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It is another essential of a valid contract. Consent means that the parties must have agreed upon the same sense. For a valid contract it is necessary that the consent of parties to the contract must be free. According to section 14 consent is free when it is not obtained by coercion, under influence, fraud, misappropriation or mistake. If the consent of either of the parties is not free the agreement cannot become a contract. A compels B to enter into a contract on the point of pistol. It is not a valid contact as the consent between the parties is not free.
Undue Influence
145. Undue influence is a species of fraud. It may be said generally to consist (a) In the use by one in whom confidence is reposed by another, or who holds a real or apparent authority over him, of such confidence or authority for the purpose of obtaining an unfair advantage over him. (b) In taking an unfair advantage of another's weakness of mind. (c) In taking a grossly oppressive and unfair advantage of another's necessities and distress.
The exercise of undue influence is suggested by excessive insistence, superiority of will or mind, the relationship of the parties or pressure on the donor or testator by any other means to do what he is unable, practically, to refuse.
Undue Influence
There are two types of undue influence: actual UI and presumed UI. With actual UI there has been an actual event or words spoken which constitute the undue influence whereas with presumed UI the court will presume that because of the nature of the relationship the party was unduly influenced unless it is proved otherwise.
Actual UI
Actual undue influence is similar to duress. It requires an actual exercise of illegitimate pressure. In Williams v. Bayely (1886) HL, the C's son gave Defendant bankers promissory notes which he had forged with C's signature. When D found out they met with C and told him that they had the power to prosecute his son. A solicitor was present with C but left in protest when the bank asked C to pay his son's debts (not smart of the solicitor!). C agreed to enter a mortgage to pay his son's debts which he later tried to set aside. HL held that C was entitled to do so as undue pressure had been applied. Thus actual undue influence can be applied in cases where the doctrine of duress narrowly fails to apply. This will particularly be the case where the type of threat made is legitimate. All that is necessary is that the undue influence caused the party to enter the contract. In Etridge, Lord Nicholls said that actual UI would be something like "improper pressure or coercion" and Lord Hobhouse stated it more broadly as "an equitable wrong" which typically consists of "some express conduct overbearing the other party's will".
Presumed UI
There are three requirements in a case of presumed UI. The first is that there is a relationship of trust and confidence between the parties. Before the HL case of Etridge [2001] there were two categories of these relationships. The first was where the law presumed that there was a relationship of trust and confidence, such as parent/child; the second category is where the Claimant proved on the facts that there was such a relationship. The existence of the latter category is doubtful after Etridge. The second requirement of an action in UI is that the agreement must be confidence to the "manifest disadvantage" of the counterparty. The basic idea is whether one party has taken advantage of another. The language of manifest disadvantage is out-dated now and other terms are to be preferred. Various different phrases have been used such as asking whether there is something in the agreement which 'calls for an explanation' or 'not reasonably accounted for by ordinary motives like friendship'. If both of the requirements above are present, a presumption of undue influence is triggered and the court must consider whether it has been rebutted. This is the third element of a claim for presumed UI. The presumption can be rebutted by showing that the contract was entered "after full, free and informed thought", which is chiefly accomplished by demonstrating that legal independent advice was received. In Hammond v. Osborn [2002] a 74 year old man who was in poor health wrote four cheques totaling ?297,000 to the defendant who had assumed the role of caring for him. This sum was about 91% of his total liquid assets (i.e. not property assets). A further effect of the gifts of money was that he became liable for capital gains tax amounting to almost ?50,000. On his death his family sought to recover the money. The D conceded that there was a relationship of trust and confidence and that the gift was so large as to trigger the second criteria that the gift was to the manifest disadvantage of the party or, put otherwise, not reasonably accounted for by ordinary motives. The trial judge held that the presumption had been rebutted as it was made after full, free and informed thought. The court of appeal held that it had not been rebutted. The Claimant had not received any legal advice and his attention was not drawn to the proportion of his total assets that he had given away. There was nothing sinister or wrong with what the defendant had done but that is not necessary for undue influence. Thus the gift of money had to be returned.
"the only practical way forward is to regard Banks as `put on inquiry' in every case where the relationship between the surety and the debtor is non-commercial. The creditor must always take reasonable steps to bring home to the individual guarantor the risks he is running by standing as surety. (para 87)" Thus the test as to whether the lender is on inquiry in a wife case is that "a creditor is put on inquiry when a wife offers to stand surety for her husband's debts" and in any other case is, "whether the relationship between the surety and the debtor is non-commercial." In effect, the second test will subsume the first and thus a bank will be on notice in almost all cases and will need to take reasonable steps to offset this, such as ensuring that the parties understand the agreement and have taken legal advice. Etridge made clear that the husband/wife relationship does not give rise to an irrebuttable presumption of trust and confidence. It is likely that wives will have a harder time proving undue influence against their husbands since using a family home as collateral is not inexplicable according to the ordinary motives between spouses. The HL re-emphasised that presumed undue influence doesn't necessarily require any wrongdoing, except perhaps in the sense that the victim was not told to take independent advice. The test has been criticised for being too broad though in practice commentators suggest it is strongly linked to actual unconscionable behaviour. National Westminster Bank v. Morgan [1985] AC 686. Allcard v. Skinner (1887) 36 Ch D 145. Para 19. Devenney and Chandler, 'Unconscionability and the taxonomy of undue influence', Journal of Business Law, 2007 at p542.
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