Published: Wed, 07 Mar 2018
Lloyds Bank Ltd v Bundy  QB 326
Undue influence; guarantee; bank owing duty of care
Mr Bundy was elderly farmer. He and his son were long-time customers at Lloyds Bank – the son’s company also banked there. Lloyds guaranteed the company’s overdraft and charged the farm as security. As the overdraft increased, Lloyds needed more security, which – as per the son – Mr Bundy could provide. Mr Bundy and his son went to Lloyds where an assistant manager, leaving the documents with Mr Bundy for consideration, had Mr Bundy sign a further guarantee and execute a further charge. Mr Bundy later sought legal advice and was told that he could support his son with approx. half the value of his assets (i.e. his home). Mr Bundy then executed the guarantee and charge. The son’s business was unsuccessful so he told Lloyds that his father would give further security. Subsequently, the son went to Mr Bundy with a Lloyds assistant manager with a further guarantee and charge, for even higher sums than before. Mr Bundy, trying to help his son, signed these deeds as well. The son’s company ceased to trade; Lloyds attempted to sell Mr Bundy’s house.
The assistant manager gave evidence that – in his view – Mr Bundy relied on him for advice about the transaction and did whatever he and the son said. He also admitted to knowing that Mr Bundy did not have any other assets except for his house. Mr Bundy claimed that the final guarantee and charge should be set aside. Nevertheless, the judge gave an order for possession. Mr Bundy appealed.
The Court found for Mr Bundy. The nature of the relationship between Lloyds and Mr Bundy was such – i.e. that of confidentiality – that the Court could intervene in the event of its abuse. There was conflict of interests in Mr Bundy’s signing of the final guarantee and legal charge as he could lose his only asset to the bank. Furthermore, Mr Bundy received no independent legal advice by which Lloyds’ fiduciary duty of care was breached. Consequently, the final guarantee and charge were set aside based on undue influence.
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