Barclays Bank plc v Caplan and Others
Jonathan Sumption QC (sitting as deputy judge of the High Court)
Wife charging jointly owned house to secure husband’s unlimited guarantee against indebtedness of three companies – Legal advice received on more limited commitment agreed 12 months previously – Whether charge valid to extent of earlier commitment
A husband and wife owned a house in Radlett, Hertfordshire, worth £600,000 in 1986. The wife, while generally aware of her husband’s business affairs, had total confidence in his ability and did not participate. In August 1986 the husband relinquished his position as managing director of a public company in order to form, together with a relative, a garment manufacturing company, P Ltd, with a showroom in London W1. In September 1986 the plaintiff bank agreed in principle to grant a £300,000 overdraft facility (the 1986 facility) to P Ltd to be partly secured by a personal guarantee of the husband limited to £300,000, such guarantee to be supported by a charge over the house. By letter dated October 16 1986 the bank requested the husband’s solicitor, N, to obtain the wife’s signature to the charge and to ensure that she received independent advice. Some two weeks later the wife called at N’s office where the two documents were signed by her and witnessed. On November 10 1986 N returned the documents to the bank, confirming that independent advice had been given. In October 1987 the bank agreed in principle to afford a group overdraft facility of £600,000 (the 1987 facility) to P Ltd and two further companies subject to the husband furnishing an unlimited guarantee extending to all three companies, such liability to be secured, as before, on the Radlett house. On November 30 1987 both the husband and the wife, acting without legal assistance, executed a side letter confirming that the charge was extended accordingly and acknowledging that prior legal advice had been recommended. In subsequent proceedings for possession of the house, the wife contended that on each occasion her signature had been procured by the undue influence of her husband, of which the bank had constructive notice.
Held The charge was enforceable against the wife to the extent of the 1986 facility, but no further.
Wife charging jointly owned house to secure husband’s unlimited guarantee against indebtedness of three companies – Legal advice received on more limited commitment agreed 12 months previously – Whether charge valid to extent of earlier commitment A husband and wife owned a house in Radlett, Hertfordshire, worth £600,000 in 1986. The wife, while generally aware of her husband’s business affairs, had total confidence in his ability and did not participate. In August 1986 the husband relinquished his position as managing director of a public company in order to form, together with a relative, a garment manufacturing company, P Ltd, with a showroom in London W1. In September 1986 the plaintiff bank agreed in principle to grant a £300,000 overdraft facility (the 1986 facility) to P Ltd to be partly secured by a personal guarantee of the husband limited to £300,000, such guarantee to be supported by a charge over the house. By letter dated October 16 1986 the bank requested the husband’s solicitor, N, to obtain the wife’s signature to the charge and to ensure that she received independent advice. Some two weeks later the wife called at N’s office where the two documents were signed by her and witnessed. On November 10 1986 N returned the documents to the bank, confirming that independent advice had been given. In October 1987 the bank agreed in principle to afford a group overdraft facility of £600,000 (the 1987 facility) to P Ltd and two further companies subject to the husband furnishing an unlimited guarantee extending to all three companies, such liability to be secured, as before, on the Radlett house. On November 30 1987 both the husband and the wife, acting without legal assistance, executed a side letter confirming that the charge was extended accordingly and acknowledging that prior legal advice had been recommended. In subsequent proceedings for possession of the house, the wife contended that on each occasion her signature had been procured by the undue influence of her husband, of which the bank had constructive notice.
Held The charge was enforceable against the wife to the extent of the 1986 facility, but no further.
1. In 1986 the bank, knowing that the wife held no shares in P Ltd, had correctly ensured that she had taken legal advice and was entitled to assume that N, being a solicitor, had advised her of the risks: see, for example, Massey v Midland Bank plc [1995] 1 All ER 929.
2. However, the wife’s agreement to the 1987 facility was vitiated by undue influence. In the light of the much heavier commitments contained in the later guarantee, the bank was not entitled to assume that the earlier advice would be adequate.
3. The wife could not contend that rescission was invariably an “all or nothing process” thus entitling her to have the charge totally set aside so far as it affected her: TSB Bank plc v Camfield [1995] 1 WLR 430 distinguished. Applying by analogy principles applied to covenants in restraint of trade, the excision of the increased commitment was permissible as it would not alter the character of the instrument or the balance of rights and obligations: see Alec Lobb (Garages) Ltd v Total Oil (Great Britain) Ltd [1985] 1 EGLR 33. The wife was accordingly bound to the extent of the 1986 guarantee.
Ian Hughes QC and Simon Monty (instructed by Davies Arnold Cooper, of Manchester) appeared for the plaintiff; Michael Lyndon-Stanford QC and Elspeth Talbot Rice (instructed by Jay Benning & Peltz) appeared for the second defendant, Mrs Caplan; Francis Bacon (instructed by Wansbroughs Willey Hargrave) appeared for the third party, Ronald Nathan & Co, solicitors.
