Undue influence

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Undue influence occurs when a party unfairly influences another to enter into a contract.[1] Undue influence is basically a more subtle form of pressure than those threats which are considered duress.

To prove undue influence, a party will need to do one of the following:[2]

  1. Prove actual undue influence. This is where the party proves that there was undue influence exerted by the other party which made it enter the contract.
  2. Prove a general relationship of influence. This is where the party proves that the relationship between it and the influencing party is generally one of influence.[3] It will then be up to the influencing party to prove it did not influence this particular decision. Such a relationship may be established in the case of:
    • A relationship giving rise to a presumption - when there is a relationship which is automatically considered as one in which there is of undue influence (ie parent and child).
    • A relationships in fact - this is where the party proves that this particular relationship with the influencing party is one of reliance or influence despite not falling into the accepted categories.

A party who has entered a contract due to undue influence will be entitled to rescind the contract.

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 917-921 [35.05-35.20].

Introduction

[4] Undue influence usually occurs where a party places reliance or confidence in another and therefore has an impaired judgment as to its best interests. That party then uses its influence over the other to enter a contract. Undue influence may be established through:

  1. The general relationship between the parties
    • If a relationship of influence is indeed proven, the onus of proof lies with the stronger party to show that the weaker party's decision was not unduly influenced but was, on the contrary, voluntary and well-informed.
  2. The facts of the case.
    • If no relationship is proved, the onus of proof lies with the weaker party to show that it's decision was under undue influence.

Relationships of influence

[5] Since actual undue influence is hard to prove (the second requirement from above), a party usually attempts to prove that there was a general relationship of influence. There are a number of relationships which are deemed to be relationships of influence and therefore the court automatically adopts a presumption that there was undue influence (transferring the onus of proof to the stronger party):

  • Parent and child
  • Guardian and ward
  • Religious adviser and disciple
  • Solicitor and client
  • Doctor and patient

However, not all relations of trust are automatically relationships which presume undue influence. The following examples will not automatically generate an undue influence presumption:

  • Account and client
  • Husband and wife (and vice versa)
  • Fiduciary relationships

Obviously, these are just general categories, and a party may nevertheless prove that a relationship of undue influence exists even if it is not one which generates an automatic presumption by the courts. But if no relationship can be proved or presumed, the party will have the burden of proving actual undue influence.

Relationships of influence were discussed in Johnson v Buttress, which describes most of the law of undue influence:

  • A relationship of undue influence can be established where the one party relied on the other because of poor mental capacity or such.

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. "An unconscientious use of any special capacity or opportunity that may exist or arise of affecting the alienor's will or freedom of judgment in reference to such a matter.": Johnson v Buttress (1936) 56 CLR 113, 134
  2. Johnson v Buttress (1936) 56 CLR 113, 134
  3. Allcard v Skinner (1887) 36 Ch D 145, 171
  4. Casebook, p. 917 [35.05]
  5. Casebook, p. 917 [35.10]
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