Royal Bank of Scotland v Etridge (No 2) [2001]
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Royal Bank of Scotland Plc v Etridge (No 2) [2001] UKHL 44 is a landmark case in English land law and contract law, particularly regarding the circumstances under which undue influence can affect the validity of consent to a contract, especially in the context of mortgages where one party, usually the wife, is providing security for her spouse's business debts.
In these eight joined appeals, the common scenario involves homeowners mortgaging their property to a bank to secure loans used by their husbands for business purposes, with no direct benefit to the wives. Subsequently, the businesses failed, leading to the wives alleging that they were unduly influenced to sign the security agreements. The central contention is that the security over the wives' share of the home's equity should be void, preventing the repossession of the house.
The House of Lords held that banks must ensure that individuals, especially wives providing security for their spouse's debts, receive independent legal advice before entering into a mortgage or similar transactions. This is to mitigate the risk of undue influence. If a bank is aware that a loan will benefit only one party in a relationship, it must take steps to ensure that the other party (usually the wife) has received independent legal advice. The solicitor providing independent legal advice should certify that the party seeking advice (usually the wife) has given fully informed and true consent. However, if the certification is later found to be incorrect, the bank's security is not affected, and the remedy lies in a potential action for professional negligence against the solicitor.
The ruling emphasises the importance of addressing cases where there is a manifest disadvantage or a transaction that calls for explanation. In such cases, the presumption of undue influence may arise, and it is crucial for banks to take extra precautions. This case categorises cases into those that have gone to trial and those that were interlocutory, highlighting the importance of allowing cases to proceed to trial when there is an arguable case of undue influence, especially when possession orders are sought without a trial.
In summary, this case sets out guidelines for banks to follow when dealing with mortgages where one party's interests may be at risk due to the relationship dynamics and financial transactions involved. It aims to strike a balance between facilitating legitimate transactions and protecting vulnerable parties from undue influence.
In these eight joined appeals, the common scenario involves homeowners mortgaging their property to a bank to secure loans used by their husbands for business purposes, with no direct benefit to the wives. Subsequently, the businesses failed, leading to the wives alleging that they were unduly influenced to sign the security agreements. The central contention is that the security over the wives' share of the home's equity should be void, preventing the repossession of the house.
The House of Lords held that banks must ensure that individuals, especially wives providing security for their spouse's debts, receive independent legal advice before entering into a mortgage or similar transactions. This is to mitigate the risk of undue influence. If a bank is aware that a loan will benefit only one party in a relationship, it must take steps to ensure that the other party (usually the wife) has received independent legal advice. The solicitor providing independent legal advice should certify that the party seeking advice (usually the wife) has given fully informed and true consent. However, if the certification is later found to be incorrect, the bank's security is not affected, and the remedy lies in a potential action for professional negligence against the solicitor.
The ruling emphasises the importance of addressing cases where there is a manifest disadvantage or a transaction that calls for explanation. In such cases, the presumption of undue influence may arise, and it is crucial for banks to take extra precautions. This case categorises cases into those that have gone to trial and those that were interlocutory, highlighting the importance of allowing cases to proceed to trial when there is an arguable case of undue influence, especially when possession orders are sought without a trial.
In summary, this case sets out guidelines for banks to follow when dealing with mortgages where one party's interests may be at risk due to the relationship dynamics and financial transactions involved. It aims to strike a balance between facilitating legitimate transactions and protecting vulnerable parties from undue influence.
