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Undue Influence Cases

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Cases On Undue Influence

CLASS 1: ACTUAL UNDUE INFLUENCE

Williams v Bailey (1866) LR 1 HL 200

A son forged his father’s signature on promissory notes and gave them to

their bankers. At a meeting of all the parties at the bank, one of the bankers

said to the father: “If the bills are yours we are all right; if they are

not, we have only one course to pursue; we cannot be parties to compounding a

felony.” The bank’s solicitor said it was a serious matter and the father’s

own solicitor added, “a case of transportation for life.” After

further discussion as to the son’s financial liability the bank’s solicitor said

that they could only look to the father. The father then agreed to make an

equitable mortgage to the bank in consideration of the return of the promissory

notes. The father succeeded in an action for cancellation of the agreement.

It was held by Lord Westbury that the security given for the debt of the son

by the father under such circumstances, was not the security of a man who acted

with that freedom and power of deliberation that must be considered as necessary

to validate a contract to give security for the debt of another.

CLASS 2: PRESUMED UNDUE INFLUENCE

CLASS 2A

Allcard v Skinner (1887) 36 Ch D 145

In 1867 an unmarried woman aged 27 sought a clergyman as a confessor. The

following year she became an associate of the sisterhood of which he was

spiritual director and in 1871 she was admitted a full member, taking vows of

poverty, chastity and obedience. Without independent advice, she made gifts of

money and stock to the mother superior on behalf of the sisterhood. She left the

sisterhood in 1879 and in 1884 claimed the return of the stock. Proceedings to

recover the stock were commenced in 1885.

It was held by the Court of Appeal that although the plaintiff’s gifts were

voidable because of undue influence brought to bear upon the plaintiff through

the training she had received, she was disentitled to recover because of her

conduct and the delay.

CLASS 2B

Lloyd’s Bank v Bundy [1975] QB 326

A guarantee was given to the bank by an elderly farmer, a customer of the

bank, for his son’s debts. The guarantee was secured by a mortgage of Bundy’s

house in favour of the bank. An assistant manager of the bank, with the son,

later told the father that they would only continue to support the son’s company

if he increased the guarantee and charge. The father did so, the assistant

manager appreciating that the father relied on him implicitly to advise him

about the transaction. The Court of Appeal set aside the guarantee and charge.

Lord Denning held that the relationship between the bank and the father was

one of trust and confidence. The bank knew that the father relied on them

implicitly to advise him about the transaction. The father trusted the bank.

This gave the bank much influence on the father. Yet the bank failed in that

trust. They allowed the father to charge the house to his ruin. There was also a

conflict of interest between the bank and the father, yet the bank did not

realise it, nor did they suggest that the father should get independent advice.

If the father had gone to his solicitor or any man of business there is no doubt

that they would have advised him not to enter the transaction as the house was

his sole asset and the son’s company was in a dangerous state.

Sir Eric Sachs made it clear that, in ordinary circumstances, a bank does not

incur the duty consequent upon a special relationship where it obtains a

guarantee from a customer. But once it is possible for a bank to be under that

duty, it is, as in the present case, simply a question for “meticulous

examination” of the particular facts to see whether that duty has arisen.

On the special facts here it did arise and had been broken.

MANIFEST DISADVANTAGE

National Westminster Bank v Morgan [1985]

See point 1 above. Lord Scarman stated:

“A meticulous examination of the facts of the present case reveals that

[the bank] never ‘crossed the line’. Nor was the transaction unfair to the wife.

The bank was, therefore, under no duty to ensure that she had independent

advice. It was an ordinary banking transaction whereby the wife sought to save

her home; and she obtained an honest and truthful explanation of the bank’s

intention which, notwithstanding the terms of the mortgage deed which in the

circumstances the trial judge was right to dismiss as ‘essentially theoretical’,

was correct; for no one had suggested that… the bank sought to make the wife

liable, or to make her home the security, for any debt of her husband other than

the loan and interest necessary to save the house from being taken away from

them in discharge of their indebtedness to the building society.”

BCCI v Aboody [1989] 2 WLR 759

A husband and wife owned a family company and the company’s liabilities to

its bank were secured, among other things, by charges of the wife’s house. The

bank sought to enforce the securities and the wife pleaded actual undue

influence by the husband. Although the judge found that such influence had been

established, he refused to set aside the charges as it had not been proved that

they were manifestly disadvantageous to the wife (a point since overruled by the

House of Lords in CIBC Mortgages v Pitt [1993]).

It was held by the Court of Appeal that manifest disadvantage for the

purposes of the doctrine of undue influence had to be a disadvantage which was

obvious as such to any independent and reasonable person who considered the

transaction at the time with knowledge of all the relevant facts. The fact that

the complaining party had been deprived of the power of choice (eg because his

will had been overborne through the failure to draw his attention to the risks

involved) was not of itself a manifest disadvantage rendering the transaction

unconscionable. Furthermore, since the giving of a guarantee or charge always

involved the risk that the guarantee might be called in or the charge enforced,

the question whether the assumption of such a risk was manifestly

disadvantageous to the giver of the guarantee or charge depended on balancing

the seriousness of the risk of enforcement to the giver, in practical terms,

against the benefits gained by the giver in accepting the risk.

There were no grounds for disagreeing with the judge’s conclusion that on

balance a manifest disadvantage had not been shown by the wife in respect of any

of the six transactions, since although there were substantial potential

liabilities and the family home was at risk as a result of the transactions,

that was counterbalanced by the fact that the loans gave the company a

reasonably good chance of surviving, in which case the potential benefits to the

wife would have been substantial. Moreover, the evidence established that on

balance the wife would have entered into the transactions in any event and

accordingly it would not be right to grant her equitable relief as against the

bank. The wife’s appeal was therefore dismissed.

Barclays Bank v Coleman (2000) The Times, January 5.

The Court of Appeal held that manifest disadvantage, in the sense of clear

and obvious disadvantage, remained a necessary ingredient of a wife’s challenge

on the ground of presumed undue influence of her husband to the validity of a

bank’s charge over the matrimonial home. But the House of Lords had signalled

that it might not continue to be an essential ingredient indefinitely.

See photocopy of Law Report.

Re Craig (deceased) [1971] Ch 95

C, an old man of 84 years whose wife had died, employed Mrs M as

secretary/companion. From the beginning she occupied a position of trust, and in

addition to running the house she took a confidential part in running C’s

affairs. From the time of Mrs M’s employment and C’s death (January 1959 –

August 1964) he gave her gifts worth £28,000 from his total assets of £40,000.

It was held by the Chancery Division that (1) All the gifts complained of

were such as to satisfy the requirements to raise the presumption of undue

influence, namely, that they could not be accounted for on the ground of the

ordinary motives on which ordinary men act, and secondly, that the relationship

between C and Mrs M involved such confidence by C in Mrs M as to place her in a

position to exercise undue influence over him. (2) Mrs M failed to discharge the

onus on her of establishing that the gifts were only made after ‘full, free and

informed discussion’ so as to rebut the presumption of undue influence. The

gifts would, therefore, be set aside.

Re Brocklehurst (deceased) [1978] Ch 14

Brocklehurst was a strong-minded, autocratic and eccentric old man who was

used to commanding others and had served in the army in positions of command. He

was impulsively generous. When he was in his eighties he lived alone and became

friendly with the owner of a local garage. They had a common interest in

shooting and B permitted the defendant to shoot rabbits on the estate. B wrote

to the defendant saying that he wished to give him the shooting rights over his

estate and pressed the defendant to instruct a solicitor to draw up a lease. B

executed the lease. After B died, his executors brought an action against the

defendant to have the lease set aside on the ground of undue influence. The

Court of Appeal upheld the lease.

The Court of Appeal held that the nature of the relationship between the

deceased and the defendant was not one of confidence and trust such as would

give rise to a presumption of undue influence on the part of the defendant, for

the evidence established that the relationship was one of friendship and did not

indicate that it was such that the defendant had been under a duty to advise the

deceased or had been in a position of dominance over him; on the contrary, it

was the deceased who had tended to dominate the defendant.

But even if the relationship had been one that gave rise to a presumption of

undue influence, the defendant had rebutted the presumption for in the

circumstances the presumption was rebuttable not only by proof that the deceased

had been independently advised about the leases but also by proof that the gift

of the leases had been the spontaneous and independent act of the deceased.

O’Sullivan v Management Agency & Music Ltd [1985] QB 428

The plaintiff sought to set aside for undue influence a number of management,

sole agency, recording and publishing agreements and transfers of copyright. The

defendant argued that the appropriate remedy, namely restitutio in integrum, was

inapplicable in the circumstances because the agreements had all been performed

and the parties had irrevocably altered their positions, and that therefore the

plaintiff was limited to obtaining damages instead of reconveyance of the

copyrights and delivery up of the master tapes.

The Court of Appeal held that the plaintiff was not barred from having the

contracts set aside by the fact that restitutio in integrum was impossible

because the contracts had been performed. A contract entered into by a person in

breach of a fiduciary relationship could be set aside in equity even though it

was impossible to place the parties in the precise position in which they had

been before, provided the court could achieve what was practically just between

the parties by obliging the wrongdoer to give up his profits and advantages,

while at the same time compensating him for any work he had actually performed

under the contract.

Barclays Bank v Caplan (1997) The Times, December 12

It was held in the Chancery Division that at common law, where an instrument

contained legally objectionable features which were unenforceable against one

party, they might be severed from the rest of the instrument if (1) the

unenforceable feature was capable of being removed by the excision of words,

without the necessity of adding to or modifying the wording of what remained,

and (2) its removal did not alter the character of the instrument or the balance

of rights and obligations contained in it.

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