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Undue Influence Notes

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Undue Influence Monday, 13 September 2010 10:00 p.m.

Hogan v Commercial Factors [2006] CA Three issues:

1. Was the surety subject to undue influence

2. If so, were the circumstances known to the creditor such as to put the creditor on inquiry as to the risk of undue influence?

3. If so, did the creditor act in such a way as to insulate itself from the consequences of undue influence?
Actual undue influence Allcard v Skinner Actual undue influence Where influence is expressly used by one in position of ascendancy. Equitable fraud. Coercion from the outside, personal advantage by some close and confidential relation. Contractors Bonding v Snee Unconscientious use of power by a stronger party aganst a weaker through unfair and improper conduct to gain an unfair advantage. Barclays v O'Brian Necessary for claimant t prove affirmatively that wrongdoer exerted undue influence causing complainant to enter certain transaction. Royal Bank of Scotland v Etridge (2001) (HL) Overt acts of improper pressure or coercion such as unlawful threats. Presumed undue influence Allcard v Skinner Where relations between parties are such as to raise a presumption that donee has influence. e.g. Where stronger party has duty to advise the weaker party. Court sets aside unless stronger party can prove that gift was a spontaneous act of independent will. e.g. Must show independent advice. Snee No presumption of undue influence in parent-child relationship. ASB Bank v Harlick Parents mortgaged home for daughter. No presumption of undue influence in parent-child relationship, has to be raised by particular relationship of the case. But here:
? No evidence of persuasion, no ability to influence at all
? Normal family relationship where parents readily agree to assist children in business ventures
? Just because agreement came immediately doesn't mean anything. (So there was a presumption in law really, but the court just rebutted it?) Barclays bank v O'Brien Husband found to be guilty of deceiving the wife. not so much a case of influence but of misrepresentation-as to the amount of risk and the amount of
$$ he was borrowing so that the wife went into it with a very poor understanding of the risks involved... Woman formerly presumed not to be involved in financial affairs. Barclays removed this presumption.

2. Complainant must show

1. There was a relationship of trust and confidence of such nature that it is fair to presume the wrongdoer abused that relationship in transaction.

2. Complainant then must prove that complainant entered impugned transaction freely. Class (2A) Other relationships as a matter of law raise the presumption that undue influence has been exercised e.g. Solicitor-client, doctor-patient. Class (2B) If complainant proves de facto existence of a relationship under which complainant generally reposed trust and confidence in wrongdoer, raises presumption. Treats classes 2(A) and (B) together - as long as we have a relationship of trust and confidence, whether proven or deemed, that is all that is necessary to prove undue relationship. But proof of a relationship of trust is logically separate from proof that that trust has been abused, but BW LJ runs the two things together. CM246 Wilkinson v ASB [1998] CA Five observations

1. A contract of guarantee does not require full disclosure on the part of the lender

2. An O'Brien Class 2(b) relationship requires two things: 1) A relationship of trust and confidence a) (this was sufficient in O'Brien) 2) PLUS something that will presume undue influence, that creates that presumption. (3)

3. Undue influence is likely to be presumed if there are three features present: 1) The person giving the guarantee has limited commercial ability 2) If guarantor has no more than a "minimal financial stake" in what is being guaranteed. 3) A relationship involving an emotional tie or dependency towards debtor.

4. A wife has no automatic disability vis-a-vis her husband

5. Was there an indirect personal advantage to be obtained from the guarantee (e.g. Family business) Differs from O'Brian: need relationship of trust and confidence AND a presumption (from #3) taking into account #5.

Contract Page 47

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