Undue Influence PDF

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Undue Influence...

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Undue Influence Undue influence is improper pressure which falls short of amounting to duress, at common law because no element of violence to the person is involved. Undue influence operates where there exists a relationship between the parties which has been exploited by one party to gain an unfair advantage. Where a contract is found to be entered into as a result of undue influence, this will render the contract voidable. This will enable the person influenced to have the contract set aside as against a party who subjected the other to such influence. In addition, in some instances the party influenced may be able to have a contract set aside as against a party who was not the person inflicting the influence or pressure. There are two classes of undue influence; actual and presumed undue influence. Presumed undue influence is further divided into 2 categories, which were set out in the case of Bank of Credit & Commerce International v Aboody [1990] 1 QB 923 Class 1: Actual Undue Influence Actual undue influence, requires proof that the contract was entered into as a result of actual influence exerted. The claimant must plead and prove the acts which they assert amounted to undue influence. This may include such acts as threats to end a relationship, continuing to badger the party where they have refused consent until they eventually give in. Class 2 a - Presumed undue influence Under class 2a there is no requirement to prove that improper influence was actually exerted. Instead it must be established: 1. There was a relationship which as a matter of law gives rise to a presumption of undue influence such as parent- child, solicitor - client, doctor -patient etc 2. The transaction is one which can not readily be explained by the relationship of the parties. Where the transaction is obviously not to the benefit of the vulnerable party but confers a great advantage to the party in a fiduciary position, the law will raise a presumption that the transaction was entered as a result of some sort of abuse of the relationship. This requirement used to be expressed in terms of manifest disadvantage. However, this lead to confusion particularly where a wife had an interest in the husband's business such in the case of National Westminster Bank v Morgan [1985] 1 AC 686

Class 2b - Presumed undue influence Under class 2b there is no automatic presumption arising as a matter of law. Here it must be established that there is a relationship of such a kind that one party in fact placed their trust and confidence in the other to safeguard their interest. Any relationship is capable of amounting to this examples include husband and wife, cohabitees, employer and employee. The important distinction between class 2 a and 2b is the fact that the trust and confidence relationship must be proved. Rebutting the presumption in class 2a and class 2b The party accused of exercising undue influence may rebut the presumption by demonstrating that the vulnerable party exercised free will in entering the transaction. This is most commonly established by demonstrating that they were fully aware of the risks involved and had received legal advice before agreeing to the transaction. Undue influence and third parties Generally the undue influence is exercised between a husband and wife. Where a wife establishes undue influence it will entitle her to have the transaction set aside as against her husband, however, the transaction is generally with a bank who was not a party to the influence. Following the decision in Natwest v Morgan, it became clear that banks were not acting in a fiduciary capacity so as to give rise to a presumption of undue influence. There had to exist another factor in order to have the contract set aside as against a bank. From the case of Barclays Bank v O'Brien [1993] QB 109 the principle of Constructive notice was established. Constructive notice arises where the bank is: 1. put on enquiry and 2. fails to take reasonable steps to ensure that the transaction was entered freely without the exercise of undue influence....