Coercion and undue influence.

COERCION AND UNDUE INFLUENCE

INTRODUCTION 

The lecture will guide you to learn what is meant by coercion as a factor vitiating free consent, when coercion is said to exist and the legal consequences of consent by coercion as well as what undue influence is illegal.

1. COERCION

Section 15 of the Ordinance defines coercion to mean:

(1) ... the committing, or threatening to commit, any act forbidden by the Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

(2) For the purposes of this Ordinance it is immaterial whether the Penal Code is or is not in force in the place where the coercion is employed".

1.1 When is Consent Obtained by Coercion?

Consent is said to be caused by coercion when it is obtained by pressure exerted by either:

(1) committing or threatening to commit any act forbidden by the Penal code; or

(2) unlawfully detaining or threatening to detain any property.

For example, A, on board of a ship on the high seas, causes B to enter into an  agreement by an act amounting to criminal intimidation under the Penal Code.  A afterwards sues B for breach of contract.  A has employed coercion.

Or, as the case was in the Indian case of Chikham Amiraju vs Chikham Seshamma (1912) 16 1C 344 where by threat of suicide, a Hindu induced his wife and son to execute a release in favour of his brother in respect of certain properties which they claimed as their own.  The threat of suicide amounted to coercion within section 15 and the release deed was therefore, void.

1.2 Legal Consequences Of Coerced Consent

Upon proof that consent was caused by coercion, section 19(1) of the Ordinance provides that the agreement is a contract avoidable at the option of the party whose consent was so caused.

Two important things must be noted.

(1) The act committed or threatened to be committed with intend to cause a person to enter into an agreement must be proved or shown that it is forbidden by the Penal code.

For example, where consent is obtained at the point of pistol, clearly the act of threatening a person with a weapon is forbidden by law.

(2) The agreement whose consent has been obtained by coercion is merely avoidable and not void.  It means, therefore, if the party whose consent was so obtained does not repudiate or avoid the contract, then the agreement becomes enforceable.

You presumably now understand the distinction between a contract which is void, avoidable  or illegal.  It is important to remember the distinction in order to understand the legal consequences of the factors which vitiate consent.

2. UNDUE INFLUENCE

Unlike coercion which involves the use of force or criminal intimidation, undue influence entails the improper use of power to affect another person's character, belief or actions in order to obtain consent.

2.1 When is Consent Obtained by Undue Influence?

Section 16(1) of the ordinance describes when a contract is said to be induced by undue influence.  It provides as follows:

"A contract is said to be induced by `undue influence' where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and used that position to obtain an unfair advantage over the other".

2.2 What are the Requisites to Prove Undue Influence?

The requisites to prove undue influence are thus:

(a) one of the parties must be in a position to dominate the will of the other; and

(b) he must have used that position to obtain unfair advantage.

The following illustrations by Avtar Singh in Law of Contract at p. 119 highlight situations where undue influence can be held to exist.

"(a) A, having advanced money to his son B, during his minority, upon B's coming of age obtains by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance.  A employs undue influence.

(b) A, a man enfeebled by disease or age is induced by B's influence over him as his medical attendant, to agree to pay B, an unreasonable sum for his professional services.  B employs undue influences.

(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable.  It lies on B to prove that the contract was not induced by undue influence".

2.3 When is a Person in A Position to Dominate the will of Another?

Section 16(2) gives two particular situations where the law will regard a person as being in a position to dominate the will of another.

One, where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other.

The following persons clearly hold real authority over others.

1. An income tax officer in relation to an assessee.

2. A magistrate or police officer in relation to an accused person.

3. A teacher in relation to a pupil.

They hold real authority in the sense that they have power to take steps or make decisions which directly affect those persons under their charge.  These can use their positions of power to influence the will of the others and induce them to enter into agreements with them upon terms which are advantageous to them but unfavourable to the others.

Apparent authority include cases where a person has no real authority but is able to approach the other with a show or colour of authority.  For example, an intelligence officer who has no powers in law to arrest or prefer criminal charges against a person, may masquerade as if he wields such powers.  His authority is apparent but not real.

Meaning of fiduciary Relations

Fiduciary relations on the other hand are of several kinds.  Basically, such relations are based on trust and confidence.  This category is wide.  It includes the relationship of an advocate and client; trustee and c'estui que trust; spiritual adviser and his devotee; doctor and patient; parent or guardian and child; or creditor and debtor, etc.

In all such relations one person places trust and confidence upon another.  A patient has total trust and confidence in his or her doctor.  The relationship of trust and confidence presents a very good opportunity to the person in whom confidence is held to exploit it to his own use.

Scrutton L.J. laid down the duty of the person in whom confidence is reposed in the case of Moody vs Cox [1917] 2 Ch. 71; [1916-17] ALL ER 548 (CA) that, the party who has influence must make a full disclosure of everything he knows material to the contract.  Such party must not make a contract with the party over whom he has influence unless he can satisfy the court that the contract is an advantageous one to the other party.

Two, where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

The underlying issue here is that a person in mental distress is easily persuaded to give consent to a contract which may be unfavourable to him.  An illustrative Tanzanian case on this point is the case of Othman Kawila Matata vs Grace Titus Matata [1981] TLR 23.

The party who seeks to avoid a contract on the ground of undue influence has the onus to prove the allegation that cansent was obtained by undue influence.  Such party must show not only that the other party was in a position to dominate his or her will, but that such other party actually used his influence to obtain consent to the contract.

Thus, it is not enough for a person to avoid the contract, to show that the other party is his father who could have influenced him.  He must go further and show that his father actually did influence him.

This onus may shift in certain cases where presumption of undue influence is raised.  In such cases, once it is shown that the other party was in a position to dominate the will of another it will be presumed that he must have used his position to obtain an unfair advantage.  Therefore, the defendant will then carry the onus to show that the plaintiff freely consented.

2.4 When can Presumption of Undue Influence be Raised?

Presumption of undue influence can be raised in any of the following cases:

a) Unconscionable Bargains

This occur where one of the parties to a contract is stronger and is in a position to dominate the will of the other.  The contract is apparently unfair, that is, unconscionable.  The law presumes that consent must have been obtained by undue influence.  This presumption can only be rebutted by the stronger party by proving that he did nothing to overbear the will of the other.

Where the parties are on equal bargaining strength the mere unconscionableness of the bargain does not ipso facto create the presumption of undue influence.  It is necessary to establish that one of the parties is in a superior position over the other in order to raise the presumption.

For example, A, a poor farmer is indebted to B his creditor.  If, being unable to pay back the loan he executes a sale deed in favour of B of his property three times the value of the sum due, a presumption of undue influence could be raised.  A can prove that B was in a position to dominate his will and that B actually used that position to obtain unfair advantage.  The court would, if so proved, grant relief by setting aside the sale and allowing A to pay back B within a fixed period.

b) Inequality of Bargaining Power or Economic Duress

Inequality of bargaining power can  occur where as between the parties, one can cause economic duress to the other.  The underlying rationale was stated by Lord Denning M.R. in the case of  Lloyds Bank vs Bundy [1975] 1QB 326 thus:

"English law gives relief to one who without independent advice, enters into a contract upon terms which are unfair or transfers property for a consideration which is grossly inadequate, when his bargaining power is grievously impaired by reason of his own needs or desires, or by his own ignorance or infirmity, coupled with undue influence or pressure brought to bear on him by or for the benefit of the other".

In that case, a contractor borrowed a sum of money from a bank. He could not pay back in time.  The banker pressed for payment or for security.  He suggested that his father might mortgage the family's only residential house.  The bank officer visited the father and obtained his signatures upon ready-made papers.  The contractor still could not pay and the banker sought to enforce the mortgage which might have meant throwing out of the family from its only residence.  Accordingly Mr. Bundy relied upon the unfair character of the mortgage.

The court, inter alia, found that there was unequal bargaining power. That, the Bank had exploited the vulnerability of the father, caused by desire to help his son, to such an extent that he charged his house to his ruin for a very short moratorium, which was a highly inadequate consideration for the mortgage.  Mr. Bundy was therefore allowed to set aside the mortgage.

Usually, in determining the respective bargaining positions of the parties, the courts will look at a number of factors, such as age, illiteracy and emotional state.