KITUO CHA SHERIA BLOG

DURESS AND UNDUE INFLUENCE AS LAW ON UNCONSCIONABLE CONTRACTS

Unconscionable contracts

An unconscionable contract is unenforceable under the law. This is due to the fact that such a contract is highly one sided and therefore the result is that one party in the contract will suffer unfairness. In most cases, this is occasioned by the substantial bargaining power of the parties where one of the parties to the contract enjoy excess bargaining power while the other party does not.

There are various factors that make a contract between parties become unconscionable. Such factors are like Duress, undue influence unfair surprise, limiting warranty and even unequal bargaining power. This therefore means that if there was any transfer of goods or even money, the aggrieved party may claim the same back in restitution and on the just basis of unjust enrichment. This is however subject to certain defenses that may be brought by the other party.

Lord Denning in the case of Lloyds Bank Limited v Bundy found there to be need to have a general principle to govern this are of law where he termed the concept as the inequality of the bargaining power of the parties to the contract.[1]

This has also been the case in another decided American of Williams v Walker-Thomas Furniture Company. In this case, the court termed the issues advanced by the Plaintiff as one of unconscionability. This is also in line with the findings of the court in the Lloyds Bank Limited case.[2]

In the Earl of Chesterfield case, the court stated that unconscionability may be apparent from the intrinsic nature and subject of the bargain made. The court further stated that the bargain should be such as no man in his senses and not under a delusion would make on one hand and as no honest man would accept on the other, which are unequitable and unconscientious bargains, and of such even the common law take notice.[3]

Duress defined

Duress occurs when wrongful pressure is exerted on a party to enter the contract. The pressure should have the threat of immediate harm if the party under duress fails to comply with the demands of the violating party to enter into the contract.

Duress may also be defined as a threat of harm made to compel a person to do something against his or her will or judgment and especially a wrongful threat made by one person especially in the terms of contract law in order to compel a manifestation of seeming assent by the other person to the transaction without the actual volition of the victim.[4]

In the case of Barton v Armstrong, one of the party to the contract threatened the other with death if the other party did not comply and sign the contract. The effect of such duress was that the privy council set aside the contract on the grounds of duress.[5]

The test for duress in the context of rendering a contract unconscionable has further been reiterated in the case of  Universe Tankships Inc. of Monrovia v International Transport Workers’ Federationwhere Lord Diplock stated that in finding duress in a contract, focus should not be placed on knowing what one is contracting for, rather to the fact that the consent by the Plaintiff was induced by pressure exerted on him by the other party to the contract which is not legitimate pressure before the law. The pressure must however be revocable unless approbated either expressly or even by implication.[6]

Defining Undue influence

This is where a party who is at a position of trust abuses that position of trust thereby taking advantage of the inferior party. This means that there must exist some sort of relationship based on trust between the superior and inferior party.

The court in the Lancashire Loans case gave the example of a contract between a parent and their child. In such a relationship, the parent is definitely superior while the child is the inferior party in the contract. The court further stated that the burden of proof is therefore on the recipient to show independent advice to the donor.[7]

Courts have also allowed the Plaintiffs to seek a remedy in contract law on other grounds. In the case of Cresswell v Potter,[8] the court stated that the Plaintiff satisfied the court that she was poor and ignorant and that alone was enough in the courts view to show that the contract was biased. This is a similar disposition from the above example of a contract between a child and their parent.

In the above case, the court made reference to the case ofFry v Lane[9] where the court stated that equity as a remedy in contract law interferes but in the favor of an expectant heir who is in his youth years or a poor and marginalized person who has imperfect education. The tests for whether there was an imbalance in the bargaining power of the parties to the contract were set put in this case.

It is however very important to note that undue influence doesn’t necessarily need to be direct. In other situations, it may be presumed. This was demonstrated in the case of Barclays Bank plc v O’Brien[10]In this case, the court after examining the fact of the case came to a conclusion that misrepresentation by Mr. O’Brien didn’t make the bank responsible.

In the above case, Mr. O’Brien secured an overdraft using his matrimonial home when his company was doing badly and he needed financial assistance. The same was guaranteed by Mrs. O’Brien who signed a document she had not read after a bank employee made a note stating that Mrs. O’Brien may be a problem when Mr. O’Brien tried to get an overdraft. Later Mrs. O’Brien claimed that she was unduly influenced into the contract and that she cannot have been bound by the contract. The court however rejected this disposition and argument advanced by Mrs. O’Brien. The judge therefore proceeded to order possession of the home.

Does Duress and Undue Influence form the law on unconscionable contracts?

In the case of Cumming v Ince[11], an inmate serving at a mental asylum that was privately owned was coerced into signing away the ownership of her properties to a selected relative under the promise that if she did sign away title to her properties, the order that committed her would be lifted. The court found that the contract had not been signed out of her own will and was therefore unenforceable and was set aside by the court. The contract was therefore unconscionable.

This therefore means that a contract that can be enforced by the law must have been entered into and signed by both parties out of their own free will. Consequently, when the consent is coerced, forced or/and suppressed, the contract automatically and instantly becomes a voidable contract. This cannot therefore be enforced. This position was also taken by the court in the case of Barton v Armstrong.[12]

However, courts are keen to ensure that the coercion, suppression or force are proved. This was clear in the case of Pao On v Lau Yiu Long.[13]The courts will therefore seek to ensure that the person allegedly coerced protested or whether they did not protest at all. It is also important that the courts look into whether the coerced party took steps to avoid the contract after signing and importantly whether or not he obtained independent advice.

Most courts follow the above tests due to the fact that if a party failed to take any steps to avoid a contract that they were coerced into then the party is deemed to have accepted the terms of the contract irrespective of the fact that there may actually have been duress into entering the contract.Such a party to a contract will therefore be restricted from changing their mind at a later stage of the contract execution.

Initially and in the early days, duress was only recognized by the courts when it affects the person themselves. This was not the case when it concerned property. In the case of Skeate v Beale[14] the court declined to set aside the contract. In this case a landlord threatened a tenant that he will levy duties if the tenant failed to pay the debt owed. The tenant proceeded to pay part of the amount and further gave a promise to pay the balance in a period of one month. The tenant was unable to keep the promise when the period lapsed. The landlord therefore proceeded to bring a suit against the tenant and the tenant pleaded duress. The court declined and refused to set aside the contract. The court held the position that the threat was not to the person but to the goods and therefore the Defendant cannot sustain the defense of duress.

Conclusion

Based on the above illustrations and precedent, it is correct to state that duress and undue influence for the law on unconscionable contracts. The position of the courts should therefore be that where there is evidence or it can be proved that one party to the contract is in an influential position, then that party must bear the burden of proof to prove that the contract was signed absolutely on a voluntary basis by the weaker party and that there was no element of duress or undue influence.

On the other hand, I totally agree with the positions and decisions the courts have made before of ensuring the party suffering a suit or an action is also protected. This is by ensuring that the party claiming duress or undue influence made the necessary steps to avoid the contract when they first suffered duress or undue influence and even protested at the initial or latter stages of the contract.

Once the aggrieved party to the contract is able to demonstrate the above, then it would be fair and just that they be allowed to fully recover any money paid in advance in the course of the execution of the contract due to the fact that the same was payment made without the will of the aggrieved party and in an environment of economic pressure.

On the contrary, another important thing that must be noted is that if a party to a contract is aggrieved in the course of the exercising a right by the other party then undue influence and duress cannot be pleaded. This was demonstrated in the case of Hassanali Issa & Co. v Jeraj Produce Store.[15]In the above case, repairs were done by a store owner to a bike. The store owner thereafter kept the bike waiting for collection of the same by the owner of the bike. When a bill was issued to the owner, he protested the bill but later issued a cheque which he again cancelled immediately after the collection of the bike.

When an action was brought against the bike owner he claimed the cheque was issued under duress. The court held that there was no duress and that the store owner was simply exercising lien over the bike pending the payment of his dues. This case therefore sets it clear that in exercise or a legal right then the aggrieved party cannot claim/plead duress or undue influence.

By:

Ephraim Kayere

Kituo Cha Sheria

Bibliography

Black’s Law Dictionary, [8^th Edition, 2004]

List of cases

Barclays Bank plc v O’brien [1993] UKHL 6

Barton v Armstrong [1976] AC 104

Cresswell v Potter [1978] 1 WLR 255

Cumming v Ince [1847] 11 QB 112

Earl of Chesterfield v Janssen [1751] 28 Eng Rep 82, 100

Fry v Lane [1888] 40 Ch D 312

Hassanali Issa & Co. v Jeraj Produce Store [1967] EA 555

Lancashire Loans Ltd V Black [1934] I KB 380 404.

Lloyds Bank Limited v Bundy [1975] QB 326

Pao On v Lau Yiu Long [1980] AC 614

Skeate v Beale [1840] 11 AD & EL 983

Universe Tankships Inc. of Monrovia v International Transport Workers’ Federation [1982] 2 AII ER 67

Williams v Walker-Thomas Furniture Company [1965] C.A D.C 350 F.2d 445

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[1]Lloyds Bank Limited v Bundy [1975] QB 326

[2]Williams v Walker-Thomas Furniture Company[1965] C.A D.C 350 F.2d 445

[3]Earl of Chesterfield v Janssen [1751] 28 Eng Rep 82, 100

[4] Black’s Law Dictionary, [8^th Edition, 2004]

[5]Barton v Armstrong [1976] AC 104

[6]Universe Tankships Inc. of Monrovia v International Transport Workers’ Federation [1982] 2 AII ER 67

[7]Lancashire Loans Ltd V Black [1934] I KB 380 404.

[8]Cresswell v Potter [1978] 1 WLR 255

[9]Fry v Lane [1888] 40 Ch D 312

[10]Barclays Bank plc vO’brien [1993] UKHL 6

[11]Cumming v Ince [1847] 11 QB 112

[12]Supra n 5

[13]Pao On v Lau Yiu Long [1980] AC 614

[14]Skeate v Beale [1840] 11 AD & EL 983

[15]Hassanali Issa & Co. v Jeraj Produce Store [1967] EA 555