The bank held a guarantee and charge on the Bennett family home securing the debts of a
business in which the husband was the director and 47% shareholder. The wife also held shares
(11%). The wife was the sole beneficial owner of the matrimonial home. The wife was against
her husband's involvement in the business. He had left a well-paid reliable job to start it. She
had no faith in the business and did not want to sign the charge but her husband pressured her
and threatened to end the relationship if she did not sign. The trial judge held that the charge
was procured by actual undue influence of which the bank had constructive notice. The bank
appealed.
Held: The charge was procured by actual undue influence although the trial judge erred in
finding constructive notice. The trial judge had assumed the bank had the knowledge that the
wife was the sole beneficial owner of the property and only held an 11% sharing holding when
there was in fact no evidence that they were aware of these facts.
Lord Justice Chadwick:
"The correct approach, in cases of this nature, is to look at the transaction through the eyes of
the lender and to ask whether, in the light of all the facts which the lender does know, it is put
on inquiry that there is a real risk that the wife’s apparent consent to the transaction may have
been obtained by some improper conduct (pressure, abuse of trust and confidence or
misrepresentation) on the part of the husband."

Conoco Ltd v Khan & Khan [1996] EWCA Civ 968 Court of Appeal
The defendants, Mr. and Mrs. Khan, owned a petrol station which was run by Mr. Khan. Mr.
Khan entered an agreement with the claimant supplier of petrol whereby the defendants were to
borrow £300,000, which was to be secured on the petrol station, to be repaid by 5 annual
instalments. The loan was to pay for the supply of petrol during that five years. Also by the
agreement the defendants were not to purchase petrol from any other supplier. The defendants
breached the agreement by purchasing petrol elsewhere. The claimants terminated the contract
and demanded the balance outstanding under the loan standing at £240,000. Mrs. Khan raised
class 2 b undue influence in her defense stating she took no part in the running of the business
and always signed what her husband asked her to. She did not speak English and had no
knowledge of the effect of what she signed. She trusted her husband implicitly not to prejudice
her interest. She had not been given any advice at all as to what she was signing.
Held: The bank was not put on enquiry. The agreement was a commercial agreement under
which she was to obtain benefits. The claimant would have no reason to consider that the wife
should obtain independent advice.

AGENCY?
Where a bank instructs solicitors to advise the wife, the solicitor acts solely for the wife and not
as an agent for the bank:
Barclays Bank Plc v Thompson [1997] 4 All ER 816 Court of Appeal
Mrs. Thompson was the sole beneficial owner of the family home. She signed a mortgage
securing the debts of the husband's business on the family home. She had received advice from
a firm of solicitors appointed by the bank who were also the husband's solicitors. The advice
she received was defective in that it failed to explain the full extent of liability. The solicitors
wrote to the bank certifying that Mrs. Thompson had been advised. The bank later sought
possession of the property. Mrs. Thompson argued that the fact that the solicitor was that of the
bank that the knowledge of the defective advice should be imputed to the bank.
Held: Mrs. Thompson was unsuccessful. The bank was entitled to assume that the solicitors
had correctly advised the wife. The doctrine of imputed knowledge had not survived Barclays
Bank v O'Brien. The correct analysis was in terms of constructive notice and reasonable steps.
Whilst the solicitor was the agent of the bank there was no duty of an agent to disclose their
short comings to the principal.

This applies even where the bank paid for the advice:

Natwest v Beaton [1997] EWCA Civ 1391 Court of Appeal

Mr. Beaton was an architect and was a partner in the business. Mrs. Beaton had no interest in
the business. The partnership had a debt of £20,000 secured on the Beaton's family home. The
Beaton’s then wished to move house. The bank agreed to transfer the charge to the new
property. The bank instructed a solicitor to execute the charge and to advise the wife explaining
that she had no interest in the business and was putting up her interest in the home as security.
The solicitor executed the charge and witnessed the wife's signature. The solicitor wrote to the
bank and confirmed that they had executed the charge and advised Mrs. Beaton accordingly.
The new charge was not limited to £20,000. The document did state the limit of £20,000 but
this was deleted. The wife claimed that neither her husband nor the solicitor had explained the
change to her and she believed it to be limited to £20,000. She argued the failure to disclose the
information amounted to a misrepresentation as they were both under an obligation to disclose
the true nature of the charge. She also the bank would have constructive notice of the
inadequate advice of the solicitor either under s.199 Law of Property Act 1925 or because the
solicitor was the agent of the bank.
Held: When the solicitor was advising the wife he was not acting as an agent for the bank his
duty was to the wife alone. The bank was entitled to assume the solicitor had advised the wife
appropriately and were thus not fixed with constructive notice.

For consideration of the position of unjust enrichment of the wife see:

Dunbar Bank Plc v Nadeem & Anor [1998] EWCA Civ 1027