This position arises in case of relationships between solicitor and client, parent and child, wife and husband which is known as fiduciary relationship, where trust and confidence exists. In this case, undue influence is presumed by law unless until it is proved contrary2.
The presumption of undue influence is recognised by court of law basically where fiduciary relationship exists believing that in fiduciary relationship one party succeeds in exerting unfair influence or undue influence over the other. The court of law recognises relationship between employer and junior employee, doctor and patient also to bring into the ambit of presumption of undue influence3.
In fiduciary relationship between wife and husband the creditor has a bounden duty before obtaining guarantee from the wife where wife is not a benficiary, is that a) to take reasonable steps to establish that her consent had been properly obtained, b) to discuss the facts with her c) to warn her of the consequences d) to suggest to take independent legal advise. Failing which, the transaction could be set aside by court of law4.
Equity law protects innocent persons from undue influence by giving an opportunity to rescind the contract executed under undue influence. Defence available to opposite party if the fact of non existance of undue influence is rebutted with evidence5.
Undue influence: Undue influence is classified into three types, a) actual undue influence, b) presumptive undue influence and c) proven undue influence. Actual undue influence is to be proved. Presumptive undue influence exists where trust and confidence is placed upon a strong party, especially in fiduciary relationships such as solicitor and client, religious adviser and disciple, physicians and patients, and parent and child. Proven Undue influence is similar to presumed undue influence except that in proven undue influence the trust and confidence is to be proved unlike in case of presumptive undue influence.
Special Wives Equity: The law provides special equity for wives to protect their interest from the undue influence of their husbands, who take advantage of the weaker position of their wives. Under this equity if the transaction is clouded by actual undue influence and the creditor has the knowledge of existence of marriage between the surety and the borrower the transaction will be set aside. The law further provides that even there is no actual undue influence the transaction is subject to be set aside at the option of the surety unless the creditor has taken sufficient measures to bring to her notice and inform her suitably the effect of the transaction. The law says in special wives equity constructive notice of undue influence or relationship of influence is immaterial, mere knowledge of existence of marriage is sufficient.
In Garcia case, which is relied on Yerkey v Jones8 the High Court has discussed elaborately on the principles based on the doctrine of Special Wives Equity. Clear and thorough study of the judgment in Garcia case shows how the different principle adopted in case of Wives in setting aside of security of wife is justified when compared to the non-wives security to third party, duly following the law of equity6.
Garcia vNnational Australia Bank ltd7: National Australian Bank