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Duress and undue influence

Topic

Duress and Undue Influence in Contract Law

Duress and undue influence are vitiating factors in contract law that can render a contract voidable. These concepts address situations where a party has been pressured or coerced into entering into a contract without free will or proper consent. The law seeks to protect individuals from unfair pressure and ensure that agreements are entered into voluntarily and with genuine agreement.

Duress

Duress involves coercion of a party to enter into a contract through threats or pressure. The coercion must be sufficient to overcome the party's free will, leaving them with no reasonable alternative but to agree. Duress can take several forms:

  • ★ Physical Duress: Involves actual or threatened violence against a person or their loved ones. A contract entered into under physical duress is voidable at the option of the coerced party.
  • ★ Economic Duress: Involves unlawful or illegitimate economic pressure, such as threats to breach a contract or withhold vital supplies. The pressure must be such that it leaves the victim with no practical alternative but to comply with the demands.
  • ★ Duress to Goods: Involves threats to seize, damage, or retain goods unlawfully. Like other forms of duress, this undermines the voluntary nature of the contract.

Undue Influence

Undue influence occurs when one party exerts excessive pressure or influence over another, undermining the latter's free will in entering into the contract. It typically arises in relationships where one party is in a position of trust and confidence. Undue influence can be classified into two types:

  • ★ Actual Undue Influence: Direct evidence of coercion or manipulation, where one party has clearly taken advantage of their position to influence the other's decision-making process.
  • ★ Presumed Undue Influence: Occurs in certain relationships where the law presumes undue influence due to the nature of the relationship, such as between a solicitor and client, doctor and patient, or parent and child. The burden shifts to the dominant party to prove that the transaction was entered into freely and without undue influence.

Contracts entered into under duress or undue influence are voidable. This means the coerced or influenced party can choose to affirm or rescind the contract. The primary remedies include:

  • ★ Rescission: The primary remedy, allowing the affected party to set aside the contract and return to their pre-contractual position. Rescission is discretionary and may be denied if the innocent party affirms the contract, there is undue delay, or third-party rights are involved.
  • ★ Restitution: The court may order restitution to prevent unjust enrichment, ensuring that any benefits received under the contract are returned.

Case Law

Economic Duress - The Atlantic Baron (1979)

In this case, a shipbuilder threatened to breach a contract unless the buyer agreed to a price increase. The court found that the buyer had agreed under economic duress, as the threat of breach left them with no practical alternative. The contract was held voidable, illustrating the application of economic duress.

Presumed Undue Influence - Royal Bank of Scotland v Etridge (No 2) (2001)

This landmark case clarified the law on undue influence, particularly in the context of guaranteeing loans. The House of Lords held that banks must ensure that spouses acting as guarantors understand the implications, thereby providing guidance on the necessary precautions to avoid undue influence.

Examples

Example 1 - Physical Duress

Scenario:

An individual is threatened with physical harm if they do not sign a contract to sell their property at a significantly undervalued price. The contract, entered into under physical duress, can be rescinded by the coerced party.

Example 2 - Actual Undue Influence

Scenario:

An elderly person signs over control of their finances to a caregiver who exerts excessive influence, taking advantage of their trust. The elderly person can seek to rescind the contract on grounds of actual undue influence.

Conclusion

Duress and undue influence are critical doctrines in contract law that protect individuals from being forced into agreements against their will. They ensure that contracts are entered into freely and voluntarily. Contracts found to be influenced by duress or undue influence are voidable, allowing the coerced or influenced party to rescind the agreement. Understanding these concepts helps in identifying situations where consent may not be genuine and provides avenues for legal recourse.

Unfair contract terms Illegality
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