Duress and undue influence

Question 1

What is the causation test for duress to the person?

(a) 
The duress must be a serious factor influencing the victim’s decision to enter the contract

(b) 
The duress must be a significant cause influencing the victim’s decision to enter the contract

(c) 
The duress must be the only factor influencing the victim’s decision to enter the contract

(d) 
The duress need be only one factor influencing the victim’s decision to enter the contract

Answer 1

(d) 
The duress need be only one factor influencing the victim’s decision to enter the contract

Question 2

What is the legal effect of duress on a contract?

(a) 
The contract is void

(b) 
The contract is affirmed

(c) 
The contract is barred

(d) 
The contract is voidable

Answer 2

(d) 
The contract is voidable

The contract is formed and remains in force, but the victim of the duress may take action to have the contract set aside.

Question 3

What is the causation test for economic duress?

(a) 
The illegitimate pressure might have caused the making of the agreement

(b) 
The illegitimate pressure must have been decisive in the making of the agreement
(c) 
The illegitimate pressure contributed to the making of the agreement

(d) 
The illegitimate pressure is one factor that caused the making of the agreement

Answer 3

(b) 
The illegitimate pressure must have been decisive in the making of the agreement

The illegitimate pressure must have been decisive in the making of the contract, in other words, ‘but for’ the pressure, the victim would not have entered into the contract


Question 4

Which of the following is a factor for establishing economic duress?

(a) 
A lack of practical choice for the party subjected to duress

(b) 
A false representation inducting the decision to vary the contract

Answer 4

(a) 
A lack of practical choice for the party subjected to dure

Question 5

A and B have a contract. A offers B more money to perform an existing contractual obligation. When does B provide legal consideration in return for the promise of extra payment?

(a) 
B provides A with a practical benefit.

(b) 
B exceeds their contractual obligation to A.

Answer 5

(b) 
B exceeds their contractual obligation to A.

Question 6

The modern trend is to take a more creative approach when assessing whether consideration for a variation is present and instead test the validity of the renegotiation through the doctrine of economic duress.

(a) 
True

(b) 
False

Answer 6

(a) 
True


Question 7

Which of the following is unlikely to be a relationship of influence or ascendancy?

(a) 
A relationship where one party is vulnerable

(b) 
A relationship of dependence

(c) 
A relationship of sufficiency A relationship of sufficiency is unlikely to be one of influence or ascendancy. However, relationships of trust and confidence, or dependence or vulnerability are likely to be relationships of influence or ascendancy

(d) 
A relationship of trust and confidence

Answer 7

(c) 
A relationship of sufficiency

A relationship of sufficiency is unlikely to be one of influence or ascendancy. However, relationships of trust and confidence, or dependence or vulnerability are likely to be relationships of influence or ascendancy


Question 8

In which of these relationships does the law presume irrebuttably that one person had influence over the other?

(a) 
A business and its customers

(b) 
Guardian and ward
(c) 
Employer and employee

(d) 
Husband and wife

Answer 8

(b) 
Guardian and ward

The law presumes irrebuttably that in a relationship between a guardian and his ward, one party had influence over the other. This is irrespective of the true facts. However, the presumption that the transaction was procured by that influence may be rebutted

Question 9

When will a bank be put on inquiry that a surety transaction might be tainted by undue influence?

(a) 
Whenever one party in a non-commercial setting is standing as surety for the other party

(b) 
When the bank meets with the spouse and explains the nature of the loan agreement to that spouse

(c) 
When the debtors default on the loan agreement

(d) 
If the transaction is for a large sum of money

Answer 9

(a) 
Whenever one party in a non-commercial setting is standing as surety for the other party


Question 10

What step should a bank take to satisfy itself that that a surety transaction is not affected by undue influence?

(a) 
The bank should ensure that the spouse has read all the documents pertaining to the transaction

(b) 
The bank should provide the solicitor advising the spouse with the bare minimum information about the transaction

(c) 
If the bank is aware that the spouse may have been misled, the bank should tell the solicitor of this

(d) 
The bank should see the spouse itself and discuss the surety transaction with them

Answer 10

(c) 
If the bank is aware that the spouse may have been misled, the bank should tell the solicitor of this


Question 11

What remedy will a spouse have if they are unhappy with the standard of service provided by a solicitor regarding a surety transaction?

(a) 
The spouse can bring a claim for the surety transaction to be set aside

(b) 
The spouse can sue the bank for the solicitor’s negligence

(c) 
The spouse can sue the solicitor in negligence

(d) 
The bank can sue the solicitor in negligence

Answer 11

(c) 
The spouse can sue the solicitor in negligence


Question 12

What is the definition of duress and what are the three types of duress?

Answer 12

Duress = involves one party coercing another party into contract - consent is not present or not given freely in same way

Types
1. Duress to person
2. Duress to property
3. Economic duress

Question 13

What is the legal effect of duress?

Answer 13

Person who enters into contract under duress has not done so under own free will - results in contract being voidable, which means whilst it remains in force unless some action taken, party subject to duress may choose to avoid contract after duress has ceased

Remedy: rescission ie attempting to return parties to situation each was prior to contract being entered into

Voidable contract = remains in force unless some action is taken to annul it
Rescission = remedy which involves parties returning to pre-contractual position

Remedy of rescission may be lost where contract is affirmed, as affirmation operates as bar to rescission - court might conclude that contract is affirmed if, after duress has ceased, innocent party fails to challenge contract in timely way and/or acts in compliance with terms

Question 14

When does duress to the person arise?

Answer 14

Duress can vitiate contract when it amounts to actual/threatened violence

Actual or threatened violence must amount ton one factor influencing decision to enter into contract - need not be decisive factor

Question 15

When does duress to goods arise?

Answer 15

Contract can also be avoided where there is threat to seize owner’s property or to damage it

To succeed, it seems likely that it must be shown that agreement would not have been entered into if there had not been duress - unlikely to be sufficient to show that duress will be one factor influencing wronged party’s behaviour

But for duress, agreement would not have been entered into

Question 16

When does economic duress arise?

Answer 16

Defintion: The ingredients of actionable duress are that there must be pressure, (a) whose practical effect is that there is compulsion on, or a 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.’

So three elements:
1. Lack of practical choice: Pressure must result in lack of practical choice forming - they have no practical alternative but to acquiesce demand
2. Caused by illegitimate pressure
(a) Was there actual or threatened breach of contract?
(b) Has person allegedly exerting pressure acted in good or bad faith?
(c) Did vic protest at time?
(d) Did vic affirm and seek to rely on contract?
3. But for duress: must be shown that agreement would not have been entered into but for duress - significant cause and pressure must have been decisive or clinching

Question 17

What is the connection between economic duress and consideration?

Answer 17

The court is increasingly likely to find ‘consideration’ by way of practical benefit to support a variation. This means that more variations would appear (from the perspective of consideration) to be binding, and the doctrine of economic duress is therefore increasingly important in ensuring that a party can seek relief from such variations where the circumstances justify this.

Question 18

True or false - you can only bring claim under duress or undue influence but not both.

Answer 18

False: Where there is doubt as to whether any particular act of coercion is duress or undue influence, C should bring action on both grounds

Question 19

What is the definition of undue influence and what is its objective? What are the types of undue influence?

Answer 19

If consent to transaction was produced in way such that consent ought not fairly to be treated as expression of person’s free will, transaction will not be allowed to stand

Objective is to ensure that influence of one person over another is not abused

Two types:
1. Overt acts of improper pressure or coercion
2. Taking advantage of influence or ascendancy in relationship

Question 20

When do overt acts of improper pressure or coercion amount to undue influence?

Answer 20

Necessarily rare - many cases would probably be decided on basis of duress

Insofar as behaviour constituting undue influence is of deceitful/fraudulent nature, causation test is same for duress to person ie only necessary to establish that undue influence is factor in inducing C to enter into contract, need not be decisive factor

If behaviour is not deceitful/fraudulent, situation is less clear, and may be that but for test applies - but for the behaviour constituting undue influence, would the innocent party have entered into the contract?

Question 21

When does taking advantage of influence or ascendancy in a relationship amount to undue influence?

Answer 21

Note: absence of specific act of coercion or pressure

There is no definitive list of relationships of influence or ascendancy - commonly, influence will come from trust and confidence one party has in other

However relationship where one party is vulnerable/dependent might also allow other party to have significant influence, even if innocent party has not positively placed trust or confidence in other party

Number of relationships in which there is irrefutable presumption that one party has influence over other - court will not allow any argument here that there was no influence in that relationship - eg parent/child, guardian/ward, trustee/beneficiary, solicitor/client, doctor/patient

However, parent and adult child or spouse do NOT give raise to presumption - influence will need to be positively shown

Question 22

How can a party prove that they have been the victim of undue influence?

Answer 22

If party can show that there is:
1. Relationship of trust and confidence (or presumable one of categories of irrebuttable presumption) AND
2. Transaction which requires explanation
—> this will be enough to determine transaction is product of undue influence, unless alleged wrongdoer can produce evidence to convince court there was no such influence (burden shifts to D)

Question 23

When does a transaction require further explanation?

Answer 23

When it does not fit with what would usually be expected in relationship concerned - might be suspicious type of transaction or be for suspiciously high value

Court has indicated that in majority of cases, husband/wife offering interest in matrimonial home as security for loan to spouse’s business is NOT transaction which requires explanation, so party alleging undue influence would need to prove that unfair advantage had been taken of relationship

Lindley: pointed out that where a gift of a small amount is made to a person standing in a confidential relationship to the donor, some proof of the exercise of the influence of the donee must be given. The mere existence of the influence is not enough. He continued, at p 185 “But if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift.

Question 24

Will it amount to undue influence when the victim has obtained independent legal advice?

Answer 24

Where party has shown relationship of trust and confidence and transaction which requires explanation, wrongdoer might argue eg that innocent party received comprehensive independent advice about transaction and so they could not have been subjected to undue influence - depends on facts

Courts have made it clear that even when someone understands transaction having received independent legal advice, possible that their consent to it is still being given only as result of undue influence

Question 25

What are the limits of the equitable relief of undue influence?

Answer 25

Where undue influence is proven, contract (or gift by deed) may be set aside - However, relief is equitable and so discretionary

Court may not allow this relief where innocent party has delayed making its claim bc ‘delay defeats equity’

It may also be disallowed where C’s conduct has been deceitful bc those who come to equity must come with clean hands

Question 26

What happens where there is undue influence and third parties are involved?

Answer 26

Sometimes undue influence arises where vic is persuaded to enter into guarantee or surety contract with bank or other creditor on basis of some undue influence/misrepresentation/other legal wrong by some TP eg spouse

If contracting party has actual notice of undue influence contract will be affected - however unlikely that they will have actual notice

Only if undue influence is established that issue of notice to bank can be relevant

Held that creditor would be put on notice when: wife offers to stand surety for husband’s debts by combination of
(a) Transaction is on its face not to financial advantage of wife and
(b) There is substantial risk in transactions of that kind that, in procuring wife to act as surety, husband had committed legal/equitable wrong that entitles wide to set aside transaction

Unless creditor who is put on inquiry takes reasonable steps to satisfy himself that wife’s agreement to stand surety has been properly obtained, creditor will have constructive notice of wife’s rights - reasonable steps:
1. There is no obligation on creditor to have seen wife itself as ordinarily reasonable to rely on confirmation from solicitor that they have advised wife in appropriate manner, unless creditor is aware that this has not been done - for solicitor to determine whether there’s conflict of interest if wife’s solicitor also advises husband
2. Creditor must provide solicitor with sufficient info about transaction for solicitor to be Abel to fully explain it to wife
3. If creditor is aware, either actually or constructively, that wife may have been misled, creditor must tell solicitor of this

Bank is put on inquiry whenever one party in non-commercial setting is standing as surety for other party

Question 27

What is the solicitor’s position and liability, if any, as to undue influence?

Answer 27

Solicitor should start by warning wife that his involvement may be relied upon by bank to counter allegations that she could not properly understand transaction or had given consent to it

If wife consents to advice bring given, core minimum advice should contain is:
1. Explanation of docs and their practical consequences, including risk that wife may lose her home
2. Seriousness of risk, including duration and terms of security and wife’s assets and means
3. Fact that wife has choice

If solicitor fails in duty to wife, then she will have action in negligence against solicitor, but she will have no recourse to lender/creditor which is entitled to assume solicitor has properly advised wife