Normal banking behaviour
Securing a personal liability against a businessman for his businesses' debts in return for continued support for those businesses is part of a bank's normal, commercial self-interest.
This was the finding of the court in Barclays Bank Plc v Morris, in which the bank sought repayment of monies advanced to the defendant under certain facility letters. The defendant counterclaimed for loses suffered by reason of the bank's conduct.
The bank's area corporate director (B) had met the defendant for lunch, where the defendant alleged he had sought a personal loan and received assurances that the bank would continue to finance two of his companies pending a flotation. B's case was that the lunch was informal and not a business meeting and, in any event, that he had no authority to agree such facilities.
A secured personal loan was subsequently entered into with the defendant for in excess of £1 million with the proviso that all existing business debts be switched to the defendant personally. The flotation did not go ahead and further loans were made to the business, backed by a personal guarantee from the defendant. The defendant defaulted and the bank made formal demand.
The defendant alleged that it was a term of the loan agreement that the bank would provide sufficient working capital to enable his company to float and that he had been induced by false misrepresentations by B to assume personal liability for his companies' debts in return for the personal loan being made. There was nothing improper or unusual in that.
The court held that on the evidence, it was not a term of the loan that the bank would also provide further funds for the flotation. The bank had acted with normal, commercial, self-interest to minimise its risk, by requiring the defendant to assume personal liability for his businesses' debts in exchange for its continued support. The lunch between B and the defendant had covered wide ranging topics including discussions of the defendant's intentions and requirements but had committed neither party to any obligations at that stage.
Things to consider
There had been no improper conduct on the part of the bank here and the general and wide ranging nature of the conversation held at the lunch was a good indicator that no contractual promises were being made.