Lloyds Bank Ltd v Bundy [1975] QB 326

Facts

  • Herbert Bundy, a farmer, offered his farmhouse as security for his son's business overdraft with Lloyds Bank.
  • Mr. Bundy had a longstanding relationship with the bank manager, who assured him the security was temporary.
  • Despite these assurances, the son's business deteriorated and Lloyds Bank proceeded to foreclose on Mr. Bundy’s farm.
  • Mr. Bundy claimed the contract should be voidable on the grounds of unequal bargaining power between himself and the bank.

Issues

  1. Whether the transaction between Mr. Bundy and Lloyds Bank was the result of an inequality of bargaining power sufficient to render the contract voidable.
  2. Whether the circumstances surrounding the security, including Mr. Bundy’s reliance on the bank and lack of independent legal advice, amounted to unconscionable conduct by the bank.

Decision

  • The court found there was sufficient evidence of inequality of bargaining power in Mr. Bundy’s situation.
  • It held that Mr. Bundy's emotional attachment to his farm, reliance on the bank manager, and lack of independent legal advice left him vulnerable.
  • The bank was found to have exploited Mr. Bundy's vulnerability by obtaining security over his home, thus acting unconscionably.
  • The transaction was set aside by the court.

Legal Principles

  • Introduced the broader doctrine of inequality of bargaining power as grounds for judicial intervention beyond the traditional categories of undue influence and duress.
  • Identified key factors for recognizing such inequality: the relationship between the parties, circumstances of the transaction, and relative bargaining positions.
  • Affirmed that courts may set aside contracts where an unfair advantage is taken over a vulnerable party.
  • Emphasized the importance of seeking independent legal advice in transactions involving potential disparities in power.

Conclusion

Lloyds Bank v Bundy marked a significant shift in English contract law by recognising a general doctrine of inequality of bargaining power, permitting courts to intervene where a party’s vulnerability has been unconscionably exploited in contractual dealings.

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