Question

The roof of the church attended by Mark has begun to leak badly. Mark owns, jointly with his wife, a small house where they live together. Apart from that he is poor but devout. He decides that it is his duty to borrow the money to enable him to donate the £100,000 needed to restore the church to its former glory but he first arranges to speak to the parson to check that his gift will be accepted. The parson is delighted but tells Mark that the roof will only cost £80,000 to fix and so there is no need to donate the full £100,000. The parson also passes him the business card of his solicitor and advises him to speak to the solicitor before making the gift.

Mark tells his wife, Anna, that he would like to donate £40,000 to the church (he is scared about revealing the true amount to his wife) and asks her to go with him to the bank and consent to securing a loan with a mortgage over their jointly owned house. Anna refuses to go to the bank and says that he is being stupid, adding: 'I thought the drugs Dr Scholes gave to you should have stopped these episodes of madness.' This makes Mark very angry and he shouts at his wife, accusing her of not respecting his religion, adding that 'banks never repossess houses and, besides, the Church are going to pay me back when they have the money'. Mark's wife reluctantly agrees to go to the bank and sign the necessary papers 'so long as you get the £40,000 back as soon as possible'.

The bank insists that Anna talks to an independent solicitor before she signs any documents. Anna visits the solicitor but is so distressed at Mark's behaviour that she signs the necessary papers without actually realizing that the loan is for £80,000, double what she thought.

Mark has been so busy arranging the mortgage that he forgets to take the parson's advice to visit a solicitor. He transfers the £80,000 advance to the parson who then decides to use the money to help educate orphaned children in the parish. Mark is annoyed and demands the money back. A year later, he has still not been repaid, he has lost his poorly paid job and the bank now wants to repossess the house because he has not kept up the mortgage payments.

Advise Mark and Anna.

Answer

This is not a straightforward question.  The most important thing to do when confronted by a complex problem question is to spend a few minutes identifying and listing the main issues at stake.  Here, the first thing which should strike you is that there are two transactions: one between Mark and the Pastor (a gift); and a second between Anna and the bank (a grant of security in the form of a mortgage). Other issues which should ring alarm bells are the relationship of religious leader and follower between Mark and the Pastor, the relationship of husband and wife between Mark and Anna; the suggestion that Mark has a possible mental illness and the false statements made by Mark to Anna (e.g. lying about the amount borrowed).

Having sketched out the key issues, you need to present them in a logical way.  Here is how we would deal with this question:

(A) Anna's consent to security being granted to the bank

• There is an argument that there is actual undue influence by Mark due to his aggressive behaviour (as in BCCI v Aboody).  
• There is also almost certainly one or more misrepresentations which induced Anna to enter into the transaction.  Mark deliberately told her that the loan was for half the actual amount and implied that the bank would not repossess the house.  
• We must also address whether there is presumed undue influence.  Given that the relationship of husband and wife is not one of the automatic categories of relationships of trust and confidence, such a relationship must be proven.  This will depend upon further factual inquiry but, assuming that a relationship can be established on the facts, the next step is to establish that the transaction was one calling for an explanation.  Here, the transaction is not on its face to Anna's advantage as the ultimate beneficiary is the church and the transaction is driven primarily by Mark.  Anna seems to have little interest in the transaction and therefore it seems reasonable to conclude that the transaction raises suspicions.  
• Having established the potential equitable grounds on which the transaction may be voidable, it is necessary to assess whether the bank had constructive notice of such factors.  As regards Mark's dominance of his wife and the misrepresentation, it seems that the bank did not have actual knowledge.  However, the bank appears to have realised that the transaction called for an explanation as it insisted upon Anna taking legal advice.  Anna took such legal advice and so the bank would probably have a good defence unless it could be shown that it knew that she was distressed when doing so and did not properly take in the advice.  

(B) Mark's gift of the money to the Parson

This type of scenario is unlikely to appear in a contract exam paper as there is no contract between Mark and the Parson, simply a gift for a specific purpose.  Mark might have a remedy of restitution on the basis that the loan was: (i) tainted by undue influence; or (ii) paid for a purpose which failed (i.e. he paid it for the purpose of fixing the church but the Pastor spent it on educating orphans).  You could explore whether there would be presumed undue influence on similar grounds to Allcard v Skinner where the relationship was between a soon-to-be nun and her Mother Superior.