Duress and Undue Influence Flashcards
What is the effect of duress or undue influence on a contract?
The innocent party can rescind the contract
No damages
What is the definition of duress
Illegitimate pressure [threats, economic pressure] that coerces a party into entering the contract/changing the terms
Types of duress
Duress to the person [threats of violence]
Economic duress [illegitimate threats to a parties buisness/economic interests]
What to prove to establish economic duress:
Pressure
Improper Conduct
Inducement into the contract
What are the 4 bars to recission for duress:
Affirming the contract
Undue delay [time]
Third party acquires a right
Impossible to rescind
What is undue influence?
When one party unfairly exploits a relationship of trust or confidence to pressure the other party into entering a contract.
2 types of undue influence is:
Actual and Presumed
What is actual undue influence?
Proved on the facts
What is presumed undue influence?
Arises in a relationship of trust and confidence where the transaction calls or an explanation
Grandma entering into a loan for son
How to rebut the presumption of undue influence?
By showing the innocent party consented
Independent legal advice
What is the issue with third parties in undue influence cases?
If a third party (e.g., a bank) has actual or constructive notice of undue influence, the contract (e.g., a security agreement) may be voidable.
What are the steps for a creditor to avoid being affected by undue influence?
Bank should be put on inquiry
Reasonable steps taken
If a husband pressures his wife to sign a loan agreement, can the bank enforce the agreement?
Only if the bank had no notice of the undue influence. If the bank was put on inquiry and failed to take reasonable steps (e.g., ensuring independent legal advice), the agreement may be voidable.
What to prove for undue influence [bank scenarios]
Prove undue influence - prove that a mortgage was signed due to undue influence, long standing relationship, different levels of job, helped out financially before, trust and confidence
Bank must have notice of undue influence. Actual notice if they were aware of the relationship. Must take reasonable steps such as independent legal advice.
