Barclays Bank v O’Brien

Law Case Summary

Barclays Bank Plc v O’Brien [1994] 1 AC 180

Fraud; misrepresentation; mortgage; married couple

Facts

The defendants were a married couple who took out a second mortgage on their home as security for overdraft facilities extended by Barclays to the husband’s company. The wife had no interest in the business. Before execution, the branch manager advised the couple to seek legal advice prior to signing the documents. The wife eventually signed the documents relying solely on her husband’s (false) representation that the deed was limited to £60,000 and would last three weeks only. In the end, the husband’s company reached a £154,000 overdraft, as a result of which Barclays sought an order for possession of the mortgage security – i.e. the couple’s home. The wife appealed.

Issues

The wife’s appeal was dismissed for lack of evidence of her husband’s misrepresentation. The Court of Appeal then allowed her appeal based on the special protection she was owed in equity. It held that the mortgage was only enforceable against her to the extent of £60,000 – the amount she believed the mortgage was for.

Decision/Outcome

The House of Lords found in favour of the wife as well – albeit not on the basis of a special equitable protection. The Court held that the husband exercised undue influence, misrepresented the deed – i.e. committed a legal wrong – and thus induced her to sign the deed. As a result, the wife had equity against her husband to set the deed aside. Such equity was enforceable against a third party who had constructive or actual notice of the situation that gave rise to the equity or for whom the husband was an agent – Barclays in this case. The creditor would have constructive notice when the transaction in question was not to the wife’s financial advantage and which carried a significant risk of her husband committing a wrong in law or equity.