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Undue Influence and Duress in Business Contracts?

This means that a person or party has been effectively forced into  a postion of obligation under a contract. The contract will not be considered a valid agreement under circumstances such as these. Under common law, there are two doctrines to consider, undue influence and duress.

Duress

Taken at its simplist means a contract is made using threat of violence or unlawful constraint. In the case of Cummings v Ince, the use of a threat was directed towards someone close to the person who engaged in the contract. In this case, the court decided that the contract with an elderly lady would be unenforceable because the agreement was made when she had been threatened to reside in a mental hospital.

 

Interstingly in the case of Skeate v Beale (1840), the court had decided that since  the threat had been levelled towards property, this did not constitute duress in the traditional sense. In contrast to this, the case of Siboen v. Sibotre (1976), the court decided that serious threats that constituted burning a house or damaging expensive paintings should be considered as causative of duress. This meant that duress also covered property in the most serious circumstances.

 

In the matter of Atlas Express v Kafco (1989), the court found that because there was a threat made against the owners of a small business made specifically with the intention of them deliberately breaching the rules of a contract that; this would be considered as duress, however, in such cases, this duress was to be seperately classified as ‘economic duress’.

 

In the case of Universe Tankships of Monravia v ITWF (1982), it followed that the threat made by the union against the property of a ship, to secure thier workers a change in circumstances was similarly seen as economic duress. 

 

Undue Influence

Undue influence as a concept  has been gradually introduced to deal with cases where duress does not strictly apply.  Where undue influence can apply is typically when there is a relationship present between the parties and one party puts their trust in the other. This is likely where thier is a relationship of fiduciary duty or care.

 

 

Undue Influence in Financial Situation

In the case of National Westminster v Morgan (1985), this was between a bank manager and a customer, who was the wife of M. In this case M had asked his wife to arrange finance. The bank manager had helped the customer, the wife, to secure a loan to avoid the repossession of her house. The bank manager had arrived at the lady’s home for her signature. The circumstances at the time of signing were described as stressful and the lady claimed that she had signed it while she was still concerned about the charges of the loan. M had failed to make repayments on the loan and proceedings began for the house to be repossessed. The lady had claimed that the signature was obtained under undue influence by the bank manager. The court had decided that when signing the agreement, the manager had not put pressure on the lady, and that the agreement was beneficial to the lady and that she did not want to lose her house. The court also decided that there was not any need for the manager to have advised the lady to seek legal advice before signing the contract, and decided that there was not any other relationship between the manager and the lady to suggest undue influence. The court ordered the repossession. On appeal, it was decided that it must be proven that the contract had to be wrongful and disadvantage the lady before the court can decide whether undue influence was present. The court concluded that there was no other relationship between the manager and the wife of M and that the contract did not disadvantage the wife.

However, in the case of Lloyds Bank v Bundy (1975), it was decided that the relationship between a bank worker and a customer may be considered as such a relationship where one party puts trust within the other, only if the bank is given that trust.

 

In the case of TSB v Camfield (1994), husband and wife had secured a loan against their house for purposes of a business venture. The wife had acted as surety for the finance and had thought that the liability for which she was responsible had been limited, however this was unlimited. The bank had failed to ensure that the wife received independent and separate legal advice. The business failed and the husband and wife were liable to pay the bank. On appeal from the wife, the court decided that the wife would not be liable to pay. It would have been the responsibility of the bank under the ‘doctrine of notice’ to be aware of the rights of a weaker party.

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