6/8/23, 11:58 AM What Is Undue Influence?

Definition, How It Works, and Examples

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FINANCIAL CRIME & FRAUD DEFINITIONS M - Z

What Is Undue Influence? Definition,

How It Works, and Examples
By ADAM HAYES Updated January 12, 2022

Reviewed by CHIP STAPLETON

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.

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6/8/23, 11:58 AM What Is Undue Influence? Definition, How It Works, and Examples

Understanding Undue Influence

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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.

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