• In the case of Williams v Bayley [1886] LR 1 HL 200, D argued that an agreement with a bank was not freely and voluntarily made because of his son’s forged signature.
  • This banking law case concerned forgery and invalid contractual obligations based on undue pressure.

Facts of the Case

  • D, occupies a farm and kept a bank account with C, some bankers at Wednesbury.
  • Without D’s knowledge, D’s son sent some promissory notes to C. C did not know that these were forgeries and proceeded with the transactions anyway.
  • D contended that an agreement on the mortgage of property was not enforceable because it was not willingly made and D’s son signed the promissory notes not D.

Issues

  • The main question of the case is whether D should fulfill the terms of the contract even though he did not give his son authority to sign the bills in his name.
  • Is there a power imbalance between the parties?
  • What type of pressure was D under when he took on the responsibility of repaying the debts owed?
  • Should the son be prosecuted for the forgery?

Held by House of Lords

  • Appeal dismissed – the transaction should be set aside since the rule of law has been breached in equity.

Lord Cranworth

Unfair advantage between parties

  • Context of the case proves pressure refers to exercising power to initiate criminal proceedings. No fiduciary relationship between the parties.

Lord Chelmsford

Freedom to contract

  • “The questions in this case are: what was the nature of their defence; whether they have insisted at any time that there was any civil liability on the part of the father”.
  • The negtiation is unfair because the father’s free agency has been removed.
  • It would be unjustified to compel C to give the security to the bankers as per contractual obligations.
  • “It appears to me, therefore, that the case comes within the principles on which a Court of equity proceeds in setting aside an agreement where there is inequality between the parties, and one of them takes unfair advantage of the situation of the other, and uses undue influence to force an agreement from him”.

Lord Westbury

Pressure to repay debt

  • The father’s motive was to help his son from criminal prosecution and the aftermath of the crime he committed.
  • “A contract to give security for the debt of another, which is a contract without consideration, is, above all things, a contract that should be based upon the free and voluntary agency of the individual who enters into it”.
  • The transaction is invalid since C did not act with freedom under the circumstances and D was pressurised into giving security for the debt of his son.
  • Bankers breached their responsibilities by using the forged bills.

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