i-law

Lloyd's Maritime and Commercial Law Quarterly

Bank lending and the family home: prudence and protection

Joan Wadsley *

The “seemingly intractable” problems 1 associated with lending on security have come to be dealt with through the concept of undue influence. 2 It is possible, however, that the spending and lending spree of the 1980s which gave rise to the huge numbers of such cases was to some extent caused by the overenthusiastic lending by banks and other lenders. It is argued in this article that, if lenders owed a duty of care to borrowers in the act of lending (at present they do not), it might help to curb reckless lending and might make it easier for the courts to hold a fair balance between the commercial interests of banks and the family interests of borrower and surety.

A. INTRODUCTION

In Royal Bank of Scotland v. Etridge 3 Lord Hobhouse of Woodborough observed:4 “Paradoxically the best place at which to start to assess the risk of undue influence is to consider the true nature of the transaction and examine the financial position of the principal debtor and the proposal which he is making to the bank.” All the weight of writing and judicial consideration about lending and the matrimonial home, culminating in Etridge, has been on undue influence. The aim of the courts has been to protect the vulnerable while ensuring that the matrimonial home remains acceptable as security for business loans.5 In trying to balance the interests of the lender with appropriate protection for the surety, the transaction between the bank and the surety—the vulnerable wife6 —has received all the attention. However, this is only a part of a more complex transaction. The primary transaction is the simple lending contract between the bank and the borrower; the second, dependent on it, is the contract of guarantee between the bank and the surety. The case law has concentrated on how a defect in the third relationship, between borrower

341

The rest of this document is only available to i-law.com online subscribers.

If you are already a subscriber, click Log In button.

Copyright © 2024 Maritime Insights & Intelligence Limited. Maritime Insights & Intelligence Limited is registered in England and Wales with company number 13831625 and address 5th Floor, 10 St Bride Street, London, EC4A 4AD, United Kingdom. Lloyd's List Intelligence is a trading name of Maritime Insights & Intelligence Limited.

Lloyd's is the registered trademark of the Society Incorporated by the Lloyd's Act 1871 by the name of Lloyd's.