Lloyds Bank Ltd v Bundy

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Lloyds Bank Ltd v Bundy
Lloyds Bank Newcastle Monument.jpg
Court Court of Appeal
Citation(s) [1974] EWCA Civ 8, [1975] QB 326, [1974] 3 All ER 757
Case opinions
Lord Denning MR, Sachs LJ, Cairns LJ

Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8 is a landmark case in English contract law, on undue influence. It is remarkable for the judgment of Lord Denning MR who advanced that English law should adopt the approach developing in some American jurisdictions[1] that all impairments of autonomy could be collected under a single principle of "inequality of bargaining power."

Facts[edit]

Herbert James Bundy was a farmer. His son, Michael, owned a business that was in financial trouble. Mr Bundy had already guaranteed the business with a £7,500 charge over his only asset, his farmhouse, to Lloyds Bank.[2] Michael's company got into further financial difficulty. Bundy then increased his exposure to £11,000 after the assistant manager of Lloyds failed to notify him of the company's true financial condition. Lloyds foreclosed on the house when the money was not paid, and Bundy had a heart attack in the witness box. The question was whether the contract leading to the repossession of the house was voidable for some iniquitous pressure.[2]

Judgment[edit]

Lord Denning MR held that the contract was voidable owing to the unequal bargaining position in which Mr Bundy had found himself vis a vis the bank. He held that undue influence was a category of a wider class where the balance of power between the parties was such as to merit the interference of the court. It was apparent that Mr Bundy had, without independent advice entered the contract and it was very unfair and pressures were brought to bear by the bank.

Sachs LJ held that a presumption of undue influence had not been rebutted, because Herbert was not independently advised. He had placed himself in the hands of the bank. He noted the claimant's concession that ‘in the normal course of transactions by which a customer guarantees a third party's obligations, the relationship does not arise.’

When ‘the existence of a special relationship has been established, then any possible use of the relevant influence is, irrespective of the intentions of the person possessing it, regarded in relation to the transaction under consideration as an abuse – unless and until the duty of fiduciary care has been shown to be fulfilled or the transaction is shown to be truly for the benefit of the person influenced.’

No ‘advice to get an independent opinion was given; on the contrary, Mr Head chose to give his own views on the company's affairs and to take this course…’ So ‘the breach of the duty to take fiduciary care is manifest’. And although the counsel for the bank ‘urged in somewhat doom-laden terms’ that banking practice would be seriously affected was dismissed. He declined to express an opinion on Lord Denning's dicta.

Cairns LJ concurred.

Significance[edit]

As summarised by Beale, Bishop and Furmston Lord Denning MR envisaged four requirements. These were that a contract would be voidable if (1) the terms were very unfair or consideration inadequate (2) bargaining power was impaired by necessity, ignorance or infirmity (3) undue pressure or influence was used, not necessarily consciously, but by the pressurer, and (4) there was an absence of independent advice usually fatal.[3] These requirements have not always been seen in a good light by the courts; in Pao On v Lau Yiu Long Lord Scarman said that agreements were not voidable simply because "they had been procured by an unfair use of a dominant bargaining position",[3] and in National Westminster Bank plc v Morgan [1985] 1 All ER 821 Scarman directly refused to enforce Denning's principles, also asking if there was any need to them due to the statutory protection given to contractual parties by the Consumer Credit Act 1974.[3]

Lord Denning MR also wanted to apply the principle where (1) a contract was renegotiated, D&C Builders v Rees (2) a tort claim was settled, Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd's Rep 98 (3) an exemption clause in a cleaning contract was in standard form, Levison v Patent Steam Carpet Cleaning Co Ltd [1978] QB 69; and the only limit was when the bargain was ‘the result of the ordinary interplay of forces’ (Bundy at 336).

See also[edit]

  • Backhouse v Backhouse [1978] 1 WLR 243, 251, Balcombe J could not fit in an intelligent woman into the Fry v Lane criteria but citing Bundy said, obiter dicta, that entering a contract without independent advice because of ‘great emotional strain’ could be another way the law could develop.
  • Burmah Oil Co Ltd v Governor of the Bank of England (1981) noted 125 Sol Jo 528, the Bank bought Burmah Oil's shares in BP on request from Burmah, who was very financially embarrassed because the share price had fallen and Burmah's borrowings were structured on the basis that BP shares would be higher. It looked like Burmah may collapse, and the Bank did not want BP shares to go foreign. But after, Burmah claimed the Bank to unfair advantage of bargaining power inequality in buying the shares and making a profit. Walton J doubted Lord Denning MR's principle. Note that Burmah was always advised by expert lawyers and merchant bankers and would have got no better price elsewhere (because selling such a large block of shares would depress the price).
American cases
Duress
Undue influence
Unconscionability

Notes[edit]

  1. ^ For America, see the case, Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965).
  2. ^ a b McKendrick (2007) p.367. The asset was the farmhouse at Yew Tree Farm, Broadchalke, Wiltshire.
  3. ^ a b c McKendrick (2007) p.368

References[edit]

  • McKendrick, Ewan (2007). Contract Law (7th ed ed.). Palgrave Macmillan. ISBN 0-230-01883-1. 
  • Beale, Bishop and Furmston, Contract: Cases and Materials (OUP 2008) 954-963
  • H Collins, The Law of Contract: Law in Context (CUP 2003) 144
  • Slayton, ‘The Unequal Bargain Doctrine’ (1976) 22 McGill Law Journal 94, 106, says that this goes beyond undue influence in that (1) no confidential relationship or fiduciary duty is necessary (2) undue influence need not be proven as a fact but is presumed where bargaining power is impaired and the terms are unfair or consideration is grossly inadequate
  • Waddams, ‘Unconscionability in Contracts’ (1976) 39 Modern Law Review 369 supported the principle.

External links[edit]