Contract - Capacity, Duress & Undue Influence Flashcards
Outline the process for how decide whether a contract will bind a “minor”.
In what 2 circumstances will a “minor” be bound?
- The contract concerns “necessaries” (essential goods or services). [Minor must pay a reasonable price].
- The contract is for employment, apprenticeship or education AND it is, on the whole, for the child’s benefit.
In all other circumstances, the contract is not binding on the minor.
MCQ EXAMPLE: S hires a leafblower and intends to provide services to neighbours. She uses the equipment but refuses to pay. THIS IS NOT ENOUGH for the 2 exceptions (above) to apply and the contract cannot be enforced against S because she is a minor.
How does the law of contract define lack of mental capacity?
The person must be able to - at the time the contract is made - be able to:
(1) Understand the information,
(2) Retain the relevant information,
(3) Use that relevant information.
Here, “information” means info related to the reasonably foreseeable consequences of making a decision or failing to make a decision.
For example, a person lacking mental capacity may be able to decide where they want to live (e.g. care home or personal home) but they may be too impaired to agree to a decision to move around large amounts of money to invest in their future.
If someone lacks mental capacity, are they liable for contracts they sign?
NOTE that similar rules apply for intoxicated people.
A. The person w/o capacity must pay a reasonable price for “necessaries” (essential goods or services).
B. In all other cases, the contract is binding unless the person w/o capacity can show that:
(1) The person w/o capacity did not understand what they were doing.
(2) The other party KNEW that this was the case.
If B. is made out, the contract is void ab initio.
What do you need to rely on duress to the person?
E.g. physical threats of violence?
Where there is duress to the person there was no obligation to show that he would not have entered the agreement but for the threat, it simply being sufficient that the death threats were a cause (Barton v Armstrong).
What is the test for economic duress?
- For example, where duress is not found but C is put under economic threats in entering into a contract.
- Did the person claiming to be coerced protest? (Doesn’t have to be illegal - R v AG).
- Did that person have any other available course of action? NO OTHER PRACTICAL CHOICE.
- Were they independently advised?
- After entering into the contract, did they take steps to avoid it?
(Pao On case)
For economic duress, what happens if you wait too long to bring a claim?
A contract was voidable for duress, however, since the claimants had left it so long in bringing their claim they had affirmed the contract and lost their right to rescind.
What amounts to “economic duress”? Provide the legal test.
Is good faith relevant?
Yes, a demand for a contractual variation DONE IN GOOD FAITH is unlikely to be economic duress.
There must be pressure:
(a) whose practical effect is that there is compulsion on, or lack of practical choice for, the victim,
(b) which is illegitimate, and
(c) which is a SIGNIFICANT CAUSE inducing the claimant to enter into the contract”.
On the facts, C was building for D on oil rigs. Due to a change in the work to be done, C suspended all working and asked for a contractual variance, based on a genuine concern of risk involved in the new way of working. Due to the pressure, D agreed.
HELD: CONTRACT IS NOT VOID FOR ECONOMIC DURESS.
A builder agrees to build a house for a landlady, due for completion on 1 February, for £100,000. The landlady agrees with a third party to rent the property from 2 February, at a premium rate. On 20 January a labour shortage occurs and the builder, knowing the landlady will not find another builder, threatens to stop work unless he is paid an extra £10,000. The landlady protests, but pays the extra £10,000. The house is completed on 1 February. The landlady waits until the third party begins renting the property and then seeks the return of the £10,000.
The landlady’s claim for economic duress is likely to succeed. Although the landlady delayed taking action to set the contract aside, this is unlikely to amount to an act of affirmation [because it was a short period of time].
What are the 3 types of duress?
- Duress to the person (threats or actual violence)
- only needs to be ONE FACTOR influencing C’s decision (need not be decisive)
- burden of proof is on the other party to prove the duress had NO effect on C. - Duress to property (threat to seize or harm someone’s goods)
- without this duress, C would not have entered into the contract. - Economic duress
(A) illegitimate pressure on C (as opposed to pressure as part of normal business dealings!)
(B) pressure means that C has no practical choice but to accept
(C) C would not have entered into the contract without that illegitimate pressure.
What is the legal effect of duress / undue influence?
The contract is voidable and rescission is available.
Rescission is available unless the contract is affirmed / it is impossible to return the parties to their original position, in which case, damages are available.
What is meant by “no practical benefit” for economic duress?
Felix knew that Carillion could not find an alternative supplier in time, and Felix knew that Carillion would be subject to heavy fees for late delivery, so Felix was in a strong position to ask for substantially more money.
Before paying, Carillion wrote a letter protesting the demand but they had to concede.
Held: This was economic duress.
Where C has no alternative but to accept revised terms which are detrimental to his interests, on the basis of ILLEGITIMATE threats, this is economic duress (Altas Express).
What is meant by “illegitimate pressure” for economic duress?
Actual or threatened breach of contract? A threat to breach a contract is unlawful and will often be “illegitimate pressure”, unless done in good faith, e.g. threatening not to perform a contract until the insurance position of your workers is clarified.
Is the person exerting the pressure acting in good faith or bad faith?
Did the victim protest at the time, e.g. in writing or orally?
Did the victim affirm and seek to rely on the contract?
Does the “but for” test apply to economic duress re. causastion?
Yes - the victim would not have entered into the contract but for the economic duress.
What is undue influence?
- Improper pressure or coercion (overlap with duress)
- Unfair advantage taken from a relationship of influence / ascendancy / trust & confidence.
- parent-child (transferring land or including child in the will);
- solicitor-client; doctor-patient;
- husband-wife (spouse forcing other spouse to take out mortgage for their business).
NOTE that undue influence is deliberately kept open and very wide (case law; equitable doctrine).
What is the causation test for undue influence
FRAUD/DECEIT: the undue influence needs to be ONE factor but need not be proven to be the decisive factor.
Non-Fraud Cases: “But For” the undue influence, the victim would not have entered into the contract / will / deed, etc…
