Barclays Bank plc v O'Brien
Encyclopedia
Barclays Bank plc v O’Brien [1993] UKHL 6 is an English contract law
case relating to undue influence
. It set out the basic categories of undue influence as,
, was in Mr and Mrs O’Brien’s names jointly. They had a £25,000 mortgage to a building society. Mr Tucker, who worked for Barclays Bank plc, when the mortgage was increased to £60,000 in 1981 made a note that Mrs O’Brien might be a problem. In 1987 Mr O’Brien’s company, Heathrow Fabrications Ltd, was not doing well and he agreed with the Barclays Woolwich branch to raise the company’s overdraft to £135,000, reducing to £120,000 after three weeks, guaranteed by Mr O’Brien and secured on his matrimonial home with a second charge. The Woolwich branch sent a message to the Burnham branch where Mrs O’Brien was meant to sign saying to tell her of the full effects, but they did not follow instructions. Mrs O’Brien saw a document and did not read it. It said ‘obtain independent legal advice before signing this letter’ but she just signed it and was not given a copy. By November 1987 the company was doing badly. The demand for the repayments were not met and possession was sought. Mrs O’Brien argued she was unduly influenced into the contract and that she was not bound.
Lord Browne-Wilkinson started by setting out the policy debate. On the one hand, a more equal society had developed in which is had become usual for both husband and wife to have a title to their home on the deeds. And both should consent with open eyes to dealings in their property. On the other hand, people’s homes were an important source of security and it was vital that banks be able to take security on them. The bank would be liable to having its security set aside if it had either actual or constructive notice of undue influence. Constructive notice is when you are aware of a relationship which would put you on inquiry. It is then up to you to ensure that there is no undue influence. He noted the two categories of actual and presumed undue influence, and in the latter the complainant has to show ‘a relationship of trust and confidence… of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction.’ Then the burden shifts to the other side, to show that a transaction was freely entered into, for instance ‘by showing that the complainant had independent advice. The confidential relationship can be shown either that it is one of ‘Certain relationships (for example solicitor and client, medical advisor and patient’ which in law raise a presumption or ‘the de facto existence of a relationship under which the complainant generally reposed trust and confidence…’
In a key passage, Lord Browne-Wilkinson set out the structure of undue influence.
English contract law
English contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
case relating to undue influence
Undue influence
Undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible.-Undue influence in contract law:...
. It set out the basic categories of undue influence as,
- (1) actual undue influence
- (2A) presumed undue influence from a special relationship
- (2B) presumed undue influence from facts raising suspicion of undue influence
Facts
151 Farnham Lane, SloughSlough
Slough is a borough and unitary authority within the ceremonial county of Royal Berkshire, England. The town straddles the A4 Bath Road and the Great Western Main Line, west of central London...
, was in Mr and Mrs O’Brien’s names jointly. They had a £25,000 mortgage to a building society. Mr Tucker, who worked for Barclays Bank plc, when the mortgage was increased to £60,000 in 1981 made a note that Mrs O’Brien might be a problem. In 1987 Mr O’Brien’s company, Heathrow Fabrications Ltd, was not doing well and he agreed with the Barclays Woolwich branch to raise the company’s overdraft to £135,000, reducing to £120,000 after three weeks, guaranteed by Mr O’Brien and secured on his matrimonial home with a second charge. The Woolwich branch sent a message to the Burnham branch where Mrs O’Brien was meant to sign saying to tell her of the full effects, but they did not follow instructions. Mrs O’Brien saw a document and did not read it. It said ‘obtain independent legal advice before signing this letter’ but she just signed it and was not given a copy. By November 1987 the company was doing badly. The demand for the repayments were not met and possession was sought. Mrs O’Brien argued she was unduly influenced into the contract and that she was not bound.
Judgment
The judge ordered possession, saying a misrepresentation by Mr O’Brien did not make the bank responsible.Court of Appeal
Purchas, Butler-Sloss and Scott LJJ held that it was artificial to find undue influence when a bank ‘left it to the spouse’ (or another relation) to obtain a signature for a charge, on the basis that the spouse was acting as the bank’s agent. It held that relief would be given on the basis of a special equity in favour of wives, from Turnbull v Duval. They said she only thought £60,000 was being secured, and no more. The result was upheld by the House of Lords.House of Lords
The House of Lords held that the contract was voidable for undue influence.Lord Browne-Wilkinson started by setting out the policy debate. On the one hand, a more equal society had developed in which is had become usual for both husband and wife to have a title to their home on the deeds. And both should consent with open eyes to dealings in their property. On the other hand, people’s homes were an important source of security and it was vital that banks be able to take security on them. The bank would be liable to having its security set aside if it had either actual or constructive notice of undue influence. Constructive notice is when you are aware of a relationship which would put you on inquiry. It is then up to you to ensure that there is no undue influence. He noted the two categories of actual and presumed undue influence, and in the latter the complainant has to show ‘a relationship of trust and confidence… of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter into the impugned transaction.’ Then the burden shifts to the other side, to show that a transaction was freely entered into, for instance ‘by showing that the complainant had independent advice. The confidential relationship can be shown either that it is one of ‘Certain relationships (for example solicitor and client, medical advisor and patient’ which in law raise a presumption or ‘the de facto existence of a relationship under which the complainant generally reposed trust and confidence…’
In a key passage, Lord Browne-Wilkinson set out the structure of undue influence.
See also
- English contract lawEnglish contract lawEnglish contract law is a body of law regulating contracts in England and Wales. With its roots in the lex mercatoria and the activism of the judiciary during the industrial revolution, it shares a heritage with countries across the Commonwealth , and the United States...
- Iniquitous pressure in English lawIniquitous pressure in English lawUnconscionability in English law is a field of contract law and the law of trusts, which precludes the enforcement of consent based obligations. "Inequality of bargaining power" is another term used to express essentially the same idea for the same area of law, which can in turn be further broken...
- Lloyds Bank Ltd v BundyLloyds Bank Ltd v BundyLloyds Bank Ltd v Bundy [1974] is a landmark case in English contract law, on undue influence. It is remarkable for the judgment of Lord Denning MR who advanced that English law should adopt the approach developing in some American jurisdictions that all impairments of autonomy could be collected...
[1975] QB 326 - Williams v. Walker-Thomas Furniture Co.Williams v. Walker-Thomas Furniture Co.Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 , was a court opinion, written by Judge J. Skelly Wright, that had a definitive discussion of unconscionability as a defense to enforcement of contracts in American contract law. As a staple of first-year law school contract law courses, it has...
350 F.2d 445 (C.A. D.C. 1965)