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Law Notes Contract Law Notes

Royal Bank Of Scotland V Ettridge Notes

Updated Royal Bank Of Scotland V Ettridge Notes

Contract Law Notes

Contract Law

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Royal Bank of Scotland v Ettridge [2001] 4 All ER 449

House of Lords

Basic Facts

In all 8 appeals, a wife charged her interest in the matrimonial home to a bank for security of the husband’s debts or for the benefit of his business. The wife later asserted she had signed the document under the undue influence of her husband.

Issue for the court

When does undue influence arise?

Held Lord Nicholls of Birkenhead

  • If the intention was produced by an unacceptable means, the law will not permit the transaction to stand.

    • The means used is regarded as an exercise of improper or "undue" influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will.

  • Equity has indentified two forms of unacceptable conduct:

    • The first comprises overt acts of pressure or coercion such as unlawful threats

    • The second form arises out of a relationship between two persons where one has acquired over another a measure of influence of which the stronger person then takes unfair advantage

      • The law has recognised that this class needs protection just as much as the first.

      • But which relationships will be recognised is undefined

        • Essentially it is any relationship where sufficient trust and confidence has been put by one in the other

          • Not just a narrow list of specific relationships.

          • If you fall into some of the most common ones then this will be enough to show trust and confidence

            • Husband and wife does not fall into this category, however, as there is nothing unusual in a wife, with motives of affection, conferring substantial financial benefits on her husband.

              • therefore it must be proved that there was sufficient trust and confidence in the normal way.

  • Equally, while it is not necessary for the purposes of undue influence for a person to suffer detriment

    • BUT questions of undue influence will not usually arise where the transaction is innocuous.

      • It will normally only be considered where the transaction was disadvantageous either from the outset or as matters turned out.

  • Proof that C put trust and confidence in the other party in relation to the management of financial affairs

    • Coupled with a transaction that calls for explanation

      • Will lead to a rebuttable presumption of fact of undue influence and shift the burden of proof to the party relying on the contract to prove that this inference should not be drawn

  • For independent advice, this will normally bring home the consequences of an action to C

    • But this is not conclusive – a person may fully understand the implications of a transaction while still being under undue influence

      • Whether independent advice rebuts undue influence is a fact to be considered in all the circumstances of the case.

Manifest disadvantage

  • The transaction must not be readily explicable from the relationship of the party

    • This second element is necessary to keep the law from being too broad

    • Cos clearly absurd if every transaction between child to parent could be explained as undue influence unless the contrary is affirmatively proved

      • These ordinary transactions do not suggest that something is amiss

        • Something more is needed – and the greater the disadvantage to the vulnerable person, the more cogent the explanation must be before the presumption is rebutted.

  • Problem with phrase “manifest disadvantage” is that it can be abused and lead to uncertainty

    • Can a wife enter into a transaction for her and her husband’s benefit and be at a manifest disadvantage?

      • Perhaps narrowly she can, as she undertakes a serious financial obligation, and in return she personally receives nothing.

        • But that would be to take an unrealistically blinkered view of such a transaction

        • However, the correct approach is just to jettison the label and substitute “transaction...

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