Contract Law - Undue Influence

Question 1

What does the doctrine of laches mean?

Answer 1

doctrine in equity whereby courts can deny relief to claimant with an otherwise valid claim when party bringing claim unreasonably delayed asserting claim to detriment of opposing party. Commonly referred to as estoppel by laches.

Question 2

What does acquiescence or delay mean?

Answer 2

Important when it comes to party’s legal right, as inaction and silence can be held against someone in certain situations. this lesson will cover five key areas to be considered regarding acquiescence in law.

Question 3

General equitable defences for undue influence?

Answer 3

Undue influence concept in equity and like equitable concepts in general can be defeated on basis of general equitable defences: laches, acquiescence or delay. Length of time significant, but crucial test is whether course of conduct is such as to amount to conscious and deliberate affirmation of original transaction. See Allcard v Skinner (delay 4 yrs after cessation of influence too long), Bester - 20 yrs not too long.

Question 4

Third Parties - how are they affected?

Answer 4

Situations arise primarily when lending institutions are third parties who are affected by conduct of creditor who allegedly exercises undue influence on guarantor or surety. Institution has no idea what relationship exists. Guarantor may be director (less problem), or related to lender and body of specialised cases in which guarantor is wife.

Question 5

Bank of NSW v Rogers (1941) 65 CLR 42 at 85

Answer 5

Mature woman, sound intelligence, lacked experience, induced to provide significant amount of property as security for Gardiner’s overdraft.
Rogers niece and Gardiner uncle.
Bank knew they lived in same house, did not know precise relationship, but was “of confidence and trust, so had actual or constructive notice that securities obtained undue influence”.
Bank did not tell her G’s position was hopeless and that securities would be engulfed in his ruin. When exists bank has onus to justify retention of securities. Must show given free and well understood. Could not, so not successfully rebutted.

Question 6

Yerkey v Jones (1939) 63 CLR
What is the Yerkey v Jones Principle?

Answer 6

If married woman’s consent to suretyship of husband’s debts is procured without her understanding its effect, and she executes instrument which creditor accepts without dealing with her personally she has a prima facie right to have it set aside.

Question 7

Garcia v NAB Ltd (1998) 195 CLR

Answer 7

Affirmed and entrenched with refinements Yerkey.
Married professional woman of full capacity (significant consideration - as ordinarily diminishes her chances).
Executive mortgage and secured.
Wife obtained no benefit.
Following divorce sought to have securities set aside. Case now stands for proposition that enforcement of guarantee against wife would be unconscientious.

Question 8

Garcia v NAB Ltd (1998)
What are the elements of unconscientious regarding guarantee?

Answer 8

1. Surety did not under the purport and effect of transaction;
2. Transaction was voluntary (did not gain benefit);
3. lender, as wife, surety may repose trust and confidence in her husband in matters of business may not fully and accurately explain the purport and effect of transaction to his wife and yet;
4. Leader did not take steps to explain transaction to wife or find out stranger had explained it to her.

Question 9

Garcia recognised Yerkey principle applies in two separate situations?

Answer 9

1. actual undue influence; and
2. where principle is involved when in absence of actual influence.
   NOTE: lack of proper information about purport and effect of transaction that would entitle wife to relief.

Question 10

What are some of Garcia’s effects on practice of law?

Answer 10

Married couples - would put banks on notice that care needs to be taken in obtaining security from wife.
Lender is taken to have understood that wife as surety may repost trust and confidence in husband.
Banks now insist on “certificates of independent legal advice” before accepting guarantee or security granted by wife, as they may run Garcia type defence.

Question 11

ANZ v Fuller
Should solicitors be independent and why?

Answer 11

Yes, solicitor should and this is the practice in WA. In interests of prudence banks do insist that they are.

Question 12

What does a guarantor to a transaction need to understand?

Answer 12

1. An understanding of transaction, at least of liability and consequences of default.
2. Wife will be volunteer unless benefit is direct or immediate.
3. Most important: mere prospect of some benefit will not suffice (see Agripay (where prospect of some profit in joint superannuation account).

Question 13

Remedies for undue influence are?

Answer 13

Principle relief is rescission (ie setting aside the contract).

Question 14

Impugned - what does it mean?

Answer 14

challenged as false (another’s statements or motives, etc); cast doubt upon. Call into question.

Question 15

Improvident

Answer 15

lacking foresight; not planning, especially economic; incautious; unwary, neglecting to provide for future needs.

Question 16

Providence

Answer 16

Any act that is beyond the scope of being prevented by people. See act of God.