Duress and Undue Influence

Question 1

what is duress?

Answer 1

illegitimate pressure or coercion by actions or threats of action that makes a person agree to enter into a contract or amend a contract where consent is not freely given

the innocent party has no choice but to comply

Question 2

what is the legal effect of duress and / or undue influence?

Answer 2

the contract is voidable

the contract remains in force unless the innocent party takes action

Question 3

what remedies are available if a contract was entered into by duress or undue influence ?

Answer 3

remedy of recission - the innocent party can take action to rescind the contract to set it aside and have the parties returned to the position they were in before the contract was entered into

but recission may be lost where the contract is affirmed - if the innocent party either:
(1) fails to exercise recission promptly, or
(2) acts in accordance with the contract

Question 4

what are the 3 types of duress?

Answer 4

(1) duress to the person

(2) duress to goods

(3) economic duress

Question 5

what is duress to the person and what is the causation required?

Answer 5

actual or threatened physical violence causing a party to enter into the contract

causation = duress can be one of many factors influencing the decision to contract - it need not be a decisive factor

Question 6

what is duress to goods and what is the causation required?

Answer 6

seizing or threatening to seize the owner’s property or to damage property

causation = the agreement would not have been entered into but for the duress (duress must be a decisive factor in contracting)

Question 7

what is economic duress and what are the 3 requirements to establish it?

Answer 7

economic duress is illegitimate pressure that threatens the economic interests of a party

3 requirements:

(1) there is lack of practical choice

(2) there is illegitimate pressure

(3) duress was a SIGNIFICANT CAUSE inducing the party to contract

Question 8

what is meant by the requirement of lack of practical choice to show economic duress?

example?

Answer 8

there must have been no alternative but to accept the contract

example:
- there is time pressure because of obligations owed by the innocent party to other parties
- the innocent party cannot find an alternative contract
- the innocent party cannot pursue legal action (time limits)

Question 9

what factors must be considered to determine if there was illegitimate pressure when establishing economic duress? (4)

Answer 9

(1) If there was actual or threatened breach of contract –> shows illegitimate pressure

(2) If the person exerting the pressure acted in good or bad faith:

• good faith is not illegitimate pressure e.g., trying to get more money to make work conditions safer
• bad faith is illegitimate pressure e.g., trying to extort more money

(3) If the innocent party protested at the time of duress, this shows illegitimate pressure

(4) if the innocent party affirmed and sought to rely on the contract OR waited too long to void the contract, this shows no illegitimate pressure

Question 10

what is the causation test to establish economic duress

Answer 10

the requirement is that duress was a SIGNIFICANT CAUSE of the party entering into the contract

this means that the illegitimate pressure was a decisive factor for contracting

the but for test is used - but for the illegitimate pressure, the party would not have contracted

Question 11

what is undue influence?

Answer 11

undue influence is wrongful pressure by one person over another to enter into a contract where their consent was produced in a way that it ought not fairly to be treated as the expression of their free will

Question 12

what are the 2 types of undue influence?

Answer 12

(1) overt acts of improper pressure or coercion (rare - decided on duress)

(2) taking advantage of an underlying relationship of influence or ascendancy

Question 13

what is the proof required for establishing that undue influence occured because unfair advantage was taken in a relationship of influence?

Answer 13

the innocent party must show that there was:

(1) a relationship of trust and confidence, and
(2) a transaction which requires explanation

this will then shift the burden on the defendant to show there was no undue influence (e.g., showing that C received comprehensive independent advice)

Question 14

what is a relationship of trust and confidence?

Answer 14

this can be shown where:

(1) the innocent party placed trust and confidence in the other party and unfair advantage was taken, or

(2) the innocent party is a vulnerable or dependent person and unfair advantage was taken, or

(3) the relationship is one where there is an irrebuttable presumption of a relationship of influence of which unfair advantage was taken

Question 15

what is / is not a category of relationship where there is an irrebuttable presumption of undue influence

Answer 15

is:
- parent/minor child
- guardian/ward
- trustee/beneficiary
- solicitor/client
- doctor/patient
–> no need to show a relationship of trust and confidence existed

is not:
- spouses
- parent/adult child
–> need to show a relationship of trust and confidence existed

Question 16

what is a transaction requiring explanation?

Answer 16

a transaction will require explanation if it does not fit within what would usually be expected in the relationship concerned

example: suspicious type of transaction or suspiciously high value transaction

Question 17

if a spouse offers their interest in the matrimonial home as security for a loan to their spouses business, is this a transaction which requires explanation?

Answer 17

NO

so the party alleging undue influence must prove that unfair advantage was taken of the relationship

Question 18

what must be shown to establish that a third party exerted undue influence in order to void a contract?

(husband/wife security over matrimonial home case)

Answer 18

(1) establish the third party exercised undue influence on the innocent party

• spouse must prove a relationship of trust and confidence existed
• spouse must prove that offering their interest in the matrimonial home as security for a loan for their spouse’s business was as a result of unfair advantage being taken of the relationship of trust and confidence (transaction requires explanation)

(2) the bank (other party) must have had actual or constructive notice of the undue influence

Question 19

when is the bank considered to have constructive notice of the undue influence?

Answer 19

A bank will have constructive notice if:

(a) it knows of the relationship between the two parties, and

(b) the transaction is not obviously to the financial advantage of the other party to the contract (NOT for the spouses’ joint benefit)

UNLESS: it takes reasonable steps to ensure that the other party is making the agreement of their own free will and with the full knowledge of the facts

Question 20

what can the bank do to ensure it is not considered to have constructive notice of the undue influence?

i.e., what ‘reasonable steps’ can the bank take to ensure that the other party is making the agreement of their own free will and with the full knowledge of the facts?

Answer 20

(1) bank does not have to meet with the wife if they are provided with confirmation from a solicitor that they advised her appropriately

(2) bank must provide the solicitor with sufficient information about the transaction so that the solicitor can fully explain it to the wife

(3) if the bank is aware (actually or constructively) that the wife was misled, it must tell the solicitor this

Question 21

what must a solicitor advising a wife do when it receives notice that she may have entered into a contract as a result of undue influence by her husband (a third party)?

Answer 21

(1) Warn the wife that his involvement may be relied upon by the bank to counter allegations that she could not properly understand the transaction or had given consent to it – the wife must then consent to the advice being given

(2) Explain the documents and their practical consequences, including the risk the wife may lose her home

(3) Explain the seriousness of the risk including the duration and terms of the security and the wife’s assets

(4) Explain the fact that the wife has a choice

(5) Obtain necessary information from the lender/creditor

(6) assess if there is a conflict of interest between the wife and husband

–> If the solicitor fails in his duty to the wife, then she will have an action in negligence against him but she will have no recourse to the lender which is entitled to assume the solicitor properly advised her