Legal Case Summary
Lloyds Bank Ltd v Bundy [1975] QB 326
Undue influence; guarantee; bank owing duty of care
Facts
Mr Bundy was elderly farmer. He and his son were long-time customers at Lloyds Bank – the son’s company also banked there. Lloyds guaranteed the company’s overdraft and charged the farm as security. As the overdraft increased, Lloyds needed more security, which – as per the son – Mr Bundy could provide. Mr Bundy and his son went to Lloyds where an assistant manager, leaving the documents with Mr Bundy for consideration, had Mr Bundy sign a further guarantee and execute a further charge. Mr Bundy later sought legal advice and was told that he could support his son with approx. half the value of his assets (i.e. his home). Mr Bundy then executed the guarantee and charge. The son’s business was unsuccessful so he told Lloyds that his father would give further security. Subsequently, the son went to Mr Bundy with a Lloyds assistant manager with a further guarantee and charge, for even higher sums than before. Mr Bundy, trying to help his son, signed these deeds as well. The son’s company ceased to trade; Lloyds attempted to sell Mr Bundy’s house.
Issues
The assistant manager gave evidence that – in his view – Mr Bundy relied on him for advice about the transaction and did whatever he and the son said. He also admitted to knowing that Mr Bundy did not have any other assets except for his house. Mr Bundy claimed that the final guarantee and charge should be set aside. Nevertheless, the judge gave an order for possession. Mr Bundy appealed.
Decision / Outcome
The Court found for Mr Bundy. The nature of the relationship between Lloyds and Mr Bundy was such – i.e. that of confidentiality – that the Court could intervene in the event of its abuse. There was conflict of interests in Mr Bundy’s signing of the final guarantee and legal charge as he could lose his only asset to the bank. Furthermore, Mr Bundy received no independent legal advice by which Lloyds’ fiduciary duty of care was breached. Consequently, the final guarantee and charge were set aside based on undue influence.
Updated 19 March 2026
This summary of Lloyds Bank Ltd v Bundy [1975] QB 326 remains accurate as a statement of the case’s facts, issues, and outcome. The case is still cited as an important authority in English contract law on undue influence and the potential for a bank to owe a duty to a customer in circumstances of conflict of interest.
Readers should note, however, that Lord Denning’s broader proposition in Bundy — that a general principle of ‘inequality of bargaining power’ underlies the various categories of vitiating factors — was expressly disapproved by the House of Lords in National Westminster Bank plc v Morgan [1985] AC 686. The House of Lords declined to recognise inequality of bargaining power as a standalone equitable doctrine. The case is therefore now primarily cited for its specific findings on undue influence and conflict of interest rather than for any general principle.
The law on undue influence in the banking guarantee context was further developed significantly by the House of Lords in Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773, which set out detailed practical guidance on when a bank is put on inquiry and what steps it must take. Students relying on Bundy should read it alongside Etridge for a complete and current picture of this area of law.
