No general protection of wives as a “specially protected class of sureties” (husband-wife relationship no longer belongs in Class 2A)
Husband and Wives and banks
“Constructive Notice” – bank is considered to be aware of the husband-wife relationship of potential undue influence, giving rise to a duty towards the wife.
This is an equitable tool to hold the bank responsible for the wife’s actions
Rule in Canadian CML
ALWAYS the duty of the bank to ensure that independent legal counsel has been obtained by the co-signing party – if not, unconscionability
CML – Barclays Bank v. O’Brien, [1994] 1 AC 180 (HL), CB2: 51
Jurisdiction
UK
Facts
O’Brien guaranteed his company’s debts (overdraft of £135 000) using his house as collateral, requiring his wife’s signature for the security agreement. The bank did tell O’Brien that they should read and fully understand the documents before signing them, and that they should get independent legal advice if they were in doubt, but O’Brien did not read the documents. O’Brien signed the documents and took them home for his wife to sign. The company’s debt grew and the bank brought possession proceedings against the O’Briens. The wife claims that the husband put undue pressure on her to sign, and that he misrepresented the effect of the legal charge – she thought the security was limited to £60 000.
Issues
Was the wife’s consent valid?
Holding
No O’Brien. Liability limited to £60 000.
Reasoning
Lord Browne-Wilkinson:
Law should protect people who are subject to undue influence – in this case, wives subject to undue influence by their husbands; however, the court also has a responsibility to ensure that assets can be used for economic gains – to secure financial transactions – to keep capital flowing to enterprises.
Types of Undue Influence:
Class 1: actual undue influence (burden of proof on claimant)
Class 2: presumed undue influence based on relationship of trust and confidence (prima facie undue influence: burden of proof on wrongdoer to prove that the claimant entered into the impugned transaction freely)
Class 2A: certain relationships of influence (e.g. solicitor-client, doctor-patient, etc.: husband-wife relationship no longer in this class)
Class 2B: de facto relationships of influence (claimed here)
The Bank knew that the husband was married, and should have ensured that the wife was informed as to her potential liability and advised to take legal advice
Legal charge on home securing liability can therefore be set aside
Ratio
In a suretyship relationship between co-habitees: (1) the suretyship is valid except where undue influence occurs (2) unless creditor can satisfy himself that surety entered into the obligation freely and in knowledge of true facts by (3) informing surety of her potential liability and advising her to seek legal advice.
Comments
Constructive notice: creditor fixed with constructive notice of the surety’s right to set aside the transaction. Barclays Bank had enough information to suspect that the wife would be subject to undue influence from her husband, and this created a positive duty to ensure that she entered the contract knowingly and without that undue influence.
Unlike Soucisse or Houle, there is here a frank policy discussion: relationship between husband and wife has changed; joint ownership of homes cannot mean that people cannot put up their houses as collateral
