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The undue influence and duress in contract law can be complicated claims to handle because of their vague definitions. First and foremost, the contract that is in question needs to align with the agreement established between the parties. The court needs to ascertain that this contract was not misunderstood or misrepresented by one of the parties, was signed in action by both parties that have given clear assent that was not violated by duress or undue influence. It should also be noted that the contract can be held void (i.e. as if it had never existed) or it can also be marked as voidable (i.e. a contract that is valid and can be either affirmed or rejected). Depending on the case, the court can mark the contract as voidable or not – in this case, the quality of assent and the lack of economic duress or undue influence are examined to ensure that one of the parties has violated the contract.
It is also important to remember that disadvantageous terms and other disabilities of one of the parties can be seen as relevant because the contract could have been directly influenced by these unfavorable terms. Nevertheless, it should also be noted that not every contract that can contain disadvantageous terms is seen as avoidable.
Before the legal case is presented, the definitions of duress and undue influence need to be provided as well. According to Oxford Reference, the influence of duress on a contract was recognized only if there was a physical threat earlier. However, today the contract signed under economic duress is seen as avoidable if there was a threat from one of the parties or if one of the parties did not have any practical alternative to this contract (“Duress”).
Undue influence is defined as the pressure that forces a person to sign a contract even if this is not the person’s true expression or aim. This is done to advantage another party; if the undue influence is confirmed, the contract can be set aside by the court (“Duress”).
As can be seen, the court can only terminate a contract if there are sufficient reasons provided, and if they are proven to be true. It seems reasonable to mention that the court also distinguishes between economic duress and commercial pressure. While the former is considered to be an illegal form of pressure on one of the parties, the latter is often considered as legal in case if the party that was under the commercial pressure still has the ability to give voluntary consent to sign the contract. The difference between duress and commercial pressure is that the person under duress is caused to enter the contract because of the unlawful actions of one of the parties or because of the lack of practical alternative (Lennox-King 45). Therefore, not the contract itself is what matters to the court, but rather the parties’ positions and choices that are available to them.
The bargaining positions of the parties are also seen as relevant evidence of the economic duress (or lack of it). If one of the parties has no bargaining position, it is possible that the court will agree that the contract is voidable.
Atlas Express Ltd. v. Kafko Ltd.
In this case, the economic duress was recognized, and the contract was seen as avoidable. Kafko Ltd. is a company, which business was the distribution and sales of basket ware. Kafko Ltd. signed a contract with Woolworths; according to it, the company was to supply baskets to Woolworths. Kafko Ltd. signed another contract with Atlas Express Ltd., a delivery company. According to this contract, Atlas Express Ltd. would provide 6-month delivery services to Kafko Ltd. for the established price of delivery per basket. However, Atlas Ltd. underestimated the products to be delivered and demanded a higher charge. Kafko Ltd. did not agree to change the price.
Atlas company sent an empty truck and notified Kafko that if the higher charge were not acceptable, then the truck would not deliver Kafko’s products to the destination (“Atlas Express Ltd v Kafco”). Kafko did not have any alternative and could not shift the delivery dates because in this case, it would go bankrupt. Therefore, Kafko signed the contract. Later, Kafko claimed that the contract was signed under economic duress (“Atlas Express Ltd v Kafco”). The court agreed that there was evidence of economic duress because Kafko’s representative had to sign it involuntarily, without expressing their true aims and wishes, and with no other practical alternatives (“Atlas Express Ltd v Kafco”). Moreover, Kafko also had no bargaining power in this deal.
As can be seen, the contract was considered to be voidable because of several reasons. Although there was not any physical threat present, Kafko would have been unable to continue business if the deliveries were late. As Atlas provided the empty truck prior to the shipment and when Kafko’s contract with Woolworths was already in action, it can be stated that there was no practicability of choice (Stewart 439).
Nevertheless, although in this case the economic duress was recognized as a sufficient reason to terminate the contract, the lack of practicability of choice is not always seen by the court as the evidence that the contract is voidable. In other cases, there was not any inquiry “into the adequacy of the alternative remedy” (Stewart 440). Thus, one of the parties, although forced to sign the contract, was expected to seek an alternative, no matter how inadequate it was.
To conclude, the pressure used in the case needs to be illegitimate enough so that the contract can be terminated. The illegitimacy of these actions is not based on the “victim’s” eventual agreement to sign the contract; instead, other aspects of the case are judged as well. It is crucial to prove that the act was unlawful (Stewart 441). It should also be confirmed that the victim was forced into action that would not be performed in any other case. If the victim had no other practical choice, the court could make the contract voidable. At last, if there is an adequate option, this might interfere with the victim’s claim (Stewart 441).
Undue influence claims can be used in different cases that might or might not include family members, friends, special relationships, relationships based on trust, and relationships not based on trust (“Undue Influence in Contract and Probate Law”). In these cases, the imbalance of power and authority are scrutinized by the court to understand whether they were used to force one of the parties to sign the contract. It should be noted that persuasion and advice are not equal to undue influence: the latter implies that one of the parties has entered the deal involuntarily or without recognizing the consequences of their actions because of the lack of time (“Undue Influence in Contract and Probate Law”). If the relationship is based on trust, the court’s aim is to either prove or disprove that the weaker party’s assent was obtained by undue influence (“Undue Influence in Contract and Probate Law”).
However, if the relationship is not based on trust, one of the parties can use disproportionate strength to make the weaknesses of the other party advantageous. One of the most prominent examples is the case Odorizzi v. Bloomfield School District. In this case, Plaintiff argued that he was forced into signing his resignation from the school by representatives of the school authorities. They visited him after he was “arrested on criminal charges of homosexuality” (“Odorizzi v. Bloomfield School District”). Odorizzi claimed that the school principal and district superintendent threatened him to make the case public and humiliate him. The Plaintiff had to sign his resignation under physical and emotional pain because for the previous 40 hours he was arrested and interrogated without getting any chance to rest or sleep. The court agreed that the Defendants used Plaintiff’s weakness and vulnerable position to place pressure on him (i.e. undue influence).
As can be seen, in this case, the vulnerability of the victim was recognized as a sufficient reason to terminate the contract (the resignation). However, different cases may distinguish pressure and persuasion differently; to provide judgment, the court needs to examine various criteria that concern the parties’ relationship, the time, the type of pressure, and the physical and psychological impairments of one of the parties.
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“Atlas Express Ltd v Kafco.” Revolvy, n.d., Web.
“Duress.” Dictionary of Law, Oxford University Press, 2014. Web.
Lennox-King, Olivia. “Laying the Mark to Port and Starboard: Salvage under Duress and Economic Duress at Contract Law.” Austl. & NZ Mar. LJ, vol. 21, no. 2, 2007, pp. 32-69, Web.
“Odorizzi v. Bloomfield School District.” Casebriefs, n.d., Web.
Stewart, Andrew. “Economic Duress-Legal Regulation of Commercial Pressure.” Melb. UL Rev., vol. 14, no. 1, 1983, pp. 410-441, Web.
“Undue Influence in Contract and Probate Law.” ICSA, n.d., Web.