Banks & Solicitors Face New Requirements To Minimise Risk Of Undue Influence On Wives Who Stand Guarantor For Husband's Business Debts

A recent important legal decision by the House of Lords (Royal Bank of Scotland plc v Etridge and others, 11 October, 2001) has seen the introduction of new procedural 'minimum requirements' which banks and solicitors must satisfy in the future, when advising wives who offer to stand as guarantor or surety for their husband's or their husband's company's debts by charging their interest in the matrimonial home. Failure to comply with the new requirements could leave banks unable to enforce their security.

The past few years have witnessed a flood of Court cases involving surety wives, as they are known, seeking to set aside charges, placed on their homes to secure their husband's business debts, on the ground of undue influence from their husbands.

At present, banks simply have to bring home to surety wives the risks of the transaction and require them to seek legal advice. The bank then obtains written confirmation from the solicitor that the nature and effect of the documents have been explained to her in order to protect its position. Solicitors have criticised these present practices as failing to adequately protect either surety wives or the banks.

The decision in the Etridge case has been welcomed by both solicitors and banks for clarifying this controversial area of law. The new minimum requirements to be applied by both banks and solicitors are designed to be 'clear, simple and practically operable'.

Now, a bank will be 'put on inquiry' whenever a wife offers to stand as guarantor for her husband's debts. To avoid being deemed to have constructive notice of any undue influence, the bank must now follow certain steps. The main steps are that the bank must insist on the wife attending a private meeting with a bank's representative at which it must be explained to her the extent of her liability as surety, warned of the risk of her home being repossessed and urged to take independent legal advice, and in exceptional cases, insist on her being separately advised from her husband.

The solicitor's duties to...