Lloyds Bank Plc v Waterhouse
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE WOOLF,LORD JUSTICE PURCHAS,SIR EDWARD EVELEIGH |
| Judgment Date | 01 February 1990 |
| Judgment citation (vLex) | [1990] EWCA Civ J0201-7 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 90/0131 |
| Date | 01 February 1990 |
[1990] EWCA Civ J0201-7
Lord Justice Purchas
Lord Justice Woolf
and
Sir Edward Eveleigh
90/0131
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
LEGGATT J.
Royal Courts of Justice
MR. MICHAEL WRIGHT Q.C. and MR. A. SPEAIGHT (instructed by Messrs Reynolds Porter Chamberlain, London Agents for Messrs William Dawes & Co., Rye, East Sussex) appeared on behalf of the Appellant (Defendant).
MR. C.L. FALCONER (instructed by Messrs Stones Porter) appeared on behalf of the Respondent (Plaintiff).
Mr. Ronald Waterhouse ("the father") appeals to this court from a judgment of Leggatt J. against him in favour of Lloyds Bank plc. ("the bank") in the sum of £192,163.23. The sum represented the indebtedness of Paul Waterhouse, his son ("Paul") to the bank in respect of which the judge held that the father was liable as guarantor. The bank's claim was based on a guarantee agreement (in the bank's standard form dated 1st October 1981).
Before the trial judge the father relied upon four defences all of which were rejected by Leggatt J. They were:—
1. Misrepresentation by the bank as to the liability incurred by the father as guarantor;
2. " Non est factum";
3. Negligence or breach of duty owed by the bank to the father;
4. Misrepresentation by the son acting as agent for the bank.
Before us Mr. Wright, who has presented the father's appeal, relied on only two of these grounds, that is the second and third grounds.
The circumstances out of which the bank's claim against the father arise can be shortly stated. The Waterhouse family are a well-respected Sussex farming family. For thirty years or more the father, in partnership with his brother, operated a farming business as tenants. Shortly before the circumstances with which this appeal is concerned the father and his brother had, with the assistance of a loan from the family bank Messrs Barclays Bank Ltd, bought the farm of which they had been previously tenants and were continuing to operate the farming business successfully. As a result of the loans raised for this purpose the father was not able to provide any security for further credit or for the purposes of guaranteeing a further loan.
Paul, who was the eldest of the father's three sons, had attended agricultural college and for a period worked on his father's farm. This arrangement, however, did not work out well so Paul rented some farmland on his own; he did not in the early stage farm this land but used the land as a shoot where, presumably, he ran a syndicate of paying sportsmen. In 1981, however, Paul decided to start farming on his own. For this purpose he embarked upon a plan involving the purchase of a farm property known as Forsham Farm. It was to be bought in two stages. The first stage was the acquisition of 157.45 acres of farmland. The second stage involved the purchase of the farmhouse, an oasthouse and two acres of adjoining land to which I shall refer as "the farmhouse". The total sale price involved was £240,000 being allocated as to £160,000 to the first stage and £80,000 to the second stage.
Contracts were exchanged on 24th August 1981 with a 10% deposit (£24,000) being paid on exchange. This sum was allocated as to £20,000 for the farmland and £4,000 for the farmhouse. Stage 1 was completed on 15th October 1981. Although the contract stipulated for completion of the second stage by 31st December 1981, Stage 2 was not completed until 2 6th January 1982. For the purpose of these transactions Paul, who already had an overdraft with the family bank (Barclays Bank Ltd.), came into contact through the introduction of the agent acting on the land purchase with the bank who welcomed him as a new customer. The father never transferred his allegiance from Barclays Bank Ltd.
The banking transactions
Paul was introduced to the bank on 2nd June 1981. The particular transactions took place with the Lewes branch of the bank. The manager at the Lewes branch was Mr. Webb who at the outset paid a visit to Forsham Farm and also to Paul's farm. There were discussions between Mr. Webb and Paul during which the latter suggested that his father might help with a guarantee in respect of the money that he wished to borrow for the purposes of buying the farm and the farmhouse.
On 10th June, at the son's instigation, the father telephoned Mr. Webb saying that he could not provide a supported guarantee because he had just bought his own farm. Mr. Webb said that he would find out what the bank's attitude would be. The conversations which ensued are summarised in the judgment at page 2F:—
"…Either in that conversation or later, Mr. Webb told the defendant that he would be liable up to the amount of his guarantee and that the risk depended on how his son got on. It was two days later, on 12th June 1981, that the defendant telephoned to ask if the bank would accept his unsupported guarantee. Told that they would accept his unsupported guarantee for £80,000, the defendant said he wanted time to think about it. Mr. Webb told him that if he was not prepared to support his own son, the bank would not feel that they could support the son either: the guarantee was vital to the bank as a demonstration of the defendant's faith that his son would succeed".
In July the bank took over Paul's current account with Barclays Bank Ltd., which was overdrawn by £20,000. The first guarantee was signed in August 1981 at the Battle branch of the bank when the father saw a Miss Hilder, an employee of the bank, who asked him whether he understood the guarantee. The judge's finding was:—
"Whatever misgivings he may have felt about entering into the guarantee, I am satisfied that he did not communicate to Miss Hilder any doubt about his understanding of its contents".
The importance of this finding was that notwithstanding his long experience and success as a farmer the father had left school at the age of 13 (he was 56 years old at the time of the trial) and when he left school he was unable to read and had not learned to read since then although he could recognise figures and sign his name. He was shy about disclosing his illiteracy to strangers and accordingly said nothing about it either to Miss Hilder or to anyone else at the bank either when he signed the first guarantee on 7th August 1981 or on 1st October 1981 when he signed the second guarantee. The bank contend that the father should have informed them of his incapacity and that in the absence of this they owed no duty to him to ensure that he understood the contents of the guarantees.
It is now necessary to consider in a little more detail the progress of the negotiations between the bank, the father and Paul upon which Mr. Wright relied for both of his grounds of appeal. On the first approach the proposition put forward by Paul involved the production of a sum of £40,000 in cash from family sources. Although the father has at all stages loyally stood by Paul and clearly impressed the judge as being a man of integrity the same cannot be said for Paul. He spun "fairy tales" to the bank's representatives talking of a family legacy amounting to £40,000 which was shortly to be his. On this basis the bank was prepared to lend £200,000 provided £40,000 came from the family in cash and furthermore the father provided an unsupported guarantee limited to £80,000. When it became obvious that the £40,000 was not to be forthcoming the bank were prepared to adjust their position on the following basis, namely that they would lend £210,000 provided that £30,000 should be produced by way of "family money" and that the father should increase his guarantee to £110,000. The increase of £30,000 in the amount of the guarantee to be given by the father was related to the extra £10,000 which the bank had assumed by way of loan and £20, 000 which they then said they were going to make available as working capital to Paul for his farming enterprise. The £30,000 was produced as to £15,000 by Paul and £15,000 by the father which in turn was made up of £7,000 cash and £8,000 borrowed from Barclays Bank Ltd. This loan has never been repaid.
The approach by the bank appears from some contemporary internal correspondence passing between Mr. Webb and Mr. Farmer at the Lewes branch and a Mr. Gent who was the bank's assistant regional general manager. These exchanges took place during June 1981. The first file notes discuss the "new introduction" and the request by the Lewes branch seeking authorisation by Mr. Gent with the details of which I need not be concerned except for one paragraph:
"Our security for this venture will, of course, consist of the land and various buildings prior to their sale and as our margins are initially somewhat short, customer's father has agreed to guarantee him to the extent of £80,000. Unfortunately, we are unable to obtain supporting security from father as he is farming in partnership with his brother and he would not wish to complicate the situation with his own bankers. However, he has produced for us balance sheets covering 2 years together with a current farmers' balance sheet which shows substantial assets to confirm Mr. Waterhouse senior's underlying wealth".
This application was generally accepted subject to conditions and qualifications introduced by Mr. Gent in a communication dated 24th June 1981. This made a number of important points including:—
"The real problem comes if he has difficulty in disposing of the oast and the farmhouse because he is exchanging contracts now and he will be...
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