7_-_defective_contracts_2

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Duress & Undue Influence
Duress: Forced into contract through threat
of violence
Undue Influence: Pressure to contract,
which prevents the contracting party from
exercising independent judgement
Makes contract voidable
Types of Duress
 Physical Duress
 “Your money or your life”
 Economic
Duress
1.
Wrongful or improper threat: A threat to breach a contract "in bad faith"
or threaten to withhold an admitted debt "in bad faith".
2.
Reasonable alternative (but to accept the other party's terms): an
available legal remedy, an available market substitute (in the form of
funds, goods, or services), or any other sources of funds this element is not
met.
3.
The threat actually induces the making of the contract. This is a subjective
standard, and takes into account the victim's age, their background
(especially their education), relationship of the parties, and the ability to
receive advice.
4.
The other party caused the financial distress. The majority opinion is that
the other party must have caused the distress, while the minority opinion
allows them to merely take advantage of the distress.
Threat of violence
 Actual
or threatened violence causing
death or bodily harm, or actual or
threatened unlawful imprisonment against
the contracting party or member of
his/her family.
 Three
1.
2.
3.
tests for physical duress:
Illegitimate means of persuasion was used
Illegitimate means used was a reason, not
the reason
Evidence is ‘honest and accepted’.
Duress can be “a” reason
Barton v Armstrong [1975]
A threatened B with death if he did not
agree to purchase A’s shares in the
company. B, also thinking that it was a wise
decision, entered into the contract, but
subsequently changed his mind.
Duress Requirements
1.
The threat must be of serious bodily harm or
death
2.
The threatened harm must be greater than
the harm caused by the crime
3.
The threat must be immediate and
inescapable
4.
The defendant must have become involved
in the situation through no fault of his or her
own
Duress to goods
Skeate v Beale (1840)
Landlord threatened to sell furniture if he did
not receive the rent.
Economic Duress refined defined
 Economic
duress forces the other to vary
the contract based on a monetary
disadvantage.
 Pau
 Lord
On v Lau Yiu Long [1980]
Scarman: “a coercion of will, such
that there was no true consent… it must
be shown that the contract entered in to
was not a voluntary act.”
Economic Duress


The Sibeon and The Sibotre [1976]
Kerr J: “...if I should be compelled to sign a lease or
some other contract for a nominal but legally
sufficient consideration under an imminent threat
of having my house burnt down or a valuable
picture slashed through without any threat of
physical violence to anyone, I do not think that
the law would uphold the agreement... The true
question is ultimately whether or not the
agreement in question is to be regarded as having
been concluded voluntarily.”
Tests for economic duress
 Was
there objection by victim?
 Was
there an alternative course of action
other than to give in to the pressure?
 Was
 Did
the victim independently advised?
the victim take steps to avoid it?
Affirmation
North Ocean Shipping v Hyundai Construction (The Atlantic
Baron) [1979] QB 705
The defendants agreed to build a ship for the claimants for
a certain price specified in US dollars. After entering the
contract the US dollar was devalued by 10%. The
defendants threatened not to complete unless the
claimants paid an additional 10% on the contractually
agreed price. The claimants had a valuable charter lined
up so agreed to pay the additional sums and did pay them
without protest. 8 months after delivery of the ship the
claimants brought an action to recover the additional sums
paid.
Undue Influence


Taking advantage of a position of power
over another person.
Makes a contract voidable
Royal Bank of Scotland plc v Etridge [2001]
Husband convinced wife to put the house
up as security for a loan to pay off business
debt. Husband lied about amount needed
and how badly the business was doing.
Constructive notice?
Williams v Bayley (1866)
Son forged father’s name on promissory
note for loan. The bank put pressure on
father to put up his property for payment.
Positions of Power and Trust

Parent/child

Priest/member of parish

Lawyer/client

Doctor/patient
Illegality
A contract to commit crime, tort or fraud
Everet v Williams (1725)
Everett claimed he was in the business of selling
silver, rings and watches. When Williams asked to
be taken into partnership, Everett agreed. After
dealing together for some time, they had a
disagreement over their respective shares of the
profits. Everett claimed that Williams was not
keeping to the contract and was holding onto
more than his proper share.
Illegality (2)
Cowan v. Milbourn (1867)
Contract to lease a lecture-room was
breached when the landlord discovered
that the lectures were going to be against
Jesus.
Blasphemy
was illegal at that time and the
Courts said, “Christianity is part of the laws of
England”
Contractual Incapacity
 The
inability to understand that a contract
is being made and to understand its
terms, due to mental or physical reasons.
 Minors
 Insanity
 Intoxication
(rare)
Minors
 Generally
can’t enter into contracts
 Was 21 until 1969… now 18
Three types of contracts for minors
1. Enforceable - Contracts which are
binding on minors.
2.
Voidable - Contracts which are binding
on minors unless the minor repudiates the
contract.
3.
Unenforceable - Contracts not binding on
minors unless ratified.
Enforceable contracts
A
minor is only liable for a contract of
necessaries, and for a beneficial contract
of service.
 Necessary
goods: “Goods suitable for his
condition in life, and to his actual
requirements at the time of sale and
delivery”
 Necessary

is NOT necessity
E.g., Latest Apple student for Business of
Graphic Design student
Necessary Test
 To
identify whether something is a
“necessary” one has to ask two questions:
1.
2.
Is the article capable of being a
“necessary” in the eyes of the law
Is the article a “necessary” for this minor.
If the first question must first be answered in
the affirmative
Minors
 Chapple
A
v Cooper (1844)
young widow was sued successfully for
the funeral expenses for her late husband,
as these services were regarded as
necessaries
Unenforceable Contracts
 Fawcett
v Sethurst (1914)
 Well-off
20 year old hired a car to
transport his luggage
 Terms of contract stated that the minor
would be held absolutely liable for any
damage to the car, regardless of how the
damage was caused
 Held:
Onerous contract
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