Question Two Mrs OB decides to argue that the mortgage she has granted Barclays is unenforceable. That would certainly be true if the lying Mr OB had been acting as an agent of Barclays in getting Mrs OBs signature on the document. However, it is clear on the facts that Mr OB was not acting as an agent of the bank. And, as the court notes, that would rarely ever be the case. Normally if an adult person signs a legal document (a contract, a mortgage etc) they are held to be bound. (This is why the lawyers always tell you to be careful about what you sign.) The rule could hardly be otherwise. We need some objective and clear act to indicate assent. Signatures is what we have selected to be that act. So if signatures are to serve their function we cannot let people try to go behind the signature. (Yes I signed it but I thought it meant this rather than that etc etc.) Yet in this case the signed document is held not to be effective. How does that happen? Well suppose the signature is obtained by trickery (here misrepresentations by Mr OB) and that the bank at the moment they received the signed doc knew about the trickery (knew when they received the doc rather than came to know at a later time.) If a party receives a signed doc and receives it knowing that the signature has been obtained by illicit means, should that party be entitled to rely on the doc? I think most of us would say no. Its one thing to find out later how the doc came to be signed. Its another thing to know right from the start. If you received the doc knowing how the signature was obtained it would be against good conscience to then try and rely on the doc. And this is what equity says. And in short this is why Barclays loses the case. Easy. But Yes there is a but. The above line of reasoning may be okay, only how does it help Mrs OB? The fact is that when Barclays received the doc, Barclays did not actually know (at that time) about the tricky misrepresentations made by Mr OB to induce his wife to sign the mortgage. So why should the conscience of Barclays be bound? The way forward is to expand the idea of knowledge.So the situation is this. If a party receives a signed doc (e.g. a mortgage) and at that time the party (here the bank) knows the signature was obtained by undue influence or by misrepresentations, then the bank cannot say it has a good and effective mortgage. It would be against good conscience to say that. In deciding if the bank knows at the important moment, knowledge encompasses actual knowledge (unlikely on these facts) and also extends to constructive knowledge. (Constructive knowledge is where a party does not actually know but they are treated as knowing.) The critical question then becomes, did the bank have constructive knowledge. The ct holds yes and so Barclays loses the case; the signed mortgage document of Mrs OB cannot be enforced. The bank will have constructive knowledge if the circumstances should put the bank on inquiry and the bank fails to make appropriate inquires. Here the ct says the bank should be put on inquiry by a combination of 2 things. First, it was against the economic interests of Mrs OB to sign. Who benefits from the mortgage? The company. (It gets continued financing.) And who owns the company? Mr OB. So what is in it for Mrs OB? Nothing. For her there is a downside (she risks loosing her most valuable worldly asset) but no upside. From a purely economic vantage point it makes no sense for her to sign. So why does she sign? Well maybe she is a saint. Or maybe because of undue influence by a domineering husband or maybe because of tricks by the husband. We need to be on alert here. This is a commercial transaction but there is here also a marriage (all marriages are mysteries) co-habitation, perhaps reliance, some sexual dynamic etc etc. Mrs OBs action is contrary to her material self-interest and to the advantage of Mr OB who is in a necessarily private and opaque relationship with Mrs OB. So the bank is put on inquiry and will be held to have constructive knowledge of such as reasonable inquiries may discover. Thus Mrs OB wins. Victory for Mrs OB gives rise to one further problem. If Mrs OB wins, how can a bank like Barclays ever take a mortgage with confidence from the Mrs OBs of this world? There is a risk Barclays (and other banks) will hereafter refuse to accept mortgages from people like Mrs OB. In consequence, one of the nations largest asset classes (matrimonial homes) will no longer be available to unlock finance for companies like Heathrow Fabrications Ltd. That is not a good outcome for the overall economy. To address this issue the ct provides the banks with instructions on what to do when taking a mortgage from an individual in circumstances analogous to those of Mrs OB. At last, here is the question for you. What does the bank need to do to protect itself from the claim that it had constructive knowledge of undue influence or misrepresentations?