Undue influence: CIBC Mortgages v Pitt

In CIBC Mortgages plc v Pitt ([1994] 1 A.C. 200, HL) a husband and wife granted CIBC a charge over the matrimonial home which was in joint names. The loan application (in joint names) stated that the money was to be used to buy a holiday home but it was in fact used to allow the husband to buy shares. The husband procured his wife’s agreement to the loan and charge as a result of actual undue influence. The wife had never read the documents. The Stock Market crashed and the husband was unable to meet the repayments. The lender sought an order for possession. The wife relied on a defence of undue influence. She failed, despite the actual undue influence, since there was nothing to put the bank on notice of it.

Lord Browne-Wilkinson gave the only full judgment and he held that manifest disadvantage was not necessary in cases of actual undue influence. He also held that there is nothing to put the bank on notice as to the possibility of undue influence when the loan is to the husband and wife jointly.

Manifest disadvantage

This is not an essential element of undue influence (and need not be shown in cases of actual undue influence) (208 – 9).

Notice

The husband was not the bank’s agent, nor did it have notice of the undue influence.

‘If third parties were to be fixed with constructive notice of undue influence in relation to every transaction between husband and wife, such transactions would become almost impossible. On every purchase of a home in the joint names, the building society or bank financing the purchase would have to insist on meeting the wife separately from her husband, advise her as to the nature of the transaction and recommend her to take legal advice separate from that of her husband. If that were not done, the financial institution would have to run the risk of a subsequent attempt by the wife to avoid her liabilities under the mortgage on the grounds of undue influence or misrepresentation. To establish the law in that sense would not benefit the average married couple and would discourage financial institutions from making the advance.

What distinguishes the case of the joint advance from the surety case is that, in the latter, there is not only the possibility of undue influence having been exercised but also the increased risk of it having in fact been exercised because, at least on its face, the guarantee by a wife of her husband’s debts is not for her financial benefit. It is the combination of these two factors that puts the creditor on inquiry.’ (at 211).

Michael Lower