Duress And Undue Influence May Undo Contracts

October 14, 2014

By Brian Babcock

Though courts promote freedom of contract, they also recognize that the freedom must be real. When a stronger party takes advantage of a weaker party, common sense tells us that the law should protect that weaker party from this wrong. This results in an exception to the general rule that when there is an agreement, and some exchange of value, it makes a contract which is binding on both parties.

A contract entered into under duress or due to undue influence may be unenforceable.

Duress is the term used in cases of actual or threatened violence. In law, the application of this idea to void a contract is applied very narrowly, because almost all bargaining involves the presence of some commercial pressure-  such as the typical situation of making an offer on a house- we all can recall being told “if you don’t make an offer on the house NOW, the next person might”. That is not what the courts mean by “duress”.

For it to become duress, the court expects to see clear evidence of threats to personal safety, or to property, or improper economic pressure (such as refusing to pay a debt you owe unless the person you owe gives you their car, when you know they need the cash to avoid eviction). In all cases, the court must be convinced that the duress resulted in the person agreeing to a contract not through their own free will, but because they felt compelled to do so- that they had no real choice.

This principle also is found in the notion of undue influence. This is where the stronger person takes advantage of their position or power to compel a transfer of value. The influence might involve a particular occasion, or it might arise out of the relationship of the parties. Undue influence is more flexible than duress, since it does not require proof of an actual threat. The coercive conduct plus a disadvantageous deal may be enough.

In cases involving a special relationship, if the deal is one sided, there is a presumption of coercion, or undue influence. Examples of this are lawyer/client; doctor/patient; trustee/beneficiary; parent child; religious leader/follower.  Though the presumption may be rebutted, the person in the position of power has some explaining to do.

There is a further category of relationships that fall somewhere in the middle- husband/wife; employer/employee; banker/client- where, though coercion is not presumed in every case, courts look closely at the circumstances of the deal.

The application of the law of duress and undue influence can be complicated where the rights of outside persons are affected. Often in cases of undue influence, transfer of property has occurred, and undoing that requires moving quickly. If the deal cannot be undone, speed is also the best way to recover damages from a wrongdoer.

If you or a loved one think you have been taken advantage of, seeking prompt legal advice is essential.