Chapter 7 - Duress and Undue Influence

Question 1

What is the essence of an agreement in contract law?

Answer 1

The essence of an agreement in contract law is that all parties freely consent to the agreed terms. A contract may be voidable if a party was forced into it by threats or undue pressure.

Question 2

What is duress in contract law?

Answer 2

Duress in contract law is when one party uses illegitimate threats of violence or damage to property to force the other party into entering or changing a contract. A contract entered into under duress is voidable.

Question 3

Describe the case of Barton v Armstrong \ AC 104.

Answer 3

Armstrong threatened to kill Barton if Barton did not buy his shares in their company. The court held that the agreement was voidable because Armstrong’s threats were a factor in Barton’s decision.

Question 4

What is the burden of proof in cases of duress?

Answer 4

Traditionally, the burden of proof was on the party alleging duress to show that the threats were a reason for entering the contract.

Question 5

Distinguish between illegitimate threats and acceptable commercial pressure in the context of economic duress.

Answer 5

Economic duress involves illegitimate threats to a person’s economic or business interests. Illegitimate threats must be distinguished from acceptable commercial pressure, such as the threat to take business elsewhere.

Question 6

What is the key element of economic duress?

Answer 6

To constitute economic duress, the threat must be improper, like a threat to breach a contract or commit a tort.

Question 7

Describe the case of Atlas Express v Kafco \ 1 All ER 641.

Answer 7

Atlas Express, a haulage company, contracted with Kafco to transport goods. Kafco agreed to the increase under duress. The court held that the agreement to pay more was obtained through economic duress, making the renegotiation voidable.

Question 8

Why couldn’t the principle of Williams v Roffey \ 1 QB 1 apply in Atlas Express v Kafco?

Answer 8

The principle in Williams v Roffey couldn’t apply in Atlas Express v Kafco because Atlas used duress to obtain the promise.

Question 9

How has the understanding of duress in contract law evolved?

Answer 9

Earlier, it was emphasized that duress vitiated consent. However, the focus has shifted to the nature of the pressure used to obtain consent.

Question 10

What are examples of illegitimate pressure in the context of duress?

Answer 10

Illegitimate pressure can include unlawful threats such as threats to commit a crime or a tort, or threats to breach a contract.

Question 11

Summarize the ingredients required to establish economic duress as per Carillion Construction Ltd v Felix (UK) Ltd \ BLR 1.

Answer 11

To establish economic duress, one must prove: 1) pressure that compels the victim or leaves them with no practical choice, 2) the pressure is illegitimate, and 3) the pressure is a significant factor inducing the claimant to enter the contract.

Question 12

What are the factors a court will consider when determining if there was illegitimate pressure?

Answer 12

When determining if there’s illegitimate pressure, the court will consider: if there’s a breach or threatened breach of contract; if the party applying pressure acted in good or bad faith; if the victim had other practical alternatives; if the victim protested.

Question 13

What was the significance of the Pakistan International Airline Corporation v Times Travel (UK) Ltd \ UKSC 40 case?

Answer 13

This Supreme Court case confirmed the Carillion guidelines for economic duress, confirming the three elements: illegitimate threat/pressure causing the claimant to enter the contract or variation.

Question 14

What is the remedy for duress?

Answer 14

Rescission is the only remedy for duress; there are no damages.

Question 15

What options are available if a party wishes to rescind a contract due to duress?

Answer 15

The easiest way to rescind is to notify the other party. If the other party is unreachable or refuses to cooperate, the innocent party can notify the police or seek a court order for rescission.

Question 16

What are the bars to rescission in cases of duress?

Answer 16

Rescission may be barred by: affirmation of the contract, undue delay in seeking rescission, if an innocent third party has acquired rights in the property.

Question 17

Describe the case of North Ocean Shipping v Hyundai Construction Co (The Atlantic Baron) \ QB 705 and the bars to rescission that applied.

Answer 17

Shipbuilders demanded more money during construction and threatened to stop work. Rescission was barred due to affirmation and undue delay.

Question 18

What was the most sensible course of action for the ship owners in The Atlantic Baron after the ship’s delivery?

Answer 18

The best approach would have been to refuse to pay the extra money.

Question 19

In cases like Atlas Express v Kafco and The Atlantic Baron, what specific element of the contract is affected by duress?

Answer 19

In these cases, only the later variation (the promise to pay extra) is affected by duress.

Question 20

Briefly summarize the concept of duress.

Answer 20

Duress occurs when an illegitimate threat leaves a party with no practical choice but to enter a contract or variation.

Question 21

What are the key similarities and differences between duress and undue influence?

Answer 21

Both duress and undue influence make a contract voidable, the remedy is rescission, and the same bars to rescission apply. However, duress involves threats or violence, while undue influence involves excessive influence.

Question 22

What is undue influence and how is it established in contract law?

Answer 22

Undue influence involves influence that exceeds acceptable limits, making a contract voidable. The law identifies unequal relationships and examines if the dominant person abused their position.

Question 23

Contrast the burden of proof for duress and undue influence.

Answer 23

In duress, the innocent party must prove the existence of duress. However, in undue influence, it can be either actual or presumed.

Question 24

Describe actual undue influence and provide a case example.

Answer 24

Actual undue influence requires the claimant to prove the defendant exerted undue influence. In Daniel v Drew \ EWCA Civ 507, an elderly lady signed a contract under pressure from her nephew.

Question 25

How do threats differ in cases of duress and undue influence?

Answer 25

In duress, the threat is usually illegal, such as a threat of violence. However, in undue influence, the threat can be entirely legal.

Question 26

What are the requirements to establish presumed undue influence?

Answer 26

Presumed undue influence requires two elements: a relationship of trust and confidence between the parties and a transaction that requires explanation.

Question 27

In what relationships is a relationship of trust and confidence irrebuttably presumed?

Answer 27

In certain relationships like solicitor-client, doctor-patient, parent-child (under 18), and religious advisor-follower, a relationship of trust is presumed.

Question 28

How can a relationship of trust and confidence be established in cases where it’s not automatically presumed?

Answer 28

In cases where trust is not presumed, the innocent party must prove its existence.

Question 29

Explain the case of Tate v Williamson (1866) 2 Ch App 55 and how it relates to undue influence.

Answer 29

In Tate v Williamson, a financial advisor took advantage of an indebted student by purchasing his estate for far less than its actual worth.

Question 30

Describe the case of O’Sullivan v Management Agency Ltd \ QB 428 and the relationship of trust and confidence it established.

Answer 30

In this case, a relationship of trust and confidence was established between a young, unknown singer-songwriter and his manager.

Question 31

What is the second requirement for establishing presumed undue influence, besides a relationship of trust and confidence?

Answer 31

Beyond trust, the transaction must call for explanation, meaning it cannot be easily explained by the nature of the relationship.

Question 32

Is the presumption of undue influence absolute?

Answer 32

No, the presumption of undue influence is rebuttable.

Question 33

What is the concept of ‘tainting’ in the context of undue influence and third parties?

Answer 33

Tainting refers to situations where a contracting party, often a lender, is affected by the undue influence of a third party.

Question 34

Describe a typical scenario where undue influence from a third party might taint a contract.

Answer 34

A husband needs a loan for his business and uses undue influence to get his wife to sign as surety.

Question 35

What is the legal dilemma in cases of undue influence involving third-party debtors?

Answer 35

The dilemma lies in balancing the interests of two innocent parties: the lender and the surety.

Question 36

How did Barclays Bank v O’Brien \ 1 AC 340 change the understanding of undue influence by third-party debtors?

Answer 36

Before this case, lenders were generally unaffected by third-party undue influence unless the debtor acted as the lender’s agent.

Question 37

Explain the concept of constructive notice in the context of undue influence by third-party debtors.

Answer 37

Constructive notice arises when the lender should have been aware of the risk of undue influence but didn’t take reasonable steps.

Question 38

Describe the case of CIBC Mortgages plc v Pitt \ 4 All ER 433 and why the lender wasn’t considered to have notice.

Answer 38

A husband used undue influence to get his wife to sign a mortgage application. The lender had no actual or constructive notice of the undue influence.

Question 39

How did CIBC Mortgages v Pitt impact the practical considerations for lenders in transactions involving spouses?

Answer 39

This case established that lenders are not automatically assumed to have notice of undue influence.

Question 40

What was the outcome regarding the lender’s notice in the case of undue influence?

Answer 40

The lender had no actual or constructive notice of the undue influence and wasn’t alerted to any impropriety. The House of Lords held that the wife couldn’t set aside the transaction against the lender.

Question 41

How did CIBC Mortgages v Pitt impact the practical considerations for lenders in transactions involving spouses?

Answer 41

This case established that lenders are not automatically assumed to have constructive notice in all transactions involving spouses. Requiring separate meetings and independent advice for every joint transaction would burden both lenders and couples.

Question 42

What key principles did the House of Lords establish in Royal Bank of Scotland v Etridge (No 2) regarding undue influence by third parties?

Answer 42

Etridge (No 2) confirmed that a creditor is tainted by the debtor’s undue influence if they had actual or constructive notice. Constructive notice exists if the creditor should have been aware of the undue influence risk but failed to take reasonable steps to ensure the surety understood the implications.

Question 43

When will a creditor be considered ‘put on inquiry’ about the risk of undue influence according to Etridge (No 2)?

Answer 43

A creditor is ‘put on inquiry’ if a wife acts as surety for her husband’s debts. If the loan is for both spouses jointly, inquiry is triggered unless the creditor knows it’s solely for the husband’s purposes.

Question 44

What are the reasonable steps a creditor should take when put on inquiry about the risk of undue influence?

Answer 44

The creditor can satisfy their obligation in two ways: First, by having a private meeting with the surety, explaining their liability, warning them of the risks, and urging independent legal advice. Second, by obtaining written confirmation from a solicitor that the surety received independent advice and understands the risks.

Question 45

How does obtaining written confirmation from a solicitor benefit the lender in cases of potential undue influence?

Answer 45

Written confirmation from the surety’s solicitor that they received independent advice transfers the risk of inadequate advice from the lender to the solicitor. This confirmation usually guarantees the security transaction will be upheld.

Question 46

In Etridge (No 2), why did Mrs. Etridge’s argument of undue influence fail?

Answer 46

Her solicitor falsely confirmed to the bank that they had advised her about the charge. The bank relied on this confirmation, and the court found no further steps were reasonably required of them.

Question 47

Besides undue influence, what other wrongdoing by the debtor did Etridge (No 2) address?

Answer 47

Etridge (No 2) clarified that the principles of notice and reasonable steps apply to other situations, such as misrepresentation by the debtor, as was the case in O’Brien.

Question 48

Describe the case of Credit Lyonnais Bank Nederland NV v Burch and its implications for lenders in cases of undue influence.

Answer 48

A junior employee mortgaged her flat to secure her employer’s unlimited business liabilities under presumed undue influence. The court held the bank hadn’t done enough to ensure her consent was freely given, rendering the security unenforceable.

Question 49

What key lesson does the Burch case teach lenders about protecting themselves from claims of undue influence?

Answer 49

Burch highlights that in certain situations, merely urging the surety to get independent advice isn’t enough. The lender must insist on it, especially when the transaction is significantly disadvantageous to the surety.

Question 50

Summarize the steps for analyzing a problem question involving undue influence by a third-party debtor in secured lending.

Answer 50

1. Define undue influence. 2. Determine if there was undue influence (actual or presumed). 3. Analyze the lender’s position, considering notice (actual or constructive) and if they took reasonable steps to protect the surety. 4. Assess the effect of undue influence and if rescission is possible.

Question 51

Briefly summarize the concept of undue influence and its implications.

Answer 51

Undue influence occurs when excessive pressure is used to secure a contract, making it voidable. A lender can be affected by a third party’s undue influence if they had notice and didn’t take reasonable steps to protect the surety.

Question 52

What are the main points to remember about economic duress and undue influence in contract law?

Answer 52

Economic duress often affects contract variations, arising from illegitimate threats. Undue influence doesn’t require direct threats; it can be presumed. Lenders can be impacted by third-party undue influence.

Question 53

What is the central issue regarding consideration in the case of George and Mercator Carriers?

Answer 53

The main question is whether Mercator Carriers provided sufficient consideration for George’s promise to pay an increased price.

Question 54

Explain the concept of consideration using the provided definition and the Chappell v Nestlé case.

Answer 54

Consideration is what the claimant gives in exchange for the defendant’s promise. It must be sufficient but doesn’t need to be adequate. The Chappell v Nestlé case illustrates that even something seemingly trivial can be sufficient consideration.

Question 55

What is the general rule regarding performing existing contractual duties and consideration?

Answer 55

The general rule is that merely performing existing contractual obligations is not enough consideration for a promise of more money.

Question 56

Why is consideration not a problem in the case of George and Mercator?

Answer 56

Mercator Carriers did more than their original agreement by offering additional deliveries in exchange for the increased price, constituting sufficient consideration.

Question 57

Why isn’t Williams v Roffey relevant in the George and Mercator scenario?

Answer 57

The principle in Williams v Roffey doesn’t apply here because Mercator clearly went beyond their original obligations by offering extra deliveries.

Question 58

What is the primary argument George could use to avoid paying the extra £200 to Mercator?

Answer 58

George can argue that the agreement to pay extra was made under economic duress, demonstrating that Mercator used an illegitimate threat.

Question 59

Explain the concept of economic duress and differentiate it from legitimate commercial pressure.

Answer 59

Economic duress involves an illegitimate threat that compels a party with no practical alternative to agree to a contractual change. It differs from legitimate commercial pressure, which is considered acceptable.

Question 60

Explain how the case of Atlas Express v Kafco is relevant to George’s situation.

Answer 60

Both situations involve an improper threat to breach a contract unless more money is paid, leaving the innocent party with little choice but to agree.

Question 61

Outline the guidelines from Carillion Construction Ltd v Felix (UK) Ltd for establishing economic duress.

Answer 61

According to Carillion, economic duress involves three elements: 1) an illegitimate threat or pressure, 2) compulsion or lack of practical choice for the victim, and 3) the threat being a significant factor in inducing the claimant to enter the contract.

Question 62

What is the legal effect of economic duress on a contract?

Answer 62

Duress makes a contract voidable, meaning it’s initially valid but can be set aside by the innocent party.

Question 63

What is George seeking to do and what potential bars to rescission might apply?

Answer 63

George wants to rescind the variation where he agreed to pay the extra £200. However, rescission might be barred by affirmation or by delay.

Question 64

Compare and contrast George’s situation with The Atlantic Baron regarding bars to rescission.

Answer 64

In The Atlantic Baron, rescission was barred by both affirmation and delay. George’s two-week delay is unlikely to be considered undue, but his payment of the extra £200 might be seen as affirmation.

Question 65

What is the likely outcome of George’s attempt to recover the extra £200?

Answer 65

It’s likely that the variation to pay the extra £200 is voidable due to economic duress. If so, George should be able to rescind the variation and recover the money.

Question 66

What must Kate prove to establish presumed undue influence by Steve?

Answer 66

To establish presumed undue influence, Kate must demonstrate that she placed trust and confidence in Steve regarding financial matters and that the transaction was not easily explainable by their relationship.

Question 67

Why is proving actual undue influence likely to be difficult for Kate?

Answer 67

Proving actual undue influence requires strong evidence of Steve’s improper pressure, which is insufficient based on the facts provided.

Question 68

Does the information provided suggest that the transaction between Kate and Steve meets the requirement of calling for explanation?

Answer 68

Yes, the transaction raises questions as it is not readily explained by their relationship.

Question 69

Based on the available information, is a presumption of undue influence likely to be established?

Answer 69

Yes, given Kate’s habit of leaving financial decisions to Steve and signing documents without scrutiny, a presumption of undue influence is likely.

Question 70

What is the likely position of Quality Finance Company regarding Steve’s undue influence over Kate?

Answer 70

Quality Finance likely has constructive notice of Steve’s undue influence due to the non-commercial relationship and the loan not being for their joint benefit.

Question 71

What actions should Quality Finance have taken to avoid being affected by Steve’s undue influence?

Answer 71

Quality Finance should have held a private meeting with Kate, explaining the risks and urging her to seek independent legal advice.

Question 72

What is the likely outcome of the situation with Kate, Steve, and Quality Finance Company?

Answer 72

Due to Quality Finance’s likely constructive notice and failure to take reasonable steps, Kate can likely set aside the mortgage agreement.