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31 Cards in this Set

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Undue Influence - Introduction
The equitable doctrine of undue influence is closely related to that of duress. As contract law is based on the principle of a full and free consent, any undue persuasion or influence by one party over another in order to obtain that consent will be viewed with suspicion by the courts of equity. Where the so-called stronger party to such an agreement abuses that position, the doctrine will intervene and set aside the contract. An excellent definition of undue influence has been provided by Ashburner:

In a court of equity if A obtains any benefit from B, whether under a contract or as a gift, by exerting an influence over B which, in the opinion of the court, prevents B from exercising an independent judgement in the matter in question, B can set aside the contract or recover the gift. Moreover in certain cases the relation between A and B may be such that A has peculiar opportunities of exercising influence over B. If under such circumstances A enters into a contract with B, or receives a gift from B, a court of equity imposes upon A the burden, if he wishes to maintain the contract or gift, of proving that in fact he exerted no influence for the purpose of obtaining it.
Barclay's Bank v O'Brien [1993] 4 All ER 417

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Two classes of undue influence were identified:

(1) Class 1 - Actual Undue Influence.
(2) Class 2 - Presumed Undue Influence.
Actual Undue Influence
This occurs where the plaintiff affirmatively proves as a fact that the defendant placed undue pressure on him to agree to the terms of the contract. Under this category it is not necessary for the plaintiff to prove that there existed some kind of "special" relationship between the parties justifying the protectwn of the doctrine.

The onus of proving undue influence is on the plaintiff and is proven by reference to the actions of the other party.

Due to the obvious difficulties in proving something as intangible as "undue pressure" , actual undue influence is not a popularly used doctrine.
Bank of Scotland v Bennett (Times Law Reports, 4 August 2004)
Undue influence was found to exist where a husband had used insulting language towards his wife in order to get her to agree to a mortgage over the family home.
Nottidge v Prince (1860) 2 GifT 246
Undue influence was also found to exist where the victim was persuaded to enter into an agreement because of the other party's "super powers".
Flanagan v Ray-Ger Ltd (Unreported, High Court, 28 April 1983 Costello J)

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A and B were the only shareholders in a company. A was terminally ill with cancer; B was aware of that fact. B was the more dominant personality of the two. He brought A to a pub and proposed an agreement whereby the shares of either party would pass to the surviving partner upon the
others death. This was obviously not in A's best interests given the fact that it was more likely that he would not survive B.

A's transaction was set aside on the basis that B had exercised undue influence over him.
Presumed Undue Influence
This heading was subdivided in O' Brien by Browne-Wilkinson L.J. into two further subcategories:

• Class 2A - this presumption arises automatically based on the confidential relationship
between the parties.

• Class 2B - this presumption will arise when facts are proven that a relationship similar nature to that m Class 2A is in existence.
Presumed Undue Influence owing to a prima facie confidential relationship
There are certain limited categories of relationship that are automatically presumed to be based on trust and confidence, thereby giving rise to a presumption of undue influence.

Those relationships have been held to include the relationship:

between a solicitor and client - Lawless v Mansfield (1841)

between parent and child - McMackin v Hibernian Bank [1905]

between priest and disciple - White v Meade (1840)
White v Meade (1840) 2 Ir Eq R 420
Concerned a plaintiff who had joined a religious group as a disciple and some time later transferred a large amount of her own personal wealth and property to the religious organisation. The relationship created a presumption that the transaction was influence by improper pressure.
McMackin v Hibernian Bank [1905] 1 IR 296
The plaintiff signed a guarantee in favour of her mother, who had debts. The daughter lived with her mother and had just attained the age of majority.

The court held that notwithstanding the fact that the transaction had been explained to her, she had not received the benefit of independent advice. The court observed that:

A young person, living with or under the influence of a parent, is likely to remain for some time under parental dominion, and is at an impressionable age, when gratitude, affection and respect for a parent are fresh and strong, while knowledge and experience
of ... life have yet been acquired . . . When the child is living with or under the control
of the parent or guardian, such influence is presumed - and the burden of proof is thrown on the person who has obtained the [benefit] to displace that presumption.
Presumed Undue Influence owing to a evidence of a relationship of trust and confidence
There are relationships outside of those listed in Class 2A that could give rise to a presumption of undue influence. However, in such cases the parties must prove that their relationship was one of trust and confidence and the transaction entered into was to the manifest disadvantage of the so-called weaker party.

It is the character of the relationship that is critical under Class 2B. The plaintiff must prove that the relationship is one in which trust and confidence existed. Once that is proven and the
transaction is to the manifest disadvantage of the plaintiff, then a presumption of undue
influence will be held to exist.
Royal Bank of Scotland v Etridge
[2002] UKHL 44
The House of Lords described the nature of the relationship as follows:

Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy,
domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place
R v Hutton, Re Founds Estate (Unreported, NI Court of
Appeal, 30 April 1979)
This category was described in the following terms:

There is [another] sort of case, the precise range of which is indeterminate, in which the whole evidence, when meticulously considered, may disclose facts from which it should be inferred that a relationship is disclosed which justifies a finding that there is a presumption enables a party to achieve justice by bridging a gap in the evidence where there is a gap because the evidence is impossible to come by.
McGonigle v Black (Unreported, High Court, 14 November 1988)

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The plaintiff was an elderly farmer who lived in some squalor in a caravan on his farm. He was an alcoholic and relied heavily on his nephew. The plaintiff eventually transferred the ownership in the entire farm to his nephew. The transaction was set aside for undue influence. The farmer was heavily reliant on the nephew and had entered into a transaction that was not to his advantage, without the benefit of independent advice.
Gregg v Kidd [1956] IR 183

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The plaintiff was seriously ill and was heavily dependent on his sister for his care .His sister was noted as being a "forceful and determined" character.

The nature of the relationship meant that when the plaintiff transferred his land to his sister's family, the transaction was tainted with undue influence.
Lloyd's Bank v Bundy [1975] QB 326

*****
An elderly farmer had mortgaged his farm with his bank at an undervalue in order to assist his son. It was clear from his relationship with the bank that the farmer had placed his trust in the bank with regard to such matters and a presumption of undue influence was held to arise
Nederland NV v Burch [1997] 1 All
ER 144
The improvident nature of the transaction may also be evidence that the relationship was one based on " trust and confidence". In Credit Lyonnais Bank, a junior employee who had worked for her employer for over 10 years agreed to give a guarantee in favour of his debts, which included a charge on her flat. While there was no direct evidence that a relationship of " trust and confidence" existed between the employer and employee, the court was, in the circumstances, entitled to infer from the facts that such a relationship did exist.
Transactions involving married couples.
Transactions between a husband and wife do not automatically give rise to a presumption of
undue influence. While it has been argued that the nature of such a relationship should be
placed in Class 2A, as being one that automatically gives rise to such a presumption, the Irish
courts have, so far, resisted this temptation.
Barclay's Bank v O'Brien [1993] 4 All ER 417

***
A husband agreed to secure his company's debt by creating a charge over the family home. The wife signed the necessary documents without reading them. She did not seek any independent advice. When the bank sought to enforce the transaction, the wife claimed that there was undue influence involved, that the bank were on notice of this and that, as a result, the guarantee could not be enforced.

The House of Lords upheld this argument. While the relationship between husband and wife is not one that automatically gives rise to a presumption, it could be found to exist based on the proven nature of the relationship, i.e. where she left decisions on financial affairs to her husband.
Third Party Issues
How does a third party who may be affected by a fmding of undue influence protect themselves in such situations? First, the third party must be on notice that such influence has been exercised. Second, where the third party is on such notice, Browne-Wilkinson L.J. in O'Brien stated that a third party could avoid the effects of undue influence if it has taken reasonable steps to ensure that such influence had not been exercised. Those steps would depend on the circumstances, but would include advising the wife to take independent legal advice, explaining the nature of the transaction and its consequence to the wife alone, etc.
Bank of Ireland v Smyth [1995] 2 IR 459

****
The Irish Supreme Court dealt with the effects of contracts entered into under undue influence between husband and wife this matter. The wife had given her consent to her husband under s 3 of the Family Home (Protection) Act 1976.

The bank argued that it was unaware of the undue influence and therefore the validity of the transaction should not be affected. This argument was rejected by the court.

First, whether the bank was aware of the invalid consent was immaterial under the
1976 Act, as an invalid consent was not dependent on the third party's knowledge.

Secondly, in the circumstances the bank had constructive notice that undue influence may have been exerted by the husband over the wife. The court held that while it should have advised the wife to seek independent advice, there was no obligation on the bank to provide such advice for her.

This decision followed the earlier thinking of the High Court in Barclays Bank v O'Brien.
Bank of Nova Scotia v Hogan [1997] 1 ILRM 407
A wife executed a mortgage over her property (not the family home) in favour of her husband. Before doing so, the wife had been advised that the property could be sold
should her husband default. She claimed that the advice she had been given was adequate as the solicitors also acted for the bank in other matters.

The Supreme Court approved of the principles laid down by the House of Lords in O'Brien. In particular, it emphasised the fact that it is up to the wronged party to prove that the relationship was one based on trust and confidence and the relationship of husband and wife did not, by Itself, give rise to such a presumption. The wife's claim failed because she alleged undue influence agamst the bank and not her husband.
Royal Bank of Scotland pic v Etridge [2001] UKHL 44
The law in this area was modified somewhat in England by the House of Lords' in this case, where it was held that a bank is on notice whenever a wife agrees to guarantee her husband's debts.

Lord Nicholls went further and stated that where the relationship between parties is non-commercial, then the
bank will be fixed with notice. In terms of what reasonable steps can be taken, the following were outlined:

(1) if a wife presents herself with her solicitor, the bank is not on notice;

(2) where the wife has no solicitor, it will be sufficient if the bank urges her to seek
independent legal advice;

(3) when advising the wife, the solicitor is her solicitor regardless of whether he is acting
for the bank also;
(4) the bank takes no responsibility for the advice given by the solicitor.
Ulster Bank Ltd v FitzGerald (Unreported, High Court, 9 November 2001)
The plaintiff sought to enforce a guarantee against the defendant in satisfaction of a debt owed by her husband. The plaintiff refused to honour the guarantee on the basis that her consent had been obtained by the exertion of undue influence by her husband, of which the defendant was aware. Both the husband and wife were advised of the implications of the transaction, however, the plaintiff had signed "on the spot."

The court found that the bank manager had no idea that such influence had been asserted.

Husband and wife relationships do not automatically create a presumption and the transaction was not set aside.
Rebutting a presumption of undue influence
Once a presumption has been found to exist, it may be rebutted by evidence to the contrary i.e. proving that the party entered into the contract independently and freely. In

Inche Noriah v Shaik Allie Bin Omar [1929] AC 127, the court identified the manner by which the
presumption could be rebutted:

The gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely satisfy the court that the donor was acting independently of any influence from the donee and with full appreciation of what he was doing.
Inche Noriah v Shaik Allie Bin Omar [1929] AC 127
the court identified the manner by which the presumption could be rebutted:

The gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely satisfy the court that the donor was acting independently of any influence from the donee and with full appreciation of what he was doing.
Noonan v O'Connell (Unreported, High Court, 10 April 1987).
Independent advice must not merely explain the nature of the document that is being signed but also the consequences of the signature.
Unconscionable Bargain
This is an equitable doctrine closely related to both undue influence and duress. It basically provides that a transaction can be set aside in equity where one dominant party takes advantage of another weaker party in a transaction and does so unfairly, without relying on
duress or undue influence.
Grealish v Murphy [1946] IR 35

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The court reiterated the maxim: "equity comes to the
rescue when the parties to a contract have not met on equal terms."

In that case, an elderly farmer who lived on his own and was somewhat mentally deficient left his property to a younger man, whom he had come to know. The transaction was very disadvantageous to the farmer and although he had been told the nature of the transaction by a solicitor, he did not appear to understand it. It was held that the transaction should be set aside.

The parties had not met on equal terms and the transaction was to the manifest disadvantage of the farmer.

The advice given by the solicitor was insufficient as the solicitor was unaware of his client's mental deficiencies at the time.
Rae v Joyce (1892) 29 LR (Ir) 500
A woman who mortgaged her property at a less than beneficial rate was entitled to have the transaction set aside when it was shown that at the time of entering into it, she was pregnant and had no commercial experience.

Unless the other party could prove that the transaction was not improvident, then it would be set aside.
Stator v Nolan (1876) IR 11 Eq 367
A young, reckless, bankrupt man sold his inheritance to his brother-in-law who was an experienced businessman with some legal knowledge. The court held that the contract should be struck down as being an improvident transaction.