LAW OF CONTRACTS: Your Sword , Your Shield 8

Welcome.

I will continue with my write up on the scenarios that make it necessary to terminate a contract.

Today, I will be writing about the other types of ways aside from misrepresentation and mistake that I have already written about.

Read my previous post here.

I proceed.

 

3. Duress and Undue Influence:

This occurs when improper pressure was brought upon a person entering into a contract. This could be by threat or bodily harm.

Below are the scenarios in which a duress and undue influence can occur;

ACTUAL UNDUE INFLUENCE

Williams v Bailey (1866)

Facts 

A son forged his father's signature on promissory notes and gave them to their bankers. 

At a meeting of all the parties at the bank, one of the bankers said to the father: "If the bills are yours we are all right; if they are not, we have only one course to pursue; we cannot be parties to compounding a felony." 

The bank's solicitor said it was a serious matter and the father's own solicitor added, "a case of transportation for life." 

After further discussion as to the son's financial liability the bank's solicitor said that they could only look to the father. 

The father then agreed to make an equitable mortgage to the bank in consideration of the return of the promissory notes. 

The father succeeded in an action for cancellation of the agreement.

Holding
It was held by Lord Westbury that the security given for the debt of the son by the father under such circumstances, was not the security of a man who acted with that freedom and power of deliberation that must be considered as necessary to validate a contract to give security for the debt of another.

PRESUMED UNDUE INFLUENCE

Allcard v Skinner (1887)

 

Facts

In 1867 an unmarried woman aged 27 sought a clergyman as a confessor. 

The following year she became an associate of the sisterhood of which he was spiritual director and in 1871 she was admitted a full member, taking vows of poverty, chastity and obedience. 

Without independent advice, she made gifts of money and stock to the mother superior on behalf of the sisterhood. 

She left the sisterhood in 1879 and in 1884 claimed the return of the stock. Proceedings to recover the stock were commenced in 1885.
 
It was held by the Court of Appeal that although the plaintiff's gifts were voidable because of undue influence brought to bear upon the plaintiff through the training she had received, she was disentitled to recover because of her conduct and the delay; delay defeats equity.
 

MANIFEST DISADVANTAGE

BCCI v Aboody [1989] 

Facts

A husband and wife owned a family company and the company's liabilities to its bank were secured, among other things, by charges of the wife's house. 

The bank sought to enforce the securities and the wife pleaded actual undue influence by the husband. 

Although the judge found that such influence had been established, he refused to set aside the charges as it had not been proved that they were manifestly disadvantageous to the wife.

Held 
It was held by the Court of Appeal that manifest disadvantage for the purposes of the doctrine of undue influence had to be a disadvantage which was obvious as such to any independent and reasonable person who considered the transaction at the time with knowledge of all the relevant facts. 

The fact that the complaining party had been deprived of the power of choice (eg because his will had been overborne through the failure to draw his attention to the risks involved) was not of itself a manifest disadvantage rendering the transaction unconscionable. 

Furthermore, since the giving of a guarantee or charge always involved the risk that the guarantee might be called in or the charge enforced, the question whether the assumption of such a risk was manifestly disadvantageous to the giver of the guarantee or charge depended on balancing the seriousness of the risk of enforcement to the giver, in practical terms, against the benefits gained by the giver in accepting the risk.

There were no grounds for disagreeing with the judge's conclusion that on balance a manifest disadvantage had not been shown by the wife in respect of any of the six transactions, since although there were substantial potential liabilities and the family home was at risk as a result of the transactions, that was counterbalanced by the fact that the loans gave the company a reasonably good chance of surviving, in which case the potential benefits to the wife would have been substantial. 

Moreover, the evidence established that the wife would have entered into the transactions in any event and accordingly it would not be right to grant her equitable relief as against the bank. The wife's appeal was therefore dismissed.

Re Craig (deceased) [1971] 

FactsC, an old man of 84 years whose wife had died, employed Mrs. M as secretary/companion. 

From the beginning she occupied a position of trust, and in addition to running the house she took a confidential part in running C's affairs.

From the time of Mrs. M's employment and C's death (January 1959 - August 1964) he gave her gifts worth £28,000 from his total assets of £40,000.

Held It was held by the Chancery Division that (1) All the gifts complained of were such as to satisfy the requirements to raise the presumption of undue influence, namely, that they could not be accounted for on the ground of the ordinary motives on which ordinary men act, and secondly, that the relationship between C and Mrs M involved such confidence by C in Mrs M as to place her in a position to exercise undue influence over him. (2) Mrs M failed to discharge the onus on her of establishing that the gifts were only made after 'full, free and informed discussion' so as to rebut the presumption of undue influence. The gifts would, therefore, be set aside.

Re Brocklehurst (deceased) [1978]

Facts

Brocklehurst was a strong-minded, autocratic and eccentric old man who was used to commanding others and had served in the army in positions of command. 

He was impulsively generous. When he was in his eighties he lived alone and became friendly with the owner of a local garage. 

They had a common interest in shooting and B permitted the defendant to shoot rabbits on the estate. 

B wrote to the defendant saying that he wished to give him the shooting rights over his estate and pressed the defendant to instruct a solicitor to draw up a lease. 

B executed the lease. After B died, his executors brought an action against the defendant to have the lease set aside on the ground of undue influence. 

Held
The Court of Appeal upheld the lease.

The Court of Appeal held that the nature of the relationship between the deceased and the defendant was not one of confidence and trust such as would give rise to a presumption of undue influence on the part of the defendant, for the evidence established that the relationship was one of friendship and did not indicate that it was such that the defendant had been under a duty to advise the deceased or had been in a position of dominance over him; on the contrary, it was the deceased who had tended to dominate the defendant.

But even if the relationship had been one that gave rise to a presumption of undue influence, the defendant had rebutted the presumption for in the circumstances the presumption was rebut-table not only by proof that the deceased had been independently advised about the leases but also by proof that the gift of the leases had been the spontaneous and independent act of the deceased.

O' Sullivan v Management Agency & Music Limited [1985]

Facts 
The plaintiff sought to set aside for undue influence a number of
management, sole agency, recording and publishing agreements and transfers of copyright. 

The defendant argued that the appropriate remedy, namely restitutio in integrum, was inapplicable in the circumstances because the agreements had all been performed and the parties had irrevocably altered their positions, and that therefore the plaintiff was limited to obtaining damages instead of reconveyance of the copyrights and delivery up of the master tapes.

Held
The Court of Appeal held that the plaintiff was not barred from having the contracts set aside by the fact that restitutio in integrum was impossible because the contracts had been performed. 

A contract entered into by a person in breach of a fiduciary relationship could be set aside in equity even though it was impossible to place the parties in the precise position in which they had been before, provided the court could achieve what was practically just between the parties by obliging the wrongdoer to give up his profits and advantages, while at the same time compensating him for any work he had actually performed under the contract.

In my next write up, I will write about void and illegal contracts with examples of cases as usual.

Your comments and questions are welcome.