Establishing Undue Influence per Etridge

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  • Created by: pinderj
  • Created on: 23-01-18 12:28

In what circumstances are banks/lenders put on not

(i) A bank or other lender taking a guarantee or security for a loan is put on notice of a risk of undue influence or wrongdoing by the principal debtor in all cases where the relationship between the surety and the principal debtor is non-commercial and the loan is not made to the surety.

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What about where there is a joint loan?

(ii) The bank is not put on notice where there is a joint loan to the surety and the principal debtor unless the bank knows that the loan is not being used for the surety’s purposes. If the loan is made to a company, the bank is put on notice irrespective of any interest of the surety in the company

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What must the bank do is it is put on notice?

(iii) A bank which is “put on notice” or “put on inquiry” must take reasonable steps to ensure that the surety understands the nature and effect of the transaction and wishes to enter it.

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How might the bank satify itself that advice has b

(iv) The bank can give appropriate advice itself or can require independent advice. If the bank knows or should know that advice has not been given, even, it may be, if the surety has declined to take it, the bank will proceed with the transaction at its own risk.

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What must the bank do in order to make sure the su

(v) Where the surety is required to take independent advice, the bank must communicate directly with the surety in order to ensure that the surety knows that the solicitor who is giving the advice is in fact acting for him or her and that the purpose of the advice is to prevent any dispute about him or her being legally bound. Subject to this, the solicitor normally can act for the principal debtor or the bank as well.

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What happens if the bank suspects undue influence?

(vi) If the bank has particular reason to suspect undue influence or misrepresentation by the principal debtor, it must take reasonable steps to ensure that the surety is giving his or her consent free from the influence or misrepresentation. It must inform the solicitor of the facts giving rise to the suspicion or it must require that the guarantor be advised by an independent solicitor.

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What must the solicitor do?

(vii) The solicitor must give advice which brings home to the surety the nature and extent of the risks involved in proceeding with the transaction and must give a certificate to this effect to the bank.

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Where does the bank stand if the solicitor gives d

(viii) Deficiencies in the solicitor’s advice do not affect the bank unless it knows or should know that the solicitor has not given proper advice, as where it has not given full information to the solicitor.

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How can the bank protect its own interests?

(ix) If the bank does not take reasonable steps to bring home to the surety the risks he or she is running by standing as surety, it is deemed to have notice of any claim the surety may have that the transaction was procured by undue influence or misrepresentation by the principal debtor.

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