Lloyds Bank Limited v Bundy: Difference between revisions

*Lloyds Bank Ltd. v Bundy*
Lloyds Bank Ltd. v Bundy
	Old address plaque for Lloyds Bank
Court	English Court of Appeal
Full case name	Lloyds Bank Limited and Herbert James Bundy
Decided	July 30, 1974
Citations	[1974] EWCA Civ 8, [1975] QB 326, [1974] 3 All ER 757
Case opinions
	Lord Denning MR, Sachs LJ, Cairns LJ
Keywords
	Undue influence in English law

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Lloyds Bank Ltd v Bundy is a decision of the English Court of Appeal in English contract law, dealing with undue influence. One of the three judges hearing the case, Lord Denning MR, advanced the argument that under English law, all impairments of autonomy could be collected under a single principle of "inequality of bargaining power", but the other two judges were not drawn into commenting on Denning's argument.

Facts

Herbert James Bundy was a farmer. His son, Michael, owned a business that was in financial trouble. Bundy had already guaranteed his son's business with a £7,500 charge over his only asset, his farmhouse, to Lloyds Bank. Michael's company got into further financial difficulty. Bundy then increased his exposure to £11,000 after the assistant manager of Lloyds failed to notify him of the company's true financial condition. Lloyds foreclosed on the house when the money was not paid. In the subsequent court proceedings, Bundy had a heart attack in the witness box. The question was whether the contract leading to the repossession of the house was voidable for some iniquitous pressure.^[1]^[2]

Judgment

The case was heard by a three-judge panel of the English Court of Appeal: Lord Denning, Lord Justice Sachs, and Lord Justice Cairns. The Court unanimously agreed to set aside the trial judgment and give judgment in favour of Bundy, but for differing reasons. Sachs gave the majority decision, Cairns concurring. Denning gave separate reasons reaching the same conclusion. (As is the custom in English court cases, the judgments are given in order of seniority, not majority.)

Lord Denning

Denning held that the contract was voidable owing to the unequal bargaining position in which Bundy had found himself vis-à-vis the bank. He held that undue influence was a category of a wider class where the balance of power between the parties was such as to merit the interference of the court. It was apparent that Bundy had entered the contract without independent advice. Denning concluded it was very unfair and pressures were brought to bear by the bank.^[1]

Denning began by stating that the general rule is that a person who signs a contract must fulfill its terms. He then listed five exceptions to that general rule: (1) duress of goods; (2) unconscionable transaction; (3) undue influence; (4) undue pressure; (5) salvage agreements.^[1]

After summarising each of these in turn, he stated that there is a common thread running through all of them:

Gathering all together, I would suggest that through all these instances there runs a single thread. They rest on "inequality of bargaining power". By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.^[1]

Denning then applied those principles to the facts of the case: (1) The consideration moving from the bank was grossly inadequate; (2) The relationship between the bank and the father was one of trust and confidence; (3) The relationship between the father and the son was one where the father's natural affection had much influence on him; (4) There was a conflict of interest between the bank and the father. Yet the bank did not realise it. Nor did it suggest that the father should get independent advice.^[1]

Denning concluded that on those facts, the case had been made out for inequality of bargaining power, and would therefore allow the appeal.^[1]

Lord Justice Sachs

Sachs held that a presumption of undue influence had not been rebutted, because Bundy was not independently advised. He had placed himself in the hands of the bank. He noted the bank's concession that "in the normal course of transactions by which a customer guarantees a third party's obligations, the relationship does not arise".^[1]

Sachs concluded that when the existence of a special relationship has been established, then a fiduciary duty arises. Here, the bank did not advise Bundy to get independent legal advice. Instead, the bank loans officer gave his own views on the son's business and advised Bundy to give the guarantee. That was a manifest breach of the duty to take fiduciary care: "then any possible use of the relevant influence is, irrespective of the intentions of the person possessing it, regarded in relation to the transaction under consideration as an abuse – unless and until the duty of fiduciary care has been shown to be fulfilled or the transaction is shown to be truly for the benefit of the person influenced ».^[1]

Sachs commented that the counsel for the bank "urged in somewhat doom-laden terms" that banking practice would be seriously affected if the appeal were allowed, but Sachs dismissed that argument. He agreed the appeal should be allowed.^[1]

Sachs declined to express an opinion on Denning's dicta.^[1]

Lord Justice Cairns

Cairns concurred in allowing the appeal, for the reasons given by Sachs.^[1]

References

^ ^a ^b ^c ^d ^e ^f ^g ^h ⁱ ^j ^k Lloyds Bank Ltd v Bundy, [1974] EWCA 8.
^ McKendrick, Ewan (2007). Contract Law (7th ed.). Palgrave Macmillan. p. 367. ISBN 978-0-230-01883-9. The asset was the farmhouse at Yew Tree Farm, Broadchalke, Wiltshire.

@@ Line 3: / Line 3: @@
 {{Infobox court case
 | name          = ''Lloyds Bank Ltd. v Bundy''
-| court         = Court of Appeal
+| court         = [[Court of Appeal (England and Wales)|English Court of Appeal]]
-| image         = Lloyds Bank Newcastle Monument.jpg
+| image         = File:Lloyds Bank 39 Threadneedle Street address.JPG
-| imagealt      = Bank building on corner of street;  faced with yellow stone and pilasters
+| imagealt      = Old-fashioned metal address plaque for Lloyds Bank, 39 Threadneedle Street, London
-| caption       = Lloyds Bank, Newcastle-on-Tyne
+| caption       = Old address plaque for Lloyds Bank
-| date decided  =
+| date decided  = July 30, 1974
 | full name     = Lloyds Bank Limited and Herbert James Bundy
 | citations     = [1974] [http://www.bailii.org/ew/cases/EWCA/Civ/1974/8.html EWCA Civ 8], [1975] QB 326, [1974] 3 All ER 757
 | judges        =
 | prior actions =
-| opinions      = [[Alfred Denning, Baron Denning|Lord Denning MR]], [[Eric Sachs|Sachs LJ]], [[David Arnold Scott Cairns|Cairns LJ]]
+| opinions      = [[Tom Denning, Baron Denning|Lord Denning MR]], [[Eric Sachs|Sachs LJ]], [[David Arnold Scott Cairns|Cairns LJ]]
 | transcripts   =
-| keywords      = Undue influence
+| keywords      = [[Undue influence in English law]]
 }}
-'''''Lloyds Bank Ltd v Bundy''''' is a decision of the [[English Court of Appeal]] in [[English contract law]], on [[Undue influence in English law|undue influence]]. One of the three judges hearing the case, [[Alfred Denning, Baron Denning|Lord Denning MR]] advanced the argument that under English law, all impairments of autonomy could be collected under a single principle of "[[inequality of bargaining power]]."
+'''''Lloyds Bank Ltd v Bundy''''' is a decision of the [[Court of Appeal (England and Wales)|English Court of Appeal]] in [[English contract law]], dealing with [[Undue influence in English law|undue influence]]. One of the three judges hearing the case, [[Tom Denning, Baron Denning|Lord Denning MR]], advanced the argument that under English law, all impairments of autonomy could be collected under a single principle of "[[inequality of bargaining power]]", but the other two judges were not drawn into commenting on Denning's argument.
 ==Facts==
-Herbert James Bundy was a farmer. His son, Michael, owned a business that was in financial trouble. Bundy had already guaranteed his son's business with a £7,500 charge over his only asset, his farmhouse, to [[Lloyds Bank (historic)|Lloyds Bank]]. Michael's company got into further financial difficulty. Bundy then increased his exposure to £11,000 after the assistant manager of Lloyds failed to notify him of the company's true financial condition. Lloyds foreclosed on the house when the money was not paid.  In the subsequent court proceedings, Bundy had a heart attack in the witness box. The question was whether the contract leading to the repossession of the house was voidable for some iniquitous pressure.<ref name=Bundy>{{Cite bailii|litigants=Lloyds Bank Ltd v Bundy,|year=1974 |court=EWCA |div=Civ |num=8}}.</ref><ref name="m1">{{cite book|last=McKendrick|first=Ewan|title=Contract Law|publisher=Palgrave Macmillan|year=2007|edition=7th|page=367|isbn=978-0-230-01883-9}}.  The asset was the farmhouse at Yew Tree Farm, [[Broadchalke]], Wiltshire.</ref>
+Herbert James Bundy was a farmer. His son, Michael, owned a business that was in financial trouble. Bundy had already guaranteed his son's business with a £7,500 charge over his only asset, his farmhouse, to [[Lloyds Bank (historic)|Lloyds Bank]]. Michael's company got into further financial difficulty. Bundy then increased his exposure to £11,000 after the assistant manager of Lloyds failed to notify him of the company's true financial condition. Lloyds foreclosed on the house when the money was not paid.  In the subsequent court proceedings, Bundy had a heart attack in the witness box. The question was whether the contract leading to the repossession of the house was voidable for some iniquitous pressure.<ref name=Bundy>{{Cite bailii|litigants=Lloyds Bank Ltd v Bundy,|year=1974 |court=EWCA |div=Civ |num=8}}.</ref><ref name="m1">{{cite book|last=McKendrick|first=Ewan|title=Contract Law|publisher=Palgrave Macmillan|year=2007|edition=7th|page=367|isbn=978-0-230-01883-9}}  The asset was the farmhouse at Yew Tree Farm, [[Broadchalke]], Wiltshire.</ref>
 ==Judgment==
 {{Caselist undue influence}}
-The case was heard by a three-judge panel of the [[English Court of Appeal]]:  Lord Denning MR, Justice Sachs, and Justice Cairns. The Court unanimously agreed to set aside the trial judgment and give judgment in favour of Bundy, but for differing reasons.  Justice Sachs gave the majority decision, Justice Cairns concurring.  Lord Denning gave separate reasons reaching the same conclusion.
+The case was heard by a three-judge panel of the [[Court of Appeal (England and Wales)|English Court of Appeal]]:  [[Tom Denning, Baron Denning|Lord Denning]], [[Eric Sachs|Lord Justice Sachs]], and [[David Arnold Scott Cairns|Lord Justice Cairns]]. The Court unanimously agreed to set aside the trial judgment and give judgment in favour of Bundy, but for differing reasons. Sachs gave the majority decision, Cairns concurring.  Denning gave separate reasons reaching the same conclusion. (As is the custom in English court cases, the judgments are given in order of seniority, not majority.)
-=== Lord Dennning ===
+=== Lord Denning ===
-Denning held that the contract was voidable owing to the unequal bargaining position in which Bundy had found himself vis a vis the bank. He held that undue influence was a category of a wider class where the balance of power between the parties was such as to merit the interference of the court. It was apparent that Bundy had, without independent advice entered the contract and it was very unfair and pressures were brought to bear by the bank.<ref name =Bundy/>
+Denning held that the contract was voidable owing to the unequal bargaining position in which Bundy had found himself vis-à-vis the bank. He held that [[Undue influence in English law|undue influence]] was a category of a wider class where the balance of power between the parties was such as to merit the interference of the court. It was apparent that Bundy had  entered the contract without independent advice.  Denning concluded it was very unfair and pressures were brought to bear by the bank.<ref name =Bundy/>
-Denning began by stating that the general rule is that a person who signs a contract must fulfill its terms.  However, he then listed five exceptions to that general rule: (1) duress of goods;  (2) unconscionable transaction;  (3) undue influence;  (4) undue pressure;  (5) salvage agreements.<ref name =Bundy/>
+Denning began by stating that the general rule is that a person who signs a contract must fulfill its terms.  He then listed five exceptions to that general rule: (1) duress of goods;  (2) unconscionable transaction;  (3) undue influence;  (4) undue pressure;  (5) salvage agreements.<ref name =Bundy/>
 After summarising each of these in turn, he stated that there is a common thread running through all of them:
 {{Cquote|
-Gathering all together, I would suggest that through all these instances there runs a single thread. They rest on "inequality of bargaining power." By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.<ref name =Bundy/>
+Gathering all together, I would suggest that through all these instances there runs a single thread. They rest on "inequality of bargaining power". By virtue of it, the English law gives relief to one who, without independent advice, enters into a contract upon terms which are very unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influences or pressures brought to bear on him by or for the benefit of the other.<ref name =Bundy/>
 }}
@@ Line 44: / Line 44: @@
 Denning concluded that on those facts, the case had been made out for inequality of bargaining power, and would therefore allow the appeal.<ref name =Bundy/>
-===Justice Sachs===
+===Lord Justice Sachs===
-Justice Sachs held that a presumption of undue influence had not been rebutted, because Bundy was not independently advised. He had placed himself in the hands of the bank. He noted the bank's concession that "in the normal course of transactions by which a customer guarantees a third party's obligations, the relationship does not arise."<ref name =Bundy/>
+Sachs held that a presumption of undue influence had not been rebutted, because Bundy was not independently advised. He had placed himself in the hands of the bank. He noted the bank's concession that "in the normal course of transactions by which a customer guarantees a third party's obligations, the relationship does not arise".<ref name =Bundy/>
-Sachs concluded that when the existence of a special relationship has been established, then a fiduciary duty arises.  Here, the bank did not advise Bundy to get independent legal advice.  Instead, the bank loans officer gave his own views on the son's business and advised Bundy to give the guarantee.  That was a manifest breach of the duty to take fiduciary care: "then any possible use of the relevant influence is, irrespective of the intentions of the person possessing it, regarded in relation to the transaction under consideration as an abuse – unless and until the duty of fiduciary care has been shown to be fulfilled or the transaction is shown to be truly for the benefit of the person influenced."<ref name =Bundy/>
+Sachs concluded that when the existence of a special relationship has been established, then a [[fiduciary]] duty arises. Here, the bank did not advise Bundy to get independent legal advice. Instead, the bank loans officer gave his own views on the son's business and advised Bundy to give the guarantee. That was a manifest breach of the duty to take fiduciary care: "then any possible use of the relevant influence is, irrespective of the intentions of the person possessing it, regarded in relation to the transaction under consideration as an abuse – unless and until the duty of fiduciary care has been shown to be fulfilled or the transaction is shown to be truly for the benefit of the person influenced ».<ref name =Bundy/>
-Sachs commented that although the counsel for the bank "urged in somewhat doom-laden terms" that banking practice would be seriously affected, but dismissed that argument.  He therefore agreed the appeal should be allowed.<ref name =Bundy/>
+Sachs commented that the counsel for the bank "urged in somewhat doom-laden terms" that banking practice would be seriously affected if the appeal were allowed, but Sachs dismissed that argument. He agreed the appeal should be allowed.<ref name =Bundy/>
-Sachs declined to express an opinion on Lord Denning's dicta.<ref name =Bundy/>
+Sachs declined to express an opinion on Denning's dicta.<ref name =Bundy/>
-===Justice Cairns===
+===Lord Justice Cairns===
-Justice Cairns concurred in allowing the appeal, for the reasons given by Justice Sachs.<ref name =Bundy/>
+Cairns concurred in allowing the appeal, for the reasons given by Sachs.<ref name =Bundy/>
 ==See also==
@@ Line 60: / Line 60: @@
 *[[Iniquitous pressure in English law]]
-;Duress
+===Duress===
 *''[[Barton v Armstrong]]'' [1976] AC 104
 *''[[D & C Builders Ltd v Rees]]'' [1966] 2 QB 617
-*''[[North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd]]'' [1979] QB 705
+*''North Ocean Shipping Co Ltd v Hyundai Construction Co Ltd'' [1979] QB 705
 *''[[Pao On v Lau Yiu Long]]'' [1980] AC 614
 *''[[Universe Tankships Inc of Monrovia v International Transport Workers' Federation]]'' [1982] 2 All ER 67
@@ Line 69: / Line 69: @@
 *''[[Atlas Express Ltd v Kafco]]'' [1989] QB 833
-;Undue influence
+===Undue influence===
 *''[[BCCI v Aboody]]'' [1992] 4 All ER 955
 *''[[Barclays Bank plc v O'Brien]]'' [1993] 4 All ER 417
@@ Line 75: / Line 75: @@
 *''[[Tate v Williamson]]'' (1886) LR 2 Ch App 55
-;Unconscionability
+===Unconscionability===
 *''[[Fry v Lane]]'' (1888) 40 Ch D 312
 *''[[Cresswell v Potter]]'' [1978] 1 WLR 255
@@ Line 87: / Line 87: @@
 *Beale, Bishop and [[Michael Furmston|Furmston]], ''Contract: Cases and Materials'' (OUP 2008) 954-963
 *[[H Collins]], ''The Law of Contract: Law in Context'' (CUP 2003) 144
+*Slayton, "The Unequal Bargain Doctrine" (1976) 22 [[McGill Law Journal]] 94
-*Slayton, "The Unequal Bargain Doctrine" (1976) 22 [[McGill Law Journal]] 94, 106, says that this{{what|date=September 2023}} goes beyond undue influence in that (1) no confidential relationship or fiduciary duty is necessary (2) undue influence need not be proven as a fact but is presumed where bargaining power is impaired and the terms are unfair or consideration is grossly inadequate
-*Waddams, "Unconscionability in Contracts" (1976) 39 [[Modern Law Review]] 369 supported the principle.
+*Waddams, "Unconscionability in Contracts" (1976) 39 [[Modern Law Review]] 369
 [[Category:Lord Denning cases]]

v t e Cases on undue influence
Allcard v Skinner (1887) LR 36 Ch D 145
Williams v Bayley (1866) LR 1 HL 200
Tate v Williamson (1886) LR 2 Ch App 55
Bank of Montreal v Stuart [1911] AC 120
Lloyds Bank Ltd v Bundy [1974] EWCA Civ 8
National Westminster Bank plc v Morgan [1985] UKHL 2
BCCI v Aboody [1992] 4 All ER 955
CIBC Mortgages plc v Pitt [1993] UKHL 7
Barclays Bank plc v O'Brien [1993] 4 All ER 417
Royal Bank of Scotland plc v Etridge (No 2) [2001] UKHL 41
National Westminster Bank plc v Amin [2002] UKHL 9
Hammond v Osborn [2002] EWCA Civ 885
National Commercial Bank of Jamaica v Hew [2003] UKPC 51
Pesticcio v Huet [2004] EWCA Civ 372
Thompson v Foy [2009] EWHC 1076 (Ch)
See Undue influence in English law

v t e Duress cases
Barton v Armstrong [1973]
Astley v Reyonds
Skeate v Beale
The Atlantic Baron [1979] QB 705
Pao On v Lau Yiu Long [1979]
Universe Tankships Inc. of Monrovia v. International Transport Workers' Federation
B&S Contracts and Design Ltd v Victor Green Publications Ltd
Crescendo Management Pty Ltd v Westpact Banking Corp
Dimskal Shipping Co SA v International Transport Workers' Federation
Huyton SA v Peter Cremer GmbH & Co
R v Attorney General for England and Wales [2003]
Williams v Bayley
Silsbee v Webber
Mutual Finance Ltd v John Wetton & Sons Ltd
Norreys v Zeffert
English unjust enrichment and unconscionability in English law

Latest revision as of 11:18, 20 November 2024

Facts

Judgment

Lord Denning

Lord Justice Sachs

Lord Justice Cairns

See also

Duress

Undue influence

Unconscionability

References

Further reading