BMLW5006 Law Portfolio Contract Law Assignment Sample

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Introduction Of Law Portfolio Contract Law 

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The presented assignment is a written draft where the learner has evaluated the two distinct concepts of duress and undue influence under contract law enforced in the United Kingdom. Duress and undue influence are two distinct concepts under contract law which has evolved for a long period. These concepts are though provided under the contract law but the evolution of these concepts in a strict sense has been done through judicial precedents where the courts have rendered judgments making the contract based on these concepts asvoid. The presented draft describes the two concepts duress and undue influence along with the history of the development of these concepts with time. Moreover, the presented draft also draws a line of difference between the two concepts and also analyses various case laws and judgments given in this respect. The draft also presents a critical evaluation of the court’s judgment in cases concerning these two concepts. These concepts are a result of case laws which have gained importance under the contract law fulfilling the claims of the people.

Duress: Meaning

Duress is a situation where a person performs an act that results in violence over another person but it is not confined to the severity of violence. Duress also includes threats and other pressure inflicted over another person. In contract law, duress is referred to as the infliction of violation or threat or other pressure by one person over the other to make the other person enter into a contract. Discussing the definition of duress, the definition of Black’s Law Dictionary can be taken which provides the definition as-

“Duress is an unlawful threat or coercion that is induced by one person over another person to make him act or not act in a manner that the other person otherwise does or would not do."

Under the common law, duress is used as a weapon that protects the victim from improper pressure. The court intervenes in such cases where a party makes another sign a contract as a result of pressure and such contract is unacceptable in the court (Harrison, 2019).But it is noteworthy that there is a thin difference between acceptable pressure and unacceptable pressure which has been changing shifting over time. The boundaries of unacceptable pressure have been shifted more outward to include many more forms of pressure which also includes economic pressure. In cases relating to economic duress, the approach of some judges is already very restrictive which has made it almost impossible to get relief on this ground.

The conceptual framework for duress works from the notion that a person should not be forced to enter into a contract, instead, he should come for bargaining voluntarily without any pressure. Contracting freely and voluntarily is the basis for the formation of every contract and to be enforced in the court. Under common law, if any contract is not entered voluntarily and is entered through any coercion or undue influence, the contract is considered void ab initio.

Evolution of duress

It is an accepted fact that contract is been done by people daily and contract are entered into by people under the pressure of one kind or other. It has been stated in the case of Barton v. Armstrong[1]by Lord Wilberforce that in life which also includes the life of finance and commerce, people enter into a contract under pressure so that the actor of the act had no choice but to act. this means every contract which has been entered into under duress are liable to be questioned and hence, all the contracts and agreements are vulnerable to attacks in the courts on this ground. Thus, there was the need for the determination of law which shall outline the boundary of pressure which shall be considered as acceptable and unacceptable (Moore, 2018).

There was soon the development of two requirements which were to be satisfied to get defence under the ground of duress and relief can be availed. It has been explained by Lord Scarman in the case of Universe Tankships Inc of Monrovia v. ITF[2]that to bring a contract under duress, it is important to note that there must be pressure which shall amount to the compulsion of the will of the aggrieved party and the pressure must be of such nature which the law must regard as illegitimate and unlawful. Hence, there have been two elements for wrongful duress which has been outlined in this case. They are:

  • The pressure which amounts to the compulsion of the will of the aggrieved person
  • The illegitimacy of the pressure inflicted

The first stated element deals with the free will and consent of the aggrieved person but it has also been analysed that only defective will shall not amount to duress. Apart from the defective will, the fulfilment of the second element is also necessary that is the court should regard the pressure as unlawful. Regarding the forms of duress, it has been observed that over time the forms of duress have also widened their scope as originally only such duress was considered as unlawful which constituted a threat. But gradually, duress for the seizure of goods and economic duress has also been included in this concept which has further widened the scope of this concept (Davies and Day,2020).

Duress for the seizure of goods

Duress for the seizure of goods draws attention towards the famous case Skeate v. Beale[3] in which the court failed to observe the concept of duress for goods and gave a problematic judgment. In this case, the landlord seized some goods of the tenant and threatened him to immediately sell the goods if he did not agree on the clearance of due rent. The tenant entered into such a contract but later on claimed for setting aside the contract but the court gave judgment in favour of the landlord.

But this judgment has been considered as a violation of the rights of the party and hence, over the years the courts moved away from this decision and gradually included economic duress within the ambit of duress in entering into contracts. The justification for this shift has been provided by the courts of both the United States and the United Kingdom. The US court in the case of Hellenic Lines v. Louis Dreyfus Corp.[4]stated that in the case where the one-party seizes goods of the other party and makes the other party enter into a contract for transferring some benefit to the former, and the other party to save the goods, enters in such contract, the contract shall be avoidable (Cook, 2019).

Moreover, the UK court in the case of The Siboen and the Sibotre[5]held that the true question in the case of duress is that whether or not the contract was entered voluntarily. The judge, in this case, explained through an example and stated that-

“If I am made to sign a contract for a nominal consideration under a threat that non-signing would cause my house to be burnt down, though there would not be any physical duress or violence, I do not think the court shall entertain such contract.”

Thus, the emergence of economic duress had an initial change in the judgments related to the duress of goods where the area of duress was broadened.

Economic duress

The real question in cases of economic duress is whether the claimant had an appropriate alternative or option. But it is also to be noted that the alternative and option must be reasonable and practical in such a way that it was appropriate for the claimant in those circumstances. For further understanding, the following example can be considered: For example, any person in case of threat to breach a contract, easily obtains the required goods or services at an alternative source at a reasonable price, the court will consider this as a reasonable alternative may regard that the person’s decision to enter into the contract was not illegitimate pressure. But the case shall be different if it becomes impossible for the person to find the same goods at a reasonable price within a reasonable time.

The test for economic duress was laid down in the case of Pao On v. Lau Yiu Long[6]where certain elements for the determination of economic duress were held. As per the facts, the Pao family threatened that they shall not complete a deal of share swap which was aimed at the purchasing of their company’s building unless the Lau family agreed to amend the guarantee agreement which shall assure the Paos that they shall receive a rise in the swapped shares on repurchase. But it was held by the Privy Council that the threat by the Pao family was merely a commercial threat and not an economic threat. The test that was determined in this case was that it shall amount to duress only if duress led the other party to sign the contract against his will. Moreover, there shall be the establishment of some factor which shall under law be regarded as coercion of will vitiating the contract (Rizzi and Skead,2020).

But this approach was not followed for a longer time. Reference of the case Universe Tank Ships of Monrovia v. International Transport Workers Federation[7]can be taken where the court held that in cases of duress it is not important to submit the lack of will of the person rather it should be established that the victim has consented after realising that there is no other alternative which he could avail.

Difference between commercial bargaining and illegitimate pressure

The following table illustrates the difference between commercial bargaining and illegitimate pressure.

Commercial bargaining

Illegitimate pressure

Meaning

This exists when one party is in a stronger bargaining position than the other party.

This arises when one party induces the other party causing disadvantage to the other and this gives rise to economic duress.

Definition

It is defined as a process of negotiating but with a stronger hold.

It is defined as illegal inducement on a party to make him sign a contract.

Consequences

This does not attract penalty unless it is within the permitted tumble of negotiation.

It attracts penalty as it amounts to the illegitimate signing of contract leaving the party with no other option.

Undue influence: Meaning and traditional classification

Undue influence is afield of contract law as well as property law where the contract can be set aside if it was entered under influence by one person to another as such transaction lacks free will. As per the traditional classification of undue influence, it has been classified as-

  • Actual undue influence
  • Presumed undue influence

This classification of actual and presumed undue influence was laid down in the case of BCCI v. Aboody[8]but after this case, there has been further subdivision done for this concept. Under this case, it was held by the court that ‘manifest disadvantage’ needs to be established to constitute actual undue influence. under this established doctrine, it was important to prove before the court that the person aggrieved has suffered a disadvantage after the objected transaction (Pawlowski, 2018).

The present classification of undue influence

As per the recent cases and judgments, the traditional classification of undue influence has been upheld but many judges have also made a subdivision of this concept into three parts. The present classification is as follows:

  1. Actual undue influence
  2. Presumed undue influence
    1. Class 2A- Relationship of trust and confidence
    2. Class 2B- No relationship of trust established but the contract was done under a presumption of trust and confidence.

For actual undue influence, reference of the case Bank of Montreal v. Stuart[9] can be taken where it was held by the court that, for actual undue influence the party claiming relief must establish that there was the existence of the influence and the same was exercised and thus, as a result, there was no independent judgment regarding the transaction was taken. But the court also stated that the existence of manifest disadvantage was not required for actual undue influence and also held that there was no requirement of explanation in such cases.

Moreover, the equity also provides relief in cases where the party is under a presumption of undue influence. a subdivision of this presumption has also been done by the judges for better consideration of these cases. Under Class 2A of presumption, the courts have stated that there must be a relationship between the parties of trust and confidence. Examples of these relationships include-

  • Children and parent
  • Guardian and ward
  • Doctor and patients
  • Religious adviser and his disciples
  • Client and solicitor
  • Beneficiary and trustee

But in the case of Class 2B, the court stated that there is a presumption of trust and confidence by the party. Reference of the case Tate v. Williamson[10]can be taken where a student of Oxford University sold his estate at half price to his financial adviser and the court set aside the sale.

Case of Etridge

The case of Royal Bank of Scotland plc v. Etridge (No 2)[11]is one of the leading cases and as per the facts of the case, there was a mortgage done of residential property (houses) to secure a loan which was taken by their husbands to start a business. The business failed and the bank wanted to take possession of their home. The wives had no direct benefit from the business. The court in this case held that the bank was in a position to watch for undue influence and misrepresentation in such cases (Davies and Day, 2018).The bank had to make sure that the consent of the wives was free and there was an expression of free will. If the consent was free, the bank was entitled to the possession of the property. The minimum requirements and guidelines were laid down in this case which was as follows:

  • The bank should be sure regarding the free consent of the wives or any other person in that position.
  • The bank should be sure that the wives are aware of the legal consequences of such a mortgage.
  • The solicitor should take care of conflict of interest.
  • The bank is entitled to proceed if it is satisfied that the solicitor has given fair advice to the wives (Fredericks, 2019).

Difference between duress and undue influence

The following table illustrates the difference between the two:

Duress

Undue influence

· The consent under duress is given by using threat.

· The consent under this is given when one party is so situated with the other, that the former is in a relation of dominance over the other.

· Duress is mainly associated with a physical threat, though others are also included in it.

· Undue influence possesses moral character.

· It mainly involves a criminal act (Mitchell, 2017).

· There is no criminal act in undue influence.

· There is a presence of intention of making the other person sign the contract.

· It is used to take an unfair advantage over the other (Pieterse, 2019).

Conclusion

Thus, to conclude, it has been settled that the two concepts of undue influence and duress are distinct concepts and their application in the courts depends fairly on the facts and circumstances of each case. The above discussion identifies the situations where the court shall uphold a contract entered under duress and undue influence. it has been analysed that there is little space for this concept to stand legal in the eyes of courts as these concepts render the contract to be void or voidable. Moreover, the above discussion also makes clear the minor line of difference between commercial bargaining and illegitimate influence in a business transaction.

References

  • Bank of Montreal v. Stuart[1911] AC 120
  • Barton v. Armstrong[1976] A.C. 104
  • BCCI v. Aboody[1992] 4 All ER 955
  • Cook, D.J., 2019. Walking the Divide: A Critical Examination of the Nature of Undue Influence and Unconscionable Dealing. Available at SSRN 3486817.
  • Davies, P. and Day, W., 2020. " Lawful Act" Duress (Again). The Law Quarterly Review, 136, pp.7-12.
  • Davies, P.S. and Day, W., 2018. " Lawful act" duress. Law Quarterly Review, 134(1), pp.5-10.
  • Fredericks, E.A., 2019. A comparison of economic duress and economic disparity of contracting parties.
  • Harrison, J.L., 2019. Duress and Undue Influence in Contract Law as Cognitive Trespass. Neb. L. Rev., 98, p.970.
  • Hellenic Lines v. Louis Dreyfus Corp(1966) 249 F. Supp. 526, at 529 (SD.N.Y.)
  • Mitchell, P., 2017. Shifting paradigms in duress. Restitution Law Review, 25, pp.197-207.
  • Moore, M., 2018. Why Does Lord Denning's Lead Balloon Intrigue Us Still? The Prospects of Finding a Unifying Principle for Duress, Undue Influence and Unconscionability. The Prospects of Finding a Unifying Principle for Duress, Undue Influence and Unconscionability (February 3, 2016), 134.
  • Pao On v. Lau Yiu Long1983] AC 336
  • Pawlowski, M., 2018. Undue Influence: towards a Unifying Concept of Unconscionability. Denning LJ, 30, p.117.
  • Pieterse, R., 2019. A Comparison of Economic Duress and Economic Disparity of Contracting Parties. University of Johannesburg (South Africa).
  • Rizzi, M. and Skead, N., 2020. Algorithmic Contracts and the Equitable Doctrine of Undue Influence: Adapting Old Rules to a New Legal Landscape. Journal of Equity, 14(3).
  • Royal Bank of Scotland plc v. Etridge (No 2) [2001] UKHL 44
  • Skeate v. Beale[1840] 11 Ad & El 983
  • Tate v. Williamson(1886) LR 2 Ch App 55
  • The Siboen and the Sibotre[1976] I Lloyd's Rep. 293
  • Universe Tankships Inc of Monrovia v. ITF[1983] 1 A.C. 366

[10](1886) LR 2 Ch App 55

[11][2001] UKHL 44

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