Concept of Undue Influence
The concept of undue influence refers to a situation where one party exerts excessive and improper influence over another party, undermining the free will and independent judgment of that party. It occurs when the parties have a special or fiduciary duty, trust, confidence, or dominance.
An undue influence occurs when one party exploits the dependence, weakness, or emotional state of the other party in order to gain a competitive advantage over the other.
Characteristics of Undue Influence
The presence of undue influence can be identified by certain key characteristics.
i. There must be a relationship between the parties that gives rise to influence. For example, there can be a formal relationship between a guardian and a ward, between an attorney and a client, or between a doctor and a patient.
ii. The undue influencer has to exert substantial influence on the influenced party overriding their ability to make independent decisions. This influence may be psychological or emotional, or it may be due to the dominant party’s superior knowledge or expertise.
iii. It must also involve tactics that exploit the vulnerability of the influenced party, which means going beyond reasonable persuasion or negotiation.
Legal Effects of Undue Influence
A contract may be voidable if undue influence is exerted on it at the option of the influenced party. Under this rule, the influenced party may choose to affirm the contract or avoid it. In order to prove that undue influence occurred, and it overpowered their free will and ability to make independent decisions, the influenced party must prove it.
Undue influence can be set aside by the influenced party by showing that a relationship of influence existed, that the influencer abused that relationship by exerting undue influence, and that the contract resulted from that influence. Testimony from the influenced party, witnesses, or experts can be used to explain the nature of the relationship and the extent of the influence.
The legal effects of avoiding the contract vary depending on the jurisdiction. In general, the contract is treated as if it never existed, and the parties are restored to their pre-contractual positions. It may be necessary to return any benefits the influenced party received under the contract and compensate any losses or damages incurred by the influenced party.
It is worth noting that the rights of innocent third parties who acquire rights in the contract in good faith and without notice of undue influence may be protected. If the innocent third party acquires its rights without knowledge of undue influence, then it may be able to enforce the contract against the influenced party in some cases.
An influenced party may be able to seek damages or other remedies for the harm caused by the undue influence, such as financial loss or emotional distress, in addition to contractual consequences.
Undue influence has legal effects aimed at safeguarding the principle of free consent and protecting parties from exploitation and manipulation. By providing a remedy for contracts influenced by undue influence, the law aims to ensure fairness, equity, and the preservation of individual autonomy in contractual agreements.
Undue Influence Quiz (MCQs)
Which of the following best defines undue influence in business law?
A) A situation where one party uses their position of power to exert pressure on the other party, affecting their decision-making capacity.
B) An agreement that lacks consideration and mutual assent between the parties involved.
C) A contract that violates the statute of frauds.
D) A situation where the terms of the contract are unclear or ambiguous.
Answer: A) A situation where one party uses their position of power to exert pressure on the other party, affecting their decision-making capacity.
In order to establish undue influence, the influenced party must prove:
A) That the contract is unconscionable.
B) That the contract is bilateral in nature.
C) That there was a mistake in the terms of the contract.
D) That there was a confidential relationship between the parties.
Answer: D) That there was a confidential relationship between the parties.
Which of the following is NOT a factor indicating undue influence?
A) A significant disparity in the parties’ bargaining power.
B) The use of unfair tactics or manipulation by the influencing party.
C) The influenced party’s age, mental capacity, or emotional state.
D) The presence of a valid consideration in the contract.
Answer: D) The presence of a valid consideration in the contract.
What is the legal effect of undue influence on a contract?
A) The contract is voidable at the option of the influenced party.
B) The contract is automatically terminated.
C) The contract is considered void ab initio.
D) The contract remains binding and enforceable.
Answer: A) The contract is voidable at the option of the influenced party.
Which remedy is typically available to the influenced party in a case of undue influence?
A) Rescission of the contract.
B) Specific performance of the contract.
C) Compensatory damages.
D) Punitive damages.
Answer: A) Rescission of the contract.
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MBA,BBA.
I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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