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Law Notes Contract Law Notes

Undue Influence And Unconscionability Notes

Updated Undue Influence And Unconscionability Notes

Contract Law Notes

Contract Law

Approximately 1511 pages

From the AuthorContract law notes fully updated for recent exams at Oxford and Cambridge. These notes cover all the LLB contract law cases and so are perfect for anyone doing an LLB in the UK or a great supplement for those doing LLBs abroad, whether that be in Ireland, Hong Kong or Malaysia (University of London).

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INTRODUCTION

Undue 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  • sometimes undue influence is a vitiating factor allowing contracts made as a result of undue influence to be rescinded;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 Pitt [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 Dowsett [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 rebutted

RELATIONSHIP

Certain stereotypical relationships automatically count, whatever the circumstances (Class 2A)

This is a closed list that will ALWAYS be held to be relationships of trust and confidence. It includes solicitor-client and doctor-patient relationships.

Solicitor and client:

  • Wright v Carter [1903] 1 Ch 27 (P executed deed drafted by solicitor, where solicitor held on trust for 2 children and solicitor in equal share)

  • Markham v Karsten [2007] EWHC 1509 (Middle age solicitor, man financial difficulties – she lent him over 1 mil, relationship broke down, she got him to sign a security over London property – man claimed undue influence for security – but judge held that because woman was a solicitor, that is enough to clear the first hurdle)

  • Shows that no need to act as C’s solicitor, just happens to be a solicitor would clear this hurdle

Doctor and patient:

  • Mitchell v Homfray (1881) 8 QBD 587 (Woman made large gift to docr, held relationship automatically sufficient)

Spiritual adviser and novice:

  • Allcard v Skinner (1887) 36 ChD 145 (Wealthy woman joined convent – bound herself to observe the rules of the order which seem designed for undue influence, poverty, seclusion and obedience – transferred large amounts then left to another order -> held that this was a relationship of undue influence) (Transaction cleared the second hurdle in this case and not rebutted)

  • Roche v Sherrington [1982] 2 All ER 426 -> C member of extreme Catholic sect, gave all money to the sect,...

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