7: Duress and Undue Influence

What should you look for to determine whether the persuasion was improper?

Whether the result was produced by a means that seriously impaired the free and competent exercise of judgment.

Duress-- Balogh v. Balogh—S.Ct. of Hawaii (2014)--Streaking husband. Can a threat of public humiliation be sufficient to sustain the defense of duress?

Yes Rule: A threat of exposure of publicly embarrassing information can be the basis of a claim of duress.

What is the effect of undue influence on the contract?

§177. When Undue Influence Makes a Contract Voidable: (2) If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.

What if the victim's manifestation of assent was induced by one who was not a party to the transaction (third-party)?

§177. When Undue Influence Makes a Contract Voidable: (3) If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.

What if the victim's manifestation of assent was induced by someone who was not a party to the transaction? Is the contract voidable when it affects a third-party?

If the other party to the transaction, in good faith and without reason to know of the duress, either gives value or relies materially on the transaction, then the contract is not voidable by the victim. (See Standard Finance--wife who was beaten by husband for 3 years was not allow to avoid contractual obligations (signing check) because bank acted in good faith and had no way of knowing she was under duress. (RS§175(2))

Mnemonic: Policing the Bargain

Mnemonic: Policing the Bargain 1) Make Minors (voidable) 2) More Mental Incapacity (voidable) 3) Dough Duress (threat - voidable) (physical - void) 4) Until Undue Influence (voidable) 5) Father Fraud (in the factum - void) (in the inducement - voidable) 6) Mike Misrepresentation (voidable) 7) Drives Duty to Speak (voidable) 8) Under Unconscionability (voidable) 9) Influence Illegality (void)

Duress-- Balogh v. Balogh—S.Ct. of Hawaii (2014)--Streaking husband. Can a threat of divorce be sufficient to sustain the defense of duress?

No Rule: A threat of divorce does not constitute an improper threat since the party making it has the legal right to seek a divorce.

Undue Influence-- Balogh v. Balogh—S.Ct. of Hawaii (2014)--Streaking husband. Did the wife assert undue influence over the husband by telling him he had to sign the K to assure her that he was going to stop streaking?

No Rule: Undue influence is the improper use of power or trust in a way that deprives a person of free will and substitute's another's objective.

For undue influence, what kinds of relationships are suspect?

Relationships that makes the victim vulnerable to the persuasions of the other party. These include relationships of trust or confidence, and of domination. Generally, we trust certain individuals and so we might let our guard down and follow their advice more readily: Parents and children, clergy, attorneys, financial advisors, spouses, or physicians. Sometimes, the vulnerability arises from a weaker/stronger relationship.

Odorizzi: homosexual school teacher talked into resigning by coworker and principal, to avoid public humiliation.

Rule: when a party's will has been overborne, so that in effect his actions are not his own, a charge of undue influence may be sustained.

When is a threat "improper"? (4 situations)

(1) A threat is improper if: (any of the following) a) What is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property; b) What is threatened is a criminal prosecution; c) What is threatened is the use of civil process & the threat is made in bad faith; or d) The threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.

In contract law, what is duress? (2 elements)

(1) Any wrongful act or threat (2) that overcomes the free will of a party to the contract.

Factors to look for when skimming the facts for undue influence...

1) A special relationship between the parties i.e. Family, financial, doctors, attorneys, clergy & employer 2) Improper Persuasion (this is fact-sensitive) Consider the techniques used (intensity of negotiations, falsehoods, accusations, etc.), the motives, the effect of the contract on the victim, the fairness of the bargain. a. Unusual/inappropriate time b. Unusual/inappropriate place c. Insistence on rushing d. Extreme emphasis on consequences of delay e. Multiple persuaders/group persuasion f. Absence to advisor

What should one look for when determining the presence of undue influence?

1) Look for an unnatural transaction, 2) where one side seems unfairly enriched and 3) the other party seems to have entered a transaction that was not in their interest.

What are the 2 types of duress?

1) duress by physical force (less common) 2) duress by threat (more common)

What is the effect of a contract made under duress by threat?

A contract made under duress is VOIDABLE. Duress by threat is more common. Duress by threat is also referred to as "business compulsion" and "economic duress." Remember, business/economic duress is recognized by the courts (Totem). Examples: 1) Unless you agree, I'll tie you up in court for the next 10 years and spend my last dime to break you!" 2) "Unless you agree, I'll pay you late every month - so you won't have the cash you need to run your business." 3) "Unless you agree, I'll reveal your extramarital affair."

To assert the defense of undue influence, what must one prove? (2 elements)

Generally, one must prove two elements: 1) a special relationship between the parties and 2) improper persuasion of the weaker party by the stronger party. See Restatement § 177. Victim is either under the domination of the person exercising unfair persuasion OR the two are in a special relationship that allows the victim to assume that the person will not act in a manner inconsistent with his welfare (ex: more common in situations that involve extreme youth, old age, or sick people).

To assert duress as a defense, what must be proved? (2 things)

A party pleading duress must plead 1) an "improper" threat induced assent (overcame victim's free-will); 2) there was no reasonable alternative (very important element). *note, very important that the threat left the victim with no reasonable alternative. Sometimes people may think they have no other reasonable alternative when in fact, they do.

What do all topics in "policing the bargain" have in common?

All defenses. All parties attempting to assert the defenses to prevent the formation of the contract to escape contractual obligations under the contract at issue.

Duress-- Balogh v. Balogh—S.Ct. of Hawaii (2014)--Streaking husband claiming duress where wife told him he had to sign K, agreeing to give her most of the belongings upon divorce, as assurance for his promise to stop going out nude, otherwise she'll divorce him. Definition of Duress

Duress is defined as a threat of harm made to compel a person to do something against his or her will or judgment; especially, a wrongful threat made by one person to compel a manifestation of seeming assent by another person to a transaction without real volition (voluntariness). An agreement is voidable due to duress when a party's manifestation of assent is: 1) induced by an improper threat by the other party that 2) leaves the victim no reasonable alternative. Here, no evidence of duress.

What's the difference between Duress and Undue Influence?

Duress requires an improper threat while undue influence falls short of this requirement.

What is key to the undue influence analysis?

The relationship between the parties Generally, you surrender your trust & common sense to them b/c: 1) you're weak & they're strong; or 2) you're in a position of vulnerability & they seize that.

What is the effect of physical duress on a contract?

The result is that the contract is VOID (or, more accurately, that there is no contract because there was no assent).

What does undue influence involve?

Unfair persuasion. §177. When Undue Influence Makes a Contract Voidable: (1) Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

When does physical duress prevent formation of a contract? (note, very rare)

When there's an IMMEDIATE physical threat to life or property, that forces someone to "look" as if they assent to a contract, but without actual intent to enter into the contract. Literally, one must conclude that the victim was a "mere mechanical instrument" and did not assent at all. Physical duress is very rare. The threat must be immediate!

Involuntariness (re: assent to terms of K) may be shown by evidence of...

duress, coercion, undue influence, or any other circumstance indicating lack of free will or voluntariness.