Undue Influence: English Law PDF

UNDUE INFLUENCE : English Law Essential Reading: McKendrick, Ch...

UNDUE INFLUENCE : English Law Essential Reading: McKendrick, Chapter 17 1 Jenita Kanapathy (August 2020) 8/18/2020 2 1. INTRODUCTION – Undue influence is an equitable doctrine that applies in situations not covered by common law duress. – Like duress, undue influence renders a c o n t r a c t v o i d a b l e a t i n n o c e n t p a r t y ’s option, i.e. the innocent party may choose to rescind the contract or set up undue influence as a defence. – The doctrine operates largely through the application of rebuttable presumptions. Jenita Kanapathy (August 2020) 8/18/2020 3 – No precise meaning of “undue influence” – “influence” = pressure? domination? exploitation? dependence? – “undue” = too much? illegitimate? unconscionable? unfair? Jenita Kanapathy (August 2020) 8/18/2020 4 – “Influence” in itself is perfectly acceptable: it is only when it becomes “undue” that the contract becomes v o i d a b l e a t t h e i n n o c e n t p a r t y ’s o p t i o n. – The difficulty then is in deciding when does influence cross the line and b e c o m e “ u n d u e ”. Jenita Kanapathy (August 2020) 8/18/2020 5 Focus of the doctrine? (1) State of mind overborne (similar to of innocent will theory in illegitimate party – duress)? or pressure impairment of theory in (2) D e f e n d a n t ’s innocent duress)?or conduct – p a r t y ’s some (3) Both decision wrongful elements? or making conduct; process (4) Public policy? abuse of caused by position of excessive confidence; reliance or exploitation; dependence advantage on defendant taking (similar to Jenita Kanapathy (August 2020) 8/18/2020  R v Attorney General of 6 England and Wales UKPC 22 Defendant-focused approach Per Lord Hoffmann – ‘Undue influence has concentrated in particular upon the unfair ex p l o i t a t i o n b y o n e p a r t y o f a relationship which gives him ascendancy or influence over the o t h e r.’ Jenita Kanapathy (August 2020) 8/18/2020 7 Mixed approach  C a s e - l aw h a s ta ke n a m i xe d a p p ro a c h , s o m e t i m e s e m p h a s i s i n g w r o n g f u l co n d u c t , a n d at o t h e r t i m e s go i n g s o fa r a s to s ay t h at a f i n d i n g o f u n d u e i n f l u e n c e d o e s n o t re q u i re a ny w ro n gd o i n g b y t h e d efe n d a nt. Jenita Kanapathy (August 2020) 8/18/2020  Pesticcio v Huet 8 All ER (D) 36, CA Public Policy Per Mummery LJ – ‘…the basis [of setting aside a contract for undue influence] is not the commission of a dishonest or wrongful act by the defendant, but that, as a matter of public-policy, the presumed influence arising from the relationship of trust and confidence should not operate to the disadvantage of the victim, if the transaction is not satisfactorily explained b y o r d i n a r y m o t i v e s.’ 8/18/2020 Jenita Kanapathy (August 2020)  Traditional 9 Classification – ACTUAL or CLASS 1 UNDUE – CLASS 2B PRESUMED INFLUENCE. UNDUE INFLUENCE. cases where there is no special relationship but the – CLASS 2A PRESUMED facts show a past history of UNDUE INFLUENCE one party having placed cases where the mere trust and confidence in the existence of a ‘special other which gives rise to a relationship’ between the presumption of influence in parties gives rise to a respect of the transaction in presumption of influence question (again, innocent (innocent party must still go party must still go on to on to show that the show that the influence was influence was undue) undue) Jenita Kanapathy (August 2020) 8/18/2020  2.Actual Undue Influence 10 Jenita Kanapathy (August 2020) 8/18/2020 11 2. Actual Undue Influence Tr e i t e l , T h e L a w o f C o n t r a c t ( 1 3 e d , p a r a 1 0 - 0 1 5 ) : (1) “…[Actual undue influence involves] cases in which one party had induced the other to enter into the transaction by actual pressure which equity regarded as improper but which [does] not amount to duress at common law because no element of violence to the person was involved… (2) …[There is] no further requirement…that the transaction be shown to be to the manifest disadvantage of the party seeking to set it aside or that the transaction must be one that ‘ c a l l s f o r a n e x p l a n a t i o n ’ b y t h e o t h e r p a r t y.” Jenita Kanapathy (August 2020) 8/18/2020 12 Richard Stone, The Modern Law of Contract, 10e, p.353: – “In relation to actual undue influence , the claimant must prove, on the balance of probabilities, that in relation to a particular transaction, the defendant used actual influence. There is no need here for there to be a previous history of such influence. It can operate for the first time in connection w i t h t h e t r a n s a c t i o n w h i c h i s d i s p u t e d.” Jenita Kanapathy (August 2020) 8/18/2020  Royal Bank of Scotland v 13 Etridge (No. 2) 2 AC 773, HL Lord Hobhouse set out the following elements of actual undue influence: (1) It is an equitable wrong committed by the dominant party against the other. (2) It must be unconscionable for the dominant party to enforce his legal rights against the other. (3) There must be some express conduct overbearing the other party’s will. (4) Actual undue influence does not depend upon some pre- existing special relationship of influence between the two parties Jenita Kanapathy (August 2020) 8/18/2020  Allcard v Skinner (1887) 14 36 Ch D 145, CA – Lindley LJ described actual undue i nf l u e n c e a s “s o m e u n fa i r a n d i m p r o p e r co n d u c t , s o m e co e r c i o n from outside, some overreaching, s o m e fo r m o f c h e a t i n g ”. Jenita Kanapathy (August 2020) 8/18/2020  Williams v Bayley (1866) 15 LR 1 HL 200  S h a d f o r g e d h i s f a t h e r ’s ( F ) s i g n a t u r e a s drawer of certain bills of exchange which the drawee Bank honoured.  Bank and F then had a discussion as to how the monies were to be repaid to the Bank.  F u n d e r s t o o d B a n k ’s w o r d s d u r i n g t h a t discussion as a threat to prosecute S if F did not personally settle the monies paid out by the Bank on the bills. Jenita Kanapathy (August 2020) 8/18/2020  Williams v Bayley 16 (1866) LR 1 HL 200  Consequently F agreed in writing to repay the Bank and mortgaged his property as s e c u r i t y, b u t l a t e r f a i l e d t o m a k e repayment.  Bank sued F on the mortgage agreement.  O n e g r o u n d o f F ’s d e f e n c e w a s t h a t t h e Bank had procured the mortgage by undue influence. Jenita Kanapathy (August 2020) 8/18/2020 17 Held – The agreement was voidable because of (actual) undue influence e xe r t e d b y t h e b a n k o n t h e fa t h e r by threatening to prosecute the son. – T h e a g r e e m e n t h a d b e e n “ex t o r t e d f r o m t h e fa t h e r b y u n d u e p r e s s u r e ” ( Pe r L o r d C h e l m s fo r d ). Jenita Kanapathy (August 2020) 8/18/2020  2.1 Actual Undue Influence exerted b y 3 rd p a r t y 18 Jenita Kanapathy (August 2020) 8/18/2020 19 CIBC Mortgages Plc v Pitt 1 AC 200, HL If actual undue influence is exerted by a third party, the contract is voidable but only if (i) the third party is the agent of the party seeking to enforce the contract OR (ii) the party seeking to enforce the contract has KNOWLEDGE or CONSTRUCTIVE NOTICE of the undue influence exerted by the t h i r d p a r t y. Jenita Kanapathy (August 2020) 8/18/2020 20 CIBC Mortgages Plc v Pitt 1 AC 200, HL – Husband (H) pressured his wife (W) into signing a charge over their jointly-owned matrimonial home in favour of CIBC as security for a loan taken by H to speculate on the stock market. – W did not have any independent legal advice, nor did CIBC tell her to seek such advice, before signing the charge. Jenita Kanapathy (August 2020) 8/18/2020 21 CIBC Mortgages Plc v Pitt 1 AC 200, HL – The charge stated that the purpose of the loan was to refinance the matrimonial home to enable H and W to purchase another home. – H in fact used the loan money to speculate on the stock m a r ke t suffering huge losses and fel l back on the repayments to CIBC. – When CIBC sought to enforce the charge W raised the defence of undue influence (by H). Jenita Kanapathy (August 2020) 8/18/2020  Held (i) – CIBC entitled to 22 enforce the charge; no agency; no actual or constructive notice  Although W had succeeded in establishing actual undue influence by H, CIBC remained unaffected because: (i) H was not acting in any way as CIBC’s agent when exerting the undue influence and (ii) CIBC had no actual notice of the undue influence. (iii) Nor could CIBC be said to have had constructive notice of H’s undue influence by being put on inquiry – “There was nothing to indicate to [CIBC] that [the transaction] was anything other than a normal advance to a husband and wife for their joint benefit.” Jenita Kanapathy (August 2020) 8/18/2020  Held (ii) – no need to show 23 manifest disadvantage in cases of actual undue influence Per Lord Browne -Wilkinson: – “…a claimant who proves actual undue influence is not under the further burden of proving that the transaction induced by undue influence was manifestly disadvantageous: he is entitled as of r i g h t t o h a v e i t s e t a s i d e.” Jenita Kanapathy (August 2020) 8/18/2020 24  For Class 2 (presumed UI) cases however “disadvantage had to be shown, not as a constituent element of the cause of action for undue influence, but in order to raise a presumption of undue influence…” Jenita Kanapathy (August 2020) 8/18/2020  3.Presumed Undue Influence – Class 2 25 Jenita Kanapathy (August 2020) 8/18/2020 26 3. Presumed Undue Influence – Class 2 3 stages in successfully rescinding a contract for Class 2 undue influence: – First, the innocent party must prove: (i) Either a pre-existing relationship of a special kind. Mere proof of such special relationship gives rise to the presumption of influence. This is Class 2A PUI. (ii) Or a pre-existing relationship of trust and confidence between the parties. If proven, this gives rise to the presumption of influence in respect of the transaction sought to be avoided. This is Class 2B PUI. Jenita Kanapathy (August 2020) 8/18/2020 27 – Secondly, there must be something about the transaction which ‘calls for an e x p l a n a t i o n ’ b y t h e d o m i n a n t p a r t y. A t t h i s stage the court will examine the nature of the transaction sought to be avoided, and decide whether an explanation is needed – If yes, there arises a rebuttable presumption of undue influence. – The burden then shifts to the dominant party to provide the explanation in order to rebut the presumption. Jenita Kanapathy (August 2020) 8/18/2020 28 – The more the transaction requires an explanation, the more cogent must be the explanation. – T h i r d l y , t h e c o u r t m u s t t h e n c o n s i d e r, based on all the evidence, including the explanation given by the dominant p a r t y, w h e t h e r t h e p r e s u m p t i o n i s rebutted. Jenita Kanapathy (August 2020) 8/18/2020  Royal Bank of Scotland v 29 Etridge (No. 2) 2 AC 771, HL – A Class 2 B case involving a husband and wife. – Lord Nicholls’ speech sets out general principles relating to undue influence: (1) Objective of doctrine – to ensure influence is not abused and to set limits to means properly employable to persuade another to enter into a contract Jenita Kanapathy (August 2020) 8/18/2020 30 (2) There are 2 broad forms of unacceptable conduct (i) Overt acts of improper pressure [this refers to Actual undue influence] ( i i ) Ta k i n g u n f a i r a d v a n t a g e b y r e a s o n o f influence acquired via a relationship [this refers to Presumed undue influence] ( 3 ) Ty p e s o f r e l a t i o n s h i p s g i v i n g r i s e t o presumed influence cannot be listed e x h a u s t i v e l y. Jenita Kanapathy (August 2020) 8/18/2020 31 (4) Te s t i n C l a s s 2 A a n d 2 B c a s e s : w h e t h e r (i) one party has reposed sufficient trust and confidence in the other especially in financial matters AND (ii) there is something about the t r a n s a c t i o n w h i c h “c a l l s f o r a n e x p l a n a t i o n ”. Jenita Kanapathy (August 2020) 8/18/2020 32 (5) But in cases of certain special relationships (Class 2A cases), with regard to (4)(i), the law irrebuttably presumes influence – i.e. proof of existence of such special relationship is sufficient to raise the presumption of influence. Jenita Kanapathy (August 2020) 8/18/2020 33  E.g. of special relationships: parent - child, guardian-ward, trustee- b e n e f i c i a r y, s o l i c i t o r - c l i e n t , m e d i c a l adviser-patient  but not husband and wife. “ There is nothing unusual or strange in a wife, from motives of affection or for other reasons, conferring substantial f i n a n c i a l b e n e f i t s o n h e r h u s b a n d ”. Jenita Kanapathy (August 2020) 8/18/2020 34 (6) But the mere existence of influence is not enough: “…something more is needed…something which calls for an explanation [by the dominant party] (7) It is then for the dominant party to rebut the presumption by providing the explanation. “When that something more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption will b e r e g a r d e d a s r e b u t t e d.” Jenita Kanapathy (August 2020) 8/18/2020 35 (8) “Disadvantage” is not a necessary ingredient of presumed undue influence [contrast earlier case Nat We s t B a n k v M o r g a n ] (9) Burden of proving undue influence i s o n t h e “ v i c t i m ”. Jenita Kanapathy (August 2020) 8/18/2020 36 Summary of Lord Nicholl’s speech  What must be shown in all cases of “presumed undue influence”(Class 2A or 2B): (1) Relationship showing victim reposed trust and confidence in the dominant party: (i) in the case of “special relationships” influence is presumed; (ii) in other cases victim must show he/she did actually repose trust and confidence in the other in the past and upon such p r o o f, i n f l u e n c e i s p r e s u m e d. Jenita Kanapathy (August 2020) 8/18/2020 37 Summary of Lord Nicholl’s speech (2) There is something about the transaction that calls for an explanation. (3) The dominant party must then give a sufficient explanation to rebut the presumption of undue influence. The more disadvantageous the transaction, the more cogent must be the explanation. Jenita Kanapathy (August 2020) 8/18/2020  Why the need for 38 ‘something which calls for an explanation’? Per Lord Nicholls: – “The law would be out of touch with everyday life if the presumption [of undue influence] were to apply to every Christmas or birthday gift by a child to a parent, or to an agreement whereby a client or patient agrees to be responsible for the reasonable fees of his legal or medical advisor…So something more is needed before the law reverses the burden of proof, something which calls for an explanation. When that something more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption will be regarded as rebutted.” Jenita Kanapathy (August 2020) 8/18/2020 39 Allcard v Skinner (1887) 36 Ch D 145, CA  Spe c ial re lat ions hip (Class 2A) – re lig ious le ade r and disc iple. Influenc e is pres umed  A ll 3 j udges of t he CA referred to the 2 categories of undue influenc e in t heir judgments. Jenita Kanapathy (August 2020) 8/18/2020 40 Allcard v Skinner (1887) 36 Ch D 145, CA – 1868 – Allcard (A) joined a sisterhood devoted to charitable works as an associate. – She was informed that to be become a professed member upon completion of her training she would have to take a vow to be bound by the rules of the sisterhood. – The lady superior of the sisterhood was Skinner (S). – 1871 – A became a professed member of the sisterhood and duly bound herself to observe the rules of the sisterhood. Jenita Kanapathy (August 2020) 8/18/2020 41 Allcard v Skinner (1887) 36 Ch D 145, CA Rules of the sisterhood included the following: – The rule of poverty – member to give up all h e r p r o p e r t y, e i t h e r t o h e r r e l a t i v e s , o r t o t h e p o o r, o r t o t h e s i s t e r h o o d i t s e l f. – The rule of obedience – member to regard the voice of her superior as the voice of God. – No sister should seek advice of any outside person without the superior's permission. – All property transferred to S would be held by S upon trust for the sisterhood. Jenita Kanapathy (August 2020) 8/18/2020 42 Allcard v Skinner (1887) 36 Ch D 145, CA – 1871: a few days after becoming an associate, A executed a will leaving all her property to S. – 1872 – 1874: She transferred substantial sums of money and railway stock that she had inherited to S. – All property received by S was placed into a common fund, and used for the general purposes of the sisterhood and proper accounts were kept. Jenita Kanapathy (August 2020) 8/18/2020 43 Allcard v Skinner (1887) 36 Ch D 145, CA – 1879: A left the sisterhood and revoked her will. – 1880: A sought solicitor’s advice regarding the sums of money and railway stock that she had already transferred. The solicitor remarked that "it was too large a sum to leave behind without asking for it back" but A did not take any action. – Finally in 1885 A demanded for the return of her property and brought this action for recovery. Jenita Kanapathy (August 2020) 8/18/2020 44 Held – Although A had voluntarily entered the sisterhood with the intention of devoting her fortune to it, at the time when she made the gifts she was subject to the influence of S and to the rules of the sisterhood. – A would therefore have been entitled to claim the restitution of such part of her property as was still in the hands of S, but not of such part as had been expended on the purposes of the sisterhood while she remained in it. – However, under the circumstances A's claim was barred by her laches and acquiescence since she left the sisterhood. Jenita Kanapathy (August 2020) 8/18/2020 45 Per Cotton LJ  The relations between the donor (A) and donee (S) raised a presumption that the donee had influence over the donor.  In such cases  the court will set aside a voluntary gift unless donee (S) proves that gift was the spontaneous act of donor (A)…that it was the result of a free exercise of donor’s will [this is the basic test for rebutting the presumption of UI]  the court interferes not because of any wrongful act of donee, but on grounds of public policy to prevent abuse of the relationship. Jenita Kanapathy (August 2020) 8/18/2020  2 categories of undue 46 influence – per Cotton LJ Actual undue influence – First, where the Court has been satisfied that the gift was the result of influence expressly used by the donee for the purpose; – The first class of cases may be considered as depending on the principle that no one shall be allowed to retain any benefit arising from his own fraud or wrongful act. Jenita Kanapathy (August 2020) 8/18/2020 47 Presumed undue influence – public policy to prevent abuse of confidential relationships – second, where the relations between the donor and donee have at or shortly before the execution of the gift been such as to raise a presumption that the donee had influence over t h e d o n o r. – In the second class of cases the Court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the gr o und o f publ i c po l i cy, and to pr eve nt t he relations which existed between the parties and the influence arising therefrom being abused. Jenita Kanapathy (August 2020) 8/18/2020 48 Per Lindley LJ  The mere existence of presumed influence is not enough to render the gift voidable.  But “[i]f the gift is so large as not to be reasonably accounted for on the ground of f r i e n d s h i p , r e l a t i o n s h i p , c h a r i t y, o r o t h e r ordinary motives on which ordinary men act, the burden is [then] upon the donee t o s u p p o r t t h e g i f t.” Jenita Kanapathy (August 2020) 8/18/2020 49  [Note: In RBS v Etridge (No. 2) Lord Nicholls relied on this dictum of Lindley LJ to formulate the second element of presumed undue influence viz. that there must be something about the transaction such as to call for an explanation.] Jenita Kanapathy (August 2020) 8/18/2020  3.1 Rebutting Presumption of Undue Influence 50 Jenita Kanapathy (August 2020) 8/18/2020  3.1 Rebutting the 51 Presumption of Undue Influence Tr i e t e l , L a w o f C o n t r a c t ( 1 3 e d p a ra 10-026): – “the presumption…is rebutted if the party benefitting from the transaction shows that [the t ra n s a c t i o n ] w a s ‘ t h e f r e e exe r c i s e o f i n d e p e n d e n t w i l l ’. Jenita Kanapathy (August 2020) 8/18/2020 52 Per Cotton LJ in Allcard v Skinner – If undue influence is shown “… the Court sets aside the voluntary gift, unless it is proved that in fact the gift was the spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the Court in holding that the gift was the result of a free exercise of the donor's will. Jenita Kanapathy (August 2020) 8/18/2020  Royal Bank of Scotland v 53 Etridge (No. 2) – The most usual way to rebut the presumption is to show that the victim had independent advice from a third party before entering the transaction – However, getting independent advice does NOT NECESSARILY rebut the presumption. It is only one of the pieces of evidence to be taken into account. – Whether presumption has been rebutted is a question of fact to be decided having regard to all the evidence in the case. Jenita Kanapathy (August 2020) 8/18/2020  R v AG for England and 54 Wales UKPC 22, PC Per Lord Hoffmann: – Absence of independent legal advice may o r m a y n o t b e a r e l e v a n t m a t t e r. – It is not necessarily an exploitation of a relationship if one party enters into a transaction without independent legal advice. – C o n v e r s e l y, t h e r e m a y b e u n d u e i n f l u e n c e even if the party induced had independent advice. Jenita Kanapathy (August 2020) 8/18/2020 55 – While the lack of independent advice available to R in this case was “a matter of regret” the facts of the case “did not give rise to an inference that [the transaction] was obtained by an unfair exploitation of that relationship”. Jenita Kanapathy (August 2020) 8/18/2020  Smith v Cooper 56 EWCA Civ 722 – Presumption is not rebutted by merely showing that there was a reasonable explanation for the transaction. – Defendant must go on to show that the transaction was a result of the exercise by the claimant of full free and informed thought. Jenita Kanapathy (August 2020) 8/18/2020  3.2 Presumed Undue Influence e x e r t e d b y 3 rd party 57 Jenita Kanapathy (August 2020) 8/18/2020  3.2 Presumed Undue 58 Influence and Third Parties  A contract may be avoided where the undue influence is exerted on one party to the contract by a third party if (1) the third party was acting as the other p a r t y ’s a g e n t o r (2) if the other party had knowledge or actual notice, or constructive notice of the undue i n f l u e n c e e xe r t e d b y t h e t h i r d p a r t y. – I.e. the position is the same as cases of actual undue influence by third parties: See CIBC Mortgages v Pitt discussed above. Jenita Kanapathy (August 2020) 8/18/2020  Barclays Bank plc v 59 O’Brien 1 AC 180 – Wife (W) charged her property to Bank (B) relying on misrepresentations made to her by her husband (H). – I s s u e : c o u l d H ’s m i s r e p r e s e n t a t i o n b e imputed to B so as to vitiate contract between B & W? – Held: Charge was voidable because, on the f a c t s , B h a d c o n s t r u c t i v e n o t i c e o f H ’s misrepresentations. Jenita Kanapathy (August 2020) 8/18/2020 60 – Constructive notice applies when a party did not have knowledge or actual notice of the particular circumstances but because, having been put on inquiry, the party turned a blind eye by failing to make any inquiry or he was negligent in the inquiry made. Jenita Kanapathy (August 2020) 8/18/2020 61 Per Lord Browne- Wilkinson Stage 1 of constructive notice – being put on inquiry  A creditor (e.g. a bank) is PUT ON INQUIRY when a wife stands surety for husband’s debt if  the transaction is on the face of it not advantageous to W; and  there is a substantial risk that H had, in procuring W to act as surety, committed a legal or equitable wrong that entitles W to set aside transaction. Jenita Kanapathy (August 2020) 8/18/2020 62 Stage 2 of constructive notice – Where a creditor is put on notice of the risk of misrepresentation or undue influence by the principal debtor, the obligation of the surety will be unenforceable if: (i) undue influence, misrepresentation or some other legal wrong by the principal debtor with regard to the surety is proven; and (ii) the creditor has failed to take reasonable steps to be satisfied that the surety entered into the obligation freely and with knowledge of the true facts. Jenita Kanapathy (August 2020) 8/18/2020 63 – The creditor will normally be regarded as having taken reasonable steps by (i) warning the surety (not in the presence of the principal debtor) of the amount of the surety’s potential liability and risks involved; and (ii) advising the surety to take independent legal advice. Jenita Kanapathy (August 2020) 8/18/2020 64 Royal Bank of Scotland v Etridge (No. 2) Lord Nicholls provided more detailed guidelines to be followed by banks when dealing with sureties. Failure to follow these guidelines could mean that the bank has constructive notice of the 3rd party undue influence: (1) “…banks [are] ‘put on inquiry’ in every case where the relationship between the surety and the debtor is non-commercial.” Jenita Kanapathy (August 2020) 8/18/2020  65 Royal Bank of Scotland v Etridge (No. 2) (2) The transaction should be explained to the surety by an independent advisor, usually a solicitor. Steps to be taken by the bank: (i) Communicate directly with the surety to see if she wishes to use a solicitor (may use the same solicitor as that of the principal debtor) (ii) Bank must provide such solicitor with full financial information relating to the transaction (iii) If the bank suspects that the surety has been misled, the solicitor must be informed of the bank’s suspicion (iv) Bank will require from the surety’s solicitor a written communication that the nature of the transaction and its practical implications have been fully explained to the surety. 8/18/2020 Jenita Kanapathy (August 2020)  66 Royal Bank of Scotland v Etridge (No. 2) (3) Assuming that the surety wishes an independent solicitor to act for her, there must be a face to face meeting between the solicitor and the surety where the solicitor should explain the transaction and its implications in “suitably non-technical language”. At the very least this means: (i) Explaining the nature of the documents being signed together with consequences e.g. risk of losing matrimonial home (ii) Seriousness of the risk (iii) Making it clear that the decision to give the guarantee, etc is the surety’s and hers alone (iv) Asking the surety whether she wishes to proceed, or wants solicitor to negotiate further on the terms with Jenita Kanapathy (August 2020) the bank. 8/18/2020  4. Remedies for Undue Influence 67 Jenita Kanapathy (August 2020) 8/18/2020 68 4. Remedies for Undue Influence (1) Primary remedy – refusal of the courts to enforce the agreement against the person influenced. – This occurs when the person influenced refuses to perform and is sued on the contract and he sets up undue influence as a defence to be freed from his obligations under that contract. Jenita Kanapathy (August 2020) 8/18/2020 69 4. Remedies for Undue Influence (2) Sometimes the person influenced takes the initiative and seeks rescission of the contract (or gift) by the court , in which case t h e u s u a l b a r s t o t h i s r e m e d y w i l l a p p l y. – Where rescission is ordered, the whole transaction will be set aside and issues of restoring the parties to their original position, as best as the law can do in the circumstances, will arise. Jenita Kanapathy (August 2020) 8/18/2020  TSB Bank plc v Camfield 70 1 All ER 951 – Husband (H) misrepresented to his w i fe ( W ) t h a t i f s h e c h a r g e d t h e matrimonial home to secure a loan t o b e t a ke n b y H , s h e w i l l l i a b l e only up to £15,000. – I n fa c t , h e r l i a b i l i t y u n d e r t h e c h a r g e w a s ex p r e s s e d t o b e unlimited. Jenita Kanapathy (August 2020) 8/18/2020 71 TSB Bank plc v Camfield 1 All ER 951 – Court held that, on the facts, the bank h a d c o n s t r u c t i v e n o t i c e o f t h e 3 rd p a r t y misrepresentation and ordered rescission and set aside the whole transaction. – T h e b a n k ’s a r g u m e n t t h a t W s h o u l d b e liable at least to the extent of the risk s h e wa s w i l l i n g to u n d e r ta ke wa s rejected. Jenita Kanapathy (August 2020) 8/18/2020 72 Held – If W had known all the facts and circumstances leading up to the transaction she would not have entered into the transaction at all i.e. she would not have been willing to take a risk of up to £15,000. – Therefore the whole transaction including the charge should be set aside i.e. W was restored to her original position. Jenita Kanapathy (August 2020) 8/18/2020  Cheese v Thomas 1 73 All ER 35 – P, t h e n a g e d 8 6 , p a i d £ 4 3 , 0 0 0 t o w a r d s the purchase of a house worth £83,000 with D providing £40,000 by way of a mortgage. – H o u s e w a s r e g i s t e r e d i n D ’s n a m e a l o n e. – Their agreement was that P could stay in the house for the rest of his life, and a f t e r h i s d e a t h D w o u l d o w n i t f u l l y. Jenita Kanapathy (August 2020) 8/18/2020 74 Cheese v Thomas 1 All ER 35 – When D failed to keep up the mortgage repayments, P sought to rescind the agreement b a s e d o n D ’s u n d u e i n f l u e n c e. – Meanwhile, the house had to be sold at a loss, for £55,400 and P sought to recover his whole contribution (i.e. £43,000) from this sum. – Court ordered rescission, but ordered that the £55,400 should be divided between them in the proportion of their contributions (43:40). Jenita Kanapathy (August 2020) 8/18/2020