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   Home      Credit Lyonnais Bank Nederland v Burch
 
Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144 Court of Appeal

Miss Burch started working for her employer at the age of 18. She became close to the director, Mr Pelosi, who was an Italian business man 10 years older and trusted him implicitly. She often visited his home to do babysitting and went on holiday with the family to Italy. At the age of 21 she purchased a flat. 5 years later, she was still working for him but the company was experiencing financial difficulty. Mr Pelosi asked her to put her flat up as security for a loan taken out by the company. He told her that his home and villa in Italy were also secured on the debt but they would not accept 100% mortgage on these properties and needed another £20,000. She agreed to allow her home to be used as security believing that it was only £20,000 and that Mr Pelosi's properties would first be sold which would release the debt so that there was no risk to her. The bank had written to her and informed her that the charge was unlimited in amount and time and advised her to seek independent advice. She at no time was told of the extent of the company's borrowings which stood at £270,000 neither did the bank satisfy themselves that she had in fact received independent advice.

Held:

The agreement of Miss Burch had been obtained by undue influence and the bank had notice of this as the transaction was so obviously to her disadvantage. The bank had taken insufficient steps to avoid constructive notice. Therefore the transaction could be set aside.

Back to lecture outline on Undue influence in Contract Law