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Non-commercial guarantees The problem
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
Can G prove a vitiating factor against PD?
o Guarantor must show a vitiating factor against the primary debtor. This may be:
? Undue influence
? Other legal/equitable wrongdoing
Royal Bank of Scotland v Etridge : 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.
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?
Bank is put on notice o Barclay's Bank v O'Brien :
? 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 :
? Lord Nicholls:
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.
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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