Undue Influence

Question 1

‘Undue Influence’ definition

Answer 1

Undue influence is ‘where one party takes advantage of a relationship of trust and confidence’

Question 2

Daniel v Drew

Answer 2

Old lady who was afraid of conflict was forced to enter contract by threat of court action

Question 3

Presumed undue influence

RBS v Etridge

Answer 3

If there is a relationship of trust and confidence; and

the transaction calls for an explanation

Question 4

Certain categories of relationship are irrebuttably presumed to be of fiduciary nature, but not husband/wife

Answer 4

Barclays Bank v O’Brien

Question 5

A transaction that calls for explanation is a transaction that is not readily explicable by the relationship between the parties

Answer 5

RBS v Etridge

Question 6

Effect of Notice

Answer 6

‘If lender has actual or constructive notice of the debtor’s impropriety,
lender will be tainted with it. Contract will be voidable’.

Question 7

Actual Notice

Answer 7

Lender sees it happen

Question 8

Constructive Notice

Answer 8

A lender will have constructive notice if:
i. it ought to have to been put on inquiry of risk of undue influence by the
debtor;
and
ii. it did not take reasonable steps to ensure that the surety was aware of
the implications of what they were signing.

Question 9

Banks are put on inquiry whenever surety-debtor relationship is non-commercial (personal)

Answer 9

RBS v Etridge

Question 10

Difference between a joint advance and a situation where wife stands as surety for husbands debts

Answer 10

CIBC v Pitt

Question 11

Barclays Bank v O’Brien

Reasonable steps to ensure consent properly obtained

Answer 11

1. have a private meeting with the surety (without other person not there)
2. warn/inform the surety of the risks; and
3. urge surety to take legal advice

Question 12

RBS v Etridge No 2

Reasonable steps to ensure consent properly obtained

Answer 12

Bank should not be compelled to have a private meeting. May prefer take to be undertaken by independent legal advisor and obtain proof of this legal advice being sought

Question 13

In extreme circumstances where transactions are particularly disadvantageous to surety, creditor should ensure and insist surety receives independent legal advice and explain full extent of the transaction to them

Answer 13

Credit Lyonnais v Burch

Question 14

If there has been undue influence and the creditor had notice of it…

Answer 14

The surety is voidable

Question 15

Bars to rescission

Answer 15

• delay
• affirmation
• impossible to substantially return the goods/services
• an innocent party (equity’s darling) acquired an interest in the property before it was voided