## Facts

- The case involved a security transaction where a wife provided a guarantee for her husband's business debts to Barclays Bank.
- The issue arose concerning whether the wife’s consent to the transaction was obtained through undue influence or misrepresentation.
- The bank accepted the wife’s guarantee without ensuring that her consent was informed or that she was free from undue influence.
- Similar principles apply to other non-commercial surety relationships, such as those involving elderly parents and children.
- The facts highlighted deficiencies in the bank's procedures for obtaining security from individuals in relationships of trust and confidence.

## Issues

1. Whether the bank could be fixed with constructive notice of undue influence or misrepresentation exerted by one party over another in surety transactions.
2. What steps a bank must take to ensure the enforceability of security where there is a risk of undue influence.
3. Whether the transaction could be set aside due to failure by the bank to ensure the surety’s informed consent.

## Decision

- The House of Lords held that banks are put on inquiry and have constructive notice when a person in a non-commercial relationship, such as a wife standing surety for her husband's debts, enters into a transaction.
- Once on inquiry, the bank has a duty to take reasonable steps to ensure the surety’s consent is properly informed and free from undue influence.
- The case clarified that if the bank fails to take these reasonable steps, the security may be set aside.
- The recommended procedure for banks is to require independent legal advice for the surety and to ensure the advice is properly given and confirmed to the bank.

## Legal Principles

- Actual undue influence requires proof of improper pressure; presumed undue influence arises from relationships of trust and questionable transactions.
- Constructive notice is imputed when the bank is on inquiry, imposing a duty to ensure informed consent from the surety.
- Reasonable steps to discharge this duty include independent legal advice and confirmation that the surety fully understood the transaction and its implications.
- The later case of _Royal Bank of Scotland plc v Etridge (No. 2)_ [2002] 2 AC 773 affirmed and clarified these principles, emphasizing independent legal advice and clear procedures for banks.

## Conclusion

Barclays Bank plc v O’Brien established that banks must take reasonable precautions to ensure sureties in relationships of trust are properly informed and free from undue influence; failure to do so may render the security unenforceable, protecting vulnerable parties and clarifying banks’ responsibilities in such transactions.


Barclays Bank plc v O'Brien [1994] 1 AC 340 (HL)