Banking law Essay Example | Topics and Well Written Essays - 2000 words - 1

Banking law - Essay Example For example in Barclays Bank Plc v O’Brien the House of Lords ruled that when the burden shifts to the stronger party to prove that there was no undue influence, the burden can be discharged by proof that the weaker party voluntarily entered into the agreement or the transaction and this can be proven by showing that the weaker party had the benefit of independent legal advice.7 It has been subsequently ruled that where undue influence is presumed, the bank’s security will stand on whether or not the surety had the benefit of independent legal advice.8 It was not altogether clear whether banks had a duty to ensure that vulnerable sureties sought independent legal advice. The courts had merely stated that the burden of proof could be discharged by showing that the vulnerable surety had voluntarily entered into the transaction and this could be shown by proof that the vulnerable surety had the benefit of independent legal advice. The matter was more clearly stated by the House of Lords in Royal Bank of Scotland v Etridge (no.2). In Royal Bank of Scotland v Etridge, the House of Lords ruled that the bank is required to take all reasonable steps to ensure that the vulnerable surety was appropriately apprised of the transaction and what this means is that the bank would require that the vulnerable surety had the benefit of independent legal advice.9 Further guidance was provided by the House of Lords in National Westminster Bank v Amin. In the case, the bank applied to the court for the defendant’s defence of undue influence on the part of her son who was a business man. In this case, the bank had previously required that their solicitors clarify and explain the details and consequences of the transaction to which the defendant would provide...Banks should also want to be sure that vulnerable sureties are exercising free and unimpeded judgement from the onset. Therefore the requirement of independent legal advice should not be an obstacle to ban ks taking on vulnerable securities. It should merely be perceived as a necessary step toward ensuring that vulnerable securities may not be rescinded at a later date. The requirement of independent legal advice is commercial sound and reasonable in that it seeks to safeguard the interests of all parties involved, including the bank. The principle debtor is ensured that he or she will obtain the benefit of a loan on the strength of a promise that the surety will provide security for the loan or discharge the debt in the event he or she is unable to. The bank obtains the necessary security for the loan and the surety is committed to loan. Each of these interests are equally important and it is in each of the party’s best interest to ensure that the vulnerable surety is fully aware of his or her obligations and the consequences of the transaction. Neither the bank nor the principle debtor will benefit from a transaction in which the surety is unaware of the consequences of the transaction is unable to fully understand or appreciate the consequences of the transaction. It makes sense that since the bank wants to ensure the integrity of its secu rities, that it would take the minimal step of requiring that vulnerable sureties seek independent legal advice.