Contracts/Undue influence

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Undue influence (as a term in jurisprudence) is an equitable doctrine that involves one person taking advantage of a position of power over another person. It is where free will to bargain is not possible.

Undue influence in contract law

If undue influence is proved in a contract (at least in Australia), 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

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:

• Parent/child
• Guardian/ward
• Priest/member of parish
• Solicitor/client
• Doctor/patient

In such cases, the onus of proof lies on a doctor, say, to disprove undue influence on a patient.

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 there was a relationship of such trust and confidence that it should give rise to such a presumption (see Johnson v. Buttress (1936) 56 CLR 113).

In Garcia v National Australia Bank (1998) 194 CLR 395, the High Court of Australia distinguished 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. 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.

Undue influence in probate law

"Undue Influence" is the most common ground for will contests and are often accompanied by a capacity challenge. In probate law, it is generally defined as a testator's loss of free agency regarding property disposition through contemporaneous psychological domination by an advisor which results 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. In litigation most jurisdictions place the burden of proving undue influence on the party challenging the will.

See also

• Compare with duress (contract law)

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