Contract 9 Providing Security for Another's Person Loan Flashcards
Define undue influence
(Abuse; advantages)
The abuse of a dominant position in a relationship that involves an inappropriate influence on C; or where one party takes advantages of a relationship or trust or confidence.
Discuss actual undue influence
Distinguishing undue influence from duress
Difficult in relying an action on undue influence
Case law
exerting physical pressure or using violence to bend the other party to D’s will in signing the contract. but unlike duress, it needs not be with bad faith or unlawful
Very hard to prove since the onus is on C
Example: old lady forced to enter contract by threat of court action (threat may well be legal). the Old lady’s evidence was preferred to the nephew’s (Daniel v Drew)
2 situation where there will be presumed undue influence
where there is a fiduciary relationship (parent to child, solicitor to client, doctor to patient, teacher to pupil etc.)
where the transanaction calls for an explanation (for example credit lyonnais v burch where an employee became a surety for a loan with unlimited liability for her boss)
Define relationship of trust and confidence
provide examples
a relationship of influence, where one party trusts the other, and the other conducts his business independently
Doctor/patient, solicitor/client, parent/minor child, financial advisor/advisee, manager/artist)
Define transaction calls for explanation
ERG
The transanction must be such that it is not readily explicable by the relationship between the parties
when a very large risk is entirely upon one person and that person is not a partner of the business
with a gift that is so large it would not seem reasonable on the basis of their relationship
How may the presumed undue influence be rebutted in terms of burden of proof
if there is a fiduciary relationship and the transanction calls for explantion, then the onus will be shifted to D, to show C exercised their own free informed mind in agreeing to sign (independant advice)
Effect of notice for contract induced by undue influence
If lender has actual or constructive notice of the debtor’s impropriety, the lender will be tainted by it. the contract will be voidable.
When will the lender have constructive notice? why is it important to know if the bank is put on inquiry.
A lender will have constructive (meaning implied) notice if
it ought to have been put on inquiry of risk of undue influence by the debtor,
Banks are put on inquiry whenever surety-debtor relationship is non commerical
and it did not take reasonable steps to ensure that the surety was aware of the implications of what she was signing
If bank has constructive notice, what reasonable steps it must take to ensure consent properly obtained?
In Royal Bank of Scotland v Etridge, bank may
have a private meeting with the surety
warn/inform surety of the risk
urge surety to take legal advice. solictor should send a written confirmation to evidence the consultation,
In extreme scenario, the bank MUST ensure and insist that the surety takes independent advice
Consequence of undue influence
contracts become voidable
Recission unless there are bars:
delay - state provided surety take action soon, delay will not be a bar
affirmation
subject matter destroyed or exhausted
an innocent party (equity’s darling) acquired an interest in the property before it is voided
Two ways of proving undue influences
actual undue influecne by reference to overt acts
presumed undue influence as a result of the relationship between two parties
Define illegal contract
A contract to carry out criminal activities will naturally be illegal and is void and unenforceable.
in the case of illegal performance of an otherwise lawful contract, this does not precude the innocent party from remedies. if they later learn of the illegality they must cease perfomance, and no rights can be accrued to them under the contract from that point.
Define restrictive convenant
Restraint of trade clauuses include obligations in employment contracts to restrict employees who have left from competing against their former employer or poaching clients or colleagues. non-compete clausesin business.
They can be void unless reasonable.
