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Commercial Lenders Law

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Commercial Lenders Law

The law of Undue Influence is undoubtedly disconcerting to lawyers and commercial lenders as it offers one party an equitable right to have a transaction set aside. Should the Court find UI at hand, the contract shall be voidable and recission will apply. UI amounts to some form of conduct that is capable of influencing or clouding the judgement of another so they can no longer be validly said to consent to that which they sign. There are two categories of UI. Actual UI is influence expressly used by the defendant for a purpose, while the more common presumed UI is influence presumed to exist on the basis of the relationship between the parties.


In 2001 during RBS v. Etridge in the HOL, eight similar appeals were heard where the wife had charged her interest in the family home as security for her husband’s debt or the debt of a company through which he carried out business. In the financial climate of today, society now views this transaction as well documented and common place, it is normal. As such, during Etridge new guidelines were established which state the precautions that should be taken by commercial lenders to prevent mortgages being set aside by a co-signatory to. The case highlighted that a lender is no longer to be put on notice of the relationship between the signatory and the beneficiary simply because they are husband and wife. Instead, the test for whether the lender should be put on notice now appears to be whether: the transaction does not appear to be of financial advantage to the wife; and, there is a substantial risk in procuring the wife to act as surety that the husband has committed a legal or equitable wrong that may entitle the wife to have the transaction ...

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