132 Chapter 4Misrepresentation, mistake, duress and illegality
Where there is no presumed undue influence the party alleging undue influence must
prove that the contract was made because of actual pressure from the other party. In
WilliamsvBayley (1866), for example, a colliery owner was allowed by the House of Lords
to have an agreement to mortgage his colliery set aside. He had only made the agreement
because the other party had told him that if he did not his son would be prosecuted for
fraud and transported to Australia for life. As the common law has extended the doctrine
of economic duress, this type of undue influence has become much less important.Banks tainted with undue influence
A situation which arises quite commonly is that a husband persuades his wife that they
should mortgage the matrimonial home in order to get a loan for the husband’s business
from a bank. If the loan is not repaid, the bank will want to repossess the matrimonial home.
This means that they would sell it to recover the amount which they were owed. In Royal
Bank of Scotland plcvEtridge (No. 2) (1998)the House of Lords held that the bank should
positively inform the wife that she should get independent legal advice before agreeing to
the mortgage. If the bank does this, it will be able to enforce the mortgage. If the bank does
not do this, and if agreeing to the mortgage could not readily be explained by the relation-
ship of the parties, then the mortgage cannot be enforced. However, in many cases the mort-
gaging of the matrimonial home can be explained by the relationship of the parties. In many
cases it is a reasonable risk to take to secure the husband’s business. The principles in this
case apply not only to husband and wife, but whenever the relationship between the debtor
and the person guaranteeing the debt is not a commercial relationship.Illegal contracts
The following types of contracts are illegal at common law and therefore unenforceable.
(i) Contracts tending to promote corruption in public life. An example is provided by Parkinson
vCollege of Ambulance Ltd (1925). The claimant was promised that he would receive
a knighthood if he made a donation to a charity. He made the donation but sued for
its return when he did not get the knighthood. His action failed because the contract
was illegal.Lloyds Bank vBundy (1975) (Court of Appeal)An elderly farmer twice mortgaged his farm in order to guarantee a business which his son
had started. The farmer was visited at the farm by the assistant manager of the branch of
the bank where he and his son had their bank accounts. In December 1969 the farmer
mortgaged the farm for a third time because he was told that if he did not his son’s
business would fail. The son’s business failed anyway. When the farmer could not repay
the mortgage, the bank applied to repossess the farm.
HeldThe mortgage taken out in December 1969 was voidable for undue influence.
Therefore, the bank could not repossess the farm on account of the farmer having not
repaid the mortgage instalments. The farmer had grown to trust the assistant manager and
placed total reliance on him. The bank should have advised the farmer to get independent
legal advice before agreeing to the mortgage.