National Westminster Bank Plc v Morgan  AC 686
Undue influence; presumption; bank vs customer
The defendants were a married couple who bought a house on mortgage. Their payments fell into arrears and the building society started proceedings for repossession. Mr Morgan then asked claimant bank for a short term loan – despite his company’s financial problems – which was subject to a charge on the Morgans’ matrimonial home. As the house was in joint names, the bank wanted to obtain the wife’s signature. The wife signed the charge, albeit very reluctantly. Mr Morgan did not repay the loan so the bank wanted to repossess.
The wife claimed that she was unduly influenced by the bank manager when signed the charge. The judge rejected the wife’s claim and said that the transaction had not been manifestly disadvantageous to her as she had known they could not save their house any other way. The judge added that in the circumstances, the bank manager was not obliged to make sure that the wife obtained independent legal advice before signing the charge. Also, the bank and the wife did not have a confidential relationship that could give rise to a presumption of undue influence. The Court of Appeal then found in favour of the wife. The bank appealed.
The House of Lords held that in order to set aside the transaction for reasons of undue influence, one party had to be victimised by the other. It also had to be shown that the transaction was manifestly and unfairly disadvantageous to the wife. The Court held that the relationship between the wife and the bank was an ordinary business relationship, nothing more. It added that the transaction had not at all been disadvantageous to the wife. As a rule, undue influence can be established without proof of inequality of bargaining power. Banker-customer relationships will not ordinarily give rise to a presumption of undue influence, even if the banker explained the nature of the proposed transaction – such explanation formed part of the normal course of business.