What Is Undue Influence?
Undue influence occurs when an individual is able to persuade another's decisions due to the relationship between the two parties. Often, one of the parties is in a position of power over the other due to elevated status, higher education, or emotional ties. The more powerful individual uses this advantage to coerce the other individual into making decisions that might not be in their long-term best interest.
Undue influence is an equitable doctrine that involves one person taking advantage of a position of power over another person. This inequity in power between the parties can vitiate one party's consent as they are unable to freely exercise their independent will. In exerting undue influence, the influencing individual is often able to take advantage of the weaker party. In contract law, a party claiming to be the victim of undue influence may be able to void the terms of the agreement.
Key Takeaways
- Undue influence most commonly occurs when a more powerful party exerts its influence over a less powerful party in order to achieve its desired outcome.
- Depending on the measure of influence and if there were any extraneous factors involved, some agreements can be legally voided.
- Undue influence varies widely in size, from the basic favor to multibillion-dollar transactions.
Understanding Undue Influence
Undue influence occurs when an individual is able to use an advantage to coerce another party's decisions. Often, this coercion occurs to the detriment of the weaker party and the gain of the more powerful or influential party. Some relationships, such as one between a patient and a doctor or a parent and a child, are considered to run the risk of undue influence and are legally outlined.
The onus in this type of relationship is on the person with influence to prove that he was not using his position to take advantage of the other party. In other situations, one party, based on previous interactions, can be accused of using the trust of the other party to his advantage.
Example of Undue Influence
For example, Bert is Ernie's therapist. Bert is also involved in a couple of real estate development deals around town. Ernie starts talking to Bert about how he has heard about units for sale in the complex that Bert is invested in developing. Ernie isn't interested and doesn't feel it's appropriate for him to purchase a home at that time, but feels left behind by his friends who are all purchasing units or making other investments in the project.
Bert uses his place of power over Ernie to convince him that it's a good step forward in his life also to make an investment in the project. This is to Ernie's financial detriment, but it increases the value of Bert's investment. Bert has used undue influence.
Undue Influence in Financial Markets
There is a pandemic of undue influence in the financial markets of the world. It can be as simple as leveraging information someone has on someone else in order to induce a sale or purchase, or it can be as complicated as forcing board members to vote a certain way. Having third-party counsel, or a mediator, present when deals or large trades are occurring can help to mitigate instances of undue influence.
Overview
Undue influence, where established, will render a contract voidable. It occurs when there is an inequality of power between the contracting parties which results in the weaker party entering into a contract with the dominant party. Not all such transactions will result in a remedy - but where the influence that exists between the parties can be classified as 'undue' the weaker party will have the choice of rescinding the contract.
Undue influence may take two forms; express undue influence (where the dominant party acts in such a way as to effectively deprive the other of their free will - this overlaps with duress) and presumed undue influence which occurs where the dominant party holds a position of trust or confidence over the weaker party (such as solicitor and client - in such a case it will be presumed that the influence that existed between them when entering the contract was 'undue' unless the dominant party can prove otherwise)
Presumed undue influence
Undue influence may be presumed from the relations existing between parties. There is no exhaustive list of relations giving rise to a presumption of undue influence. It includes
parent and child
guardian and ward
trustee and cestui que trust
solicitor and client
physician and patient
cases of religious influence.
More broadly, the presumption of undue influence arises whenever 'the relation between donor and donee is such that the latter is in a position to exercise dominion over the former by reason of the trust and confidence reposed in the latter' (Chief Justice Latham, Johnson v Buttress (1936) 56 CLR 113 at 119 ➤)
In cases where undue influence is presumed, the donee must prove that the gift was the free/voluntary exercise independent will.
While it is not essential to show that the donor received independent legal advice, this is the clearest and most obvious mechanism for overcoming the presumption (Chief Justice Latham, Johnson v Buttress (1936) 56 CLR 113 at 119 ➤).
It will be more difficult for the donee to overcome this presumption where the donor is 'illiterate or weak-minded' (Chief Justice Latham, Johnson v Buttress (1936) 56 CLR 113 at 119 ➤).
Leading case: Johnson v Buttress (1936) 56 CLR 113