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Contract law Undue influence and unconscionability
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This is a comprehensive and detailed note Undue influence and unconscionability for contract law. Essential!! To your success in academics!!
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INTRODUCTIONUndue influence, like misrepresentation and economic duress, renders a contract voidable: so one
party can seek to rescind the contract (either as claimant or by way of a defence) if it was executed
as a result of the other party’s undue influence.
WHAT IS ‘UNDUE INFLUENCE’?
Undue influence is broader than duress – since undue influence includes overt acts of persuasion –
Lord Nicholls in Etridge
The essence is abuse of an existing relationship which the defendant exploits for his own advantage.
The relationship predates the contract or gift between them.
Undue influence cases reveal the difficulty of striking the right balance between protecting the
vulnerable from exploitation, without unduly restricting their freedom to be generous.
A related concern is the need for security in receipts – the more willing the courts are to undo
transactions, the less secure recipients can be that they will be entitled to keep what they have
received.
STRUCTURE OF THE CASES
Just as with duress:
sometimes undue influence is a vitiating factor allowing contracts made as a result of undue
influence to be rescinded;
alternatively it can be a ground of restitution allowing payments made as a result of undue
influence to be recovered
Contractual cases of undue influence can be two-party or three-party:
A might unduly influence B into contracting with A; or
A might unduly influence B into contracting with C – in addition to establishing undue influence
between A and B in the normal way, B will also have to establish that C has notice (actual or
constructive) of the undue influence.
ACTUAL AND PRESUMED UNDUE INFLUENCE
They used to be seen as two distinctly different vitiating factors, but HL in RBS v Etridge (No 2) [2001]
held that there is just one vitiating factor – ‘undue influence’. The difference between actual and
presumed undue influence is simply evidential – if there is no actual evidence of undue influence, it
might nonetheless be inferred.
- Adducing ‘actual’ evidence of undue influence and relying on the presumption are just two
different routes to establishing undue influence
, Ie they are just evidential routes to establish undue influence
ACTUAL UNDUE INFLUENCE
Cases where there is actual evidence of influence (usually bullying or pressurising) – invariably in the
context of a relationship.
- No good definition of it Lord Clyde in Etridge (2002) undue influence “is something which can
be more easily recognised when found than exclusively analysed in the abstract”
Requires (i) actual undue influence – that’s it!
Actual evidence of the exploitation of influence by one party is rare (why go to the trouble of
adducing actual evidence when you could rely on the presumption?). An example in which there was
compelling evidence of actual undue influence was BCCI v Aboody [1990]. A, who was entirely
subservient to her husband, executed an all monies charge to secure her husband’s business. She
had been receiving advice from an independent solicitor about the implications of signing the charge
when her husband burst into the room, interrupting the solicitor and shouting at his wife to sign (this
is what makes it an actual influence case)
- But court got it wrong that needed to have a “suspicious” or “disadvantages” for the
transaction
This in modern law is wrong – no need a “suspicious” or “disadvantageous” transaction –
just actual undue influence is enough
- Clarified in CIBC Mortgages plc v Pit [1993] 4 All ER 433 (pushing wife to sign – judge held to
be undue influence) that for actual undue influence, no need to prove a “suspicious” or
“disadvantages” for the transaction since it is a species of fraud – therefore just need the
actual undue influence
- Drew v Daniel [2005] EWCA Civ 507 (Nephew did not actually bully elderly aunt – instead
used forcefully personality to persuade her – since she disliked confrontation –redness
around eyes, D very upset) -> actual undue influence not confined to sexual relationship –
relationship of nephew and elderly aunt
PRESUMED UNDUE INFLUENCE
Undue influence presumed in cases of:
It does not require bad behaviour or wrongdoing
- Mummery LJ in Pesticcio v Huet [2004] CA explicitly rejected view that undue influence
depends on wrongdoing
- Auld LJ in Macklin v Dowset [2004] CA stressed that bad conduct is not a necessary feature
of undue influence
(a) relationship + (b) suspicious transaction that ‘calls for an explanation’, unless (c) presumption
rebuted
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