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Contract Law - Undue Influence (Exam Plan)

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I scored 75% in Contract Law and received a Distinction (74%) overall in the GDL at the University of Law using these notes. These notes are written in the form of step-by-step exam plans. Compared to standard notes, this will save you lots of time. Most people will make notes during workshops, ...

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  • July 20, 2023
  • 5
  • 2021/2022
  • Exam (elaborations)
  • Questions & answers

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Contract Law - Undue Influence

[STEP 1] Is there undue influence? Examine the relationship between the surety
and debtor

This scenario concerns undue influence to provide security for another person’s loan.
[INSERT SURETY] is a surety for [INSERT DEBTOR’S] loan from [INSERT BANK /
CREDITOR]. There is a loan contract between [INSERT DEBTOR] and [INSERT
CREDITOR], and a security contract between [INSERT DEBTOR] and [INSERT
SURETY].

C may seek to set aside the security contract on grounds of undue influence. To do so,
they must show:

1) Undue influence by the debtor; and
2) That the bank had notice of this undue influence.

Is there undue influence?

Undue influence is where one party is in a position to influence another and takes unfair
advantage of that position. It can be actual or presumed.

Actual?

This is difficult for C to prove, as it is their word against another’s.

- The threat can be legal. This scenario is similar to / distinguished from Daniel v
Drew, a successful claim where an elderly lady who disliked confrontation and
was afraid of her nephew felt forced to enter into a contract by threat of court
action. STATE HOW ON FACTS

Presumed?

Undue influence is presumed if (as per RBS v Etridge (No 2)):

1) There is a relationship of trust and confidence; and
2) The transaction calls for an explanation.

Relationship of trust and confidence

, This means a relationship of influence, where one party trusts the other, and the other
conducts their business independently (i.e. a fiduciary relationship).

Irrebutably presumed:

In some categories of relationship, there is an irrefutable presumption that one party
places trust and confidence in another:
- Parent - child under 18
- Religious advisors - followers
- Solicitor - client
- Doctor - patient

Husband-wife and cohabitee relationships do not raise an irrefutable presumption of a
fiduciary relationship.

Depend on the facts:

Don’t call it a rebuttable presumption, it depends entirely on the facts

For other categories of relationship, the innocent party will need to prove a fiduciary
relationship exists on the facts.
- E.g. Tate v Williamson - financial advisor held to have a relationship of trust and
confidence with an Oxford undergraduate whose estate they were advising on.
- E.g. O’Sullivan v Management Agency Ltd - relationship of trust and confidence
found between a young singer/songwriter and their manager

Transaction calls for an explanation

The transaction must not be readily explicable by the relationship between the parties
(RBS v Etridge (No 2)).

Rebuttal?

D can rebut the presumption of undue influence if they can show that C exercised their
own free informed mind in agreeing to sign.
- E.g. if there was evidence that the innocent party took independent advice.

[CONCLUDING LINE] There has / has not been undue influence.

[STEP 2] Did the bank have notice of the undue influence?

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