Duress and Undue influence

Question 1

What are the doctrines that deal with situations where free and independent consent to contract has not been given?

Answer 1

Duress and undue influence

Both doctrines invalidate contracts that lack free consent.

Question 2

What is the key difference between duress and undue influence?

Answer 2

Duress involves coercion, while undue influence involves manipulation or pressure without violence

Duress is developed by common law; undue influence by equity.

Question 3

What are the three types of duress?

Answer 3

• Duress to the person
• Duress to property
• Economic duress

Each type addresses different forms of coercion in contract law.

Question 4

What is duress to the person?

Answer 4

Actual or threatened violence

This is the most established and least controversial category of duress.

Question 5

What is the leading case on duress to the person?

Answer 5

Barton v Armstrong [1976] AC 104

This case established that physical threats contributing to a decision to contract constitute duress.

Question 6

What must be shown to establish duress to goods?

Answer 6

The agreement would not have been entered into but for the duress

This differs from duress to the person where duress need only be one factor.

Question 7

What is economic duress?

Answer 7

A lack of practical choice caused by illegitimate pressure

It is a developing area of law that poses particular difficulties.

Question 8

What are the ingredients of actionable economic duress according to Mr Justice Dyson?

Answer 8

• Pressure causing compulsion or lack of practical choice
• Illegitimate pressure
• Significant cause inducing the claimant to enter into the contract

This definition reflects the current position on economic duress.

Question 9

What is the legal effect of entering a contract under duress?

Answer 9

The contract is voidable

This means the wronged party may choose to set it aside.

Question 10

What is rescission in the context of duress?

Answer 10

A remedy that returns the parties to their original position prior to the contract

Rescission can be lost if the contract is affirmed.

Question 11

True or False: A contract entered into under duress is automatically void.

Answer 11

False

It is voidable, meaning it remains in force unless action is taken to void it.

Question 12

What did the case of Carillion Construction Ltd v Felix (UK) [2001] BLR 1 demonstrate regarding economic duress?

Answer 12

The claimant had no practical alternative but to agree to the demands due to duress

This case illustrates how economic pressures can lead to voidable contracts.

Question 13

What constitutes illegitimate pressure in the context of economic duress?

Answer 13

Threats that are unlawful or made in bad faith

This includes threats to breach contracts for illegitimate ends.

Question 14

Fill in the blank: A contract is __________ when it is entered into under duress.

Answer 14

voidable

This allows the affected party to avoid the contract.

Question 15

What does the term ‘affirmation’ refer to in the context of duress?

Answer 15

The act of accepting the contract after the duress has ceased

Affirmation can bar the remedy of rescission.

Question 16

What is economic duress?

Answer 16

Economic duress results when one party has a lack of practical choice as to whether to enter or vary the contract, and this has been caused by illegitimate pressure.

The pressure must be illegitimate and must have caused the making of the agreement.

Question 17

What must be shown to establish economic duress?

Answer 17

The agreement would not have been entered into but for the duress.

This is known as the ‘but for’ test.

Question 18

In the case of Carillion and Atlas, what was the nature of the threats made?

Answer 18

The party exerting the pressure was threatening to breach its contract to extort money.

There was no legitimate basis for the demand.

Question 19

What distinguishes the DSND case from Carillion and Atlas?

Answer 19

The pressure in DSND was found to be exerted in good faith.

DSND threatened to suspend work until insurance provisions were clarified.

Question 20

What is a practical point regarding contract risks?

Answer 20

Contracting parties are expected to consider risks such as changes in the cost of materials/labor when entering into a contract.

If costs rise, renegotiating under threat of breach may render the contract unenforceable.

Question 21

What should the victim demonstrate to support a claim of duress?

Answer 21

The victim should demonstrate evidence of protest at the time the alleged duress was exerted.

Protesting against demands strengthens the claim.

Question 22

What was the outcome for North Ocean Shipping Co in their claim?

Answer 22

Their claim failed because they did not protest against the threatened breach.

They waited eight months to claim the return of the extra payment.

Question 23

What does affirming a contract mean in the context of duress?

Answer 23

Affirming a contract means taking action that indicates acceptance of the contract despite duress.

Delayed action can result in losing the right to set aside the contract.

Question 24

What is the minimum basic test for subjective causation in economic duress according to Huyton SA v Peter Cremer GmbH?

Answer 24

‘But for’ the illegitimate pressure, the agreement would not have been made.

The pressure must be decisive or clinching.

Question 25

What factors do courts consider when determining illegitimate pressure?

Answer 25

* Actual or threatened breach of contract * Good or bad faith of the party exerting pressure * Whether the victim protested * Whether the victim affirmed the contract after duress ceased.

Question 26

What is the relationship between economic duress and consideration?

Answer 26

Economic duress can render a variation of contract unenforceable if it lacks consideration. ## Footnote A variation must demonstrate all characteristics of a valid contract.

Question 27

What is the significance of practical benefit in contract variations?

Answer 27

Practical benefit can be considered good consideration to support a variation. ## Footnote The court's willingness to recognize practical benefit may make variations more likely to be binding.

Question 28

What is undue influence?

Answer 28

Undue influence occurs when consent to a transaction is produced in a way that it ought not fairly be treated as free will. ## Footnote This overlaps with the concept of duress.

Question 29

What is the leading case on undue influence?

Answer 29

RBS v Etridge (No 2) [2002] 2 AC 773. ## Footnote The court defined undue influence and outlined its principles.

Question 30

What is the objective of addressing undue influence in contracts?

Answer 30

To ensure that the influence of one person over another is not abused.

Question 31

What does the court suggest about the definition of undue influence?

Answer 31

It is 'impossible to be more precise or definitive' than the definition provided, indicating openness to finding undue influence in various situations.

Question 32

What are the two types of undue influence established in Etridge?

Answer 32

1. Overt acts of improper pressure or coercion (e.g. unlawful threats) 2. Relationship of influence/ascendancy where unfair advantage is taken.

Question 33

How does overt acts of improper pressure or coercion relate to duress?

Answer 33

This type of undue influence has much overlap with the idea of duress.

Question 34

What is the causation test for deceitful or fraudulent behavior in undue influence?

Answer 34

It is necessary for the innocent party to establish that undue influence is a factor in inducing them to enter into the contract.

Question 35

What common situation illustrates taking advantage of influence or ascendancy?

Answer 35

A spouse entering into an agreement that uses their share in the matrimonial home as security for a loan to the business owner's business.

Question 36

What types of relationships have an irrebuttable presumption of undue influence?

Answer 36

1. Parent and child 2. Guardian and ward 3. Trustee and beneficiary 4. Solicitor and client 5. Doctor and patient.

Question 37

What must a party prove to allege undue influence?

Answer 37

They must show a relationship of trust and confidence and a transaction which requires explanation.

Question 38

What constitutes a 'transaction which requires explanation'?

Answer 38

A transaction that does not fit what would usually be expected in the relationship, suspiciously high value, or unusual circumstances.

Question 39

What is the consequence of proving undue influence?

Answer 39

A contract or gift may be set aside as equitable relief.

Question 40

What key case established principles regarding undue influence in the context of banks?

Answer 40

Barclays Bank plc v O'Brien [1994] 1 AC 180.

Question 41

What was the outcome of Barclays Bank plc v O'Brien?

Answer 41

The bank was found to have constructive notice of the misrepresentation made by Mr. O'Brien to his wife, leading to the legal charge being set aside.

Question 42

What are the two factors that put a creditor on notice regarding undue influence?

Answer 42

1. The transaction is not to the financial advantage of the wife 2. There is a substantial risk of legal or equitable wrong in obtaining the wife's agreement.

Question 43

What is the burden of proof in establishing undue influence?

Answer 43

If undue influence is alleged, the burden shifts to the defendant to prove there was no undue influence.

Question 44

Fill in the blank: Undue influence is established where the contract results from _______.

Answer 44

overt acts of improper pressure or coercion.

Question 45

True or False: A spouse offering their interest in the matrimonial home as security for a loan is always considered a transaction that requires explanation.

Answer 45

False.

Question 46

What happens if the innocent party has delayed making a claim for undue influence?

Answer 46

The relief may be disallowed because 'delay defeats equity'.

Question 47

In what situation is a relationship between spouses not presumed to have undue influence?

Answer 47

There is no irrebuttable presumption of influence in the relationship between spouses.

Question 48

What principle does Etridge clarify regarding undue influence?

Answer 48

It summarizes legal principles and clarifies the circumstances under which undue influence can be established.

Question 49

What is the significance of the relationship between surety and debtor in non-commercial settings?

Answer 49

Banks are put on inquiry whenever one party in a non-commercial setting is standing as surety for the other party. ## Footnote This principle was established in RBS v Etridge (No 2) and highlighted by Lord Nicholls.

Question 50

In the case of CIBC Mortgages plc v Pitt, what was the husband's action that led to the wife's claim of undue influence?

Answer 50

The husband used the borrowed money to speculate on the stock market, losing everything in the 1987 stock market crash. ## Footnote The wife sought to have the mortgage on their home set aside due to undue influence.

Question 51

What was the outcome of the wife's claim in CIBC Mortgages plc v Pitt?

Answer 51

The House of Lords rejected the wife's claim because the lender had no actual or constructive notice of the husband's undue influence. ## Footnote The mortgage application indicated the loan was for a holiday cottage, suggesting a normal transaction.

Question 52

What are the reasonable steps a creditor must take in transactions involving sureties?

Answer 52

A creditor must ensure the innocent party is aware of the risks and advise them to seek independent advice. ## Footnote Reasonable steps include providing sufficient information to the solicitor and ensuring the solicitor has advised the party appropriately.

Question 53

What should a solicitor warn the wife about in a transaction involving undue influence?

Answer 53

The solicitor should warn the wife that their involvement may be relied upon by the bank to counter allegations of her not properly understanding the transaction. ## Footnote This warning is crucial to protect the wife’s rights.

Question 54

What are the core minimum elements of advice that should be given to a wife in such transactions?

Answer 54

* Explanation of the documents and their consequences * Seriousness of the risk, including duration and terms of security * The fact that the wife has a choice ## Footnote This guidance is provided to ensure the wife understands the implications of the agreement.

Question 55

What happens if a solicitor fails in their duty to the wife during a transaction?

Answer 55

The wife may have an action in negligence against the solicitor but no recourse to the lender/creditor. ## Footnote The lender can assume the solicitor has properly advised the wife.

Question 56

What is the common problem related to undue influence and third parties?

Answer 56

A victim may be persuaded to enter a contract giving security to a bank based on undue influence from a third party. ## Footnote This raises questions about whether the contract can be set aside despite the bank exerting no undue influence.

Question 57

Under what conditions can a bank be held to have constructive notice of undue influence?

Answer 57

A bank will have constructive notice if the relationship between the guarantor and borrower is non-commercial unless the bank takes reasonable steps to warn the weaker party. ## Footnote This principle emphasizes the bank's responsibility in ensuring fairness in transactions.

Question 58

Fill in the blank: According to Lord Nicholls in Etridge, there is no obligation on the creditor to have seen the wife itself as it is ordinarily reasonable to rely on a confirmation from a _______.

Answer 58

solicitor