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Non Commercial Guarantees And Unconscionable Bargains Notes

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Non-commercial guarantees The problem

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Chen Wishart: problem = whether Bank can enforce a loan for debts of the husband against the wife as guarantor when the husband has induced this agreement?
o On one side answer = yes
? Because the wife should take financial responsibility for her apparent agreement to the guarantee
? The wife might stand to benefit from the loan
? It is the primary debtor, not the lender, who is at fault
? Such lending is socially and economically useful, especially for small businesses - banks will be reluctant to lend if they have difficulty enforcing their guarantees. o On other side = no
? Marriage relationship allows scope for abuse when one party gets desperate
? Lender ought to be aware of the risk of abuse here
? Guarantor's interests might be linked to that of debtors, but might not be identical - saving home rather than business might be priority of guarantor. Requirements for the defence

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Can G prove a vitiating factor against PD?
o Guarantor must show a vitiating factor against the primary debtor. This may be:
? Misrepresentation
? Undue influence
? Other legal/equitable wrongdoing

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Royal Bank of Scotland v Etridge [2001]: o Lord Nicholls: a transaction should not be vitiated just because H exaggerates slightly
? As a degree of hyperbole is to be expected in the circumstances.
? Equally, W will often give money to H as a normal expression of love, trust and affection, and court should be careful to avoid disturbing this.

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Chen Wishart: begs the question of what conduct and exaggerations are to be expected of a "reasonable husband". o Equally, shouldn't the law be vigilant over relationships of influence for the reason that they might be undue?

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Bank is put on notice o Barclay's Bank v O'Brien [1993]:
? Lord Scarman: where relationship of sexual/emotional nature and loan is for debtor's benefit, bank is put on notice o Royal Bank of Scotland v Etridge [2001]:
? Lord Nicholls:

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Quite simply, a bank is put on inquiry whenever a wife offers to stand surety for her husband's debts. o This is even so where a wife is nominally a director or shareholder.

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However, the bank is not on inquiry if the mortgage is to both jointly unless the bank is aware that the money is mainly for the husband's purposes

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