Guarantee — Legal charge over matrimonial home — Wife acting as surety — Bank setting possession of property — Assumption of presumed undue influence by husband — Whether bank took sufficient steps to avoid constructive notice of assumed unique influence — High Court holding that bank took reasonable steps and was entitled to order for possession
The defendants were married when they purchased the leasehold interest in a property at 36 Litefield Way, London NW11, but later separated. In 1987 the husband, who was up until then a sponsored member of Loyds had to make his own arrangements to continue his Loyds membership. To that end he arranged with the plaintiff a bank guarantee, which was to be supported by a change on the property. C was the solicitor acting on behalf of both defendants and the plaintiff in connection with registering the legal charge. He witnessed the husband’s signature, but as the wife was abroad until after the deadline he telephoned her to explain the nature of the arrangement.
The husband then secured the wife’s signature on the charge. The husband defaulted in payments under the guarantee and when both husband and wife failed to comply with the plaintiff’s demands the plaintiff sought to enforce its security. It applied for final judgment under Ord 88 of the Rules of the Supreme Court for possession of the property. The master refused that application, but the plaintiff appealed to the High Court. The wife resisted the order on the ground that the bank had failed to comply with us duty to explain the legal charge to her.
Held The bank’s was allowed.
1. It would be assumed for the purposes of these proceedings that a presumption of undue influence, ie that the wife generally reposed trust in @@ husband in that she left financial decisions to him, was one to be determined at trial.
2. The question then was whether the steps taken by the bank were sufficient to avoid it being fixed with constructive notice of such presumed undue influence.
3. Where a wife agreed to stand surety for her husband’s debts as a result of undue influence or misrepresentation, the creditor would take subject to the wife’s equity to set aside the transaction if the circumstances were such as to put the creditor on inquiry as to the circumstances in which she agreed to stand surety. A creditor was put on inquiry when a wife offered to stand surety for her husband’s debts by the combination of two factors: (a) the transaction was on its face not to the financial advantage of the wife; and (b) there was a substantial risk in transactions of that kind that in procuring the wife to act as surety the husband had committed a legal or equitable wrong that entitled the wife to set aside the transaction: see Barclays Bank plc v O’Brien [1993] EGCS 169.
4. The creditor’s position, once put on inquiry, would depend on whether it had taken reasonable steps to bring home to the wife the risk she was running by standing as surety and to advise her to take independent advice.
5. Bearing in mind that this was both a surety case (see O’Brien supra) and a loan case (see CIBC Mortgages plc v Pitt [1993] EGCS 174 ie in part the legal charge was to the wife’s advantage as well as the husband’s) the plaintiff did take reasonable steps in relying on the defendants’ own solicitors written assurance that they had explained the nature of the charge and by alerting her to the need for professional advice. Thus, the wife had no reasonable probability of a bona fide defence to the plaintiff’s claim for possession.
Amanda Green (instructed by Jaques & Lewis) appeared for the bank; James Evans (instructed by Wallis & Co, of Bromley) appeared for Mr Serter; Dennis Sharpe (instructed by Kenwright Lake & Co, of East Molesey) appeared for Mrs Serter.
