Duress and Undue Influence

Question 1

What is the result if there has been duress or undue influence exerted upon an innocent party

Answer 1

The resulting contract, or variation to a contract, is voidable, ie capable of being set aside.

Question 2

What is the remedy for duress and undue influence

Answer 2

Recession

Question 3

In what ways can duress take place

Answer 3

violence, illegitimate threats, or pressure that coerce a party into entering a contract or varying a contract.

Question 4

Where is the burden placed on proving duress

Answer 4

On the party that alleges it.

Question 5

is duress in itself enough to render a contract voidable by way of recession

Answer 5

Duress need not be only reason why the innocent party entered the contract, but it must have induced the contract in some way.

Question 6

Do legitimate commercial pressures, amount to duress

Answer 6

Generally No, a threat to take business elsewhere, sell to a competitor or not to give a discount in future are all likely to be regarded as legitimate commercial pressure.

To amount to economic duress, the threat must be an improper or illegitimate threat ( like a threat to breach a contract or to commit a tort)

Question 7

What criteria must be proved in order to establish economic duress

Answer 7

Carillion Construction Ltd v Felix 2001- there must be

(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.

Question 8

What factors will the court consider when considering whether there has been illegitimate pressure?

Answer 8

• There has been an actual or a threatened breach of contract.
• The threat was made in good or bad faith? or
• The victim protested at the time.

This has to be distinguished from the rough and tumble of the pressures of normal bargaining.

Question 9

What is the remedy for Duress

Answer 9

Recession. The innocent party must notify the other party that it wants to rescind.

The innocent party can also apply to the court for an order of rescission. This may have to be the case if the other party refuses to return money or property.

Question 10

What are the bars to rescission

Answer 10

(a) affirmation
(b) Undue delay
(c) Bona fide purchaser
(d) Impossible to restore good or property.

Question 11

Can performance of an existing contractual obligation be good consideration for a promise of more money?

Answer 11

yes provided the person promising the money obtains a practical benefit in return. If, however, notwithstanding a partial benefit, the promise to pay more was only made under duress then the variation will be voidable and capable of being set aside.

important to remember that it is only the later variation that is affected by the duress, and therefore only the variation will be rescinded, not the original contract.

Question 12

What is undue influence

Answer 12

Influence that goes beyond what is regarded as acceptable or where one party is in a position to influence another and take unfair advantage of that position.

Question 13

How can undue influence be established?

Answer 13

The approach adopted by the law is to identify relationships that are unequal and then to consider whether the transaction resulted from the dominant person abusing that relationship.

Question 14

What are the remedies for undue influence

Answer 14

Recession and the same bars to rescission apply as for duress.

Also like duress there is no remedy of damages.

Question 15

What is actual undue influence

Answer 15

This is proven on facts, unlike duress, the threat may be entirely legal, such threatening to take someone to court.

Question 16

What is presumed undue influence

Answer 16

This will be presumed where there is a fiduciary relationship- or a relationship of trust and confidence- between the parties and the transaction calls for an explanation

Question 17

What needs to be established for presumed undue influence

Answer 17

1. A relationship of trust and confidence.
2. A transaction that calls for an explantation

Question 18

Explain The criteria for a relationship of trust and confidence for presumed undue influence?

Answer 18

In certain categories eg solicitor and client, doctor and patient, it is irrebuttably presumed that one party place trust and confidence in the other.

This is also the case with parents and children and religious advisers and followers.

Note, it is not however, presumed in a relationship of husband and wife.

Question 19

What happens when the presumption of trust and confidence does apply to a particular relaitonship.

Answer 19

An example of this would be the relationship of a husband and wife. The innocent party will have to prove that she did in fact place trust and confidence in her husband in relation to financial matters.

Question 20

Explain The criteria for a transaction must call for an explantion ?

Answer 20

The transaction that the parties enter into must be such that it is not easy to explain just by the relationship between them.

In other words, the transaction must call for explantion eg where a party enters a contract that is not for there benefit or that exposes them to risk.

Question 21

Is the presumption of undue influence rebuttable

Answer 21

Yes, it could be rebutted if there was evidence to show that the innocent party had taken independent advice.

Question 22

What is the position of law on undue influence in regard to third parties, such as creditors?

Answer 22

Whether the creditor had actual or constructive notice of the debtor’s undue influence. If the answer is yes, the any security contract obtained as a result will be voidable and capable of being set aside.

Question 23

When would a creditor have constructive notice?

Answer 23

1. It ought to have been put ‘on inquiry’ and
2. It did not take reasonable steps to ensure that the surety was aware of the implications of what they were signing.

Question 24

Explain the criteria for ‘put on inquiry’ in relation to undue influence on third parties?

Answer 24

A creditor will be put on inquiry in all cases where the re;ationship between the debtor and surety is non-commercial and the loan is not for their joint benefit.

Question 25

Explain the criteria for ‘reasonable steps’ in relation to undue influence on third parties?

Answer 25

The creditor could have a private meeting to ensure that the surety is removed from the influence of the debtor.

The creditors should insist that the surety takes independent legal advice from a solicitor.

If the surety contends that they were not properly advised of the risks any cause of action will lie against the solicitor, and will not in any way impact the validity of the security.