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Land Law – Mortgages - Protection from undue influence
In cases where one party appears to be exerting undue influence on the other, equity will also step in on behalf of the mortgagor.
The notion of undue influence is challenging since it has the potential to set aside the entire mortgage if it is shown to be true. As a result, in a scenario that typically, but not always, results from the mortgagor's activities, the courts must balance the interests of the mortgagee and the protection of the mortgagor.
An example that describes a common situation will assist to clarify this.
Important word: excessive influence
a choice made by someone under duress from another without exercising their own free will.
Example
Peter and Nichol are joint tenants of a property that they own jointly in both equity and law. Peter begs Nichol to approve a mortgage on their home because he wants to obtain money fast for a business venture. Nichol is hesitant, but Peter reassures him that the loan will only be used for a limited time and will not exceed £30,000. The mortgagee is aware that the purpose of the mortgage was to finance Peter business agreement, and Nichol grudgingly agrees. The mortgagee emails Nichol advising him to obtain independent legal counsel; however, neither the letter's explanation of the implications of the additional loan nor its verification that Nichol has done so are included. The letter is not read by Nichol.. Two months after Peter’s mortgage default, it is discovered that the £100,000 loan had a 15-year term. At this point, the mortgagee is threatening to sue them both. In this case, may Nichol rely on undue influence?
This is predicated on the facts of the 1993 case Barclays Bank v. O'Brien, in which the court decided to set aside the mortgage due to the bank's constructive notice of Mr. O'Brien's false statements regarding the extent and character of the mortgage. The bank was found to have neglected to take reasonable measures to guarantee that Mrs. O'Brien understood the terms and implications of the mortgage.
We will now talk about the ways that undue influence can happen.
demonstrating undue influence
Two primary types of undue influence were established by the O'Brien case previously cited. Presumed undue influence and real undue influence are those being mentioned.
Relationships where one party may have power over another who may be vulnerable, such as a doctor-patient or a solicitor-client, may give rise to allegations of undue influence. A client may allege undue influence if their solicitor's advise is not followed, as it is assumed that they would trust them and follow it. It could be demonstrated that a lawyer has unfairly influenced a client for their personal gain if, for instance, the lawyer persuades the client to name them as the sole trustee in the client's will knowing that they will then be entitled to increased fees from the probate.
It might also occur if the transaction required an explanation and there is proof of a relationship based on trust and confidence. Practice example 8.4 will provide more details on this.
Example
Together with his mother, Yuna bought a property under joint names. After a few years, Yuna required money for a business endeavor, thus North East Mortgages was given a second mortgage. Despite not being able to read English, Yuna ‘s mother signed the necessary paperwork to approve the second mortgage because she believes in her son. She was not given a reading of the legal documents. Following Yuna’s mortgage default, North East Mortgages is attempting to reclaim the property. Could Yuna’s mother argue that her son unduly influenced her decision to forego the second mortgage?
According to the facts of Abbey National plc v. Stringer (2006), the mother and son's relationship can be interpreted as one of confidence and trust. The mother ought to have been informed of the mortgage's terms. As a consequence, the mother was entitled to the full
beneficial interest in the property.
In order to establish actual undue influence, the claimant must be able to provide specific proof and demonstrate beyond a reasonable doubt that they were the victim of undue influence when they agreed to the mortgage. It is possible that you will be tested on this as part of the SQE. It can be challenging to establish exactly what was said between the two parties in a case of real improper influence.
Nevertheless, demonstrating the existence of undue influence does not guarantee that the mortgage will be rescinded. The case of Etridge (no.2) [2001] established a number of protective measures that the mortgagee can take in the event that evidence of undue influence is proven. The Etridge Protocol is another name for this, and it is as follows:
a) Is there evidence of improper influence?
b) Was the mortgagee "put on inquiry" because they knew of the mortgagor's relationship? This will occur if the mortgagee knows that one party is guaranteeing the debt of the other party and that the loan is made exclusively for that other party's use.
c) If yes, did the mortgagee take appropriate action to reduce the possibility that undue influence might occur? A detailed list of actions the bank should take in the event that they are "put on inquiry" has been produced by case law. Among them are:
Did the mortgagee specify that any other party should get legal counsel from a different source?
Did the mortgagee inquire as to whether the party alleging undue influence would prefer to work with a different attorney if both parties were using the same legal representation?
All pertinent financial information, including debts, the aim and amount of the mortgage, and any suspicions of undue influence, should be given by the mortgagee to the solicitor on instruction. To the party alleging undue influence, the solicitor must provide independent legal advice.
The mortgagee must have documentation from the solicitor attesting to the advice offered.
In cases where one party appears to be exerting undue influence on the other, equity will also step in on behalf of the mortgagor.
The notion of undue influence is challenging since it has the potential to set aside the entire mortgage if it is shown to be true. As a result, in a scenario that typically, but not always, results from the mortgagor's activities, the courts must balance the interests of the mortgagee and the protection of the mortgagor.
An example that describes a common situation will assist to clarify this.
Important word: excessive influence
a choice made by someone under duress from another without exercising their own free will.
Example
Peter and Nichol are joint tenants of a property that they own jointly in both equity and law. Peter begs Nichol to approve a mortgage on their home because he wants to obtain money fast for a business venture. Nichol is hesitant, but Peter reassures him that the loan will only be used for a limited time and will not exceed £30,000. The mortgagee is aware that the purpose of the mortgage was to finance Peter business agreement, and Nichol grudgingly agrees. The mortgagee emails Nichol advising him to obtain independent legal counsel; however, neither the letter's explanation of the implications of the additional loan nor its verification that Nichol has done so are included. The letter is not read by Nichol.. Two months after Peter’s mortgage default, it is discovered that the £100,000 loan had a 15-year term. At this point, the mortgagee is threatening to sue them both. In this case, may Nichol rely on undue influence?
This is predicated on the facts of the 1993 case Barclays Bank v. O'Brien, in which the court decided to set aside the mortgage due to the bank's constructive notice of Mr. O'Brien's false statements regarding the extent and character of the mortgage. The bank was found to have neglected to take reasonable measures to guarantee that Mrs. O'Brien understood the terms and implications of the mortgage.
We will now talk about the ways that undue influence can happen.
demonstrating undue influence
Two primary types of undue influence were established by the O'Brien case previously cited. Presumed undue influence and real undue influence are those being mentioned.
Relationships where one party may have power over another who may be vulnerable, such as a doctor-patient or a solicitor-client, may give rise to allegations of undue influence. A client may allege undue influence if their solicitor's advise is not followed, as it is assumed that they would trust them and follow it. It could be demonstrated that a lawyer has unfairly influenced a client for their personal gain if, for instance, the lawyer persuades the client to name them as the sole trustee in the client's will knowing that they will then be entitled to increased fees from the probate.
It might also occur if the transaction required an explanation and there is proof of a relationship based on trust and confidence. Practice example 8.4 will provide more details on this.
Example
Together with his mother, Yuna bought a property under joint names. After a few years, Yuna required money for a business endeavor, thus North East Mortgages was given a second mortgage. Despite not being able to read English, Yuna ‘s mother signed the necessary paperwork to approve the second mortgage because she believes in her son. She was not given a reading of the legal documents. Following Yuna’s mortgage default, North East Mortgages is attempting to reclaim the property. Could Yuna’s mother argue that her son unduly influenced her decision to forego the second mortgage?
According to the facts of Abbey National plc v. Stringer (2006), the mother and son's relationship can be interpreted as one of confidence and trust. The mother ought to have been informed of the mortgage's terms. As a consequence, the mother was entitled to the full
beneficial interest in the property.
In order to establish actual undue influence, the claimant must be able to provide specific proof and demonstrate beyond a reasonable doubt that they were the victim of undue influence when they agreed to the mortgage. It is possible that you will be tested on this as part of the SQE. It can be challenging to establish exactly what was said between the two parties in a case of real improper influence.
Nevertheless, demonstrating the existence of undue influence does not guarantee that the mortgage will be rescinded. The case of Etridge (no.2) [2001] established a number of protective measures that the mortgagee can take in the event that evidence of undue influence is proven. The Etridge Protocol is another name for this, and it is as follows:
a) Is there evidence of improper influence?
b) Was the mortgagee "put on inquiry" because they knew of the mortgagor's relationship? This will occur if the mortgagee knows that one party is guaranteeing the debt of the other party and that the loan is made exclusively for that other party's use.
c) If yes, did the mortgagee take appropriate action to reduce the possibility that undue influence might occur? A detailed list of actions the bank should take in the event that they are "put on inquiry" has been produced by case law. Among them are:
Did the mortgagee specify that any other party should get legal counsel from a different source?
Did the mortgagee inquire as to whether the party alleging undue influence would prefer to work with a different attorney if both parties were using the same legal representation?
All pertinent financial information, including debts, the aim and amount of the mortgage, and any suspicions of undue influence, should be given by the mortgagee to the solicitor on instruction. To the party alleging undue influence, the solicitor must provide independent legal advice.
The mortgagee must have documentation from the solicitor attesting to the advice offered.
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