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Chapter 10 Interactive key cases
When Ps acquired shares in a company its majority shareholders wanted to protect themselves against a fall in value of shareholding if shares all sold at once. At request of Ds and on basis of some form of protection being provided by Ds, Ps promised the company that they would not sell 60% of their shares for one year. Ds later made a promise to indemnify Ps against a loss in not being able to sell. Ps wanted to enforce this promise. Held it was not a promise extracted as a result of duress and Ps had provided consideration for it through their promise to the company (promising to perform an existing duty owed to a third party—the company). Consideration was not past consideration since the promise had been made following a request by Ds which carried with it a promise of protection. The later promise of indemnity merely fixed the method of protection.
This is an important case discussing:
- ingredients for a claim in duress;
- previous request device as a means of avoiding past consideration;
- consideration in the form of promising to perform an existing contractual duty owed to a third party.
Eight joined appeals. Wife provided security on home for loan by bank to her husband’s business. Home was being repossessed and wife alleged she had not understood the legal advice.
Latest statement of principles that apply to establishing undue influence and should be discussed in all answers on this topic.
Bank will be put on inquiry where wife stands surety for her husband’s debts. Once on inquiry the bank will generally avoid being fixed with constructive notice of husband’s undue influence by ensuring the wife receives independent advice.
A had inherited her family’s wealth. She became a member of the ‘Protestant Sisters of the Poor’ (religious order with oaths of poverty and obedience) and this involved giving up her property. She gifted her property to the sisterhood. She left the order but it was a further six years before she sought to reclaim her property. The CA held that although she had been unduly influenced, she could not recover due to delay (laches) and acquiescence since leaving the sisterhood.
The judgment involves distinctions of actual and presumed undue influence. It is important for Lindley LJ’s test of the types of gifts which will be set aside (raising suspicions) which later became the test adopted more expressly in Etridge and for the fact that it is not necessary to prove ‘wrongdoing’ (or a motive to abuse the relationship) in order to establish undue influence based on the parties’ relationship.
Husband persuaded his wife to provide security over the matrimonial home for a bank loan. The stated purpose of the loan was to purchase a holiday home and pay off the mortgage. The husband in fact intended to purchase shares with this money and did so. The HL held that this was a case of actual undue influence by the husband but that the bank was not put on inquiry due to the joint benefit statement in the loan application. It followed that the bank was not fixed with constructive notice and the security could not be avoided.
Actual undue influence.
A bank will not be put on inquiry (and so in danger of being fixed with constructive notice of the undue influence of husband) where the loan is for joint purposes so that there is nothing suspicious in the transaction.
Mr Bundy placed trust and confidence in bank manager with regard to his financial affairs. He was persuaded to charge his home as security for the debts of his son’s company. CA set this aside for undue influence by the bank.
Presumed undue influence because a relationship of trust and confidence arose on the facts.
A case involving a bank as the party exercising undue influence (so not a third party case).