¹ [1994] 1 A.C. 180. See also C.I. B.C. Mortgages plc v. Pitt [1994] 1 A.C. 200, decided by the House of Lords on the same day, where the principles in O'Brien were applied.Google Scholar

² At 195.

³ Lord Browne-Wilkinson stated (at 195) that the same result would follow if the wrongdoer had been acting as the agent of the lender. However, his Lordship stressed (ibid.) that such cases would be “of very rare occurrence”. The issue of agency will not be considered in this article.

⁴ See e.g. Dixon “The Special Tenderness of Equity: Undue Influence and the Family Home” [1994] C.L.J. 21,21 hailing the speeches in O'Brien and Pitt as renewed proof of Lord-Wilkinson's “master[y] of the judicial art”.

⁵ Section 199(1) provides that a purchaser is not to be prejudicially affected by any instrument, matter, fact or thing, unless “(a) it is within his own knowledge, or would have come to his knowledge if such inquiries and inspections had been made by him as ought reasonably to have been made by him; or (b) in the same transaction with respect to which a question of notice to the purchaser arises, it has come to the knowledge of his counsel, as such, or of his solicitor or other agent, as such, or would have come to the knowledge of his solicitor or other agent, as such, if such inquiries and inspections had been made as ought reasonably to have been made by the solicitor or other agent.” On the equitable doctrine of notice, see Megarry, generally and Wade, The Law of Real Property, 5th ed., (London, 1984), pp. 142–153.Google Scholar

⁶ At 195.

⁷ At 195E-F.

⁸ For examples of the application of the doctrine of notice in relation to mere equities, see Jones, Smith v. [1954] I W.L.R. 1089;Google ScholarAllied Irish Banks v. Glynn [1973] I.R. 188Google Scholar.

⁹ At 191C-E, 194G, 195F.

¹⁰ At 195.

¹¹ Ibid.

¹² For an exploration of the possibility that the application of the doctrine of notice was inappropriate, see Mee, “An Alternative Approach to Third Party Undue Influence and” (1995) 46 N.I.L.Q. (forthcoming).

¹³ At 196D-E.

¹⁴ Lord Browne-Wilkinson was satisfied (at 191) that “the risk of undue influence affecting a voluntary disposition by a wife in favour of a husband is greater than in the ordinary run of casesno sexual or emotional ties affect the free exercise of the individual's will”. The samewould apply to unmarried couples (at 198) “if, but only if, the creditor is aware thatsurety is cohabiting with the principal debtor”. (See also Massey v. Midland Bank p.l.c. [1994] 2 F.L.R. 342.)Google Scholar Lord Browne-Wilkinson also felt ) that a creditor would be put on inquiry if he was aware that(Ibid.. “the surety reposes trust and confidence in the principal debtor in relation to his financial affairs ”.

¹⁵ The cases of O'Brien and Pitt note 1 supra were regarded by the House of Lords as falling on opposite sides of the line drawn by this test. In O'Brien, the wife had been induced by the fraudulent misrepresentation of her husband to execute a second mortgage over the matrimonial home as security for the borrowing of a company in which the husband, but not the wife, had an interest. This transaction was regarded as, on the face of it, not to the financial advantage of the wife. On the other hand, in Pitt, the transaction induced by undue influence was a joint advance to a married couple secured upon the matrimonial home. Although the money was in fact used by the husband for his own purposes, on the face of the transaction it appeared that the wife was benefiting as much as her husband. Therefore the bank were treated as not having been put on inquiry.

¹⁶ At 197.

¹⁷ At 196D, 196E, 197C, 197D, 198F and 199C.

¹⁸ At 196.

¹⁹ See passage quoted as text to note 6 supra, emphasis supplied. His Lordship's approach reflects that of section 199(1) of the Law of Property Act 1925 quoted in note 5 supra.

²⁰ Note the view of Fry J. in Hunt v. Luck [1901] 1 Ch. 45, 53 that “t is surely unreasonable to apply the doctrine that a man has constructive notice of a fact which he could have discovered by inquiry to a fact which he could not so discover”.

²¹ See Northern Bank v. Henry [1981] I.R. 1 (insufficient inquiries made because it suited lender to rush security into place).

²² See the facts of Massey note 14 supra.

²³ Lord Browne-Wilkinson felt (at 196) that past transactions would “depend on the facts of each case”. Cf the comments of Steyn L.J. in Massey note 14 supra, 346.

²⁴ At 196.

²⁵ At 197.

²⁶ At 197. One could make the alternative argument that Lord Browne-Wilkinson26 was, in substance, imposing a d u t y on the lender not to contract with a vulnerable surety without taking reasonable steps to reduce the risk of an equitable wrong taking place. The lender could therefore be held on the basis of a failure to discharge its duty irrespective of whether there were any reasonable inquiries which would have revealed the existence of the undue influence. This may have been the view of Lord Browne-Wilkinson's speech taken by Bamforth in a paper entitled “Constructive Notice after O'Brien”, discussed in Wilkinson's review of a Chancery Bar Association Seminar “The Uninformed Surety: Victim or Victor?” [1994] Conv. 349, 350-351. However, in disposing of the Court of Appeal's “special equity” theory, Lord Browne-Wilkinson clearly rejected (at 193C-F, 195B-E) the possibility of a direct duty owed by the lender to the surety. Moreover, it is surely impermissible to discount his Lordship's repeated references to the doctrine of notice and to suggest that he intended to introduce an entirely different principle under the cover of the one which he purported to explain and apply.

²⁷ Note I supra

²⁸ See note 15 supra.

²⁹ Note 14 supra.

³⁰ Ibid., 345.

³¹ Ibid., 347.

³² The lender in Massey had not conducted a private interview with the vulnerable surety but had instead insisted that she consult an independent solicitor. Steyn L.J. felt (at 347) that, since the surety had received independent advice, the objective of Lord Browne-Wilkinson's guidance had been achieved.

³³ It would appear that Lord Browne-Wilkinson's “reasonable steps”, perhaps conditioned by the facts of O'Brien, are effective primarily to combat those forms of undue influence and misrepresentation which turn on the vulnerable surety being ignorant of the nature of the transaction. What if the type of equitable wrong relied upon to vitiate the transaction would not have been affected by the taking of the reasonable steps? It is submitted that in such a case the lender may nonetheless be fixed with constructive notice of the wrongdoing if it fails to take the reasonable steps. This is because, when confronted with the vulnerable surety, the lender was obliged to make inconvenient personal inquiries (which one assumes would have revealed the equitable wrong). Since the situation was not transformed by the taking of the reasonable steps, the failure to make the direct inquiries leaves the lender with constructive notice of what it would have found out through those inquiries.

³⁴ Per Lord Scarman in National Westminster Bank p.l.c. v. Morgan [1985] A.C. 686, 709.