Lloyds Bank Ltd v Bundy – Case Summary

Lloyds Bank Ltd v Bundy

Court of Appeal

Citations: [1975] QB 326; [1974] 3 WLR 501; [1974] 3 All ER 757; [1974] 2 Lloyd’s Rep 366.

Facts

The defendant was the father of a man who borrowed money from the claimant bank for his company. The defendant guaranteed the company’s overdraft on behalf of his son and later provided further guarantees secured by charges when the son was unable to pay the company’s debts.

The company’s finances deteriorated. The son promised the claimant that his father would provide even more guarantees if needed. The son and manager paid the defendant a further visit, asking for his signature on another guarantee worth £11,000 and a charge worth £3,500.

The manager informed the defendant that the company’s problems were ‘deep seated’ and that certain limits would be placed on its ability to draw on the overdraft. The defendant responded that he was completely behind his son, and agreed. At the time, the manager was aware that the defendant only owned one home and was relying on him to provide advice.

The company eventually liquidated. The claimant sought to enforce the charge and sell the defendant’s home. The defendant sought to have the charge set aside for undue influence.

Issue(s)
  1. Did a presumption of undue influence arise between the defendant and the claimant?
  2. If so, could the claimant rebut the presumption?
Decision

The Court of Appeal held in favour of the defendant. The parties had a relationship of confidence which in the circumstances amounted to a fiduciary duty. The transaction involved a conflict of interests which risked the defendant being left destitute in his old age. The charge was therefore set aside for undue influence.

This Case is Authority For…

The fact that the innocent party is relying on another for guidance or advice and reposes confidence in that advice, if the other is aware of this, can give rise to a presumption of influence.

Other

Lord Denning stated that English law grants relief where a person, without independent legal advice and from a position of severely unequal bargaining power, enters into a very unfair contract involving grossly inadequate consideration. This approach was rejected in National Westminster Bank v Morgan [1985] AC 686.