12. Duress and Undue Influence Flashcards
Remedies for duress / undue influence
only rescission
Definition: Duress
Violent or illegitimate threats or pressure that coerce a party into entering a contract or varying a contract
Who has the legal burden wrt Duress
Burden of proving duress is on the party who alleges it
When will threats of physical violence amount to Duress
If they were made at the time the contract was being made and they were atleast A reason for entering into the contract
Definition of Economic Duress
Threat must be improper or illegitimate
a. whose practical effect is that there is a compulsion on, or a lack of practical choice for, the victim;
b. which is illegitimate and
c. a significant cause inducing the claimant to enter the contract
What do the courts consider when deciding whether there has been ‘illegitimate pressure’
a. whether there has been an actual or a threatened breach of contract
b. whether the threat was made in good or bad faith
c. whether the victim protested at the time
Process of rescinding a contract
- Innocent party notifies other party that it wants to rescind
- If the other party is difficult, may have to apply to the court for an order of rescission
If a contract is made and a later variation is found to have been the result of economic duress (ie. forcing someone to accept less money for a new task), what is the effect of rescission here?
- Original contract will remain intact but the VARIATION will be rescinded
Definition of Undue Influence
Influence that
- goes beyond what is regarded as acceptable or
- where one party is in a position to influence another and takes unfair advantage of that position
When is undue influence PRESUMED
Where there is a fiduciary relationship (or relationship of trust and confidence) between the parties and a transaction occurs that calls for explanation
Why would a party prefer to rely on presumed undue influence than actual undue influence
Since fiduciary relationships tend to occur ‘behind closed doors’ easier to rely on presumption than try to establish facts which cannot be verified
Can a threat made (which constitutes undue influence) be LEGAL? or must it be illegal?
It can be entirely legal (ie. taking someone to court)
Two ways of demonstrating undue influence
- Actual Undue influence - proved on the facts
- Presumed Undue Influence - Fiduciary relationship and transaction which calls for explanation
How to prove a relationship is of ‘trust and confidence’
- implied in certain categories (solicitor and client, parents and children)
- If not presumed, innocent party must prove this (ie. husband and wife) in relation to that specific activity (ie. financial matters)
When will a transaction ‘call for explanation’?
If the transaction involves a party entering into a contract which is not for their benefit or exposes them to risk
Can the presumption of undue influence be rebutted?
Yes
Undue influence and third parties: when will a lender be ‘tainted’ by the undue influence of a third party
If the lender has actual or constructive notice of the debtor’s impropriety - any security contract obtained as a result will be voidable and can be set aside
When will a creditor be deemed to have ‘constructive notice’ of undue influence
- it ought to have been put ‘on inquiry’ and
- it did not take reasonable steps to ensure the surety was aware of the implications of what they were doing
When will a lender be put ‘on inquiry’
Where relationship between the debtor and surety is non-commercial and the loan is not for their joint benefit - only if the creditor is aware of this (if the debtor lies, nothing they can do)
Reasonable steps the lender must take once ‘on inquiry’
- Private meeting with surety to explain risks and advise them to take independent legal advice
If a creditor is stopped from enforcing their security due to their failing to take reasonable steps etc., is there anything they can get back?
They will still have an action against the debtor for the sum of money the creditor is owed - but may be difficult to get
