Contract Law -> Duress and undue influence Flashcards
Define Duress
A threat of harm made to compel someone to do something against their will or judgement
Economic duress - Refers to one party’s improper or illegal conduct that causes the other party’s fear of economic hardship and the fear prevents the party from engaging in a commercial agreement with free will
Case law for establishing Duress
Barton v Armstrong [1976]
Both were major shareholders in a company. Following a meeting, it was agreed that Barton would buy up Armstrong’s interest. After executing the contract, Barton brought an action claiming he was coerced into buying the interest. Appeal was allowed by the court.
What are the two classes of undue influence
Class 1: Actual undue influence: Occurs when one party exerts direct pressure or influence on another party, leading them to enter into a contract against their free will. Burden of proof is on the claimant to provide proof of specific behavior that amounted to undue influence
Class 2: Presumed undue influence: Arises from certain relationships where there is a lack of independent advice or support for the vulnerable party. Burden on proof is on the party that benefits from the transaction
Define undue influence
Refers to circumstances where a stronger party exerts improper pressure on a weaker party to induce them into a contract against their will.
If undue influence is found, the contract is invalidated and becomes voidable.
Case law for defining undue influence classes
Bank of Credit and Commerce International v Aboody [1990]
Husband and Wife owned shares in a family company. The company had debts owed to the bank, which were secured by charges on the wife’s house.
The husband persuaded the wife to sign a charge securing the family home on these debts.
The wife sought to have the mortgage set aside, arguing that it was procured by actual undue influence from her husband.
The court found that the husband had indeed exerted actual undue influence on the wife.
However, the transaction was not to the manifest disadvantage of the wife because she also owned shares in the company.
Clarifying the rules governing the equitable doctrine of undue influence
Royal Bank of Scotland plc v Etridge 2002
The case dealt with situations where one party unduly influences another to enter into a contract
The case involved married couples who had mortgaged their homes to secure loans used by their respective husbands for their businesses. The wives had no direct benefit from these loans.
The House of Lords held that banks are obligated to ensure that both spouses obtain independent legal advice, especially when the loan would only benefit one person. The bank is “put on inquiry” to watch out for undue influence or misrepresentation in such cases.
Role of Solicitors: The entrusted solicitor should meet the wife in private, without the husband’s presence, to discuss the planned loan. The solicitor must certify that both parties gave fully informed consent. Once the solicitor certifies free consent, the bank’s security is protected by the presumption of ‘expression of … free will.’ The bank cannot be held liable for deficient legal advice unless it believes the advice was incorrect.
Case law for establishing economic duress
DSND Subsea v Petroleum 2000
DSND entered into a memorandum of understanding varying the terms of the agreement with PGS, after DSND was found to have a made a misrepresentation in their original agreement. PGS then cancelled the agreement, claiming that DSND had breached the terms of the agreement by making false representations and forcing PGS to sign under duress.
The appeal by PGS was dismissed. The court found that the misrepresentation had not led PGS to sign the agreement in the first instance and that there had been no evidence that any duress had occurred.
