Legal Principles and Key Points
- In the case of Credit Lyonnais bank Nederland NV v Burch 1997 1 all er 144, it was held that where a transaction is onerous, the third party must take steps beyond Barclays v O’Brien to avoid being fixed with constructive notice of undue influence.
Facts of the Caser
- A tour company employee (B) agreed to mortgage her flats by way of collateral security for the company’s debts, as requested by the company owner (P).
- Later, the company went into liquidation and C then proceeded against B after being unsuccessful in claiming payment from P.
- C’s claim was dismissed in the county court. It was held here that B’s acceptance if the onerous terms imposed by C had been given on P’s instructions and that B had been induced to enter the charge over her property resulting from P’s undue influence over her.
- C appealed.
Issues in Credit Lyonnais bank Nederland NV v Burch 1997 1 all er 144
- Can C enforce the charge against B’s flats
Held by Court of Appeal
- Appeal dismissed
Swinton Thomas LJ
- It was held that the relationship of trust and confidence between P and B was such that the presumption of undue influence must arise.
- Given the onerous nature of the contract and C’s knowledge of the nature of the relationship meant that the bank should have been put on inquiry.
- “It is true that the bank by letters dated 9 and 16 July 1990, advised Miss Burch that the charge was unlimited in time and amount and advised her that she should take independent legal advice. What the bank failed to tell her, and undoubtedly should have told her, was the extent of the company’s present indebtedness and, even more important, that she was exposing herself to a potential liability of £270,000 which would, of course, involve the loss of her home. Furthermore, I have no doubt that in these circumstances they should have insisted that she took independent legal advice before entering into the charge. If she had taken advice, an independent solicitor would certainly have advised her as strongly as he could that she should in no circumstances enter into the mortgage” 107