Contract - Undue Influence

Question 1

Define Undue Influence

Answer 1

Where one party takes advantage of a relationship of trust and confidence

Question 2

What may constitute actual undue influence

Answer 2

Husband shouting at wife to sign a document (hard to prove)

Question 3

When will undue influence be presumed? (+ Authority)

Answer 3

RBS v Etridge
1- There is a relationship of trust and confidence
2- The transaction calls for an explanation

Question 4

Husband/ Wife or cohabitee relationship does not raise an irrebuttable presumption of fiduciary relationship

Answer 4

(Barclays v O’Brien)

Question 5

The transaction must be such that it is not readily explainable by the relationship of the parties

Answer 5

RBS v Etridge

Question 6

What is the effect of notice?

Answer 6

If the bank/ lender has actual/ constructive notice of the undue influence they will be tainted with it. Consequently, the contract will be voidable

Question 7

When will a lender have constructive notice?

Answer 7

1- Ought to have been put on inquiry of the risk of undue influence by the debtor
2- Did not take reasonable steps to ensure the surety was aware of the implications of what she was signing

Question 8

When are banks put on inquiry?

Answer 8

whenever the surety-debtor relationship is non-commercial (RBS v Etridge)

Question 9

Joint advance (e.g. straightforward mortgage) will not put bank on notice as wife not standing as surety

Answer 9

Pitt v CIBC Mortgages

Question 10

how can the lender reasonably ensure the surety’s consent was properly obtained? (3 ways)

Answer 10

RBS v Etridge
1- Have a private meeting
2- Warn surety of the risks
3- Urge surety to take legal advice

Question 11

In extreme situations where the transaction is particularly disadvantageous to a surety the creditor could ensure and insist they receive independent legal advice

Answer 11

Lyonnais v Burch

Question 12

What remedies are available for undue influence?

Answer 12

rescission (so long as not barred)

Question 13

What are the four bars to rescission?

Answer 13

1-Delay
2- Impossibility
3- Innocent 3rd party
4- Affirmation

Question 14

A case where there was actual undue influence (Nephew forcing old lady to enter into a contract)

Answer 14

Daniel v Drew

Question 15

How will a fact-based fiduciary duty be spotted?

Answer 15

LAC Minerals:
1- X has undertaken to act for Y
2- Y reasonably beleives X will act exclusively in Y’s interest / their joint interests