Taking a guarantee or third party security from an individual—undue influence
Taking a guarantee or third party security from an individual—undue influence

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Taking a guarantee or third party security from an individual—undue influence
  • What is undue influence?
  • Actual undue influence
  • Presumed undue influence
  • Presumed influence
  • How is a lender affected by claims of undue influence?
  • Notice
  • Causal link not necessary
  • Situations in which a lender is 'put on inquiry'
  • Best practice—protecting the lender
  • More...

Guarantees (see Practice Note: Guarantees) and third party security (see Practice Note: Third party security) from individuals are relatively common forms of credit support in financing transactions.

For example, in transactions involving a corporate borrower, the lender might request guarantees or security from the directors of the borrower.

Where the borrower is an individual, the lender might request a guarantee or security from another family member related to the borrower, such as a spouse, civil partner or parent of the borrower.

In taking a guarantee or security from an individual there are a range of issues to be considered in addition to those which arise generally in the context of the law of guarantees and security. The key issues are discussed in Practice Notes:

  1. Key issues in taking a guarantee from an individual, and

  2. Key issues in taking security from individuals

One of the key issues which lenders should be particularly aware of relates to undue influence by a third party. Having granted the guarantee or third party security, if the guarantor or third party security provider is later able to successfully argue that it was a victim of undue influence when granting the guarantee or security, then the guarantee or security can be set aside in judicial proceedings.

This Practice Note explains the types of situation in which undue influence is presumed and the types of situation in

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