Undue Influence

Question 1

Requirements for ACTUAL UNDUE INFLUENCE

Answer 1

(1) Free will of the complainant must have been IMPAIRED by the D’s UNCONSCIONABLE CONDUCT.
(2) The complainant (/victim) must have entered into the contract as a result of that influence. (Causation)

Question 2

Royal Bank of Scotland v Etridge (No. 2) [2002]

Answer 2

Recognised other form of undue influence:

“Arises out of a relation between two persons where one had acquired over the other a measure of influence, or ascendancy, of which the ascendant party then takes unfair advantage.”

Question 3

Bank of Scotland v Bennett

Answer 3

Wife reluctant to sign bank guarantee for husband.
Husband accused her of disloyalty - that without it, family would be poor, son would have to leave private school and would never forgive her etc. it will affect their marriage.

Contract set aside - an example of DIRECT pressure in actual undue influence (where the pressure is being actively applied - like also in BBCI v Aboody 6th transaction)

Question 4

BBCI v Aboody

Answer 4

1st 5 transactions - husband concealed material facts from wife
Held; actual undue influence - INDIRECT PRESSURE by way of A DELIBERATE CONCEALMENT OF MATERIAL FACTS.

Arises in the context when one party owes a duty of candour (honesty/openness) to the other - e.g. spouses.
Wife unable to make informed decision.

Question 5

Hewett v First Plus Financial Group Plc. [2010]

Answer 5

Wife signed guarantee for husband - bank sought payment when husband’s business failed.
Discovered that he had been having affair and that had she been aware of this at the time, would NOT have signed the guarantee.
Argued for husband that affair was NOT material fact like in BBCI v Aboody.
Held; WAS MATERIAL FACT - WIFE undertaking responsibility on mistaken belief that marriage would last and that they would be repaying loan together.
= INDIRECT PRESSURE - ACTUAL UNDUE INFLUENCE - DELIBERATE CONCEALMENT OF MATERIAL FACTS.

Question 6

Re Craig [1971]

Answer 6

Authority - example of INDIRECT PRESSURE in a relationship of DOMINATION.
Young lady - carer for elderly man - physically abused him - he donated her many gifts of property and money.
After death, relatives sued.
Held; actual undue influence - pressure need not take form of a direct threat - arises from a relationship where one party dominates the other.

Question 7

Barclays Bank v Coleman

Answer 7

Chasidic jews case - relationship of domination arose from wife’s religious upbringing - did not sign agreement freely.

Question 8

Requirements of PRESUMED UNDUE INFLUENCE

Answer 8

(1) A pre-existing relationship between the parties in which one party has acquired influence over the other: ‘a relationship of influence’.
(2) The transaction in question must be one which calls for an explanation.

Question 10

Wright v Carter

Answer 10

Authority: solicitor - client relationship is one where there is a presumption of influence (irrebuttable presumption of law)

Question 11

UCB Corporate Services v Williams [2002]

Answer 11

Authority: CAUSATION TEST FOR ACTUAL UNDUE INFLUENCE: NOT ‘BUT FOR’ - rather is it ‘a’ cause?

Question 12

ALCARD V SKINNER

Answer 12

Authority: spiritual leader - follower relationship is one where there is a presumption of influence (irrebuttable presumption of law)

Question 13

Dent v Bennet

Answer 13

Authority: Medical adviser and patient relationship is one where there is a presumption of influence (irrebuttable presumption of law)

Question 14

Lancashire Loans Ltd v Black

Answer 14

Authority: parent-child relationship is one where there is a presumption of influence (irrebuttable presumption of law)

NOT LIMITED TO CHILDREN

Question 15

Leader v Stevens

Answer 15

Fiance relationship: presumption that GROOM acquires influence over BRIDE.
NB: No presumption of influence between husband and wife.

Question 16

Relationships where there is NOT a presumption of influence.

Answer 16

• Husband and wife
• Unmarried cohabitants
• Non-cohabiting lovers
• Employer and employee
• Banker and customer.

Question 17

Lloyd’s Bank v Bundy

Answer 17

Authority: Relationship between BANKER AND CUSTOMER NOT one where there is a presumption of influence.
Evidence must be adduced to show that one party has acquired influence over the other.

Question 18

Allcard v Skinner

Answer 18

A transaction is one that calls for explanation if it
“CANNOT REGULARLY BE EXPLAINED BY THE ORDINARY MOTIVES ON WHICH ORDINARY PEOPLE NORMALLY ACT.”

Ordinary motives being: love and affection, relationship and family, friendship, charity etc.

Young lady joined religious cult - ‘Mother Superior’ - gave away virtually all of her assets to the sisterhood - to be used for charity.

Held; coz the donation formed such a large part of her entire wealth - giving away too much in return for too little - clearly calls for explanation.

Question 19

Credit Llyonais Bank v Burch

Answer 19

Authority: relationship of EMPLOYER AND EMPLOYEE NOT one where there is a presumption of influence.
Evidence must be adduced to show that one party has acquired influence over the other.

Question 21

Dumbar Bank Plc v Nadeem

Answer 21

Wife entered into husband’s transaction to extend lease of flat on which he was sole owner. (Co-borrowing)
In process, husband added wife to title deeds of property.
Wife later argued - undue influence.
Held - NOT transaction that called for explanation - no disadvantage to wife - in fact, she benefitted from it.

Question 23

Credit Llyonais v Burch

Answer 23

New, junior employee of company - asked to sign a guarantee of £250,000 for a loan of £20,000 by the owner of the company (as co. in financial difficulties.)
Also ha to put up her flat as collateral. - Her most valuable asset.

CALLS FOR EXPLANATION - simply too disadvantageous from her point of view.

(However, if transaction one where there is no disadvantage to complainant/is merely trivial - unlikely to hold that it ‘calls for explanation’.

Question 23

Zamet v Hyman

Answer 23

After finding of presumption of undue influence, burden falls on D to REBUT the presumption.
D must show that C entered transaction only after ‘full, free and informed thought’.

Hybrid test:
(1) That the complainant entered the contract freely.
(2) That the complainant did so with full information about the transaction - must be an informed consent.
BEST SHOWN BY PROVING THAT C GOT INDEPENDENT ADVICE FIRST - NEED NOT BE LEGAL OR PROFESSIONAL/FINANCIAL, but more desirable.

Allcard v Skinner - Sisterhood banned members from independent advice - unable to rebut presumption of undue influence.

Question 24

Royal Bank of Scotland Plc. v Etridge (No. 2) [2002]

Answer 24

FOR AN INNOCENT PARTY TO LOSE ITS RIGHT TO ENFORCE A CONTRACT, ON THE GROUNDS OF CONSTRUCTIVE NOTICE, 3 REQUIREMENTS MUST BE SATISFIED:

(1) THE COMPLAINANT MUST SHOW THAT HIS CONSENT TO THE TRANSACTION WAS PROCURED BY THE UNDUE INFLUENCE OF A THIRD PARTY.
- simply go through requirements of finding undue influence.

(2) WAS THE INNOCENT PARTY PUT ON INQUIRY? - Aware of circumstances raising suspicion surrounding C’s consent being improperly obtained.
IN EVERY CASE WHERE THE RELATIONSHIP BETWEEN 3RD PARTY WRONGDOER AND C IS A NON-COMMERCIAL - BANK AUTOMATICALLY PUT ON INQUIRY.
C just needs to show that the relationship was non-commercial, to satisfy this requirement.

(3) DID THE INNOCENT PARTY FAIL TO TAKE THE REASONABLE PRESCRIBED STEPS REQUIRED BY LAW TO SATISFY HIMSELF THAT THE C’S CONSENT WAS NOT IMPROPERLY OBTAINED.

SEE NOTES FOR PROCESS

A bank that complies with prescribed steps is able to enforce the contract, even if it was entered into as a result of the undue influence exerted by third party.

Question 25

DURESS/UNDUCE INFLUENCE INVOLVING 3RD PARTIES

Answer 25

COURTS WILL ENFORCE SOME AND NOT OTHERS.

WILL NOT ENFORCE IF THE INNOCENT CONTRACTING PARTY HAD KNOWLEDGE THAT THE CONTRACTOR WAS SUBJECT TO THE UNDUE INFLUENCE OF A THIRD PARTY.
‘Actual’ or ‘Constructive’ knowledge.

Question 26

Erlanger v New Sombrero Phosphate Co. (1878)

Answer 26

Courts of Equity
Rescission for undue influence need not be complete restitutio in integrum.
Need not return to the exact pre-contractual position - more flexible approach.

Question 27

Hammond v Osborn

Answer 27

Another young lady - elderly man gifts case.
Could not show that man got independent advice.
Unable to rebut presumption.

Question 27

Allcard v Skinner

Answer 27

Example of defence of AFFIRMATION.

Took her 6 years to challenge transaction - had been advised in meantime that she could challenge by her barrister brother - but didn’t - thus affirming contract.

Question 28

Nicholl v Ryder

Answer 28

ESTOPPEL DEFENCE

If victim, aware that he has right to rescind contract due to duress/undue influence, represents to other party that they will NOT seek rescission, and D relies on this representation to his detriment - then victim ESTOPPED from accessing normal remedies for duress/undue influence.

Question 29

Halpern v Halpern

Answer 29

Applied Erlanger v New Sombrero Phosphate Co. (equity) to duress (common law)

Question 29

O’Sullivan v Management Agency and Music Ltd [1985]

Answer 29

Where rescission not available - account of profits next best remedy used. - Disgorging profits made from contract based on court calculation. Given to victim.