Contract -> Undue Influence

A person who has been induced to enter into a transaction by the undue influence of another is entitled to set that transaction aside as against the wrongdoer.

UI is either ‘actual’ or ‘presumed’ - as classified by the HoL in Barclays Bank v O'Brien put forward by SA v Aboody.

Actual (Class 1) Where proof of the unfair pressure was required. The person alleging UI must also suffer a manifest disadvantage (Barclays Bank v Coleman). Royal Bank of Scotland v Etridge (No 2): The Etridge principle applied to banks seeking to enforce surety: The bank should take steps to check directly with the wife the name of the solicitor who acts for her. The communication must be direct with the wife. The bank should give the solicitor the necessary financial information. If the bank suspects the wife is being misled by her husband, it should inform the solicitor. It should always get written confirmation from the solicitor.

Presumed (Class 2) Where the relationship meant the party accused of unfair pressure had to disprove it. Class 2A: Nature of relationship means UI is automatically presumed, unless it can be shown that the person alleging it had legal advice (Allcard v Sknnner). Parent & child (Wright v Vanderplank); Solicitor & client (Wright v Carter); Doctor & patient (Mitchell v Homfray); Trustee & beneficiary (Ellis v Barker); Religious adviser & disciple (Roche v Sherrington). Class 2B: if the claimant can show the relationship was one of trust and confidence then it is for the other party to disprove the UI (O’Brien). Bank and customer (Lloyds Bank v Bundy).

With both Class 2A&B the transaction must be to the ‘disadvantage of the party claiming UI’ (National Westminster Bank v Morgan).

If wives can show a relationship of trust and confidence in their husbands (qualify under Class 2B) presumed UI. Therefore a creditor (bank) can be put on notice if:

1. the contract is not prima facia to the wife’s advantage.
2. there is a risk the husband has committed a wrong in getting the wife to stand as surety.

Therefore the creditor can’t enforce the surety unless he takes ‘reasonable steps to satisfy himself that the surety entered into the obligation freely and in full knowledge of the true facts’ which involves (O’Brien).

• Personal interview without debtor present.
• Explaining full extent of liability and risks involved in standing surety.
• Encourage them to seem independent legal advice.

Although the creditor needs not enquire about the nature of the legal advice (Massey v Midland Bank) and may presume the solicitor will act honestly/competently (Banco v Mann & Others). The bank need only act as a reasonable, prudent one would, need not show suspicion (Wollwich v Gomm).