Barclays Bank plc v Sumner and another

Bank loan — Property development — Matrimonial home sold to raise finance — Unlimited guarantee for loans signed by husband and wife — Whether transaction manifestly disadvantageous to wife — Judgment for bankMr and Mrs S (“the defendants”) each held one-half of the issued shares in a company of which they were the only directors. They approached the bank saying that they wanted to expand the activities of the company into property development. They lived in a property called Caverna, Verwood, Dorset, which had an equity of £48,000. They proposed that: the property should be sold; the defendants should purchase 31 The Curlews, Verwood, for £33,750, with the assistance of a mortgage loan of £30,000 from the bank; and the sum of £44,000 released to the defendants should be lent to the company to purchase and develop a plot of land at 1 Hazel Close, Ringwood. The company later purchased and developed a plot of land at 9 Birchwood Park, Alderholt. The purchase price of £23,500 was financed by a £15,000 advance from the bank to the company and the balance from the defendants’ savings. The bank provided finance for further developments and financed the acquisition by the defendants of a succession of matrimonial homes. In 1993 the bank made a formal demand on the company in the sum of £337,240.75. The bank’s security had been an unlimited guarantee signed by both defendants. Master Gowers gave summary judgment for the bank against both defendants in respect of a personal claim in the sum of £181,221.88 and against Mr S alone in respect of the guarantee claim in the sum of £333,648.22. Mrs S was given leave to defend the guarantee claim. Held Judgment was given for the bank. 1. Undue influence would be presumed if Mrs S could prove that: (1) she reposed trust and confidence in Mr S in relation to their financial affairs, relied in all financial matters on her husband and simply did what he suggested: see Barclays Bank plc v O’Brien [1993] EGCS 169; and (2) the guarantee was “manifestly disadvantageous” to her: see CIBC Mortgages plc v Pitt [1993] EGCS 174. 2. When the question whether the transaction was “on its face not to the financial advantage of the wife” arose in the context of a family company, it had to be answered by reference to the wife’s direct financial interest in the company: see Goode Durrant Administration v Biddulph [1994] 2 FLR 551. 3. However, a lender was not exonerated from inquiry merely because the wife had some, albeit small direct financial interest in the company. 4. The question was whether the potential direct financial benefit to the wife through the company was so small when compared with her potential liability as to put a reasonable lender on notice of the possibility that the wife had been induced to enter into a manifestly disadvantageous transaction. 5. In the present case the guarantee was not to Mrs S’s “manifest disadvantage”. She had a direct financial interest in the company which was for all practical purposes of precisely the same order of magnitude as that of her husband. Furthermore, an evaluation of Mrs S’s involvement in the affairs of the company did not indicate anything to put the bank on inquiry. Andrew Sutcliffe (instructed by Wilsons, of Salisbury) appeared for the bank; Robert Bailey-King (instructed by William Thompson & Co, of Dorset) appeared for Mrs S; Mr S did not appear and was not represented.