Duress and undue influence Flashcards
What is duress and what are the 3 types of duress?
Duress involves one party coercing another party into a contract. The three types of duress are:
- Duress to the person
- Duress to goods/property
- Economic duress
What effect does duress have on a contract?
It renders the contract voidable, which means it remains in force unless some action is taken to void it.
Describe duress to the person, with reference to Barton v Armstrong (1976).
Duress can vitiate a contract when it amounts to actual or threatened violence.
Barton v Armstrong (1976): once it is established that physical threats contributed to the decision to enter into the contract, duress will be found as long as the threats amounted to one factor influencing the decision to enter into the contract (need not be decisive).
Who is the burden of proof on when duress to the person is alleged?
The burden of proof is on the party who exerted the pressure to show the threats contributed nothing to the victim’s decision to contract.
Describe duress to goods/property and what is required to succeed in this allegation.
A contract can also be avoided where there is a threat to seize the owner’s property or damage it.
The ‘but for’ test applies here-but for the duress, the agreement would not have been entered into.
What are the ingredients of economic duress as per DSND Subsea v Petroleum Geo-Services (2000)?
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.
But for the duress, the agreement would not have been entered into-the pressure must have been decisive or clinching.
Lack of practical choice-define this requirement for economic duress, with reference to the case of Carillion Construction v Felix (2001).
The pressure must result in a lack of practical choice for the victim, they must have no practical alternative but to acquiesce to the demand.
Carillion Construction Ltd v Felix (2001): the C was held to have paid a sum under duress as he had no viable alternative but to agree to the D’s demands in order to complete the main project on time and avoid heavy fees for late completion.
Illegitimate pressure-what factors will the Court take into account when determining whether there has been illegitimate pressure?
-Threatened breach of contract, this amounts to an unlawful threat and will usually amount to illegitimate pressure as seen in Carillion v Felix (2001).
-Was pressure applied in bad or good faith? If the pressure is applied for illegitimate ends such as extortion of money, this will amount to bad faith and inevitably lead to a finding of economic duress.
-Did the victim protest? If the victim protested, this will help their claim for economic duress as seen in Carillion v Felix (2001) where the C wrote a letter protesting against the D’s demand.
-Did the victim affirm? Unless the victim of duress takes immediate action once the pressure has ceased to operate, they may be judged to have affirmed the contract.
What is undue influence, refer to the case of RBS v Etridge (No 2) (2002)?
Undue influence will be established where the contract results from overt acts of improper pressure or coercion.
RBS v Etridge (No 2) (2002): if the consent to a transaction was produced in a way such that the consent ought not fairly to be treated as the expression of a person’s free will, then the transaction will not be allowed to stand.
What are the two types of undue influence?
-Over acts of improper pressure/coercion (unlawful threats)
-Relationship of influence/ascendancy of which unfair advantage is taken (very common, seen in matrimonial relationships)
Do the following relationships give rise to an irrebuttable presumption that one party has influence over the other:
-parent and adult child
-husband and wife
No, these relationships do not give rise to that presumption.
Examples of relationships that do are parent and child, guardian and ward, trustee and beneficiary and doctor and patient.
What are the two basic principles that show a party was potentially the victim of undue influence?
Relationship of trust/confidence + transaction which requires explanation = undue influence, unless the accused party can establish to the contrary.
Describe the case of Barclays v O’Brien (1994) with regards to undue influence and third parties.
The Ds were a married couple who took out a second mortgage on their home as security for overdraft facilities extended by the C to the husband’s company. The wife had no interest in the business. Before execution, the branch manager advised the couple to seek legal advice prior to signing the documents. The wife eventually signed the documents relying solely on her husband’s (false) representation that the deed was limited to £60,000 and would last three weeks only. In the end, the husband’s company reached a £154,000 overdraft, and the C sought an order for possession of the home.
It was held by the House of Lords that the bank was aware the parties were husband and wife and as such, were put on notice that influence may be exercised. The bank had failed in its duty to take reasonable steps to warn the wife of the risks and on that basis the bank was fixed with constructive notice of the misrepresentation made by the husband to the wife & the wife was entitled to have the charge set aside.
What is the key principle from Barclays v O’Brien (1994)?
Unless the creditor who is put on inquiry takes reasonable steps to satisfy himself that a spouse’s agreement to stand surety has been properly obtained, the creditor will have constructive notice of the spouse’s rights.
What are reasonable steps that should be taken by a creditor to satisfy themselves that a spouse’s agreement to stand surety has been properly obtained, refer to RBS v Etridge (2002)?
-No obligation to see the spouse themselves, they can rely on confirmation from a solicitor that they have advised the spouse in an appropriate manner
-The creditor must provide the solicitor with sufficient information about the transaction for the solicitor to explain it fully to the spouse
-If the creditor is aware, either actually or constructively, that the spouse may have been misled, then the creditor must tell the solicitor
