Contract law seminar 11
1) Barclays Bank v O Brien [1994]- The defence based on undue influence failed because the
wife was held to exercise independence of thought on financial matters and was used to
dealing with the family finances whilst her husband was working away. The wife was
successful with regards to misrepresentation. The charge was set aside as the bank had
constructive notice of the misrepresentation and failed to take reasonable steps to ensure
that the charge had been obtained without influence or that Mrs O'Brien was aware of the
full extent of liability.
Lord Brown Wilkinson introduced the concept of constructive notice and set out the steps
required to be taken by banks to avoid being fixed with constructive notice
Royal Bank of Scotland v Etridge [2001]- The case concerned a number of conjoined appeals
concerning banks seeking possession of homes where a wife had signed a charge or
mortgage agreeing to secure the debts of the husband on the family home. The House of
Lords reviewed the current authorities and restated some of the principles. The main
changes:
1. Manifest disadvantage: This term should no longer be used as it is ambiguous and leads to
many misunderstandings and is often misapplied. Instead the transaction must be one which
can not readily be explained on ground of friendship, relationship or charity.
2. Constructive notice: A bank will be put on enquiry whenever a wife offers to stand surety
for her husband's debts. There is no need to show that the bank was aware of the
relationship capable of giving rise to a presumption of influence. There is no absolute
obligation on a bank to have a private meeting with the wife provided they take other steps
to satisfy themselves that the wife has been appropriately advised. This may be achieved
through confirmation from a solicitor that she has been advised.
Inche Noriah v Shaik Allie Bin Omar [1929]- Undue influence was alleged against a nephew
over his elderly aunt. One solicitor had drafted the deed of gift, and another had witnessed
it. The solicitor had established that she understood it and entered into it freely, but had not
asked enough to establish that it was almost her entire estate, and had not advised her that
a better way to achieve the result would be by will.
Held: The gift failed for undue influence. Usually a presumption of undue influence may be
rebutted by showing that the transaction was entered into ‘after the nature and effect of the
transaction had been fully explained to the donor by some independent qualified person.’
However (Lord Hailsham LC): ‘their Lordships are not prepared to accept the view that
independent legal advice is the only way in which the presumption can be rebutted.’ and ‘It
is necessary for the donee to prove that the gift was a result of the free exercise of
independent will. The most obvious way to prove this is by establishing that the gift was
made after the nature and effect of the transaction had been fully explained to the donor by
some independent and qualified person so completely to satisfy the court that the donor
was acting independently of any influence from the donee and with the full appreciation of
what he was doing; and in cases where there can there are no other circumstances this may
be the only means by which the donee can rebut the presumption.’
1) Barclays Bank v O Brien [1994]- The defence based on undue influence failed because the
wife was held to exercise independence of thought on financial matters and was used to
dealing with the family finances whilst her husband was working away. The wife was
successful with regards to misrepresentation. The charge was set aside as the bank had
constructive notice of the misrepresentation and failed to take reasonable steps to ensure
that the charge had been obtained without influence or that Mrs O'Brien was aware of the
full extent of liability.
Lord Brown Wilkinson introduced the concept of constructive notice and set out the steps
required to be taken by banks to avoid being fixed with constructive notice
Royal Bank of Scotland v Etridge [2001]- The case concerned a number of conjoined appeals
concerning banks seeking possession of homes where a wife had signed a charge or
mortgage agreeing to secure the debts of the husband on the family home. The House of
Lords reviewed the current authorities and restated some of the principles. The main
changes:
1. Manifest disadvantage: This term should no longer be used as it is ambiguous and leads to
many misunderstandings and is often misapplied. Instead the transaction must be one which
can not readily be explained on ground of friendship, relationship or charity.
2. Constructive notice: A bank will be put on enquiry whenever a wife offers to stand surety
for her husband's debts. There is no need to show that the bank was aware of the
relationship capable of giving rise to a presumption of influence. There is no absolute
obligation on a bank to have a private meeting with the wife provided they take other steps
to satisfy themselves that the wife has been appropriately advised. This may be achieved
through confirmation from a solicitor that she has been advised.
Inche Noriah v Shaik Allie Bin Omar [1929]- Undue influence was alleged against a nephew
over his elderly aunt. One solicitor had drafted the deed of gift, and another had witnessed
it. The solicitor had established that she understood it and entered into it freely, but had not
asked enough to establish that it was almost her entire estate, and had not advised her that
a better way to achieve the result would be by will.
Held: The gift failed for undue influence. Usually a presumption of undue influence may be
rebutted by showing that the transaction was entered into ‘after the nature and effect of the
transaction had been fully explained to the donor by some independent qualified person.’
However (Lord Hailsham LC): ‘their Lordships are not prepared to accept the view that
independent legal advice is the only way in which the presumption can be rebutted.’ and ‘It
is necessary for the donee to prove that the gift was a result of the free exercise of
independent will. The most obvious way to prove this is by establishing that the gift was
made after the nature and effect of the transaction had been fully explained to the donor by
some independent and qualified person so completely to satisfy the court that the donor
was acting independently of any influence from the donee and with the full appreciation of
what he was doing; and in cases where there can there are no other circumstances this may
be the only means by which the donee can rebut the presumption.’
