In Future Loans Limited, a loan was agreed between the lender (previously called CitiFinancial (Isle of Man) Ltd) of the one part, and Ms Porter and Mr Gianquitto (who were at that time husband and wife) of the other part. In exchange for entering into the transaction the lender was granted a second charge over the marital property. The loan payments were not maintained, and the lender issued proceedings in the Isle of Man High Court for £79,389.47. Ms Porter defended the claim, arguing that she was entitled to rescission of the loan agreement and the charge over her home by reason of undue influence and misrepresentation by her exhusband.
Deemster Corlett concluded that Ms Porter was plainly under the undue influence of her husband, who had misled both herself and the lender. The Deemster held that the lender was put on inquiry of the possibility of undue influence because there was limited benefit to Ms Porter in agreeing to the transaction, and that the lender took no steps to satisfy itself that she was entering into the transaction freely and with knowledge of the true facts. Accordingly, the Deemster dismissed the lenders claim against Ms Porter, and held that the loan agreement and second charge were set-aside insofar as Ms Porter was concerned.
Of particular note was the Deemster’s comments regarding the provision of independent legal advice to Ms Porter. In this regard Deemster Corlett stated that: “What the law requires, and what clearly did not happen in this case, is that the wife … should be advised to take her own independent legal advice about the transaction and that she should be at least given the opportunity to discuss the matter at a meeting entirely apart from the other parties to the transaction. This would give the opportunity (which may not be taken) for the wife to raise any concerns she may have about the transaction and for her to have brought to her attention the essential factual basis upon which the decision to lend has been made. This would not need to be a lengthy or difficult process.”
This case highlights the importance for lenders to have internal policies to highlight where issues of undue influence could potentially arise. Where such a risk is identified, then the partner must be advised to take independent legal advice, and there should also be a meeting between the lender and the partner alone to discuss transaction, its rationale, and the potential risks with non-compliance of the repayment terms.
Furthermore, this case highlights the importance of taking full and detailed contemporaneous notes to ensure that questions regarding the transaction can be answered many years following completion of the transaction.
Failure to abide by this process could, as demonstrated in this case, lead to real problems for lenders in enforcing their rights and security under a loan agreement.
