It is sometimes said that real property law develops slowly.

Giving the lie to this assertion is the rapidly growing case law on whether a surety may rely on some fraud, misrepresentation or undue influence to resist enforcement of the principal debt.

Obviously, in those few cases where the lender exerts undue influence, misrepresents the effect of the relevant document or genuinely gets the principal debtor to act as his or her own agent, the debtor committing the relevant wrong, the security will be unenforceable.

Most lenders are not so foolish as this, however.

The questions highlighted by the two recent cases of Barclays Bank v O'Brien [1994] 1 AC 180 and CIBC Mortgages v Pitt [1994] 1 AC 200, currently at the centre of this fast growing area of law, arise in a different context.Imagine an everyday situation.

A husband, or company in which he has a direct financial interest, wants to borrow money from a bank.

The loan is secured on the family home.

He is made the principal debtor and his wife subordinates her interest in the property to the lender by standing as surety for the loan to him.

Time goes by.

The repayments fall behind.

The lender takes proceedings against the husband and wife.

In order to counter the enforceability of the surety, the wife alleges that she was (a) induced to sign the relevant documentation by her husband's wrongdoing to her (eg misrepresentation or undue influence); and (b) that this was a matter which the lender actually knew about or ought to have known about (ie of which the lender had actual or constructive notice).

We look first for guidance to the law spelt out in O'Brien.For the wife to prove a wrong by her husband will involve special considerations where the alleged wrong is undue influence exerted by him.

Undue influence will be presumed if there is proof of a confidential relationship such that she reposed confidence and trust in him in relation to financial affairs.

(The presumption will be rebutted if the surety had independent advice.) However, there will be no need for her to show such manifest disadvantage if what is alleged is actual undue influence, which is a 'species of frau d' (see Pitt).The wife's adviser will need to look at three areas in order to decide whether the lender had constructive notice of the wrong done to the wife: the relationship between the principal debtor and the surety; the nature of the transaction; and what steps the lender took to ensure that the signature of the surety was properly obtained.As a matter of general law, it is up to the surety to satisfy himself as to the nature and extent of the obligations he is assuming.

However, there may be an 'emotional relationship between cohabitees', often, but not always, a husband and wife.

In this case, if the transaction is on its face not to the financial advantage of the wife and is such that there is a substantial risk that the husband has committed a legal or equitable wrong, the lender will need to take reasonable steps to ensure that the wife's agreement was properly obtained.

Otherwise it will be fixed with constructive notice of the husband's wrong and the charge will not be enforceable against her.What must the lender do to avoid constructive notice? O'Brien gives guidance for situations arising both before and after it was decided (ie 21 October 1993).

After O'Brien, says Lord Browne-Wilkinson, the lender must insist '...that the wife attend a private meeting (in the absence of the husband) with a representative of the creditor at which she is told the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice...I regard [the private meeting] as being essential because a number of the decided cases show that written warnings are often not read and are sometimes intercepted by the husband'.

Before O'Brien, ie prior to 21 October 1993, it seems that it was enough for the lender (a) to ensure that reasonable steps were taken to bring home to the wife the risk she was running by standing as surety; and (b) to advise her to seek independent legal advice.However, there may be 'special exceptional circumstances' where a lender must insist on the wife being separately advised because it has actual knowledge of further facts which make the commission of some wrong not only possible but probable.Lord Browne-Wilkinson was careful to point out in O'Brien that the relevant principles will apply to '...all...cases where there is an emotional relationship between cohabitees'.

Generally, it is therefore immaterial whether the cohabitees are married or unmarried, heterosexual or homosexual; or whether the surety is male or female; or which one is male and which one is female.

What is necessary, however, is that the lender is aware that they are cohabitees.

In fact, if the lender is aware that the surety reposes trust and confidence in the principal, it may not even be necessary for principal and surety to be cohabitees.

Midland Bank v Massey, below, illustrates this as there was a 'long-standing sexual and emotional relationship' but the parties had never been cohabitees.The decisive point of difference between O'Brien and Pitt is the effect of the wife acting as surety in fixing a lender with constructive notice.

O'Brien involved a husband and wife, a misrepresentation by the husband, a surety transaction on its face not to the wife's financial advantage and a failure actually to take any steps to bring home to her the risk she was running or to advise her to seek independent advice.

The guarantee was therefore unenforceable against her.

Pitt, by contrast, again involved a husband and wife, a case based on undue influence and a failure to take any steps.

However, decisively, t he transaction was a joint loan transaction for their mutual benefit rather than a suretyship and there was therefore no need for the bank to take reasonable steps to ensure that the wife's signature was properly obtained.

It should be stressed that an ordinary joint mortgage will not have the effect which a surety transaction has.More recent cases have explored documentation somewhere between these extremes.

Midland Bank v Serter [1994] 26 HLR 612 involved a husband and a wife, an allegation of undue influence and both a surety and a loan element.

In view of the surety element, the judge assumed that the transaction was on its face not to the wife's financial advantage (significantly he used the expression 'manifest disadvantage').

The question was whether the lender had taken sufficient steps to avoid being fixed with constructive notice (see below).

Again, Goode Durrant Administration v Biddulph (1994) 26 HLR 625, involved a husband and wife and a presumption of undue influence.

Because she had made herself personally liable for more than £300,000 in return for a comparatively tiny profit, the transaction was one which was on its face not to the wife's financial advantage (again, Judge Rich QC used the expression 'manifestly disadvantageous').

This was 'enough to put the bank on inquiry that the possibility of undue influence was tainting the transaction' and the charge was not enforceable against her.

There is thus some evidence that courts are focusing on 'manifest disadvantage' rather than the combination of financial disadvantage and substantial risk discussed in O'Brien.In each of the cases just discussed, the lender was put on notice.

The question is therefore what the lender must do to ensure that the wife's signature is properly obtained.There are now at least three Court of Appeal decisions on this point: Massey itself; Banco Exterior Internacional v Mann [1994] The Times, 19 December; and Bank of Baroda v Rayarel [1995] The Times, 19 January.

Each may be seen as beating a retreat from O'Brien, although each was decided on the basis of pre-O'Brien transactions.These cases are at best guidance on the scope for attacking, eg on behalf of a wife, a transaction occurring before October 1993.

They do demonstrate, as does Serter, two points, however: (a) that there will be little scope to challenge the propriety of the wife's signature on the basis that the solicitor advising the wife was not independent of the husband, since the lender will be entitled to assume, in the absence of contrary evidence, that the solicitor who gave the independent advice was honest and competent; and (b) that, despite O'Brien's insistence on the private meeting, the lack of one may not be fatal to the lender (see Massey; Banco Exterior).

However, even honest and competent solicitors advising the principal debtor should consider carefully the possibility of a negligence action by the principal debtor if they also act for him or her.Despite all this, it is clear that lenders must be very cautious.

Ideally, they must fulfil the requirements in O'Brien to the letter.

Reference should be made to 'Good Banking - code of practice' second edition, March 1994, para 14.

We would suggest a counsel of perfection (references to signature include references to execution where appropriate):-- The lender's solicitor should try to meet every individual offering to guarantee or secure the principal debt at a meeting at which the principal debtor should not be present.-- At the meeting, the lender should explain fully and fairly the nature of the proposed transaction and its implications, including whether the liability is an unlimited one.-- The individual concerned should be warned that the documents to be signed are important legal documents and urged to take independent legal advice before signature.

The documents themselves should contain a similar warning ('Good banking', para 14.2).

In all cases where there may be possible conflict of interest, it will be inappropriate for the solicitor acting for the principal debtor also to act for the guarantor/surety.-- The lender must never entrust one individual concerned in the transaction with documents which require signature by another individual concerned in the transaction.-- Signature of the documents should take place in the presence of the lender's solicitor or at least in the presence of an independent witness, who should preferably be a solicitor, and who should indorse the relevant document to record compliance with the second and third points above.-- The guarantor/surety should always be given a copy of the instrument which he or she has signed.The consequence of the lender getting it wrong would be total invalidity (see TSB Bank plc v Camfield [1994] The Times, 7 December).

The lender's failure to follow careful procedures on grant will merely strengthen the surety's position on enforcement.