Q.4 “If the freedom of home-owners to make economic use of their homes is not to be frustrated, a bank must be able to have confidence that a wife’s signature of the necessary guarantee and charge will be as binding upon her as is the signature of anyone else on documents which he or she may sign. Otherwise banks will not be willing to lend money on the security of a jointly owned house or flat.” Per Lord Bingham in Royal Bank of Scotland v Etridge (no 2) [2001]
This quote is regarding mortgages. A mortgage is a disposition of some interest in property by the mortgagor as security for payment by the mortgagee. The mortgagor retains the ownership of legal estate , but the mortgagee ...view middle of the document...
In recent years those who have signed, but have been subjected to misrepresentation, undue influence, or have simply defaulted on payments have sought to argue that despite signing they are not bound by the mortgage. The basis on which such claims are made is the equitable doctrine of undue influence, under which a person should not be held to a transaction if he has been induced to enter the transaction due to the exercise of power over him by someone with whom he had a relationship of confidence and trust. The courts have sought to strike a balance between 2 competing interests. “On the one side there is the need to protect a wife against a husband’s undue influence. On the other side, there is the need for the bank to be able to have reasonable confidence in the strength of its security.” Per Lord Bingham - Etridge and conjoined cases.
In the HL case of Barclays Bank plc v O’Brien. The O’Brien’s matrimonial home was in joint names but Mr. O’Brien used the property as security for an overdraft for his business, and Mrs O signed the necessary paperwork. However, when the payments were not met and the bank wanted to enforce its security. MrsO claimed the mortgage was not binding as she had signed the paper as a result of misrepresentation or undue influence, and the bank had notice of this. Lord Browne Wilkinson stated that a bank cannot accept a surety’s signature without further investigation, reasonable steps to ensure the signature is guaranteed. This was on the grounds that the loan was only a detriment and of no benefit to the wife. However it has been criticised as the loan was for MrO’s business which provided an income for the whole family, and so must have benefited her to a certain extent, as well as this it is uncertain why the banks were held liable for MRO’s mistake. This case could be seen as striking the balance too far in favour of the Mortgagor.
Lord Browne Wilkinson stated that there will be undue influence if it is I) actual undue influence, which needs evidential proof ii) there will be a rebuttable presumption of undue influence -where a)the relationship between the parties was such that the presumption was raised as a matter of law – e.g. doctor patient, b) or cases in which undue influence presumed due to relationship which usually is one of trust and confidence e.g. Husband and wife. It also established that where there is undue influence the creditor must take reasonable steps such as advising the surety to seek independent legal advice, or explaining the consequences of the security document, otherwise he will be unable to enforce the mortgage.
This categorisation has been heavily criticised per lord Clyde in Etridge, however, for a number years case law developed by refining the class structure. Yet the decisions of the cases which followed were not always consistent and showed that confusion remained in this area.
The case of CIBC Mortgages, refined the principle of O’BRIEN. This case...
