Undue Influence Law Essay Online for Free

Part A Introduction The facts present various problems. The first issue is undue influence. This is the most obvious issue. Rachel took a mortgage out with Ernest for debts that her husband owed for his business and for this reason, it was a transaction not for her advantage. The second issue that must be discussed is sales at undervalue – a friend of the mortgagee advised his sister to purchase the property at a much reduced price. The final issue is the second charge, and the rights that the second mortgagee may have in regard to the sale and any proceeds from it. Undue influence The basic idea behind the doctrine of undue influence is that a person should not be held to a transaction if induced to enter into that transaction due to the exercise of power over him by someone with whom he had a relationship of confidence or trust.[1] Undue influence arrives when two key elements exist. Firstly, there must be a relationship of trust and secondly, there must be some evidence of abuse of trust.[2] In the case of Barclays Bank plc v O’Brien [3] the husband needed to raise money for his business, and owned the matrimonial home jointly with his wife. They used the house as security for the overdraft, and his wife signed the paperwork and attended the bank to secure the funding. When the bank wished to foreclose, she claimed the mortgage was not enforceable against her, because she was a victim of undue influence by her husband and misrepresentation by the bank. Although the case was decided on misrepresentation, Lord Browne-Wilkinson set our two categories of undue influence. Class 1 was where the claimant had to prove that there was actual undue influence over her and this was the reason for entering into the transaction. Class 2 constitutes presumed undue influence, where all the claimant needed to prove is that a relationship of trust and confidence between her and the wrongdoer and was induced to enter into the transaction to her manifest disadvantage. The classification above was not entirely discounted in the case of Royal Bank of Scotland v Etridge [4] but changed in that the presumption in the second category was changed. It is now necessary for the person alleging undue influence to prove it. In Etridge, the court confirmed that manifest disadvantage was still needed, as it acts as a necessary limitation on the relationship of trust. If undue influence is proven, then the complainant will have the right to have the transaction set aside against the wrongdoer. In regard to the mortgagee, the undue influence gives rise to an equity in favour of the complainant – a right of remedy against the wrongdoer. This equity will be binding on the mortgagee if it has notice of the equity. In the class 2 cases as long as the relationship is known to the mortgagee, the mortgagee must be taken to be aware of the undue influence as it is a presumed consequence of the relationship.[5] In Etridge, the courts laid down the steps that the mortgagee should take, in order to protect itself against this requirement, when it is aware of a relationship of trust. These included insisting the wife obtained independent legal advise, and made aware of the consequences of her actions, and then obtaining this in writing from the solicitor of her choice acting for her. If these steps are not taken, then the transaction can be set aside against the mortgagee. In the present case, Rachel secured a £90,000.00 loan from Ernest against her registered title to Manderlay. The loan was taken for a business debt of her husband. Applying the above facts, there is a relationship of trust between husband and wife. The loan was to Rachel’s manifest disadvantage. As Rachel was married at the time of the loan, Ernest should have taken steps to ensure she was acting of her own free will. On the facts, this appears not to have occurred, and therefore Rachel will have a strong case to set the mortgage aside against Ernest on the basis of undue influence. As the property has already been sold, she can apply to court to have the sale set aside and be reinstated as owner of the property. In regard to the subsequent sale for £120,000.00 ( a figure below market value) there may be another issue involved – that of sales at undervalue. Sales of undervalue There is another equitable principle related to undue influence, called unconscionable bargain. This arises where there is some benefit to the person making a disposition, but the transaction is so unfair (due to a low price) that there is an unconscionable exploitation of a person for the recipient to obtain an undeserved benefit. [6] In the present case, Ernest’s friend, an estate agent, called Jason, instructed his sister to buy the property, and advised her of a good price. The whole sale and the location and timing set up very suspicious circumstances and Jason’s suggestion of the price is very dubious. On these grounds, Rachel could apply to have the sale set aside on the grounds of unconscionable bargain. Second Charge Where there is more than one registered charge, on the sale, the proceeds of the sale will follow in an order of priority. The first registered charge will be satisfied first, then any excess, can be for the next registered charge. Notice of the sale should be give to all owners of registered charges to ensure their interests are protected. In the present case, Noel had a second charge on Manderlay. He could object to the proceedings of the sale, as the low price it achieves manifestly affected the security he had. He would have a very strong case to set the sale aside. Conclusion Rachel has a strong case to set the mortgage given to Ernest aside on the basis of undue influence. In addition, she can have the sale of her property set aside on the basis of unconscionable bargain. If these actions fail, Noel can apply to have that sale set aside. The only valid charge is the charge for £60,000.00 in favour of Noel. Part B Introduction It is important to consider trusts arising from contribution, like constructive and resulting trusts and proprietary estoppel. It will also be necessary to consider matrimonial home rights. Once established, the steps that should be taken to protect those rights and rights of persons in actual occupation, under the Land Registration Act, 2002 will be considered. Finally, the position of these rights in unregistered land will also be mentioned. Trusts arising from a contribution and proprietary estoppel Co ownership in land can arise by implication under resulting and constructive trusts. This occurs where there is one owner of the legal estate but some form of contribution by the other person. In Gissing v Gissing [7] Lord Diplock stated that “A resulting, implied or constructive trust- and it is unnecessary for present purposes to distinguish between these three classes of trust.” From this case, it appears that there are two stages in establishing a common intention trust – an agreement and some detrimental reliance on it. [8] In regard to the agreement, there must be an agreement at the time of purchase or later that the partner without the legal estate is to have a beneficial interest in the land. Acts to the claimant’s detriment can be contributions, financial and physical. In Lloyds Bank v Rosset[9], these principles were reiterated, and Lord Bridge stated that proprietary estoppel was an alternative to a constructive trust. Proprietary estoppel has been described in the case of Taylor Fashions Ltd v Liverpool Trusts Co.[10] The requirements are that there must be a representation; the representation must be relied upon by the claimant and the reliance on the representation must lead the claimant to act to his detriment. It seems on the facts in the present case, Norman’s long standing girlfriend Emma has made a financial contribution to the house. It seems from her conversation with Norman that she had the intention to acquire an interest and some form of agreement with Norman to have a beneficial interest in the property. She has a strong case to establish a common intention trust. Failing that, the above three requirements of proprietary estoppel would appear to exist, so likewise, she would have an equitable interest in the property. The protection of unregistered interests under the Land Registration Act, 2002 In order to protect an interest in the land of another, under the LRA 2002, Emma should have protected her interest by entering a Notice in the Register of title, under s32 (1). This would have protected her interest on the sale of the property as it would have served as notice to the world that she had an interest in the land. However, as it appears that Emma did not register her interest, the LRA, 2002 in Schedule 3, protects the interest of persons in actual occupation of the property and these rights will override a disposition unless certain exceptions exist. One exception is if an inquiry was made before the disposition of the person in occupation, and she failed to disclose the right in circumstances where it would be reasonably expected of her. In the present case Reginald did not make any enquiries of Emma, and he should have done so. In the circumstances, he may be bound by her interest. Unregistered land If the title to the land was not registered, then the equitable interest that Emma holds will be enforceable against anyone, except a bona fide purchaser of the land without notice of her interest. The question in that instance would focus on whether Reginald had notice of her interest in the property. As he did have notice of her occupation, he would take the property subject to her interest. Conclusion It seems clear that Emma made a contribution to the property, to her detriment, with the intention of acquiring an interest in it. This would have given her an equitable interest in the property. As she is in actual occupation of the property, whether or not it is registered, her interest would bind a purchaser. Bibliography

1. Gray, K and Gray, S F: Elements of Land Law (Fourth Edition); Oxford University Press, 2005.
2. Mackenzie, J A and Phillips, M: Textbook on Land Law (9th Edition); Oxford University Press, 2002.
3. www.lawtel.com

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Footnotes

[1] McKenzie,J and Philips, M : Textbook on Land Law, 9th Ed, Oxford, at 19.17.2 [2] Allcard v Skinner (1887) 36 ChD 145 [3] [1994] 1 AC 180 [4] [2001] 3 WLR 1021 [5] McKenzie (above) at 19.17.7 [6] Fry v Lane (1889) 40 ChD 312 [7] [1971] AC 886 [8] Mackenzie at 16.5.1 [9] [1991] 1 AC 107 [10] [1982] 1 QB 133

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