Contracts/Undue influence: Difference between revisions

{{ safesubst:#invoke:Unsubst||date=__DATE__ |$B= {{#invoke:Message box|ambox}} }} Template:Contract law In jurisprudence, undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. This inequity in power between the parties can vitiate one party's consent as they are unable to freely exercise their independent will.^[1]

In contract law

A contract may be seen as undue influence when one party uses undue influence to persuade another party into entering into a contract or the transfer of property which is disadvantagious to the influenced party.^[2] If undue influence is proved in a contract, the contract is voidable by the innocent party, and the remedy is rescission. There are two categories to consider:

• Presumed undue influence
• Actual undue influence ^[3]

Presumed undue influence

First subgroup

In the first subgroup, the relationship falls in a class of relationships that as a matter of law will raise a presumption of undue influence. Such classes include

• Government/citizen (Note this is not confirmed) ^[4]
• Parent/child:^[5]
• Guardian/ward:^[6][7]
• Religious adviser/member of the flock:^[8]
• Solicitor (attorney)/client:^[9][10]
• Doctor/patient:^[11] (note this exclude dentist and patient ^[12])

In such cases, the burden of proof lies on the first of said parties (e.g. the government, parent, or doctor) to disprove undue influence on the second party.

Second subgroup

The second subgroup covers relationships that do not fall into the first subgroup, but on the facts of case, there was an antecedent relationship between the parties that led to undue influence. The test is one of whether "“one party occupies or assumes towards another a position naturally involving an ascendancy or influence over that other, or a dependence or trust on his part".^[13] If the plaintiff satisfies this a presumption of undue influence will arise, to which the onus of proof transfers to the defendant, who thereon, must rebut that "in all the circumstances", the relationship between the parties involved "dealings were at arm’s length and that the other’s will was in no way overborne by the relationship of confidence" that existed.^[14]

In Garcia v National Australia Bank (1998) 194 CLR 395, the High Court of Australia approved the principle in Yerkey v Jones [1939] HCA 3 by distinguishing between cases of actual undue influence and situations where the transaction is set aside because the guarantor does not understand the nature of the transaction.^[15] Although there is no presumption of undue influence, a "lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet... did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her."

Actual undue influence

An innocent party may also seek to have a contract set aside for actual undue influence, where there is no presumption of undue influence, but there is evidence that the power was unbalanced at the time of the signing of the contract.,^[16][17] Factors such as age, mental capacity and literacy of the donee, among other considerations such as the nature of the transaction (fair or unfair) will help determine actual undue influence.^[18] There is no requirement of manifest disadvantage.^[19]

In probate law

"Undue influence" is the most common ground for will contests and are often accompanied by a capacity challenge. That is, someone in possession of full mental capacity is not likely to be swayed by undue influence, manipulation, or coercion. In litigation most jurisdictions place the burden of proving undue influence on the party challenging the will. Undue influence can be very difficult to prove, and the mere appearance of undue influence is inadequate to challenge the validity of a will.^[20]

In probate law, undue influence is generally defined as a testator's loss of free agency regarding property disposition through contemporaneous psychological domination by an advisor, resulting in an excessive benefit to the advisor. It is important to note that "undue influence" is only an issue when the advisor is benefiting, not when advisor is getting a benefit for someone else; in that case it would be considered fraud.^[21]

In Germany, to avoid undue influence it is illegal for a testator who is or has been a resident of a nursing home to bequeath any property to any employee of the nursing home.^[22]

See also

• Compare with duress

References