Barclays Bank plc v O'Brien (Case 1) provided an opportunity for the House of Lords to settle an issue which had arisen on a number of previous occasions in the Court of Appeal. The question was whether a bank is entitled to enforce against a wife an obligation to secure a debt owed by her husband to the bank where the wife has been induced to stand as a surety for her husband's debt by the undue influence or misrepresentation of the husband.
The House of Lords concluded that a creditor would be fixed with constructive notice of the undue influence or misrepresentation of a cohabitee (and therefore could not enforce their security as against the other cohabitee) unless it had taken reasonable steps to satisfy itself that the surety entered into the obligation freely and in the knowledge of the true facts. Such steps would include warning the surety at a meeting not attended by the principal debtor of the potential liability and of the risks involved and advising the surety to take independent legal advice.
Cases 2 and 3 both arose in the German courts and led to a consolidated hearing before the German Federal Constitutional Court.
Case 2: An estate agent sought to double his overdraft limit to 100,000 DM. To assist him his daughter, who had temporary employment as a factory worker, signed a contract of guarantee. The significance of this document was played down by the bank. The father entered into new business deals and suffered heavy losses. The bank then tried to assert the guarantee against the daughter. The daughter resisted the claim.
Case 3: A wife signed a contract of guarantee (of 30,000 DM) to assist her husband in obtaining a loan. When there was a delay in payments on the loan, the bank called on the guarantee.
In response to these two cases the Federal Constitutional Court handed down a potentially far reaching decision on the role of fundamental rights in the interpretation of general clauses in the law. In particular the right to the protection of a person's private sphere must be taken into account in interpreting the obligation of good faith in contractual relations where there is disparity of bargaining power between the parties (i.e. the guarantor and the bank), and in particular where there is no shared economic interest between guarantor and guarantee.
The four case notes on this theme are preceded by a more detailed consideration of the reasoning in Barclays Bank v O'Brien. The first two case notes (Van Roeyen and Ferrari) consider the way that this case might have been approached by the Dutch and Italian courts respectively. The third case note (Inzitari) discusses the German cases and the issues that they would raise for the Italian courts, while the fourth note (Geelhand) examines the general problem of guarantees given by family members and friends under Belgian law.European Review of Private Law