Lloyds Bank Ltd v Bundy [1974]
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Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8 addressed the issue of undue influence in contract law.
Herbert James Bundy, a farmer, guaranteed his son's business with a £7,500 charge over his farmhouse to Lloyds Bank. Facing financial trouble, Bundy increased his exposure to £11,000 after the bank's assistant manager failed to disclose the true financial condition of his son's company. Lloyds Bank foreclosed on the house when the money was not repaid, leading to a legal dispute.
The unanimous decision of the Court of Appeal, with Lord Denning MR delivering separate reasons, focused on the concept of inequality of bargaining power as a principle encompassing various instances of impairments to autonomy. Lord Denning held that the contract was voidable due to the unequal bargaining position Bundy found himself in regarding the bank. The undue influence, according to Denning, arises when there is an inequality of bargaining power leading to unfair terms or property transfers.
Lord Denning outlined five exceptions to the general rule that one must fulfil the terms of a contract, including duress of goods, unconscionable transaction, undue influence, undue pressure, and salvage agreements. He identified a common thread in all these instances, emphasising inequality of bargaining power. Denning applied this principle to the facts of the case, highlighting the gross inadequacy of consideration, the trust and confidence between the bank and Bundy, and the conflict of interest. Denning concluded that the case demonstrated inequality of bargaining power, justifying the setting aside of the contract.
Justice Sachs concurred, holding that the presumption of undue influence had not been rebutted as Bundy was not independently advised. He argued that a fiduciary duty arises when a special relationship is established, and the bank failed to fulfil this duty by not advising Bundy to seek independent legal advice. Sachs dismissed concerns about the impact on banking practice, agreeing that the appeal should be allowed.
In conclusion, the decision of this case underscores the courts' scrutiny of contracts involving unequal bargaining power, with a focus on fairness, justness, and reasonableness to prevent abuses of influence.
Herbert James Bundy, a farmer, guaranteed his son's business with a £7,500 charge over his farmhouse to Lloyds Bank. Facing financial trouble, Bundy increased his exposure to £11,000 after the bank's assistant manager failed to disclose the true financial condition of his son's company. Lloyds Bank foreclosed on the house when the money was not repaid, leading to a legal dispute.
The unanimous decision of the Court of Appeal, with Lord Denning MR delivering separate reasons, focused on the concept of inequality of bargaining power as a principle encompassing various instances of impairments to autonomy. Lord Denning held that the contract was voidable due to the unequal bargaining position Bundy found himself in regarding the bank. The undue influence, according to Denning, arises when there is an inequality of bargaining power leading to unfair terms or property transfers.
Lord Denning outlined five exceptions to the general rule that one must fulfil the terms of a contract, including duress of goods, unconscionable transaction, undue influence, undue pressure, and salvage agreements. He identified a common thread in all these instances, emphasising inequality of bargaining power. Denning applied this principle to the facts of the case, highlighting the gross inadequacy of consideration, the trust and confidence between the bank and Bundy, and the conflict of interest. Denning concluded that the case demonstrated inequality of bargaining power, justifying the setting aside of the contract.
Justice Sachs concurred, holding that the presumption of undue influence had not been rebutted as Bundy was not independently advised. He argued that a fiduciary duty arises when a special relationship is established, and the bank failed to fulfil this duty by not advising Bundy to seek independent legal advice. Sachs dismissed concerns about the impact on banking practice, agreeing that the appeal should be allowed.
In conclusion, the decision of this case underscores the courts' scrutiny of contracts involving unequal bargaining power, with a focus on fairness, justness, and reasonableness to prevent abuses of influence.
