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Contract Law - Duress & Undue Influence Part 1
Law Sessions with Jennifer Housen
Overview
This video explains the legal concepts of duress and undue influence as vitiating factors in contract law, meaning they can make a contract voidable. It focuses primarily on duress, distinguishing between duress to the person (physical threats) and economic duress (financial threats). While duress to the person has long been recognized, the law has evolved to include economic duress, though it requires more than mere commercial pressure. The video highlights key cases illustrating these principles and discusses the conditions under which a contract can be set aside due to duress, emphasizing the importance of timely action by the wronged party.
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Chapters
- Duress and undue influence are 'vitiating factors' that can make a contract voidable.
- A contract entered into under duress means consent was not freely given.
- The effect of duress or undue influence is that the innocent party can choose to rescind (set aside) the contract.
- Rescission may be barred by factors like the passage of time or affirmation of the contract.
Understanding these factors is crucial because they provide a legal basis to escape a contract that was not entered into voluntarily, protecting individuals from being bound by agreements made under illegitimate pressure.
- Duress to the person involves threats of unlawful physical violence.
- If a threat of physical violence was a cause (not necessarily the sole cause) for entering the contract, the contract may be set aside.
- The case of Barton v Armstrong illustrates that the threat only needs to be one of the reasons for entering the contract, not the only reason.
This establishes that even if a party had other reasons to enter a contract, the presence of physical threats can invalidate their consent and allow them to escape the agreement.
In Barton v Armstrong, Armstrong threatened Barton to pressure him into buying Armstrong's shares at an inflated price. The court allowed the contract to be set aside because the threats were a cause for Barton signing, even though he also wanted Armstrong out of the company.
- Historically, duress involving threats to a person's goods has been less likely to be recognized by courts.
- The case of The Siboen and The Sibotre suggests that threats to goods might not be sufficient to set aside a contract.
- However, the law is evolving, and this area may change, especially given the recognition of economic duress.
This distinction highlights how the law has traditionally prioritized threats to personal safety over threats to property, though this is a developing area.
In The Siboen and The Sibotre, a landlord seized a tenant's goods and threatened to sell them unless the tenant agreed to a repayment plan. The court did not set aside the agreement based on duress to goods.
- Economic duress involves illegitimate financial or economic pressure.
- The concept was first explored in The Siboen and The Sibotre, where Justice Kerr suggested that coercion of will vitiating consent could be grounds for setting aside a contract, but mere commercial pressure was insufficient.
- The case of Atlas Express v Kafco is a key example where economic duress was found.
- A contract is voidable for economic duress if there was a 'coercion of the will' that 'vitiated consent'.
Recognizing economic duress is vital in modern commerce, as it protects businesses from being forced into unfavorable agreements due to illegitimate financial threats, ensuring fairer commercial dealings.
In Atlas Express v Kafco, Atlas threatened not to deliver goods unless Kafco paid a higher price, knowing Kafco would suffer significant losses if they didn't receive the goods. Kafco agreed but later sought to void the agreement due to duress.
- In The Atlantic Baron, the court recognized economic duress but found the claimant had affirmed the contract by waiting too long to seek rescission.
- The Universe Sentinel case shifted the focus from 'coercion of will' to an 'absence of choice' for establishing economic duress.
- For economic duress to be established, the pressure must go beyond normal commercial bargaining.
- Key factors in assessing economic duress include whether the party protested, had alternative options, received independent advice, and took steps to avoid the contract.
These cases and factors provide a practical framework for courts to determine if economic pressure crosses the line into illegitimate duress, requiring careful consideration of the circumstances and the actions of the parties involved.
In Pao On v Lau Yiu Long, the Privy Council outlined four factors: protest, availability of alternatives, independent advice, and steps taken to avoid the contract. The defendant's failure on all these points meant no economic duress was found, only commercial pressure.
Key takeaways
- Contracts entered into under duress (threats of physical violence or illegitimate economic pressure) can be voidable.
- Duress to the person requires that the threat was a cause for entering the contract, not necessarily the sole cause.
- Economic duress is recognized but requires more than just hard commercial bargaining; it involves illegitimate pressure that overcomes the will or leaves no real choice.
- The law's approach to duress has evolved, particularly in recognizing economic duress.
- Parties seeking to set aside a contract for duress must act promptly; delay can lead to affirmation of the contract, losing the right to rescind.
- Key factors in determining economic duress include protest, available alternatives, independent advice, and subsequent actions.
Key terms
Vitiating factorDuressUndue influenceVoidable contractRescissionDuress to the personEconomic duressCoercion of willAbsence of choiceCommercial pressure
Test your understanding
- What is the primary legal consequence of establishing duress in a contract?
- How does duress to the person differ from economic duress in terms of legal recognition and requirements?
- What are the key factors a court will consider when deciding if economic duress has occurred?
- Why is it important for a party claiming duress to act quickly to set aside a contract?
- Explain the difference between illegitimate economic pressure and mere commercial pressure in contract law.