L A W R E P O R T S Bank fulfilled duty to wife

Midland Bank plc v Serter and another.

Court of Appeal (Lord Justice Glidewell, Lord Justice Pill and Lord Justice Aldous).

2 March 1995.

A solicitor who advised a wife about the legal effect and implications of a bank's charge on the matrimonial home did not act as the bank's agent and therefore the bank was not imputed with the solicitor's knowledge of any undue influence on the wife. The bank was entitled to rely on the fact that the solicitor had advised the wife as showing that it had taken reasonable steps to ensure that the wife was properly advised about the effect of the charge.

The Court of Appeal unanimously dismissed an appeal by the second defendant from the decision of David Young QC, sitting as a deputy High Court judge, granting the bank possession of the house jointly owned by the first and second defendants.

The first defendant needed security to continue his membership at Lloyd's and sought two guarantees from the bank for £50,000 each. The bank required a second charge on the matrimonial home owned by the first defendant and his wife, the second defendant. The first defendant executed the charge and flew to see the second defendant in Holland, where, after a lunch during which a fair amount of alcohol was consumed, she signed the charge and a certificate stating that the first defendant's solicitor had discussed and explained the nature and consequences of the legal charge.

In 1992 the bank claimed possession of the home when demands for payments of nearly £70,000 made under the guarantee were not met. The second defendant counterclaimed that the charge was not binding on her. The bank applied for summary judgement.

Leolin Price QC and Bernard Devlin (Kenwright Lake & Co, East Molesey) for the second defendant; Richard Salter and Amanda Green (Eversheds Jacques & Lewis) for the bank.

LORD JUSTICE GLIDEWELL said that the leading authority was Barclays Bank plc v O'Brien [1994] 1 AC 180, where the House of Lords decided that the creditor, in order to avoid being fixed with constructive notice of the wife's rights, could be expected to take steps to bring home to the wife the risk she was running and to advise her to take independent advice.

A court might be persuaded that the second defendant did sign the charge and certificate as a result of the undue influence of the first defendant, and it might be arguable that the second defendant did not fully understand the significance of what the solicitor had said to her.

In order for the bank not to be entitled to rely on the fact that the solicitor was advising the second defendant and on his certificate to that effect, it would have to be shown that when the solicitor spoke to the second defendant, he was doing so on the instructions of, and as agent for, the bank. Only in this way would his knowledge of the circumstances be imputed to the bank.

The bank was not concerned to instruct the solicitor how he should advise the second defendant. There was no need for the bank to appoint the solicitor its agent for the purpose of advising her. It was sufficient for the bank to know that her solicitor, or her husband's solicitor who was willing to advise her, was taking on that obligation to her. The bank was entitled to believe that the solicitor had advised the second defendant.

The solicitor, in advising her, was either acting for her or for her husband and advising her in pursuance of his general professional duty. In neither capacity was what he knew to be imputed to the bank. There was no evidence from which it could be argued that the solicitor was the agent of the bank for the purpose of advising the second defendant. The appeal would be dismissed.

Ying Hui Tan, Barrister