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21 Cards in this Set

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LJ Lindley in the case of Allcard v Skinner [1887] defined Undue Influence

'...Some unfair and improper conduct, some coercion from outside, some overreaching, some form of cheating and generally, though not always, some personal advantage gained'

GH Treitel in The Law of Contract defined Undue Influence

'Equity gives relief on the ground of undue influence where an agreement has been obtained by certain kinds of improper pressure which were thought not to amount to duress at common law because no element of violence to the person was involved'

Definition of Undue Influence

A person who has been induced to enter into a transaction by the undue influence of another (the wrongdoer) is entitled to set that transaction aside as against the wrongdoer. The effect of undue influence, like duress, is to make the contract voidable

Defined by Court of Appeal: BCCI v Aboody [1989]

Barclays Bank v O'Brien [1993]

Rule of Law: undue influence can be actual or presumed. HoL adopted ^ classification of undue influence by the Court of Appeal in BCCI v Aboody [1989]

Class 1: Actual Undue Influence

In these cases it is necessary for the claimant to prove affirmatively that the wrongdoer exerted undue influence on the complainant to enter into the particular transaction.

CIBC Mortgages v Pitt [1993]

Rule of Law: HoL held that there is no further requirement in the cases of this kind that the transaction must be shown to be to the manifest disadvantage of the party seeking to set it aside

This disapproved the decision made in BCCI v Aboody [1989] on this point

Class 2: Presumed Undue Influence (I)

In these cases the complainant only has to show, the first instance, that there was a relationship of trust and confidence between the complainant and the wrongdoer of such a nature that it is fair to presume that the wrongdoer abused that relationship in procuring the complainant to enter the contract

Class 2: Presumed Undue Influence (II)

In class 2 cases therefore, there is no need to produce evidence that actual undue influence was exerted in relation to the particular transaction:

Once a confidential relationship has been proved, the burden then shifts to the wrongdoer to prove that the complainant entered into contract freely. E.g. showing that the complainant had independent advice

Class 2a: Presumed Undue Influence - Confidential relationships establishment

Certain relationships as a matter of law raise the presumption that undue influence has been exercised.

- Parent/Child

Wright v Vanderplank [1855]

- Solicitor/Client

Wright v Carter [1903]

- Doctor/Patient

Mitchell v Homfray [1881]

- Trustee/Beneficiary

Ellis v Barker [1871]

- Religious Advisor/Disciple

Roche v Sherrington [1982]

Exclusions to Class 2a

The relationship between husband and wife does not, as a matter of law, raise a presumption of undue influence within class 2a

Case: Midland Bank v Shepard [1988]

Nor does the rule apply between employer and employee

Case: Matthew v Bobbins [1980]

Class 2b: Presumed Undue Influence - Confidential relationships establishment

If the complainant proves the existence of a relationship under which the complainant generally had trust and confidence int he wrongdoer, the existence of such a relationship raises the presumption of undue influence

Therefore, in the absence of evidence disproving undue influence, the complainant will succeed in setting aside the transaction merely by proof that the wrongdoer exerted actual undue influence or otherwise abused such trust and confidence

Exclusions to Class 2b

The relationship of banker and customer will not normally give rise to a presumption of undue influence, but it can do so in exceptional cases if the customer had placed himself entirely in the hands of the bank and has not been given any opportunity to seek independent advice

Cases: Lloyd's Bank v Bundy [1974], National Westminster Bank v Morgan [1985]

Undue Influence and 3rd parties (I)

Undue influence was traditionally raised by wife-sureties where their relationship with the band-creditor is manipulated when the debtor-husband acts as intermediary

E.g. a husband persuading his wife to guarantee his company's overdraft with a bank, using the matrimonial home, of which she is a joint owner, as security for the debt

In such situations the creditor-bank may be tainted by the undue influence of the husband

Undue Influence and 3rd parties (II)

If a bank entrusts certain duties to a debtor-husband who, as an intermediary, is capable of exerting some influence over his wife the position is:

The transaction is one which (a) on its face not to the financial advantage of the party seeking it aside, and (b) if there is a substantial risk of its having been obtained by undue influence, then the 3rd party (bank) will have constructive notice of undue influence giving the injured party the right to set aside the transaction

The bank-creditor must take reasonable steps to ensure that the wife's consent was properly obtained

Undue Influence and 3rd parties cases

Barclays Bank v O'Brien [1993]

Royal Bank of Scotland v Etridge (No. 2) [2001] - established the Etridge guidelines

Etridge Guidelines

These steps include making sure that the weaker party has had independent legal advice and understands fully the consequences of signing such a contract. If the lender has followed these guidelines, then a claim of undue influence will not succeed against the lender

Remedies for Undue Influence

The remedy in cases of undue influence is rescission. Where rescission is ordered, the whole transaction will be set aside.

Case: TSB Bank v Camfield [1995]

Bars to rescission

Damages are not available, but there are limitations to rescission.

Bars to rescission: delay, severance and damages

Bar to Rescission: Delay

Delay defeats equity. The injured party must claim undue influence as soon as possible after the contract has been entered into

Case: Allcard v Skinner [1887]

Bar to Rescission: Severance

It may be possible for the court to sever from a contract affected by undue influence the objectionable parts leaving the part uncontaminated by undue influence enforceable

Case: Barclays Bank v Caplan and Another [1997]

Bar to Rescission: Damages

Damages are not available for undue influence, but if a bank/solicitor has broken a duty of care to a wife-surety damages may be available in negligence

Case: Hedley Byrne v Heller [1964]