Goode Durrant Administration v Biddulph
| Jurisdiction | England & Wales |
| Judgment Date | 1994 |
| Date | 1994 |
| Court | Chancery Division |
JUDGE RICH, QC
Husband and wife – both spouses directors of company – husband holding 90 per cent of shares and wife holding only 2.5 per cent of shares – husband and wife executing loan agreement with bank on behalf of company – bank proceeding against wife for default – whether wife executing agreement as a result of husband's undue influence – whether bank had constructive notice of such undue influence.
The plaintiff bank lent £316,750 to a property company and to the defendant and her husband jointly. The loan agreement was signed by the defendant and her husband. They were directors of the company. The husband held 90 per cent of the shares and the remaining 10 per cent was divided between the defendant, two of their children, and their son-in-law. The husband alone dealt with the bank on behalf of the company and on behalf of himself and his wife, the defendant. She had little business experience and she reposed trust and confidence in her husband in financial matters and relied on him in executing the agreement.
The loan was in respect of a development of properties which the borrowers covenanted to carry out and complete. The development was not successful and the company went into liquidation. There remained owing to the bank £161,639 plus interest.
On a claim by the bank the defendant claimed that she was induced to enter into the agreement by the undue influence of her husband and that she was entitled as against him to set it aside. She further claimed that the bank had constructive notice of that undue influence and on that basis she was not liable to the bank under the agreement.
Held – dismissing the bank's claim against the defendant. As the defendant had little business experience of her own and reposed trust and confidence in her husband in financial matters and relied on him in executing the agreement, their relationship was one which raised a presumption of undue influence. Her direct interest in the proposed development arose only from her 2.5 per cent shareholding in the company. To make herself personally liable for a sum in excess of £300,000 in order to have a 2.5 per cent share through the company of any profit was a transaction manifestly disadvantageous to the defendant. Accordingly, as against her husband she would have been entitled to have the transaction set aside. From the point of view of the bank the transaction was one which should have put the bank on inquiry as to whether or not the possibility of undue influence was in fact tainting the transaction and was the reason for the wife joining in. The bank had dealt exclusively with the husband. It did not inquire as to the extent of the defendant wife's interest or her involvement. This was a matter upon which the bank needed sufficiently to inquire to satisfy itself if it was to come to the conclusion that the lack of financial
benefit to the wife did not put it on inquiry as to any equity she might have against the husband. Therefore, on the facts in this case, the bank was on notice of the equity the defendant had as against her husband. She was, therefore, entitled to rely on such equity against the bank.
Cases referred to in judgment:Barclays Bank plc v O'Brien and Another[1994] 1 FCR 357; [1994] 1 AC 180; [1993] 3 WLR 786; [1993] 4 All ER 417.
CIBC Mortgages plc v Pitt and Another[1994] 1 FCR 374; [1994] 1 AC 200; [1993] 3 WLR 802; [1994] 4 All ER 433; (1994) Tr LR 180.
Sandra Corbett for the bank.
Bryan McGuire for the defendant.
JUDGE RICH, QC.By an agreement dated 17 July 1989 the plaintiff (to whom I will refer as "the bank") agreed to lend up to £316,750 to Littlehaven Properties Ltd (whom I shall call "the company") and Mr and Mrs Biddulph, that is to say, the defendant and her husband jointly, although the advance was to be made to a loan account to be established in the name of the company which was appointed to act as the agent of Mr and Mrs Biddulph in the transaction once the loan agreement was signed.
Payments to the company were to...
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