Lloyd's Maritime and Commercial Law Quarterly
THE UNDUE INFLUENCE OF A CO-SURETY
First National Bank
v. Achampong
Introduction
It is now settled that, if a party enters into a contract as a result of the undue influence of a third party, the contract may be set aside on the ground that the other contracting party had constructive notice of the undue influence.1
And it is clear that a contracting party may be held to have such constructive notice if he has knowledge of facts or circumstances which put him on inquiry about the risk of such undue influence, and he fails to take reasonable steps to satisfy himself that the consent of the other party to enter into the transaction has been properly obtained.2
This raises the question, under what circumstances will a party be “put on inquiry”? In the case of a suretyship contract, the House of Lords has decided, in Royal Bank of Scotland
v. Etridge (No. 2),
3
that the creditor is put on inquiry in every case where the relationship between the surety and the debtor is non-commercial. It would appear that this Etridge (No. 2)
principle applies only where the third party undue influence on the surety has been exercised by the debtor. However, recently in First National Bank Plc
v. Achampong
4
the Court of Appeal took the view that the creditor is put on inquiry not only where the undue influence is on the part of the debtor, but also where the undue influence has been exercised by a co-surety. This comment seeks to argue that the view of the Court of Appeal goes beyond the principle in Etridge (No. 2)
. It will also be contended that, authority apart, this extension of the Etridge (No. 2)
principle by the Court of Appeal is not well-based in principle.
The facts
Mr and Mrs Achampong, who came from Ghana, were joint proprietors of the house in which they lived with their children in London. In the summer of 1989 they executed a legal charge whereby they charged the property by way of mortgage to First National Bank as security for a loan by the bank of £51,500 to Mr Owusu-Ansah. The purpose of the loan was to raise money for Mr Owusu-Ansah’s business in Ghana. Mr Owusu-Ansah was Mrs Achampong’s cousin. He had come to England on a visit from Ghana. During that visit he stayed with the Achampongs at the property. Mrs Achampong had lived in
1. Barclays Bank Plc
v. O’Brien
[1994] 1 A.C. 180; Royal Bank of Scotland
v. Etridge (No. 2)
[2001] U.K.H.L. 44; [2002] 2 A.C. 773.
2. Barclays Bank
v. O’Brien
[1994] 1 A.C. 180, 196.
3. [2002] 2 A.C. 773.
4. [2003] E.W.C.A. Civ 487.
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