Contract - Variation, Duress and Undue Influence

Which is the equitable defence, duress or undue influence?

duress = common law

undue influence = equitable

- as a result, there is some overlap between them

What are the three types of duress?

- Duress to the person

- Duress to property

- Economic duress

What is duress?

one party coercing another party into a contract

What is the effect of duress?

- contract is voidable

- wronged party may take action to have it set aside

What is the remedy for duress?

rescission

What is duress to the person?

- actual or threatened violence

- Threats can be one of several factors influencing the decision to enter the contract (unlike the other forms of duress)

Who bears the burden of proof in duress to the person?

on the party who exerted pressure to show threats contributed nothing to the decision

What is duress to goods/property?

- Involves a threat to seize or damage the owner's property

- Must show that the agreement would not have been entered into without the duress (not just one of many factors)

What is economic duress?

- Involves illegitimate pressure

- that has the effect of compulsion or lack of practical choice

- Must be a significant cause inducing the claimant to enter the contract = agreement would not have been entered into without the duress

What is meant by "lack of practical choice" in economic duress?

- The victim has no viable alternative but to acquiesce to the demand

- The pressure results in compulsion for the victim

- It would be unrealistic for the victim to seek alternative remedies

What factors are considered when assessing the legitimacy of pressure in economic duress?

- Whether there has been an actual or threatened breach of contract

- Whether the person exerting pressure acted in good or bad faith

- Whether the victim protested at the time

- Whether the victim affirmed and sought to rely on the contract

How does a threatened breach of contract relate to illegitimate pressure?

usually amounts to illegitimate pressure

Why is it important for the victim to protest in cases of economic duress?

- Demonstrates evidence of duress at the time it was exerted

- Failure to protest may be seen as acquiescence

What is the significance of affirmation in economic duress cases?

- Affirming the contract can prevent the victim from getting relief for alleged duress

Can delay to set aside a contract allegedly entered into due to duress be seen as affirmation?

Yes

caselaw: an 8-month delay led to loss of right to set aside the contract

What is meant by "significant cause" in economic duress?

- The agreement would not have been entered into without the duress

- It follows a "but for" test of causation

- The pressure must be decisive in causing the agreement

What is the definition of undue influence?

exists where a person's consent to a transaction was produced in a way such that the consent ought not fairly to be treated as the expression of their free will.

What are the two different types of undue influence?

1. Overt acts of improper pressure or coercion (e.g., unlawful threats)

2. Situations where one party takes advantage of their influence or ascendancy over the other

What are overt acts of improper pressure or coercion?

- Rare, and often overlapping with duress

- For deceitful/fraudulent behavior, the innocent party only needs to prove it was a factor in inducing the contract

- For non-deceitful behavior, a 'but for' test may apply

How can undue influence be proven?

1. C must show a relationship of trust and confidence AND a transaction requiring explanation

- some relationships have an irrebuttable presumption of trust and confidence

2. D must then produce evidence to show no undue influence occurred

What is a transaction requiring explanation?

a transaction unusual for the relationship or suspiciously valuable

What is the remedy when undue influence is proven?

a contract (or gift by deed) may be set aside

What are the limits on equitable relief in undue influence cases?

- Relief is discretionary

- May be disallowed if the innocent party delayed making their claim ('delay defeats equity')

- May be disallowed if the claimant's conduct has been underhand (clean hands)

What is the significance of independent advice in undue influence cases?

- Comprehensive independent advice about the transaction may counter claims of undue influence

- Can be used by the alleged wrongdoer to argue against undue influence

- However, even with full understanding and independent legal advice, consent may still result from undue influence

What are some examples of relationships with irrebuttable presumption of influence?

- Parent and minor child

- Guardian and ward

- Trustee and beneficiary

- Solicitor and client

- Doctor and patient

Which relationships do not give rise to irrebuttable presumption of influences?

- parent and adult child

- husband and wife

(influence must be positively show)

What is the court's approach undue influence in husband-wife transactions involving the matrimonial home?

- Offering A's interest in the matrimonial home as security for a B's business loan is generally not considered a transaction requiring explanation

- The party alleging undue influence would need to prove unfair advantage was taken of the relationship

What is the concept of undue influence in relation to third parties?

- The undue influence or misrepresentation is exerted by a third party rather than the contracting party

- Can arise in marital relationships where a spouse is pressued by spouse to enter into a guarantee or surety contract with a bank or creditor

How does actual notice affect contracts in cases of undue influence?

- If the contracting party (e.g., bank) has actual notice of undue influence (ie they are aware of the undue influence), the contract will be affected

- (highly unlikely in most cases)

What is constructive notice in the context of undue influence?

- Refers to circumstances that might lead a bank to realise a transaction carries a risk of undue influence

- The key question is when the bank will be fixed with constructive notice of the undue influence

- This means the bank is treated as having notice of something it's not actually aware of

What is the first step in considering undue influence cases involving third parties?

- Determine whether there was actually undue influence

- Only if undue influence is established does the issue of the bank's notice become relevant

What are the two specific points to consider when determining if a spouse has exercised undue influence?

1. There is no irrebuttable presumption of a relationship of influence between spouses

2. Offering interest in the matrimonial home as security for a spouse's business loan is generally not considered a transaction requiring explanation

When will a third party be deemed to be put on notice (aware) of the undue influence? (Barclays)

Banks are put on notice when a wife offers to stand surety for her husband's debts under certain conditions:

1. The transaction is not to the financial advantage of the wife

2. There is a substantial risk that the husband has committed a legal or equitable wrong

What must a bank do if they have been put on notice of undue influence? (above 2 conditions satisfied)

- The bank must take reasonable steps to ensure the wife's agreement was properly obtained

- if not, creditor will be deemed to have constructive notice of the wife's rights

How did RBS v Etridge (No 2) extend the principles of constructive notice?

- Banks are put on inquiry in every case where the relationship between surety and debtor is non-commercial

- Extended beyond cases of spouses

What are the reasonable steps a bank should take to confirm that wife's consent was given willingly?

1. Rely on confirmation from a solicitor that they have advised the wife appropriately (no need to see the wife themselves)

2. Provide the solicitor with sufficient information about the transaction

3. Inform the solicitor if aware that the wife may have been misled

What is the solicitor's role in advising the wife?

- Warn the wife about the implications of the solicitor's involvement

- Explain the documents and their practical consequences

- Discuss the seriousness of the risk

- Inform the wife that she has a choice

What are the consequences if a solicitor fails in their duty to the wife?

- The wife will have an action in negligence against the solicitor

- The wife will have no recourse to the lender/creditor

- The lender/creditor is entitled to assume the solicitor has properly advised the wife