Lloyd's Bank Ltd v Bundy

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeThe Master of the Rolls,Lord Justice Cairns
Judgment Date30 July 1974
Judgment citation (vLex)[1974] EWCA Civ J0730-4
Date30 July 1974

[1974] EWCA Civ J0730-4

In The Supreme Court of Judicature

Court of Appeal

Appeal by defendant from Judgment of His Honour Judge McLellan

on 6th June, 1973, at Salisbury County Court.


The Master of the Rolls (Lord Panning)

Lord Justice Cairns and

Sir. Eric Sachs.

Lloyds Bank Limited
Plaintiff Respondent
Herbert James Bundy
Defendant Appellant

Mr. L. Price, Q. C., and Mr. George Shillingford (instructed by Messrs. Oswald Hickson, Collier & Co., agents for Messrs.

Trethowans of Salisbury) appeared on behalf of the Appellant Defendant. Mr. J. M. Bankin, Q. C, and Mr. Neil Butter (instructed by Messrs. Jonas and Parker) appeared on behalf of the Respondent Plaintiff.

The Master of the Rolls

Broadchalke is one of the most pleasing villages in England. Old Herbert Bundy was a farmer there. His home was at Yew Tree Farm, It went back for 300 years. His family had been there for generations. It was his only as t. But he did a very foolish thing. He mortgaged it to the bank. Up to the very hilt. Not to borrow money for himself, but for the sake of his son. Now the bank have come down on him. They have foreclosed. They want to get him out of Yew Tree Farm and to sell it. They have brought this action against him for possession. Going out means ruin for him. He was granted legal aid. His lawyers put in a defence. They said that, when he executed the charge to the bank he did not know what he was doing: or at any rate not the circumstances were such that he ought not to be bound by it. At the trial his plight was plain. The Judge was sorry for him. He said he was a "poor old gentleman". He was so obviously incapacitated that the Judge admitted his proof in evidence. He had a heart attack in the witness-box. Yet the Judge felt he could do nothing for him. There is nothing, he said, "which takes this out of the vast range of commercial transactions". He ordered Herbert Bundy to give up possession of Yew Tree Farm to the bank.


Now there is an appeal to this Court. The ground is that the circumstances were so exceptional that Herbert Bundy should not be held bound.


The events before December 1969.


Herbert Bundy had only one son, Michael Bundy. He had great faith in him. They were both customers of Lloyds Bank at the Salisbury branch. They had been customers for many years. The son formed a company called M. J. B. Plant Hire Ltd.It hired out earth-moving machinery and so forth. The company banked at Lloyds too at the same branch.


In 1961 the son's company was in difficulties. The father on 19th September 1966 guaranteed the company's overdraft for £1500 and charged Yew Tree Farm to the bank to secure the £1500. Afterwards the son's company got further into difficulties. The overdraft ran into thousands. In May 1967 the assistant bank manager, Mr. Bennett, told the son the bank must have further security. The son said his father would give it. So Mr. Bennett and the son went together to see the father. Mr. Bennett produced the papers. He suggested that the father should sign a further guarantee for £5,000 and to execute a further charge for £6,000. The father said that he would help his son as far as he possibly could. Mr. Bennett did not ask the father to sign the papers there and then. He left them with the father so that he could consider them over night and take advice on them. The father showed them to his solicitor, Mr. Trethowan, who lived in the same village. The solicitor told the father the £5,000 was the utmost that he could sink in his son's affairs. The house was worth about £10,000 and this was half his assets. On that advice the father on 27th May 1969 did execute the further guarantee and the charge, and Mr. Bennett witnessed it. so at the end of May 1967 the father had charged the house to secure £7500.


The events of December 1969.


During the next six months the affairs of the son and his company went from bad to worse. The bank had granted the son's company an overdraft up to a limit of £10,000, but this was not enough to meet the outgoings. The son's company drew cheques which the bank returned unpaid. The bank were anxious. By this time Mr. Bennett had left to go to another branch. He wassucceeded by a new assistant manager, Mr. Head. In November 1969 Mr. Head saw the son and told him that the account was unsatisfactory and that he considered that the company might have to cease operations. The son suggested that the difficulty was only temporary and that his father would be prepared to provide further money if necessary.


On 17th December 1969 there came the occasion which, in the Judge's words, was important and disastrous for the father. The son took Mr. Head to see his father. Mr. Head had never met the father before. This was his first visit. He went prepared. He took with him a form of guarantee and a form of charge filled in with the father's name ready for signature. There was a family gathering. The father and mother were there. The son and the son's wife Mr. Head said that the bank had given serious thought as to whether they could continue to support the son's company. But that the bank were prepared to do so in this way:


(i) The bank would continue to allow the company to draw money on overdraft up to the existing level of £10,000, but the bank would require the company to pay 10% of its incomings into a separate account. So that 10% would not go to reduce the overdraft. Mr. Head said that this would have the effect "of reducing the level of borrowing". In other words, the bank was cutting down the overdraft.


(11) The bank would require the father to give a guarantee of the company's account in a sum of £11,000 and to give the bank a further charge on the house of £3500, so as to bring the total charge to £11,000. The house was only worth about £10,000, so this charge for £11,000 would sweep up all that the father had.


On hearing the proposal, the father said that Michael was his only son and that he was 100% behind him. Mr. Head produced the forms that had aleady been filled in. The father signed them and Mr. Head witnessed them there and then. On this occasion, Mr. Head, unlike Mr. Bennett, did not leave the forms with the father: nor did the father have any independent advice.


It is important to notice the state of mind of Mr. Head and of the father. Mr. Head said in evidence:


"Defendant asked me what in my opinion the company was doing wrong and company's position. I told him. I did not explain the company's affairs very fully as I had only just taken over the account…. The son said that company had a number of bad debts. I was not entirely satisfied with this. I thought the trouble was more deep seated…. It did not occur to me that there was any conflict of interest. I thought there was no conflict of interest. I would think the defendant relied on me implicitly to advise him about the transaction as bank manager. I knew he had no other assets except Yew Tree Cottage."


The father said in evidence: "I always thought Mr. Head was genuine. I have always trusted him…. No discussion how business was doing that I can remember. I simply sat back and did what they said."


The solicitor, Mr. Trethowan, said of the father: "He is straightforward. Agrees with anyone. I doubt if he understood all that Mr. Head explained to him."


So the father signed the papers. Mr. Head witnessed them and took them away. The father had charged the whole of his remaining asset, leaving himself with nothing. The son and hiscompany gained a respite. But only for a short time. Five months later, in Way 1970, a receiving order was made against the son. Thereupon the bank stopped all overdraft facilities for the company. It ceased to trade. The father's solicitor, Mr. Trethrowan at once went to see Mr. Head. He said he was concerned that the father had signed the guarantee.


In due course the bank insisted on the sale of the house. In December 1971 they agreed to sell it for £7,500 with vacant possession. The family were very disappointed with this figure. It was, they said, worth much more. Estate agents were called to say so. But the Judge held it was a valid sale and that the bank can take all the proceeds. The sale has not been completed, because Herbert Bundy is still in possession. The bank have brought these proceedings to evict Herbert Bundy.


The General Rule.


Now let me say at once that in the vast majority of cases a customer who signs a bank guarantee or a charge cannot get out of it. No bargain will be upset which is the result of the ordinary interplay of forces. There are many hard cases which are caught by this rule. Take the case of a poor man who is homeless. He agrees to pay a high rent to a landlord just to get a roof over his head. The common law will not interfere. It is left to Parliament, Next take the case of a borrower in urgent need of money. He borrows it from the bank at high interest and it is guaranteed by a friend. The guarantor gives his bond and gets nothing in return. The common law will not interfere. Parliament has intervened to prevent moneylenders charging excessive interest. But it has never interfered with banks.


Yet there are exceptions to this general rule. There arecases in our books in which the Courts will set aside a contract, or a transfer of property, when the parties have not met on equal terms - when the one is so strong in bargaining power and the other so weak - that, as a matter of common fairness it is not right that the strong should be allowed to push the weak to the wall. Hitherto those exceptional cases have been treated each as a separate category in itself. But I think the time has come when we should seek to find a principle to unite them. I put on one side contracts or transactions which are voidable for fraud or misrepresentation or mistake. All those are governed by settled principles. I go only to...

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