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
* Lecturer in Law, University of Bristol. The author is grateful to Professor Keith Stanton for his valuable comments. Mistakes are, of course, her own.
1. D.Capper, “Banks, borrowers, sureties and undue influence—a half-baked solution to a thoroughly cooked problem” [2002] Restitution Law Review
100.
2. See, e.g., A.Phang and H.Tjio, “The uncertain boundaries of undue influence” [2002] LMCLQ 231; J. O’Sullivan, “Developing O’Brien
” (2002) 118 L.Q.R. 337; R.Bigwood, “Undue influence in the House of Lords: principles and proof’ (2002) 65(3) M.L.R. 435.
3. [2001] U.K.H.L. 44; [2002] 2 A.C. 773; [2002] Lloyd’s Rep. 343 (hereafter “Etridge”
).
4. Ibid.,
para. 109.
5. See Barclays Bank
v. O’Brien
[1994] 1 A.C. 180, 188, per Lord
Browne-Wilkinson.
6. This is the characteristic situation but the surety is not necessarily a wife. See Avon Finance
v. Bridger
[1985] 2 All E.R. 281 (elderly parents and their son); Barclays Bank
v. Rivett
29 H.L.R. 893 (C.A.) (husband, not wife); and many others.
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