Banco Exterior Internacional v Mann

Banco Exterior Internacional v Mann (1955) 27 HLR 329

When creditors have constructive notice of undue influence.

Facts:

The defendants, Mr and Mrs Mann, lived in a property registered in the husband’s sole name. Mr Mann applied for a loan from the claimant bank secured against his home. The bank asked his wife to sign a declaration in the presence of the husband’s solicitor waiving any rights of occupation. The solicitor explained the document to her. She signed it but told the solicitor she had little choice in the matter. After the husband’s company went into liquidation the bank sought possession of the house. The wife claimed rights of occupation under the Matrimonial Homes Act 1993. The trial judge held that a presumption of undue influence had arisen and that the bank had constructive notice of this.

Issues:

In Barclays Bank v O’Brien [1993] 4 All ER 417 the House of Lords held that where a creditor advances a mortgage to a husband and wife, the creditor must take reasonable steps to ensure the transaction was entered into freely and with full knowledge by advising the wife to take independent legal advice. The claimant argued they had taken sufficient steps to avoid having constructive notice of undue influence.

Decision/Outcome

The Court of Appeal held the creditor had taken reasonable steps. Barclays Bank v O’Brien had not laid down the only way a creditor could avoid having notice. It was up to the solicitor to decide if he was independent. Therefore, the bank was entitled to rely on the declaration. However, Hobhouse LJ dissented, saying that the bank should have ensured the solicitor was impartial.