Duress and Undue Influence

Question 1

Who has the burden of proving duress?

Answer 1

The person alleging duress.

Question 2

Does duress need to be the only reason the party entered into a contract?

Answer 2

No.

But it must have induced the contract in some way.

Question 3

give some examples of legitimate commercial pressure which do not amount to duress.

Answer 3

Threat to trade business elsewhere; or

threat to sell to a competitor instead.

Question 4

What is required for a claim for economic duress to be successful?

Answer 4

The threat must be an improper or illegitimate threat.

Question 5

Epxlain how to determine whether the the threat is illegitimate or merely amounts to legitimate commercial pressure?

Answer 5

There must be pressure:

1) which has the practical effect that there is compulsion on, or lack of practical choice for, the victim;

2) Which is illegitimate; and

3) which is a significant cause inducing the claimant to enter into the contract.

Question 5

What factors will the court consider to determine whether there has been illegitimate pressure?

Answer 5

whether:

1) there has been an actual or threatened breach of contract;
2) the threat was made in good or bad faith; or
3) the victim protested at the time.

Question 6

What is the effect of duress?

Answer 6

It makes the original or renegotiated contract voidable.

This means the innocent party must seek to repudiate the contract for it to be void (it is not automatically void).

The remedy for duress is therefore rescission.

The same rescission bars apply here as they do to misrepresentation (bona fide purchaser, undue delay, affirmation, impossible to restore gods or property).

Question 7

Explain the link between between economic duress and consideration.

Answer 7

The rule is that promiser to pay extra in return for performing an existing contractual duty is not good consideration, unless the party accepting the promise receives a partial benefit in return (amounting to additional consideration).

However,, if the promise to pay more was made under duress then the promise to pay more is voidable and capable of being set aside. In such situations, only the variation is rescindable, not the original contract.

Question 8

Are damages available for economic duress or undue influence?

Answer 8

No.

Question 9

What is undue influence?

Answer 9

Influence that goes beyond what is regarded as acceptable; or

Where one party is in a position to influence another ad takes unfair advantage of that position.

The position of the courts is therefore to determine the bargaining strength of the party’s, in order to see whether the more powerful party has abused their position.

There are two types of undue influence:

• Presumed undue influence and
• Actual undue influence.

Question 9

What is actual undue influence?

Answer 9

Undue influence which is presumed on the facts.

Note the influence may be entirely legal, however the circumstances and thoughts of the party’s are taken unto consideration.

Eg case of Daniel v Drew - Mrs drew hated confrontation and so when her nephew asked her to sign an agreement under the threat of taking her to court she felt unable to refuse.

Question 10

What is presumed undue influence?

Answer 10

For undue influence to be presumed there must be:
1) a relationship of trust and confidence; and
2) a transaction that calls for an explanation.

Question 11

Explain the requirement of a relationship of trust and confidence (for presumed undue influence).

Answer 11

Where there is such a relationship is usually obvious.

Eg solicitor client, or parent child.

It is NOT however presumed in a husband and wife relationship.

Where the relationship is not presumed to be one of trust and confidence, innocent party will have to prove this. Eg wife may be able to prove she placed trust and confidence in her husband in relation to financial matters.

Question 12

Explain the requirement that the transaction must call for an explanation.

Answer 12

This effectively is where the party alleging undue influence enters into a contract that is clearly not for their benefit/ exposes them to risk.

The presumption is however rebuttable. Eg if the party took ILA, this would likely rebut the presumption.

Question 13

Explain a typical situation where undue influence may be an issue for a contracting third party.

Answer 13

Home is jointly owned by husband and wife.

Loan for husband’s business is being taken out against the home.

Husband uses undue influence to ge the wife to sign relevant documents.

Question 14

Arising from the case of Etridge, how can a joint owner of a home argue the bank had constructive notice of the undue influence.

Answer 14

The HOL stated the creditor will have constructive notice of such undue influence where:
1) it ought to have been put on inquiry; and
2) it did not take reoansable steps to ensure that the surety was aware of the implications of what they were signing.

Question 15

Define what is meant by a surety.

Answer 15

If two people own a house jointly, and one is taking a loan out against the property, the other joint owner is the surety.

Question 16

Explain the ‘put on inquiry’ requirement of the Etridge guidelines (for undue influence).

Answer 16

Creditor will be put on inquiry in all cases where relationship between the debtor and surety is non-commercial and the loan is not for their joint benefit (eg is a business loan for the debtor).

Therefore if the loan application does not give the impression of such a situation, the creditor is not deemed to have been put on inquiry.

Question 17

Explain the ‘reasonable steps’ requirement of the Etridge guidelines (for undue influence).

Answer 17

Once put on inquiry, creditor should have private meeting with surety to explain the risks and advise them to take ILA.

Private meeting is necessary to remove the potential for undue influence from the debtor.

what creditor usually does is insist the surety takes ILA form a solicitor, and they will then require this to be evidenced as an ILA certificate. This provides certainty that the security will be upheld.