Undue Influence: A Consideration in Contract Formation
Is there an inequality in bargaining power in your contract negotiations? The contract could be voidable for undue influence. Learn all about it here.
Concerned that you were influenced or manipulated into signing a contract? Or worried that the other party may claim the same? Undue influence can create a risk the contract becomes voidable. Learn about undue influence in contracts to understand part of your legal rights and responsibilities during contractual formation here.
. Learn about undue influence in contracts to understand part of your legal rights and responsibilities during contractual formation here.
What Is Undue Influence?
Primarily, undue influence refers to when there is an inherent inequality of bargaining power between the parties in contract. The inherent inequality leads to or forces the ‘weaker’ party to agree to the contract with the dominant party. Furthermore, undue influence also applies when there is illegitimate pressure placed upon you by the other party. Undue influence can also often overlap with duress, with duress applying to more extreme cases of pressure. The result of undue influence will be to make a contract voidable, and usually return the parties to their initial positions. Importantly, the influence must have impaired their ability to choose whether to sign the contract or not.
What Are the Types of Undue Influence?
There are two main types, with both of them potentially resulting in the conflict becoming voidable.
This is when there is a presumption that the parties’ relationship fundamentally impacted the contract’s formation. This presumption applies when there is a relationship of trust between the two parties. Once the presumption is risen, the ‘dominant’ party has to prove the influence did not lead to the contract’s creation. The ‘weaker party’ receiving independent legal advice can be a way to negate this presumption. Common examples where the presumption arises are:
- A parent/child relationship when the child is under the age of 18.
- The relationship between a solicitor and their client.
- A doctor/patient relationship.
Furthermore, other relationships can also lead to a presumed undue influence depending on the facts of the case.
Express or Actual
In these circumstances, the influence that occurred ‘actually’ exists. This means that the weaker party has to actually prove that the dominant party influenced them into agreeing the contract. Keep in mind, that the influence cannot merely be that other party having greater economic power as they are a larger business or stating that they will sign with another party.
What Happens When Undue Influence Is Found?
Generally, the contract will become voidable and eligible to be rescinded by the weaker party. This will generally result in the returning of parties to their original financial and legal position. Keep in mind, that if undue influence occurs the weaker party can continue the contract. Furthermore, it can still occur if the contract is not signed. Moreover, there may be further legal consequences if you engage in undue influence.
Therefore, when there is an inequality in bargaining power between parties, undue influence may impact upon contractual formation. To protect yourself from undue influence, make sure you get in contact with a contract lawyer when forming contracts for relevant legal advice.
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Lachlan is an intern at Lawpath as part of the content team. He is currently studying a Juris Doctor at the University of Sydney. Lachlan has a keen interest in corporate law and commercial litigation.