Legal Principles and Key Points
- In the case of CIBC Mortgages plc v Pitt 1994 AC 200, a claimant is entitled to enforce a charge against a wife unduly influenced by her husband where it has no actual or constructive notice of undue influence.
Facts of the Case
- H and W owned a matrimonial home which was valued at £270,000 with an outstanding mortgage.
- H wanted to obtain a loan in order to buy stocks and shares and pressured W into agreeing.
- P made a loan of £150,000 which was secured on the home and the couple executed a legal charge in favour of P,W who had not read the documents.
- H subsequently purchased shares.
- After the Stock Market crash in 1987, H was not able to keep up with the repayments for the loan.
- As a result, P brought proceedings for possession of the home.
- W raised a defence of undue influence due to the pressuring from H.
- The Court of Appel dismissed the claim and W subsequently appealed.
Issues in CIBC Mortgages plc v Pitt 1994 AC 200
- Could W rely successfully on proving undue influence?
Held by House of Lords
- Appeal dismissed
- It was held that W had succeeded in establishing undue influence, but P remained unaffected as H was not acting in any way as its agent and p had no notice of the undue influence nor could it be said to have had constructive notice of it by being put on inquiry.
- P was then entitled to enforce the charge.
- “If third parties were to be fixed with constructive notice of undue influence in relation to every transaction between husband and wife, such transactions would become almost impossible. On every purchase of a home in the joint names, the building society or bank financing the purchase would have to insist on meeting the wife separately from her husband, advise her as to the nature of the transaction and recommend her to take legal advice separate from that of her husband. If that were not done, the financial institution would have to run the risk of a subsequent attempt by the wife to avoid her liabilities under the mortgage on the grounds of undue influence or misrepresentation. To establish the law in that sense would not benefit the average married couple and would discourage financial institutions from making the advance.
- What distinguishes the case of the joint advance from the surety case is that, in the latter, there is not only the possibility of undue influence having been exercised but also the increased risk of it having in fact been exercised because, at least on its face, the guarantee by a wife of her husband’s debts is not for her financial benefit. It is the combination of these two factors that puts the creditor on inquiry.
- For these reasons I agree with the Court of Appeal on this issue and would dismiss the appeal. Mrs. Pitt is legally aided but, subject to affording the Legal Aid Board an opportunity to be heard, I would order the respondents’ costs of this appeal to be paid out of the Legal Aid Fund.” pg211