Credit Lyonnais Bank Nederland NV v Burch [1997]

Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 is an English contract law case that dealt with undue influence.

The defendant had been employed by a businessman, Mr Pelosi, since the age of 18, working for various businesses under Pelosi's ownership. In 1985, at the age of 21, the defendant purchased a flat. In 1990, facing financial difficulties, Mr Pelosi requested the defendant to offer her flat as security against an overdraft facility for his business. The bank's solicitors advised the defendant to seek independent legal advice before agreeing to this arrangement, highlighting the unlimited nature of the guarantee.

Despite the warning, the defendant, after discussions with Pelosi, agreed to the arrangement, unaware of the extent of borrowing. She was assured that her mortgage would not be invoked, and Pelosi's properties would be looked to first as security. A charge was executed over the defendant's property in August 1990. In 1994, Pelosi's business went into liquidation, and the bank demanded $60,249.12 from the defendant.

The defendant raised the defence of undue influence, claiming that Pelosi had induced her to enter the agreement, and the bank had constructive notice of this undue influence, rendering their right to enforce the debt recovery against her void.

The court held that the bank did have constructive notice of the relationship between the parties and had not done enough to alleviate concerns of undue influence. The key determinations were:
  1. An employer/employee relationship could develop into a relationship for undue influence.
  2. Lack of benefit to the defendant in the agreement was evidence enough, and sexual or emotional ties were not required to establish undue influence.
  3. The information supplied by the bank was not sufficient to escape constructive notice, as it did not allow the defendant to comprehend the gravity of the company's borrowing.
  4. The bank had not taken all reasonable steps to address concerns about undue influence. The defendant not seeking independent advice, based on the bank's advice, should have raised confirmation of undue influence.

This case emphasises the court's scrutiny of contracts involving power imbalances, especially in relationships where one party holds significant influence over the other. The duty to protect the vulnerable party is underscored, and constructive notice becomes crucial in determining the enforceability of such contracts.
Back to blog

UOL Case Bank

Upon joining, you become a valuable UOL student and gain instant access to over 2,100 essential case summaries. UOL Case Bank is constantly expanding. Speed up your revision with us now.

Subscribe Now

Where are our students from?

Council of Europe
Crown Prosecution Service
Baker Mckenzie 
Yale University
University of Chicago
Columbia University
New York University
University of Michigan 
INSEAD
University of London
University College London (UCL)
London School of Economics (LSE)
King’s College London (KCL)
Royal Holloway, University of London 
Birkbeck, University of London
SOAS, University of London
University of Manchester
University of Zurich
University of York
Brandeis University
University of Exeter
University of Sheffield
Boston University
University of Washington
University of Leeds
University of Law
University of Kent
University of Hull
Queen’s University Belfast
Toronto Metropolitan University
Hong Kong University of Science and Technology
University of Buckingham
ESSEC Business School

  • Criminal Practice

    Diagrams and Charts

    Our carefully designed diagrams and charts will guide you through complex legal issues.

  • Criminal Law

    Clear and Succinct Definitions

    Key concepts are concisely defined to help you understand legal topics quickly.

  • Property Law

    Statutory Provisions

    Statutory provisions are provided side by side with legal concepts to help you swiftly locate the relevant legislation.

  • Public Law

    Case Summaries

    We have summarised important cases for you so that you don't need to read long and boring cases.

  • Evidence

    Rules and Exceptions

    Rules and exceptions are clearly listed so that you know when a rule applies and when it doesn't.

  • Company Law

    Terminology

    Legal terms and key concepts are explained at the beginning of each chapter to help you learn efficiently.

  • Case Law

    Case law is provided side by side with legal concepts so that you know how legal principles and precedents were established.

  • Law Exam Guide

    Law Essay Guide

    You will learn essential law exam skills and essay writing techniques that are not taught in class.

  • Law Exam Guide

    Problem Question Guide

    We will show you how to answer problem questions step by step to achieve first-class results.

  • Conflict of Laws

    Structured Explanations

    Complex legal concepts are broken down into concise and digestible bullet point explanations.

  • Legal System and Method

    Legal Research

    You will learn legal research techniques with our study guide and become a proficient legal researcher.

  • Jurisprudence and Legal Theory

    Exam-focused

    All essential concepts, principles, and case law are included so that you can answer exam questions quickly.