The Husband, the Bank, the Wife and Her Signature — the Sequel
| Published date | 01 September 1996 |
| Author | Belinda Fehlberg |
| Date | 01 September 1996 |
| DOI | http://doi.org/10.1111/j.1468-2230.1996.tb02686.x |
The Husband, the Bank, the Wife and Her Signature
-
the Sequel
Belinda
Fehlberg”
In
Barclays
Bank
plc
v
0
’Brien,’ the House of Lords sought to resolve difficulties
in
the law applicable to disputes between creditors and surety wives.* Typically,
such cases involve a
wife
who, as a result of her husband’s unfair pressure or
misrepresentation, provides third party loan security (usually over the matrimonial
home) to a creditor for her husband’s business borrowings. Which of two ‘inno-
cent’ victims (the wife or the creditor) should pay for the husband’s misconduct?
Post-0 ’Brien cases indicate that the wife remains the most likely candidate,
particularly in Court of Appeal cases.
The limited legal protection available to sureties evident in post-O’Brien cases is
explored in this article. The legal analysis is supported by reference to the findings
of empirical research conducted in the United Kingdom between
1992
and
1994,
involving interviews with surety wives who in the main were experiencing
problems with their se~urities.~ The central theme
is
that post-O’Brien, the courts
continue to approach security transactions from the perspective of creditors.
A
number of sub-themes derive from this central theme. First, many of the practical
problems faced by sureties remain unaddressed. Secondly, popular notions of the
partnership of marriage and that ‘couples share’ encourage the continuance of an
underlying judicial assumption that surety wives ‘benefit’ from providing security.
Thirdly and conversely, liberal notions of freedom of contract and self-
responsibility encourage the view that, ultimately, sureties have to look after
themselves and that creditors are not responsible for the ‘independent advice’
received by sureties. The deployment of these second and third sub-themes
depends on how the interests of creditors may best be served.
Creditor-sympathetic outcomes are, however, inevitable given the policy priority
*Law School, University of Melbourne.
I
am grateful to Mavis Maclean (Centre for Socio-Legal Studies, Oxford), Hugh Beale (University of
Warwick), Gerard Bean (Phillips Fox, Melbourne), and Elizabeth Boros and Michael Bryan (both of the
University of Melbourne).
1
[
19941
1
AC
180.
See further Fehlberg, ‘The Husband, the Bank, the Wife and Her Signature’ (1994)
57 MLR 467.
2 The term ‘surety wife’ is
used
throughout this article because most of the reported cases involve
wives. Post-O’Brien cases, however, extend beyond spouses (see below) and empirical research
indicates the Occurrence of suretyship not
only
among non-married couples, but the existence of
surety males: Fehlberg, ‘Securities and Guarantees: Another Perspective
on
Money and Marriage’
(1995) Unpublished DPhil thesis, University of Oxford,
125,
127.
Fehlberg,
op
cit
n2.
The research was qualitative in approach, involving 49 in-depth personal
interviews with sureties (22, being 20 females and 2 males), debtors
(9,
lenders (9) and lawyers
(13).
supported by documentary material regarding individual cases and banking procedures. Most
of the sureties interviewed were contacted through
a
bank pressure group operating
in
England and
all
described themselves
as
British. The surety sample was geographically widespread throughout
England, with
a
high concentration resident
in
the South East. Most sureties (l9/22) were between
40 and 59 years of age at the time of interview. Most (18/22) were married to the debtor (although
half were separated
or
divorced at the time of interview). Most sureties had children, were highly to
moderately well educated and described disrupted work patterns throughout their relationship with
the debtor, reflecting the impact of child-rearing on the employment of women. Pseudonyms are
used to protect the identities
of
those interviewed.
3
675
0
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1996
(MLR
595,
September). Published by Blackwell Publishers,
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The
Modern
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[Vol.
59
articulated in O’Brien, favouring the continued
use
of the family home
as
security
for business loans on the assumption that this activity is socially benefi~ial.~ In
other words, the current social policy dictates that creditors must win more often
than they lose. Yet the view of suretyship
as
a
social good is questionable from the
perspective of surety
wives.
In terms of the themes outlined above, for surety
wives, any benefit is likely to
be
conditional on continuing good relations with the
debtor husband and subject
to
his largesse (due to his practical control of the
business). ‘Benefit’ is clearly absent if the business is not profitable and in cases
where business problems result in the security being called up. Surety wives also
face practical disadvantages in the process of providing security, which mean that
they do not fit the classic liberal model of freely contracting individuals. In
particular, surety wives
are
typically not involved in negotiations surrounding
security transactions, lack
a
sense
of
choice in emotional or economic terms about
participating in the transaction, and have
a
tendency to act out of motivations
which prioritise preservation of their family relationship above any expectation
of
direct financial benefit to themselves from providing sec~rity.~ The net effect,
then, is
a
‘social good’ most directly enjoyed by other more powerful actors in the
transaction (the creditor and the debtor), with those actors conveniently being
allowed to visit responsibility for business failures on sureties. The post-O’Brien
cases do little to address this situation.
O’Brien
boundaries
revisited
The pre-O’Brien case law was characterised by three approaches. First, agency
principles had been applied with increasing frequency and rigidity: after
Bunk
of
Credit
and
Commerce
SA
v
Aboody:
it
was
clear that a wife had to establish that
her husband in acting improperly had acted
as
the creditor’s agent in accordance
with established agency
principle^.^
Secondly, there was the view that special
equitable rules continued to apply to married women.’ Finally, it was evident that a
security would
be
unenforceable by a credit:r if the creditor had actual or
constructive notice of the debtor’s wrongdoing.
In
O’Brien, Lord Browne-Wilkinson, delivering the unanimous ruling, preferred
an approach based on constructive notice.”
As
a
result,
a
creditor will now
be
fixed
with notice of a husband’s legal wrongdoing in gaining his wife’s agreement
to provide security if the security transaction is not on
its
face to the wife’s
advantage.
A
creditor can avoid this outcome (and thus have an enforceable
security) if it takes ‘reasonable
steps,’
in the form of
a
private meeting with the
wife at which she is warned of the risk she is running, told the extent of her liability
under the security and urged to take independent advice.
The result
is
that, after
O’Brien,
a
surety wife must win at four distinct stages in
order to avoid liability under
a
security. First,
a
surety wife must establish
a
prima
facie
case
for relief against her husband (such
as
undue influence andor
misrepresentation). Usually, undue influence or misrepresentation is perpetrated by
~~
4
[lW]
1
AC 180, 188
@er
Lord
Browne-Wilkinson who delivered
the
unanimous ruling).
5
Fehlbexg.
op cit
n2,
Ch6.
6
[I9901
1
QB 923 (CA).
7
ibid
972
(per
Slade
W).
8
See
in particular
Earclays
Bank
plc
v
O’Erien
[1993] QB
109
(CA). 138
@er
Scott
LJ).
9
eg
Avon
Finance
Co
Lld
v
Edger
[1985] 2
All
ER
281 (CA), 287
(per
Brandon
W).
10
cf
Scotland:
the
application of
the
Lords’
ruling in
O’Erien
in Scotland
was
rejected in
Mumford
v
The
Bank
of
Scotland
and
Smith
(1995)
SCLR 839.
676
0
The
Modaa
Law
Review
Limited
1996
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