Barclays Bank plc v O'Brien
A lender is put on inquiry when a wife stands surety for her husband's debts and must take reasonable steps to ensure that her consent is properly obtained.
Facts
Mr O'Brien was a shareholder in a company that banked with Barclays. He agreed to guarantee the company's overdraft, and he and his wife agreed to charge their jointly owned matrimonial home to the bank as security. Mr O'Brien told his wife, falsely, that the charge was limited to £60,000 and would last only three weeks. In fact it secured all the company's debts, without limit. The bank's branch did not follow instructions to explain the documents to the O'Briens and to tell them to take independent advice, and Mrs O'Brien signed without reading the documents. When the company's overdraft grew to over £150,000 and it failed, the bank sought possession of the house.
Legal principle
The House of Lords held that Mrs O'Brien was entitled to have the charge set aside against the bank. Lord Browne-Wilkinson said that where a wife stands surety for her husband's debts, and the transaction is not to her financial advantage, the lender is put on inquiry, because there is a substantial risk that the husband has committed a legal or equitable wrong, such as misrepresentation or undue influence, in obtaining her consent. Unless the lender takes reasonable steps to satisfy itself that the wife's agreement has been properly obtained, it will have constructive notice of the wife's rights. The bank had failed to take those steps, so it was bound by Mr O'Brien's misrepresentation.
Related cases on duress and undue influence
- Allcard v Skinner (1887) 36 Ch D 145
- Atlas Express Ltd v Kafco (Importers and Distributors) Ltd [1989] QB 833
- Barton v Armstrong [1976] AC 104
- CIBC Mortgages plc v Pitt [1994] 1 AC 200
- Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144
- CTN Cash and Carry Ltd v Gallaher Ltd [1994] 4 All ER 714
- Lloyds Bank Ltd v Bundy [1975] QB 326
- National Westminster Bank plc v Morgan [1985] AC 686
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