Duress and Undue Influence

Question 1

What constitutes duress in contract law?

Answer 1

Traditionally, duress was confined to violence or illegitimate threats of violence or damage to property.

Question 2

What case involved threats of physical violence related to duress?

Answer 2

Barton v Armstrong [1975] AC 104.

Question 3

What did Lord Cross of Chelsea state regarding duress?

Answer 3

Duress need not be the only reason for entering a contract; if it was ‘a’ reason, the party is entitled to relief.

Question 4

What distinguishes illegitimate threats from acceptable commercial pressure?

Answer 4

Illegitimate threats relate to economic or business interests, while acceptable pressure involves hard bargaining.

Question 5

What must an improper threat do to amount to economic duress?

Answer 5

It must be a threat to breach a contract or commit a tort.

Question 6

What case established economic duress involving a road haulage company?

Answer 6

Atlas Express v Kafco [1989] 1 All ER 641.

Question 7

What was the outcome of Kafco’s defense in Atlas Express v Kafco?

Answer 7

Kafco successfully defended the claim based on economic duress.

Question 8

What is a key aspect of duress according to Pao On v Lau Yiu Long?

Answer 8

There must be coercion of the will to vitiate consent.

Question 9

What are the three elements of economic duress confirmed by the Supreme Court in Pakistan International Airline Corporation v Times Travel?

Answer 9

• An illegitimate threat/pressure by the defendant
• The illegitimate threat/pressure caused the claimant to enter the contract
• The claimant had no reasonable alternative but to concede

Question 10

What is the only remedy available for duress?

Answer 10

Rescission.

Question 11

What are the bars to rescission in cases of duress?

Answer 11

• Affirmation
• Undue delay
• Innocent purchaser acquiring interest
• Impossible to restore goods or property

Question 12

What case involved the construction of a ship and economic duress?

Answer 12

North Ocean Shipping v Hyundai Construction Co (The Atlantic Baron) [1979] QB 705.

Question 13

What makes a contract voidable in the context of undue influence?

Answer 13

Undue influence consists of influence that goes beyond what is regarded as acceptable.

Question 14

What is the difference between actual and presumed undue influence?

Answer 14

Actual undue influence requires proof of undue influence, while presumed undue influence arises from a fiduciary relationship.

Question 15

What case is the leading authority on presumed undue influence?

Answer 15

Royal Bank of Scotland v Etridge (No 2) [2001] 4 All ER 449.

Question 16

What types of relationships are irrebuttably presumed to involve trust and confidence?

Answer 16

• Solicitor and client
• Doctor and patient
• Parents and children (under 18)
• Religious advisers and followers

Question 17

What example illustrates actual undue influence?

Answer 17

Daniel v Drew [2005] EWCA Civ 507, where Mrs. Drew signed a contract under threat of court action.

Question 18

What is the effect of duress on a contract?

Answer 18

Makes the contract or variation voidable.

Question 19

What does the innocent party need to establish for duress?

Answer 19

There has been an illegitimate threat that left them with no practical choice.

Question 20

What is the remedy for undue influence?

Answer 20

Rescission.

Question 21

What is the burden of proof in cases of actual undue influence?

Answer 21

The claimant must prove that the defendant used undue influence.

Question 22

What is a significant factor in establishing presumed undue influence?

Answer 22

The transaction must call for an explanation.

Question 23

What is the presumption of undue influence in relationships?

Answer 23

It is irrebuttably presumed that one party places trust and confidence in the other in certain relationships, such as patient and doctor, parents and children, and religious advisers and followers.

Question 24

In what type of relationship must the innocent party prove trust and confidence?

Answer 24

In relationships such as husband and wife, the innocent party must prove that it was a relationship of trust and confidence.

Question 25

What is the significance of Tate v Williamson (1866)?

Answer 25

In this case, the defendant exploited their position as a financial adviser to an extravagant undergraduate, leading to the sale of an estate for much less than its worth, which was later set aside.

Question 26

What did the case O’Sullivan v Management Agency Ltd establish?

Answer 26

It established a relationship of trust and confidence between a young singer/songwriter and his manager.

Question 27

What must a transaction do to raise a presumption of undue influence?

Answer 27

The transaction must call for an explanation and not be readily explicable by the relationship between the parties.

Question 28

True or False: The presumption of undue influence is always rebuttable.

Answer 28

True.

Question 29

What can rebut the presumption of undue influence?

Answer 29

Evidence showing that the innocent party took independent advice.

Question 30

What is a common situation involving undue influence and third parties?

Answer 30

A husband obtaining a loan secured by the matrimonial home, with the wife alleging undue influence.

Question 31

What did Barclays Bank v O’Brien establish regarding lender liability?

Answer 31

If a creditor has actual or constructive notice of a debtor's impropriety, the creditor is tainted with it and the security contract can be voidable.

Question 32

How is constructive notice defined in the context of undue influence?

Answer 32

Constructive notice occurs if the creditor ought to have been put on inquiry regarding the risk of undue influence and did not take reasonable steps to ensure the surety understood the implications.

Question 33

What was the outcome of CIBC Mortgages plc v Pitt regarding undue influence?

Answer 33

The lender was not aware of the undue influence, and the wife could not have the transaction set aside.

Question 34

What did Lord Browne-Wilkinson state about lenders' responsibilities?

Answer 34

Lenders should not be fixed with constructive notice of possible undue influence in every transaction involving husband and wife.

Question 35

What is the significance of Royal Bank of Scotland v Etridge (No 2)?

Answer 35

It confirmed that if a creditor has notice of a debtor's undue influence, the security contract is voidable.

Question 36

What must a bank do to satisfy the requirement of reasonable steps?

Answer 36

Insist that the wife attends a private meeting to discuss liabilities and risks or obtain written confirmation from a solicitor that she has been advised.

Question 37

Fill in the blank: The effect of undue influence is to make a contract _______.

Answer 37

voidable.

Question 38

What are the three key components for establishing undue influence?

Answer 38

* Actual undue influence * Presumed undue influence * Transaction that calls for explanation

Question 39

What is the outcome if a bank does not take reasonable steps regarding undue influence?

Answer 39

The security may be unenforceable against the surety.

Question 40

What was established in Credit Lyonnais Bank Nederland NV v Burch?

Answer 40

The bank failed to ensure the employee understood the implications of the transaction, leading to a presumption of undue influence.

Question 41

What does it mean for a bank to be 'put on inquiry'?

Answer 41

It means the bank must take reasonable steps to ensure that the surety understands the risks involved in the transaction.

Question 42

What is the presumption of undue influence?

Answer 42

It is presumed where there is a relationship of trust and confidence, and a transaction which calls for explanation.

Question 43

What happens if undue influence is exerted by a third party?

Answer 43

The contract will be voidable if the contracting party had notice of the undue influence.

Question 44

What constitutes constructive notice for a lender?

Answer 44

A lender will have constructive notice if it should have been put on inquiry regarding the risk of undue influence and did not take reasonable steps.

Question 45

In which case did the House of Lords state that creditors are put on inquiry in non-commercial relationships?

Answer 45

Royal Bank of Scotland v Etridge (No 2)

Question 46

What reasonable steps must a creditor take to ensure awareness of implications of signing?

Answer 46

Typically, ensure the surety is independently advised by a solicitor and that the solicitor sends written confirmation.

Question 47

What are the three elements needed for a variation of a contract?

Answer 47

* Agreement * Intention * Consideration

Question 48

Define consideration in the context of contract law.

Answer 48

Consideration can be defined as the price the claimant pays for the defendant’s promise.

Question 49

What is the basic rule regarding consideration?

Answer 49

Consideration must be sufficient, but it need not be adequate.

Question 50

What case established that performing an existing contractual obligation is insufficient consideration?

Answer 50

Stilk v Myrick

Question 51

What is economic duress?

Answer 51

Economic duress involves an improper (unlawful) threat, and the innocent party has no practical alternative but to agree.

Question 52

What must George establish to prove economic duress?

Answer 52

He must show there has been economic duress.

Question 53

What are the ingredients of actionable economic duress?

Answer 53

* An illegitimate threat/pressure * Compulsion on, or lack of practical choice for, the victim * The threat/pressure was a significant cause inducing the claimant to enter the contract.

Question 54

What effect does economic duress have on a contract?

Answer 54

It renders a contract voidable.

Question 55

What is the time frame for rescinding a contract affected by economic duress?

Answer 55

Rescission will be possible unless a bar to rescission applies, such as affirmation or delay.

Question 56

What is presumed undue influence?

Answer 56

It is easier to establish than actual undue influence, where the claimant must show trust and confidence in the other party.

Question 57

What is the position of a finance company in cases of undue influence?

Answer 57

The finance company may have constructive notice of undue influence and the right to set aside the transaction.

Question 58

What must a finance company do to avoid being tainted by undue influence?

Answer 58

It should take reasonable steps to satisfy itself that the implications of the transaction were understood by the party affected.

Question 59

What is the effect of undue influence on a contract?

Answer 59

Undue influence makes a contract voidable.

Question 60

What can a finance company still do if a contract is set aside due to undue influence?

Answer 60

The finance company can still sue the original debtor as an unsecured creditor.