Duress and Undue Influence Flashcards
Is the following statement TRUE or FALSE?
If a party can prove that it has entered into a contract because of undue influence then that party may rescind the contract (provided none of the bars to rescission apply) and sue for damages for any further loss suffered.
True
False
FALSE. The statement is false because it is not possible to obtain damages for undue influence. The only remedy is rescission.
Which ONE of the following statements is CORRECT?
The doctrine of undue influence is based on inequality of bargaining power.
The doctrine of undue influence is always based on someone deliberately abusing a dominant position for personal gain.
In order to have a contract set aside a claimant must prove, on the balance of probabilities, that the claimant entered the contract as a result of undue influence.
A contract may be set aside because of undue influence exerted by a third party.
Option D is correct.
A is false – there must be an abuse of position by the ‘dominant’ party. B may be true in most cases, but not all of them. C is false – in some circumstances there will be a presumption of undue influence. D is true – an authority is Credit Lyonnais v Burch (1997).
If there has been duress, but rescission is barred, the court has a discretion to award damages in lieu of rescission if in all the circumstances it would be equitable to do so.
True or false?
True
False
No. Remember the only remedy for duress is rescission ( compare misrepresentation)
In Atlas Express v Kafco the court decided that the renegotiated contract was voidable due to economic duress. On what other ground,if any, did the court say that the new contract was not binding on Kafco?
Lack of consideration as Atlas Express had simply been performing an existing public duty.
Lack of consideration as Atlas Express was simply performing their contractual obligation to Woolworths to deliver the goods to them.
Lack of consideration as Atlas Express was simply performing its contractual obligation to Kafco to deliver the goods.
Correct answer
There was no alternative ground.
Unfortunately you are wrong. Can you see any link between this case and Williams v Roffey? The correct answer is Statement C. Atlas Express had simply been performing its existing contractual duty to Kafco to deliver the goods.
The principle established in Williams v Roffey was that performance of an existing public duty may be consideration if it confers a real practical benefit and there is nothing contrary to public policy.
True or false?
True
False
Right. The statement is based on what Denning said in Ward v Byham. Williams v Roffey was to do with performance of an existing contractual duty owed to the other party. If it confers a practical benefit or obviates a disbenefit it will be good consideration but if there’s duress any contract/variation will be voidable.
What barred rescission in The Atlantic Baron?
Restitution impossible.
Bona fide purchaser for value.
Restitution impossible and affirmation.
Undue delay and affirmation.
Yes. Undue delay as the innocent party had left it 8 months before purporting to rescind. Also payment of the extra after the pressure was removed could be seen as affirmation. The delay could also be seen as implied affirmation.
Which ONE of the following statements amounts to an illegitimate threat of commercial pressure?
Incorrect:
If you don’t increase your order by 50% we will stop giving you a discount.
If you don’t agree to pay us an extra £200 for the goods you’ve ordered we won’t deliver them to you.
If you don’t agree to pay us an extra £200 for the goods you’ve ordered, we won’t accept any more orders from you.
As demand for our goods is very high we are going to increase the cost of them by 60% starting immediately.
Sorry you are wrong. For a threat to be illegitimate, remember it will normally be a threat to breach a contract (as in Statement B ) or to commit a tort. There is nothing wrong with the threats made in A , C and D.
In Carillion Construction Ltd v Felix, Dyson listed three things needed for actionable duress. Which one of the following did he NOT include in the list.
Illegitimate threat or pressure.
Compulsion of the will so as to vitiate the consent of the victim.
Compulsion on, or a lack of practical choice for the victim.
Threat/pressure was a significant cause inducing the contract.
Sorry you picked the wrong one. The answer is Statement B which comes from a phrase used in an earlier case.
Which ONE of the following statements is WRONG?
For duress there must be some sort of illegitimate threat force or pressure.
Duress must have been the only reason why the innocent party entered into the contract.
Traditionally duress was limited to illegitimate threats force or pressure to the person or property.
In the case of traditional duress, once the victim has established duress the onus is on the wrongdoer to show that it did not in any way induce the contract.
You’re correct. With traditional duress the onus of proof is as in Statement D (Barton v Armstrong). B is wrong because duress does not have to be the only reason why the innocent party entered the contract, although for economic duress it must be a significant cause.
A client entered into a contract with a decorator to paint the outside of the client’s house which was in urgent need of attention. The agreed price was £3,000. Not long after the decorator had started painting the house, he explained to the client he had underestimated the cost and would need another £500 in order to finish the job. The client was outraged, but as the client could not find another decorator to complete the painting agreed to pay the extra money. The work was completed but the client only paid the decorator £3,000. The decorator is now suing the client for the extra £500.
Which one of the following best explains whether, or not, the decorator’s action will succeed?
No, because the decorator was simply performing an existing duty owed to the client and so gave no consideration for the promise of extra money.
No, because although the decorator conferred a practical benefit by completing the work the client could raise duress as a defence.
No: although the decorator conferred a practical benefit the variation would be void as the promise to pay more was made under duress.
Yes, because the decorator conferred a practical benefit and it would be inequitable for the client to renege on her promise to pay the extra money.
Yes, because the decorator gave consideration and the promise to pay the extra money was made as a result of hard but legitimate bargaining.
Statement B is correct. Performance of an existing duty owed to the other party is consideration if it confers a real practical benefit. There appears to have been an illegitimate threat though which left the client with no practical choice but to concede. Consequently, the client could rely on economic duress as a defence if sued by the decorator.
Statement A is wrong. Performance of an existing duty owed to the other party is consideration if it confers a real practical benefit. The client appears to have got the practical benefit of having the urgently needed work completed without having to find someone else to do it.
Statement C is wrong. Duress makes a variation voidable, not void.
Statement D is wrong as equity is not a relevant factor.
Statement E is wrong as there appears to be duress rather than just hard-bargaining.
A manufacturer had agreed with a carrier for the carrier to deliver products to the manufacturer’s main customer on Friday last week for £3,000 to be paid after delivery.
Last week, the carrier told the manufacturer that it could not deliver the products unless the manufacturer paid an extra £2,000. When the manufacturer protested, the carrier replied that if he refused to pay the extra it would not deliver the products. The manufacturer could not find another carrier to deliver the goods on time.
On Thursday last week, the manufacturer told the carrier that he had no choice but to agree to their terms. The carrier then delivered the products on time.
Which of the following statements best describes whether or not the manufacturer is obliged to pay the extra £2,000?
The manufacturer can refuse to pay the extra £2,000 because the promise to pay the extra £2,000 is voidable due to economic duress.
The manufacturer can refuse to pay the carrier any sum because the carrier had breached the original contract.
The manufacturer can refuse to pay the extra £2,000 because there is no practical benefit for the promise of extra money.
The manufacturer has to pay the extra £2,000 because he had agreed to do so.
The manufacturer has to pay the extra £2,000 because the carrier did more than it had originally agreed to do.
Option A is correct. The promise to pay the extra £2,000 is voidable due to economic duress.
Under the guidelines in Carillion v Felix [2001] BLR 1 there must be an illegitimate threat whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim which is a significant cause inducing the claimant to enter the contract. There is a range of factors as to whether pressure is illegitimate. These include actual or threatened breach of contract; has the person allegedly exerting the pressure acted in good or bad faith; whether the person has any realistic practical alternative but to submit to the pressure; whether the victim protested at the time; and whether he affirmed and sought to rely on the contract. In this case, the carrier threatened to breach contract, there was no realistic practical alternative available to the manufacturer and the manufacturer protested at the time. It is likely therefore that this is a case of economic duress.
Option B is wrong. The original contract remains binding and has been performed. The manufacturer must pay the original contract price.
Option C is wrong. The promise to pay an extra £2,000 did secure a practical benefit for the manufacturer – namely that the carrier would carry the goods. It is economic duress that renders the promise unenforceable.
Option D is wrong. The manufacturer did agree to pay the extra £2,000 but this agreement can be vitiated because of economic duress.
Option E is wrong. The promise to pay the extra sum would not be supported by extra consideration as the carrier only did what it had agreed to do in the original contract.
This question is similar to what happened in Atlas v Kafco [1989] 1 All ER 641.
A client manufactures precision parts for the aeronautical industry. Six months ago it won a large contract with a major aeroplane manufacturer. To fulfil this contract the client reached agreement with a tool making company (the ‘Company’) to supply certain equipment by the end of last week. Two months ago the Company told the client that it had underestimated costs and would have to charge an extra £6,000 if it was to carry on. The client protested but reluctantly agreed as it could not find another manufacturer to do the job. The equipment was made on time and the client paid the Company £16,000 (ie the original contract price plus the extra £6,000) on delivery.
Which of the following statements best describes the legal position?
The client’s promise to pay more would not be binding as the Company had given no consideration for it.
The contract with the Company could be set aside and the client would be refunded £16,000 because the promise to pay extra was made under duress.
The contractual variation would be binding because the Company had conferred a practical benefit and exerted no duress, just hard commercial bargaining.
The Company had provided consideration for the extra £6,000 but the variation would be voidable because of duress.
The promise to pay more money would be voidable because of duress but rescission would be barred.
The correct statement is D.
A is wrong because performance of an existing duty owed to the other party may be consideration if it confers a practical benefit.
B is wrong because even if the promise to pay more was made under duress it is only the variation that could be set aside in which case our client would be entitled to have £6,000 refunded.
C is wrong because the Company most likely exerted duress ie made an illegitimate threat which left our client with no practical choice and was a significant reason for promising to pay more.
Finally, E is wrong because on the facts there is nothing to suggest that rescission would be barred eg by delay. Affirmation would not apply as it appears the client had to pay the total price (including the extra) in order to take delivery of the goods.
A businessman contracted with a company to build a supermarket. Payment by instalments was agreed but no provision for price adjustments made. Higher than expected costs caused the company to demand a price increase, threatening to break the contract. Under protest, the businessman paid the remaining instalments at the higher level. The supermarket was completed nine months ago. The businessman now wants to rescind the variation (under which the higher-priced instalments were paid), based on an allegation of economic duress, and recover from the company the additional sums paid. Consideration is not an issue in the claim.
Which statement best describes the businessman’s ability to secure rescission of the variation?
He will succeed. Rescission can be based on economic duress arising from a threat to break a contract, even if (as here) there was good consideration for the variation.
He will not succeed. Rescission cannot be based on economic duress arising from a threat to break a contract regardless of whether there was good consideration for the variation.
He will succeed. The variation was made under economic duress so it is voidable, and by suing for rescission the businessman is electing to avoid that variation.
He will not succeed. The variation was made under economic duress so it is voidable, but rescission cannot be claimed as one or more bars to rescission are present.
He will succeed. The variation was made under economic duress so it is voidable, and rescission is available as no bars to rescission are present.
Option D is the best answer. Where a party is entitled to rescind, it can choose whether to enforce that right or elect to affirm the contract. But if a party affirms a contract it will lose its right to rescind (The Atlantic Baron [1979] QB 705, 721 per Mocatta J). Undue delay in asserting the right to rescind will also be a bar to rescission. On the facts there is evidence of undue delay (the businessman has only started to think about rescinding the variation nine months since completion) which might also be taken by the courts to signal apparent affirmation of the variation.
Option A is wrong. Although duress can include threats to economic interests, a claim for rescission will not succeed if one of the bars to it has arisen. On the facts, success is not guaranteed due to apparent affirmation and delay.
Option B is wrong. Duress can include threats to economic interests (as above).
Option C is wrong. Although the commencement of proceedings to enforce rescission can amount to communication of an election to rescind the answer does not take into account the probable pre-existing bars to rescission.
Option E is wrong. One or more bars to rescission are present.
An IT company entered into a contract to sell computers abroad. In order to complete the manufacture of those computers, the IT company agreed to purchase specialist circuit boards from a supplier for the sum of £20,000. A day before the supplier was due to supply the circuit boards, it contacted the IT company to demand an additional £10,000 and advised that it would not supply the circuit boards unless that additional sum was paid. Worried that it would lose its contract to sell its computers abroad, the IT company felt that it had no alternative but to agree and advised that it would, under protest, pay the additional sum. The supplier delivered the circuit boards and, five days later, the IT company paid the sum of £30,000.
Which of the following best describes whether the IT company can demand money back from the supplier?
The IT company can demand repayment of the full £30,000 because of the supplier’s economic duress.
The IT company can demand repayment of the sum of £10,000 because of the supplier’s economic duress.
The IT company can demand repayment of the sum of £10,000 as it did not receive sufficient consideration for that sum.
The IT company cannot demand repayment of any sum because it voluntarily agreed to pay the supplier £30,000.
The IT company cannot demand repayment of any sum because the agreement to pay the supplier £30,000 has been affirmed.
Option E is correct. The facts suggest that the agreement to pay the additional sum of £10,000 was caused by the supplier’s economic duress. The supplier threatened to breach contract (thereby applying illegitimate pressure) and the IT company had no practical choice but to agree. The variation to pay the supplier the additional sum of £10,000 therefore was initially voidable and could have been set aside by the IT company.
However, paying the supplier the additional sum demanded after the supplier had delivered the circuit boards suggests that the IT company has affirmed the variation. Having supplied the circuit boards, the supplier no longer had the ‘upper hand’. The IT company could have simply refused to pay the additional sum at that point and there would have been nothing the supplier could have done. The IT company may therefore be taken to have freely agreed to pay the additional sum of £10,000 and cannot now set aside the variation to recover that sum.
Option A is wrong. Even if it was still open to the IT company to take action as a consequence of the supplier’s economic duress, it would have only been able to set aside the agreement to pay the additional sum of £10,000. There is nothing to suggest that the original agreement to pay £20,000 was entered into as a result of economic duress and therefore that agreement would still stand.
Option B does not represent the best answer. While there was economic duress, the IT company’s ability to recover the additional sum of £10,000 is likely barred by affirmation. As a result, the IT company cannot now demand any money back.
Option C does not represent the best answer. Ordinarily, the promise to pay an additional sum in exchange for a promise to perform an existing contractual duty is not binding for want of consideration. However, in this case, the IT company presumably obtained a practical benefit in securing the supply of the circuit boards, namely the fact that it could honour its contractual obligation to sell its computers abroad. This would be valid consideration under the principle of Williams v Roffey.
Option D is wrong. The facts make it clear that the IT company did not at the time voluntarily agree to pay the additional sum of £10,000.
A client and her husband jointly own the family house (‘the house’) which is mortgaged to a bank (‘the bank’). The client is disabled and cannot work but manages the family finances. The husband owns a small business. To expand the business the husband approached the bank for a loan. The bank agreed on condition it had a second charge on the house. The client was loathe to re-mortgage the house but was eventually persuaded by her husband. The bank manager went to the house to see the couple. The client said she understood the risks and signed the necessary paperwork. The husband defaulted on the loan and the bank is seeking to repossess the house.
Would the client have any ground(s) for arguing that the re-mortgage should be set aside?
Yes, because undue influence by the husband would be presumed and the bank had actual notice of it.
Yes, because undue influence would be presumed and the bank did not insist the client took independent advice.
Yes, because the client may be able to establish actual undue influence by the husband and that the bank had constructive notice of it.
No, because the bank was not put on inquiry of any undue influence and the client understood the risks.
No, because the wife managed the couple’s finances and was aware of the risks involved in re-mortgaging the house.
C is correct. The client may be able to show actual undue influence (Daniel v Drew). The bank should have been put on inquiry as the relationship between the client and debtor was non-commercial and the loan was not for their joint benefit. The bank does not appear to have had a private meeting with the client to explain the risks and she did not take independent advice: so the bank would have constructive notice of the undue influence.
A and B are wrong. Undue influence would not be presumed as the relationship between client and husband was not by its nature or in fact one of trust and confidence. She managed the finances, had been loathe to re-mortgage the house and said she understood the risks. Also there is no evidence the bank had actual notice of undue influence.
D is wrong. The bank should have been put on inquiry as the relationship between the client and debtor was non-commercial and the loan was not for their joint benefit.
E is wrong because there appears to have been undue influence of which the bank had constructive notice.
