Undue influence and Duress MCQs Flashcards
Question 1
A client manufactures precision parts for the motor industry. Six months ago it won a
lucrative contract with a major car manufacturer. To fulfil this contract the client reached
agreement with a tool making company (‘the Company’) to supply certain equipment by the
end of last week. Two months ago the Company told the client that it had underestimated
costs and would have to charge an extra £6,000 if it was to carry on. The client protested
but reluctantly agreed as it could not find another manufacturer to do the job. The equipment
was made on time and the client paid the Company £16,000 (ie the original contract price
plus the extra £6,000) on delivery.
Which of the following statements best describes the legal position?
A The client’s promise to pay more would not be binding as the Company had given no
consideration for it.
B The contract with the Company could be set aside and the client would be refunded
£16,000 because the promise to pay extra was made under duress.
C The contractual variation would be binding because the Company had conferred a
practical benefit and exerted no duress, just hard commercial bargaining.
D The Company had provided consideration for the extra £6,000 but the variation would
be voidable because of duress.
E The promise to pay more money would be voidable because of duress but rescission
would be barred.
The correct statement is D.
A is wrong because performance of an existing duty owed to the other party may be
consideration if it confers a practical benefit.
B is wrong because even if the promise to pay more was made under duress it is only the
variation that could be set aside in which case our client would be entitled to have £6,000
refunded.
C is wrong because the Company most likely exerted duress, ie made an illegitimate threat
that left our client with no practical choice and was a significant reason for promising to
pay more.
Finally, E is wrong because on the facts there is nothing to suggest that rescission would be
barred eg by delay. Affirmation would not apply as it appears the client had to pay the total
price (including the extra) in order to take delivery of the goods.
Question 2
A client, an elderly widow, consulted her bank manager (‘the Manager’) over plans to sell
her house. The client had often sought advice from the Manager on financial matters. The
Manager offered to buy the client’s house at the current market estimated price. The client
accepted the offer and the sale was completed eight months ago. House prices have now
risen by 25% and the client wants the sale to the Manager set aside.
Which of the following best explains the legal position of the client?
A The sale would be set aside because there was actual undue influence.
B The relationship between the client and the Manager was based on trust and
confidence and as the sale calls for an explanation it might be set aside.
C Your client would be able to raise a presumption of undue influence but rescission
would be barred as the Manager was a bona fide purchaser.
D The sale would be set aside because it would be irrebuttably presumed that there had
been undue influence exerted by the Manager.
E For the sale to be set aside the client would have to prove undue influence and that an
award of damages would be inadequate.
Answer
The correct statement is B.
A is wrong because it is unlikely on the facts that your client could establish actual undue
influence.
C is wrong because for rescission to be barred by a bona fide purchaser, the bona fide
purchaser must be a third party who has subsequently acquired rights in the property.
D is wrong because undue influence is never irrebuttably presumed. Some relationships are
irrebuttably presumed to be fiduciary in nature eg solicitor and client.
E is wrong for two reasons – firstly, undue influence does not necessarily have to be proved
(it may be presumed) and, secondly, the only remedy for undue influence is rescission (not
damages too)
Question 3
A client and her husband jointly own the family house (‘the house’), which is mortgaged
to a bank (‘the bank’). The client is disabled and cannot work but manages the family
finances. The husband owns a small business. To expand the business the husband
approached the bank for a loan. The bank agreed on condition it had a second charge on
the house. The client was loathe to re- mortgage the house but was eventually persuaded
by her husband. The bank manager went to the house to see the couple. The client said
she understood the risks and signed the necessary paperwork. The husband defaulted on
the loan and the bank is seeking to repossess the house.
Would the client have any ground(s) for arguing that the re- mortgage should be
set aside?
A Yes, because undue influence by the husband would be presumed and the bank had
actual notice of it.
B Yes, because undue influence would be presumed and the bank did not insist the client
took independent advice.
C Yes, because the client may be able to establish actual undue influence by the
husband and that the bank had constructive notice of it.
D No, because the bank was not put on inquiry of any undue influence and the client
understood the risks.
E No, because the wife managed the couple’s finances and was aware of the risks
involved in re- mortgaging the house.
C is correct. The client may be able to show actual undue influence (Daniel v Drew). The bank
should have been put on inquiry as the relationship between the client and debtor was non-
commercial and the loan was not for their joint benefit. The bank does not appear to have
had a private meeting with the client to explain the risks and she did not take independent
advice: so the bank would have constructive notice of the undue influence.
A and B are wrong. Undue influence would not be presumed as the relationship between
client and husband was not by its nature or in fact one of trust and confidence. She managed
the finances, had been loath to re- mortgage the house and said she understood the risks.
Also there is no evidence the bank had actual notice of undue influence.
D is wrong. The bank should have been put on inquiry as the relationship between the client
and debtor was non- commercial and the loan was not for their joint benefit.
E is wrong because there appears to have been undue influence of which the bank had
constructive notice.
A hotel contracts with a building contractor to install a new kitchen. A four week deadline is agreed and the hotel will close for this period. Work begins and the building contractor realises it has underestimated the time it will take to complete the work. The building contractor informs the hotel that the project will not be completed on time unless the building contractor pays a labourer £500 to assist with the work and that the hotel must pay this extra cost. The hotel has paying guests booked in and so cannot delay the project. On this basis, and under protest, the hotel agrees to pay the additional £500. Once the kitchen is complete the hotel demands the £500 back.
Is the building contractor entitled to retain the £500?
Select one alternative:
Yes. The request for extra payment was made in good faith and will not amount to duress.
Yes. Although the variation may have been voidable for duress, the hotel has affirmed it by paying the £500.
No. It is likely that the £500 was paid under duress.
No. It is likely that the £500 was paid under undue influence.
Yes. The building contractor has provided a practical benefit to support the promise of extra payment.
No. It is likely that the £500 was paid under duress.
This is a contract law question on the topic of duress. Although the building contractor may have provided a practical benefit in completing the project on time, the agreement to pay the extra £500 was likely made under duress. A demand for extra money to correct a pricing miscalculation will not be viewed as a demand made in good faith for the purposes of duress. Affirmation is an act which shows the agreement is settled and binding after the duress ceases.
A publisher contracts to sell 100 books to a shop, with a 14-day credit facility. The books are stored at a warehouse which floods, destroying the books. The publisher knows the books were still its responsibility, but falsely tells the shop it believes the books were their responsibility and unless the shop pays for them, threatens to revoke the credit facility. The shop knows it is not liable for the books, but decides that paying is better than losing the credit facility.
Was the publisher’s threat to remove the credit facility “illegitimate pressure”, for the purposes of establishing economic duress?
Possibly. It depends on whether the shop had access to another credit facility with a third party.
Yes. The publisher was using this as a means of extorting money it knew was not due to it.
No. Until a court decides that the books were still the publisher’s responsibility, it cannot be said the publisher’s threat was improper.
No. The shop took a commercial decision that it was better to pay for the 100 books and the court will uphold the principle of freedom of contract.
No. The shop should have had the courage of its convictions that the books were the publisher’s responsibility.
Yes. The publisher was using this as a means of extorting money it knew was not due to it.
Correct. This answer correctly applies the criterion of illegitimate pressure. The other answers seem plausible, but they are not correct. Duress trumps the principle of freedom of contract. The relevant test for illegitimate pressure looks at the intentions of the person making the threat. Access to another credit facility is not relevant to illegitimate pressure but to a different part of the test – lack of practical choice.
A man is approached by a ticket seller outside a concert who offers to sell him a ticket. The man likes the band, but saw them recently so hesitates. The seller holds a knife to the man and says “Buy the ticket now or I’ll cut you.” The man buys the ticket. Whilst queuing later, he sees the seller being arrested. He goes over and asks for his money back.
Was the contract entered into under duress?
Yes. The physical threat was a significant cause of the man’s decision to contract.
Yes. The man had no practical alternative but to enter into the contract.
Yes, but only if the man can prove that the threat of force was more influential on his decision than his desire to see the band.
Yes. The physical threat was one of the reasons the man entered into the contract and duress will be found unless the seller can prove the threat contributed nothing.
No. The man had a reason other than the threat of force to enter into the contract (he liked the band), so there is no duress.
Yes. The physical threat was one of the reasons the man entered into the contract and duress will be found unless the seller can prove the threat contributed nothing.
Correct. This answer correctly applies the leading case on duress to the person, Barton v Armstrong. The other answers seem plausible but are not correct as they do not correctly outline the elements of duress to the person and/or the test of causation applied to duress to the person.
An adult daughter acts as her elderly mother’s carer. The daughter asks the mother for a loan to support a new business venture. The mother is reluctant as it is for a very large amount. The daughter is furious and asks her mother why she will not support her given how much she has done for her. The mother reluctantly agrees to the loan as she does not want to upset her daughter as she is so reliant upon her. The daughter’s business fails, and she does not repay the loan. The mother is now in residential care and wants to her money back. Identify the most appropriate cause of action for the mother.
Economic duress
Duress to the person
Lack of consideration
Duress to goods
Undue influence
Undue influence
A builder agrees to build a house for a landlady, due for completion on 1 February, for £100,000. The landlady agrees with a third party to rent the property from 2 February, at a premium rate. On 20 January a labour shortage occurs and the builder, knowing the landlady will not find another builder, threatens to stop work unless he is paid an extra £10,000. The landlady protests, but pays the extra £10,000. The house is completed on 1 February. The landlady waits until the third party begins renting the property and then seeks the return of the £10,000.
Which of the following statements best describes the legal position in relation to the landlady’s potential claim for economic duress?
The landlady was presented with no viable alternative but to agree to the builder’s demand, and that suffices for economic duress.
The landlady’s claim for economic duress is likely to succeed. Although the landlady delayed taking action to set the contract aside this is unlikely to amount to an act of affirmation.
The builder was acting in bad faith and that suffices for economic duress.
The builder’s threat was a significant cause of the landlady paying the extra £10,000, and that suffices for economic duress.
The landlady affirmed the contract, so a claim of economic duress will likely fail.
The landlady’s claim for economic duress is likely to succeed. Although the landlady delayed taking action to set the contract aside this is unlikely to amount to an act of affirmation.
Correct. The builder’s demand is likely to amount to economic duress applying the leading test set out by Dyson J in DSND Subsea v Petroleum Geo Services. Although delay in seeking to set aside the contract can prevent a claim in duress succeeding, the land lady’s short delay in setting the contract aside is unlikely to be sufficient to be regarded as an act of affirmation. The other answers seem plausible but they are not correct. All elements of Dyson J’s test for duress need to be considered. It is not correct to state that duress will succeed based on only one element of the test.
q
A high end restaurant is being reviewed by an influential food critic and the head chef wants to make a dish requiring rare truffle oil. It contracts to buy some for £100 from the only UK supplier. The supplier later learns of why the restaurant wants the truffle oil and states that it will now only sell the oil for £1000. The restaurant agrees, but on receipt of the invoice refuses to pay more than £100.
Which of the following statements best describes the legal position in relation to the restaurant’s potential claim for economic duress?
As long as the restaurant can make another high quality meal for the critic, they have sufficient practical choice, such that there was no duress.
This is not duress because the supplier has not threatened to breach its contract with the restaurant.
The restaurant has no practical choice to source the truffle oil elsewhere, meaning there is duress. Expecting the restaurant to make an alternative meal is not a viable practical alternative.
By agreeing without protest to pay to the supplier’s demand of an additional £900 the restaurant has affirmed the amendment to the contract and will not be able to set the contract aside for duress.
This is not duress as the supplier’s demand of an additional £900 was not a threat made in bad faith.
As long as the restaurant can make another high quality meal for the critic, they have sufficient practical choice, such that there was no duress.
Correct – for economic duress, there must be a lack of practical choice. The test is practical choice in relation to acquiescence to the demand. As long as the restaurant can make another dish which is equally likely to impress the critic then they had a practical choice, and did not have to agree to pay £1000. The sellers demand was a threat made in bad faith (but it did not present a lack of practical choice).
