Video 18.1

Some of the leading cases on undue influence and in particular, the Etridge case, or the Etridge decision of the house of Lords have concerned three party cases. I thought it would be helpful just to have a little diagram to explain to you the typical sort of situation that these cases are concerned with. So typically, you have a bank who's considering making a loan to a husband, it doesn't have to be a husband, it could be a wife, the parties might not be married, but a lot of the cases concern a husband and wife and this way round. So that's how I'll talk about it. So, you have a bank who's considering making a loan to a husband, but the husband might be a bad credit risk, or the bank might think that this wouldn't be a sensible contract to enter into. So, the wife provides a form of security to the bank in order to secure the loan, the bank makes to the husband. So, the wife enters into a contract with the bank which makes the bank think that this loan would be a good deal that it can sensibly make, since we advanced the loan to the husband. Now, the contract we were most interested in here is the contract between the wife and the bank. Because what typically happens is the husband's business fails, husband can't repay the loan, and so the bank tries to recover as against the wife. And clearly in most of these cases the bank isn't in a relationship of trusting confidence with the wife, and the bank itself hasn't influenced the wife unduly. But the wife might only have entered into the contract with the bank as a result of the undue influence of her husband. And the question is, what is the impact of the husband's undue influence on the contract between the wife and the bank? And the key question is, does the bank have constructive notice of the undue influence? Because if the bank does have actual or constructive notice of the undue influence, and it's not very likely the bank will have actual notice, it's almost always going to be a question of constructive notice. But if the bank does have notices of undue influence then it might not be able to enforce the contract as against the wife. Now the bank won't always be on notice. You know, sometimes there might be good reasons for the wife to enter into this sort of arrangement, and the wife might be very well informed, very savvy business lady, no reason to suspect anything. But often this sort of transaction will call for explanation because there's no advantage for the wife in entering into this deal commercially. And the best way for the bank to protect itself is to ensure that the wife receives independent legal advice. And if the wife receives independent legal advice, and therefore goes into this transaction with her eyes wide open, fully informed, and conscious of the risks that she has taken, then the bank would probably be able to enforce the contract it has made with the wife. But all the evidence needs to be taken into account and it should be assessed in the round.