Since a contract is based essentially on consent of the parties, agreements obtained by coercion or undue exertion of pressure are generally not enforceable. Thus a party who has entered into a contract as a result of pressure may be entitled to relief under the common law doctrine of duress or the equitable principles of undue influence.
What is Duress?
Generally, at common law a contract which is obtained by illegitimate forms of pressure or intimidation is voidable on the ground duress. At common law the definition of duress was a narrow one consisting only the more extreme forms of coercion. It consists of actual or threatened violence to the person, threats of imprisonment or prosecution or threats of violence or dishonor to a person’s wife, husband or children. KAUFMAN V GERSON
However, it is not required that it to be shown that the threat was the only for entering the agreement.
BARTON V ARMSTRONG
Armstrong was the chairman and held the largest sharing holding in Landmark Corporation Ltd a public company. Barton was the managing director and also had a substantial shareholding in. There were two other directors Bovil and Cottrel. There had been a long history of ill will between the parties and a struggle over who should have controlling power with Armstrong being the most aggressive. The other directors in the company were also unhappy with Armstrong and wanted him to be removed for abusing certain privileges and they disagreed with the way he ran the company believing him to be putting the company at risk of insolvency. However, Armstrong refused to resign. The three managed to take control of subsidiary companies and removed all credit facilities from Landmark Corp. When Armstrong discovered the credit had been removed he made a number of death threats to Barton to pressure him into signing an agreement which contained various elements including the purchase by Barton of Armstrong’s shares in the company at a substantial over value. Barton agreed to this partly due to the threats but also due to the fact that it would mean that Armstrong would no longer have controlling interest and he believed he would be able to turn the company around without Armstrong’s dealings. However, the company became insolvent shortly after and Barton sought to have the contract set aside. Held- The contract could be set aside. Where there is duress to the person there was no obligation to show that he would not have entered the agreement but for the threat, it simply being sufficient that the death threats were a cause.
What is Economic duress? -duress by threatened breach of contract
In recent time, the courts have recognized economic duress as a factor which may render a contract voidable, provided the conduct which constitutes such duress must always amount to a coercion of a will which vitiates consent. In cases where a party is induced to enter a contract as a result of a threat by the other party to break an earlier contract, this may constitute economic duress and entitle the party threatened to avoid the contract made. D & C BUILDERS LTD V REES, NORTH OCEAN SHIPPING CO V HYUNDAI CO LTD.
It is not any threat to break a contract that will amount to duress, all circumstances must be considered, in particular the nature of the pressure applied and the nature of the demand made in order to determine whether there was a coercion of will which vitiates consent. In all cases, it must be shown that the pressure was such that the victim’s consent to the contract was not a voluntary act on his part.
PAO ON V LAU YIU LONG
The claimant had threatened not to complete the main contract for the purchase of shares unless subsidiary agreements were met including a guarantee and an indemnity. The defendant was anxious to complete the main contract as there had been a public announcement of the acquisition of shares and did not want to undermine public confidence in the company and the consequent effect on share prices. The defendant could have sued for specific performance of the agreement but this would have delayed matters and damaged the company’s reputation. The defendant had taken legal advice on all these matters before agreeing to the guarantee and indemnity. The claimant then sought to enforce the guarantee and the defendant sought to have the agreement set aside for economic duress.
Held- There was no economic duress. The Privy Council identified 4 factors to consider in assessing whether economic duress was present: Did the person claiming to be coerced protest? Did that person have any other available course of action? Were they independently advised? After entering into the contract, did they take steps to avoid it?
In the present case the defendant did not protest at the time. He also could have enforced the contract of sale through specific performance and thus had another avenue of redress available to him. He had taken legal advice and took no steps to avoid the agreement prior to the claimant seeking to enforce the guarantee. Therefore no economic duress could be established. It was simply commercial pressure far short of duress.
What is Undue influence?
This term is used to describe the equitable doctrine of coercion which deals with form of pressure which are usually less direct than those discussed under the doctrine of duress. The doctrine applies in cases of express use of influence such as where the party charged has actually exercised undue influence in the sense of dominating the will of the other party and presumption of undue influence such as where there is a special relationship between the parties which raises the presumption of undue influence. Undue influence render the contract voidable.
Express use of influence of domination of other party
Where it can be shown that one party exercised such domination over the mind and the will of the other party that his consent to a contract cannot be said to have been independently given, the party who was so dominated can rescind the contract on grounds of undue influence. Here, the onus is on the party seeking to rescind the contract to prove actual coercion or a high degree of domination or control leading to the loss of independence of will or consent. ALLCARD V SKINNER. Once undue influence is proved, the contract can be avoided.
MORLEY V LOUGHMAN
Loughman, a man of no means, and a member of a religious sect known as exclusive brethren, was employed as a travelling companion to Morley, an epileptic of large fortune. While so employed, he converted Morley to his own religious views, and as a result Morley his home and took up residence with Loughman, with whom he lived for the last seven years of his life. During this period, Morley consulted with Loughman on spiritual matters, allowed him to regulate his diet and his medicine, and placed nearly the whole of his fortune at Loughman’s disposal. Upon Morley’s death, the executors brought an action to recover £140,000 given by Morley to Loughman as a gift. Held- the recipient of the gift had obtained the money by actual exercise of undue influence. Here it was not necessary to decide whether or not any special relationship existed between the parties, because Loughman took possession so to speak, of the whole life of the deceased and the gifts were not the result of the deceased’s free will, but the effect of that influence and domination.
Presumption of undue influence where there is a fiduciary relationship between the parties.
There is a presumption of undue influence where the parties stand in a relationship of confidence to one another, which puts one party in a position to exercise over the other influence which is capable of being abused. A fiduciary relationship is one which one party reposes confidence and trust in the other, and the other, by reason of his position in relation to the confiding party has some influence over him which is capable of being abused.
Where parties are in such a fiduciary relationship, the law on grounds of public policy presumes that a transaction made between them for the benefit of the party in whom the confidence is reposed, was the result of undue influence unless the benefiting party can prove the contrary. All the circumstances of the case must be considered to determine whether the relationship exists.
The fiduciary relationship which are recognized by the law as raising the presumption of undue influence include the following:
• Parent and child- LANCASHIRE LOANS LTD V BLACK
• Guardian and ward-HYLTON V HYLTON
• Solicitor and client-WRIGHT V CARTER
• Physician and patient-RADCLIFFE V PRICE
• Trustee and beneficiary-ELLIS V BARKER
• Religious/spiritual advisor and follower-ALLCARD V SKINNER
It has been judicially established, however, that the husband/wife relationship is not considered as one raising the presumption of undue influence-NATIONAL WESTMINSTER BANK PLC V MORGAN
The family home was subject to a mortgage for the purchase price (with Abbey National) and a second charge securing a loan of the husband’s business. The couple were unable to meet the payments and got into arrears. Abbey obtained a possession order. NatWest offered a rescue package to help the couple save the home whereby they would pay off the existing mortgages and give a bridging loan which was to last 5 weeks for the purposes of aiding the husbands business.
The manager called at the couples’ home in order to explain the effect of the charge and to obtain the signatures of both parties. He was at the house for 20 minutes and spent 5 minutes alone with the wife. The husband was reluctant to leave them alone and was said to be hanging around close by at all times. The manager told the wife the charge was to pay off the existing debt and to provide a bridging loan for a period of 5 weeks which was what the bank had intended to provide, however, the actual document did not limited the amount or time. Mrs. Morgan had told the manager that she did not want to be exposed to any extra risks of her husband’s business as she had no faith in his ability as a business man. The manager assured her that the risks were limited in the way he had described. At no time did the manager advise her to get independent legal advice. She signed the charge. The bank later called in the charge. In her defence the wife stated that the bank manager had exercised undue influence over her in procuring her signature. Held-The normal relationship between a customer and banker was not one so as to give rise to a relationship of trust and confidence. Lloyds Bank v Bundy was confined to its facts but not expressly overruled. The wife had not established a relationship of trust and confidence and therefore no presumption of undue influence could arise.
The presumption of undue influence can be rebutted if the party who benefited from the transaction can show that the other party acted independently of any influence from him. The most usual way of doing this is nu showing that the other party obtained and followed independent advice before entering into the transaction. This requires that the party who benefited from the transaction prove that the nature and effect of the transaction was fully explained to the other party by some independent and competent advisor with knowledge of all the relevant facts.
MERCER V BREMPONG II
The plaintiff, a legal practitioner, was retained by the defendant stool to negotiate with the Government of Ghana for the payment of adequate compensation to the stool of Nsuaem in respect of its lands which had been acquired for a rubber plantation and also to undertake legal services in litigation connected with the Nsuaem stool lands. The government on behalf of the defendant stool paid an amount of ¢3,440 to the plaintiff as solicitor’s fees, but this was not disclosed to the defendant stool. An oral agreement to pay ten per cent of the compensation money to be obtained as the professional fees of the plaintiff was entered into in late 1971 or early 1972, and this was later reduced into writing in October 1972. The agreement was prepared by the stool clerk of the Nsuaem stool and executed by the defendant’s predecessor and other sub-chiefs of the area. A copy of the agreement was sent to the Chief Lands Officer in Accra authorizing him to pay the said ten per cent to the plaintiff as his professional fees. In August 1973, the defendant stool became aware of the initial payment to the plaintiff and protested to the Chief Lands Officer in Accra, without taking steps to repudiate or rescind the contract between the stool and the plaintiff. Subsequent correspondence between the parties however indicated that the defendant stool was affirming the contract. The plf sued to enforce the contract. Held- undue influence meant any influence by which the exercise of free and deliberate judgement was excluded at a time when the interest or benefit in question was given to another by someone over whom such influence was exercised. In so far as the agreement was concerned, it was prepared in the Nsuem language. The ohene of Nsuem and the three of his sub chiefs signed the agreement whilst the other sub chiefs who are illiterate made their marks after the contents had been read and interpreted them in the Twi language by the stool clerk. It could not therefore be said that the agreement ex facie was executed as a result of pressure by the plf on those who signed it.
What are Unconscionable contracts?
The courts of equity have recognized the need to intervene in cases where the contract is excessively harsh, especially where one of the parties was poor, relatively ignorant, elderly or disadvantaged. The Ghanaian courts have established the principle ‘whether by contract or by gift’ is unconscionable where on account of the special disability of one of the parties, he or she is placed at a serious disadvantage in relation to the other. CFC CONSTRUCTION CO (WA) LTD, RITA READ V ATTITSOGBE,
KWAMIN V KUFUOR,
A lease was signed between the gold coast chief and an English gold prospector. Subsequently to the signing of the lease, an agreement was entered into which contained a clause whereby the plf’s predecessor in office, another chief was alleged to have agreed to give up all his rights and interest in the land, the subject matter of the lease, in consideration of payment of him of £300. It was an agent of this predecessor chief who had signed this agreement, which had been drawn up on their behalf by the English prospector. All the Africans involved in the transaction were illiterate. The plf alleged that the clause was understood only to be intended to confirm and recognize the lease granted by the other chief and that in so far as it purported to surrender the rights of the Enkawie stool, which he represented, it was invalid and ineffectual. His grounds his chief’s rights and, secondly, that the agent did not understand the memorandum of the agreement. Held- though the agreement had been read over to the parties this was not enough. It had to be further proved that the plf’s agent had assented to the legal document with an intelligent appreciation of its content. Speaking of the agent, they insisted that, ‘the possibilities of misunderstanding are so obvious as to render it imperative on the appellant, who alleges his intelligent consent to a contract expressed in a language which he did not understand to prove that it was clearly explained to him
ACQUAYE V HALM
The case involved a loan transaction. The plaintiffs claimed it was a mortgage transaction while the defendant alleged that it was a contract of sale with an option to re-purchase. All the parties were natives of the gold coast and according to the plaintiffs they had borrowed £200 from the defendant, a well-known moneylender. The plfs were illiterate and therefore it was the def who explained the meaning of the English documents in the vernacular to the plfs. The documents were in fact a deed of absolute conveyance, and an agreement for the re-purchase of land conveyed, but the plfs were made to believe that the documents embodied a mortgage agreement. They did not appreciate that the def considered the transaction as one of sale until the def put in a claim to the government as owner of the land, when the government sought to acquire the land. King-Farlow J held that the illiterate borrower were not to be bound by the deeds in question. In equity, as is well known, an agreement not proved to be actually fraudulent may be presumed to be so unconscionable that it is tainted with fraud and therefore voidable. This presumption will be made for the benefit of the weaker party where the parties to the agreement deal with each other on very equal terms.
DIKYI AMEEN SANGARI INDUSTRIES LTD