Lloyds Bank Ltd v Bundy
A transaction can be set aside for undue influence where a customer relied on the bank's advice, though Lord Denning's wider doctrine of inequality of bargaining power was later rejected.
Facts
Mr Bundy was an elderly farmer whose only asset was his farmhouse. He had banked with the same branch of Lloyds Bank for many years, and relied on its advice. His son's company, which also banked there, got into financial difficulty. Mr Bundy guaranteed the company's overdraft and charged his farmhouse to the bank as security, increasing the guarantee over time. Finally, the assistant manager visited Mr Bundy with his son and obtained a further guarantee and charge for £11,000, more than the house was worth, without suggesting that he take independent advice. The company collapsed, and the bank sought possession of the farmhouse.
Legal principle
The Court of Appeal held that the guarantee and charge should be set aside. Sir Eric Sachs, with whom Cairns LJ agreed, held that there was a relationship of confidence between Mr Bundy and the bank, which owed him a duty of fiduciary care when it advised him, and that the bank had failed to ensure that he obtained independent advice, despite the conflict between its own interests and his. Lord Denning MR went further and suggested a general principle of inequality of bargaining power, under which a contract could be set aside where a party with impaired bargaining power entered into it on very unfair terms. The House of Lords rejected that general principle in National Westminster Bank plc v Morgan.
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
- Barclays Bank plc v O'Brien [1994] 1 AC 180
- 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
- National Westminster Bank plc v Morgan [1985] AC 686
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