Credit Lyonnais v Burch [1997] 1 All ER 144

• Defendant (an 18 year old) was convinced by her employer to put up her flat as collateral for the company’s overdraft (no explanation was given by the bank to Defendant of the potential consequences).

• When it went bust, the bank (Plaintiff) sought to repossess it.

• CA held that on the grounds of undue influence the agreement was void. 

Nourse LJ

• There was manifest disadvantage to Defendant and there is a presumption of undue influence. She can set aside her agreement against the bank directly, despite the fact that it was X who unduly influenced her, since the bank failed to warn her of the true consequences.

• A bank could not, in circumstances where it ought to appreciate the possibility that undue influence had been exercised, escape the consequences by putting forward an unnecessarily onerous form of guarantee and relying on the guarantor's solicitor to advise her of the possibility of offering a less onerous and more appropriate guarantee.