CIBC Mortgages v Pitt [1993]
Share
CIBC Mortgages Plc v Pitt [1993] UKHL 7 holds significance in the context of undue influence. The key aspect addressed by the House of Lords is the confirmation that an individual is not required to endure manifest disadvantage as a prerequisite for challenging a transaction on the grounds of actual undue influence, distinct from cases involving presumed undue influence.
The transaction involved Mr Pitt applying for a loan from CIBC Mortgages Plc. The loan, amounting to £150,000 with a 20-year term, was secured on the family home. Notably, the purpose of the loan, as stated in the application, was the proposed purchase of a holiday home. Mrs Pitt, however, did not read the details of the application or the mortgage offer, signing the documents without a clear understanding of the contents. The loan was described as a remortgage, aiming to pay off the existing mortgage, and the proceeds were intended for the purchase of a second property without additional borrowing.
Subsequent events revealed that Mr Pitt used the borrowed funds to purchase shares, subsequently using those shares as collateral for additional loans to acquire more shares. The collapse of the stock market in 1987 led to financial difficulties for Mr Pitt, resulting in arrears under the legal charge. By the time of the trial in July 1992, the total amount owed under the legal charge exceeded the value of the family home.
In the legal proceedings, Mrs Pitt alleged that she had been induced into the legal charge by Mr Pitt's misrepresentation of the loan's purpose. The trial judge found in favour of Mrs Pitt on the grounds of actual undue influence by Mr Pitt. However, the judge ruled that the transaction was not manifestly disadvantageous to Mrs Pitt and that Mr Pitt did not act as an agent of CIBC.
Mrs Pitt appealed the decision, but the Court of Appeal dismissed her appeal. The case then proceeded to the House of Lords, where the sole reasoned judgment was delivered by Lord Browne-Wilkinson. He addressed two key points: whether manifest disadvantage needed to be demonstrated in cases of actual undue influence and whether CIBC, as a third party, was on notice of any undue influence.
Lord Browne-Wilkinson concluded that manifest disadvantage was not a requirement for cases of actual undue influence. Mrs Pitt could set aside the transaction against her husband, but for a successful claim against CIBC, she needed to show that the bank was on notice of the undue influence. The trial judge had found that Mr Pitt was not the agent of CIBC, and there was no indication in the transaction details that would put the bank on notice of undue influence. Consequently, Mrs Pitt's claim against CIBC failed, and the bank's rights were unaffected by the undue influence exerted by Mr Pitt.
This case underscores the legal distinctions between actual and presumed undue influence and highlights the significance of notice when challenging transactions involving third parties.
The transaction involved Mr Pitt applying for a loan from CIBC Mortgages Plc. The loan, amounting to £150,000 with a 20-year term, was secured on the family home. Notably, the purpose of the loan, as stated in the application, was the proposed purchase of a holiday home. Mrs Pitt, however, did not read the details of the application or the mortgage offer, signing the documents without a clear understanding of the contents. The loan was described as a remortgage, aiming to pay off the existing mortgage, and the proceeds were intended for the purchase of a second property without additional borrowing.
Subsequent events revealed that Mr Pitt used the borrowed funds to purchase shares, subsequently using those shares as collateral for additional loans to acquire more shares. The collapse of the stock market in 1987 led to financial difficulties for Mr Pitt, resulting in arrears under the legal charge. By the time of the trial in July 1992, the total amount owed under the legal charge exceeded the value of the family home.
In the legal proceedings, Mrs Pitt alleged that she had been induced into the legal charge by Mr Pitt's misrepresentation of the loan's purpose. The trial judge found in favour of Mrs Pitt on the grounds of actual undue influence by Mr Pitt. However, the judge ruled that the transaction was not manifestly disadvantageous to Mrs Pitt and that Mr Pitt did not act as an agent of CIBC.
Mrs Pitt appealed the decision, but the Court of Appeal dismissed her appeal. The case then proceeded to the House of Lords, where the sole reasoned judgment was delivered by Lord Browne-Wilkinson. He addressed two key points: whether manifest disadvantage needed to be demonstrated in cases of actual undue influence and whether CIBC, as a third party, was on notice of any undue influence.
Lord Browne-Wilkinson concluded that manifest disadvantage was not a requirement for cases of actual undue influence. Mrs Pitt could set aside the transaction against her husband, but for a successful claim against CIBC, she needed to show that the bank was on notice of the undue influence. The trial judge had found that Mr Pitt was not the agent of CIBC, and there was no indication in the transaction details that would put the bank on notice of undue influence. Consequently, Mrs Pitt's claim against CIBC failed, and the bank's rights were unaffected by the undue influence exerted by Mr Pitt.
This case underscores the legal distinctions between actual and presumed undue influence and highlights the significance of notice when challenging transactions involving third parties.
