Duress and Undue Influence
This means that a person or party has been forced into a contract. The contract cannot be considered to be a valid agreement under these circumstances. Under common law, there are two doctrines to consider, duress and undue influence.
This means when a contract is made using threat of violence or unlawful constraint.
However, in the case of Cummings v Ince, the use of 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.
In the case of Skeate v Beale (1840), the court had decided that since the threat had been directed towards property, this did not constitute duress.
However, in the case of The Siboen and the Sibotre (1976), the court decided that serious threats that constituted burning a house or damaging expensive paintings should be considered as duress.
Therefore, this meant that duress also covered property in the most serious circumstances.
In the case of Atlas Express v Kafco (1989), the court had decided that because there was a threat made to a small business for them to breach the rules of a contract that was made; this would be considered as duress, known as ‘economic duress’.
However, in the case of CTN Cash and Carry v Gallagher (1994), the court decided that there was no economic duress present.
In the case of Universe Tankships of Monravia v ITWF (1982), it was decided that the threat made by the union in the matter of a ship, because workers demanded a change in circumstances was seen as economic duress. Furthermore, in the case of North Ocean Shipping v Hyundai Construction (1979), it was decided that the economic duress was present in the contract, due to unfair pressure.
In another case of Pao On v Lau Yiu Long (1980), this was where the court decided that a threat of breach of contract due to business circumstances was seen as acceptable.
Therefore, a case where economic duress has been present is considered by the courts based on individual circumstances.
Undue influence had been introduced to deal with cases where duress does not apply. This is where the influence is considered as unnecessary.
A circumstance where undue influence applies is when there in no relationship present between the parties, therefore, it becomes the responsibility of the party who is claiming that there is undue influence to be able to prove that it exists.
Another circumstance where undue influence can apply is when there is a relationship present where one party puts their trust in another party. In the case of Allcard v Skinner (1887), there was a presumption of undue influence.
Where there is trust involved, such as between family members, undue influence may be presumed, evidence would be required in order to show that what is assumed in untrue.
In the case of Re Brocklehurst (1978), there was evidence to suggest the presence of independence when deciding whether to enter into the contract; on this occasion there was evidence to show that the presumption was untrue.
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.