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CIBC Mortgages Plc v Pitt – 1994

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CIBC Mortgages Plc v Pitt [1994] 1 AC 200

Undua influence; married couple; joint loan; enforceability of charge

(360 words)

Facts

The Pitts were husband and wife. The husband, putting her under pressure, convinced his wife to take out a loan on the security of their matrimonial home in order to purchase stock market shares and thus improve their standard of living. CIBC offered a loan secured on the home for the purpose of remortgage – however, the proceeds were to be used for the purchase of a second property, which the wife did not know about. The couple signed the offer without the wife reading the document and becoming aware of the real purpose of the loan or the legal charges executed in favour of CIBC. The husband bought shares in his own name from the borrowed money, which he then charged to borrow more money and buy more shares. The Stock Market soon crashed and the husband’s shares were sold by the creditors. CIBC then wanted to take possession of the Pitts’ home.

Issue

The wife claimed that she was a victim of undue influence and misrepresentation of the loan’s real nature. The trial judge agreed that undue influence was exercised and that the wife suffered serious disadvantage. However, he further held that the husband was not CIBC’s agent and thus his misconduct did not affect the bank. He dismissed the misrepresentation claim. CIBC received the order for possession and for the payment of the amount in arrears. The Court of Appeal also found against the wife.

Held

Following in the footsteps of the lower courts, the House of Lords also decided against the wife. It held that a transaction can be set aside even without proof of disadvantage if the actual undue influence is shown (as it was shown here). However, this would only affect CIBC if the husband was acting as its agent in procuring the wife’s agreement or, if CIBC had actual or constructive knowledge of the undue influence. In the Court’s view, the husband was not CIBC’s agent and there was no evidence that CIBC had any knowledge that the agreement was not for the couple’s joint benefit. Consequently, CIBC was entitled to enforce the order for possession and secure the payment of the arrears.

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