Transcript for:
Understanding Duress and Undue Influence

[Music] alrighty long nerds this is Professor Tracy back with another video and this one is on duress and undue influence so we are building out our list of defenses and excuses so let's get right to it so remember our overarching framework here we have been looking at formation for a long time that's what we were looking at and we've started into just recently looking at defenses and we will be looking at these other categories moving forward so looking at interpretations or establishing what are the terms of the contract and what do they mean and then looking at breach of the contract and then remedy what is it that someone can get as a remedy when a contract is breached so we've been focused in now on defenses and in particular defense is to formation but we will also be looking at excuses to Performance uh in a bit after we finish up all of our defenses to formation so with defenses to formation we started with a look at the statute of frauds and we said although it's certainly something you want to be thinking about at formation about whether or not the contract should be memorialized in some sort of writing or evidence to buy some sort of writing it functions as a defense if it if it's not complied with if it's violated then it will serve as a defense to the defendant and our last lesson we looked at incapacity or lack of capacity meaning that the person does not have the legal ability legal capacity to enter into an agreement and today we're adding in two more defenses we're looking at duress and undo influence so both of these are related to coercion or pressuring one party into one party pressuring the other party into the agreement so let's start with duress with duress we want to look and say first that we're gonna we're gonna look at two different kinds of duress we're going to look at physical duras which is when there is a threat of physical violence of physical violence which is kind of maybe the stereotypical thing that someone might think of when you think of duress about you know a knife to the throat a gun to the head that kind of thing of sort of physical violence being threatened and that being what is pressuring the other person to assent to the agreement but there's also economic duress when there is economic pressure being put on the other party through the use of an improper threat and it's that threat of an act of economic pressure or harm that is pushing them to enter into an agreement that is ultimately detrimental to them so we're going to look at both but our broad definition here or rule is this that when a party's manifestation of ascent meaning their acceptance is induced by an improper Threat by the other party that leaves the victim no reasonable alternative but to agree to the contract the contract is voidable by the victim of that threat so we're going to break that up into elements so we can see that it it breaks down into three elements that there's inducement that the victim so the offeree is he typically going to be the victim since it is uh the ex the ascent or the acceptance that we have in view here that's being induced by the thread um so we have inducement the victims being induced to enter the agreement by an improper threat an improper threat and we're going to Define each of these that and that threat leaves them no reasonable alternative so in essence this third element of no reasonable alternative is getting to the what what is the legally required in terms of the gravity of the threat how significant must it be and that's what that third element gets to so let's look at inducement inducement at its simplest form is a is about this second uh box I have up here which is that it's about causation we're asking was this in fact why the victim the alleged victim of the improper threat or why the offeree assented is this really the but for cause that pushed them to enter into the agreement and then when we're asking about whether or not the person was induced right whether the improper threat is what induced them into the agreement then we also need to look and say okay by what standard or is it are we looking at this right or do we just say wow it's satisfied no matter what no matter what if it caused the person to be induced and the answer is kind of because we use a subjective standard the whole question of the gravity of the threat the significance of it we're leaving for that third element of no reasonable alternative because here with inducement while historically there might have been a use of a more objective standard we're just going to ask was this particular person's will overcome by this improper threat such that that is what pushed them into the agreement that's what induced them into the agreement and what do we mean then by an improper threat an improper threat well there's a there's a couple there's a few different things that the restatement list for us it says that it could be something like a crime or a tort or the threat of the of a crime or a tort which is now a tort doesn't exclusively or neither does a crime for that matter exclusively have to be about physical violence but certainly some sort of threat of physical violence or harm to property or taking of property would fit in under here right those kinds of things that we might think of as oh yes those are certainly improper threats those are going to be here right is it a crime or is it a tour it is or is it the person's doing that carrying that out and unless the person does it their threat or they threatening to carry out something like that that would be an improper threat the other thing and this one may be a little counter-intuitive because it it's hard to see well why is it that if you threaten to have somebody criminally prosecuted that that would be considered an improper threat and the idea is this like that the kind of scenario you want to have in your head is let's say that there's a company that they find out somebody's been embezzling money right taking money they've been dealing with accounts and they've been siphoning that money embezzling it to themselves that comes to light and then what that person is told by their boss is something along these lines that if you do not repay that money then I will have you criminally prosecuted and again you might say okay what that sounds like a reasonable thing to say the the concern is that if something is a crime then the purp the purpose of criminal law is a public purpose right it's a public purpose that it serves the public good if that person has violated the law we don't want it dealt with privately nor do we want that threat of criminal prosecution to just be used as a tool for the company to get what it is that it wants and then if it has the money repaid and then they quietly let the person go they can kind of bury the whole scenario it never comes to light that that we view as being an improper threat because a crime is is an offense against the public right against the public good it is something that should be dealt with publicly it should be aired out and prosecuted for the public good and that's why the use of a threat of criminal prosecution to get somebody to agree whatever it is right agree that you're going to repay the money and that we are then going to have you quietly go away and you need to release us from any responsibility to pay you any sort of severance or whatever it may be right pressuring that person in that way that's what's in view there then a threat of a bad faith lawsuit here what's in view is really a use of civil process and the the threat of civil of a civil lawsuit when that lawsuit is either being threatened in bad faith meaning you actually don't have a basis for it or that you're making that threat not because you really intend to bring a lawsuit because it needs to be brought but because you know that you can threaten that person in such a way to see to say it's going to be really expensive litigations costly that kind of thing that again your goal there is to threaten them to get them to enter into a contract and you may not right it may be something where you're like man I wouldn't really do it but if I threaten it then that's I can get what I want that way so it's it's the bad faith use then of civil process and then the final one here is a breach of the duty of good faith and fair dealing so what you're threatening there often particularly in a in for instance a um economic duress situation and we'll look at more detail at economic duress but in a situation like that often the kind of threat in view is saying I'm not going to perform in the contract we already have unless you agree to enter into this other agreement at terms that are very advantageous to me I know you're in a difficult spot and I know that I can threaten not to perform right to deprive you of the benefit of the contract to breach the contract to breach the implied obligation of good faith and fair dealing uh in order to try to force you to agree to something else I want some other contract that I want and we'll see an example of that in just a second so those are the categories of improper threats that were given by the restatement and that so and you could I guess analytically really put improper thread first and say was an improper threat made and then did that improper threat induce the victim to ascend to the offer to the to the contract and when we're looking at the threat we're asking was there no so reasonable alternative no reasonable alternative and that's getting at again we said the gravity of the threat what's required because when we're talking about inducement we said it's largely just a question of causation uh and when we're asking was the threat would induce the person we're focused on well was that the cause was their will overcome such that they felt compelled to enter into the agreement not oh what a reasonable person do it but was their will but this when we say no reasonable alternative now we're beginning to look more particularly and say okay but how big of a deal is this threat that's being made did the pr did this party the victim did they really have no reasonable alternative and the answer is we're going to look when we say reasonable just like in most circumstances when we say reasonable we mean my we're judging by all the the facts and the circumstances and looking at what are the options available to the person why you know what is it what are the pressures that are on them such that they folded and ascended to this and when you think about um litigation right what we can't say is well every single time you don't have to agree you can just sue you always have a reasonable alternative you can always pursue legal action and the answer is well no it's not a reasonable alternative if the party is going to face immediately immediate and irreparable loss for instance to one's economic interest obviously if it's a gun to the Head it would not be an economic Atomic interest but to your well-being your life your life and you do not have another alternative that would be the clearest idea of like well there's no other place to go here so when we're looking here we're getting at the whole circumstance and it's telling us in the circumstances how significant is this thread did the party have some other option under the circumstances such that they didn't have to give in uh and because we don't want everything to be able to fall into uh Under The Heading of duress and we'll talk about this more when we look at undue influence but it's important to understand that some level of negotiation and bargaining sometimes even hard bargaining is part of doing business and so we're not trying to establish defenses that cut out that possibility we need to try to account for that in the way that we apply our defenses in the way that we understand them and Define our terms and in the way that they're being applied so duress we said we have physical duress we have economic duress so let's look at physical duress in detail what do we mean if if there is actual physical duress then the contract is considered void it is void meaning that the victim does not have an option to affirm it the contract is void from the beginning meaning it's not avoidable such as for instance when we looked at lack of capacity it was there the party that lacked capacity had the option to disaffirm but they could ratify here if this if there is physical duress a there is a threat a physical harm or the person's arm is for instance being physically moved to do it then we view that as being voice as being void that is not capable then of being affirmed even if the party wants to do it because we're saying from the beginning it was it was not a valid agreement because the ascent wasn't voluntary and it didn't the acceptance was not in fact an acceptance then so that ties into the second thing which is it can't be ratified right that if it's void you can't possibly ratify it so then let's look at an example here Bo please sell me your house for a hundred thousand dollars no way Swirl at least three times that besides it's not for sale I I'm not moving anywhere I tried asking nicely and you wouldn't agree so I'll try again sell me your house for a hundred thousand dollars or else or else what stop stalling death bow death that's your alternative okay okay just put down put the gun away oh I'll sell you my house for a hundred thousand dollars so vote they enter so sorry to be Grim uh but I'm trying to give a uh just a clear-cut example of what we think of when we think of physical duress so here we have a threat to that Barb's threatening to shoot Bob and here he and he uh he agrees right and if we sort of cycle back through right that it started with their Barb made an offer right she made an offer he's not interested right but then she makes a threat now saying she reasserts her offer with a threat right improper threat then there's no alternative right he has no reasonable alternative or else what well the alternative is death right so he's induced he's induced into the agreement it pushes him in right that's the cause of him agreeing he was he didn't intend he didn't want to sell his house so he's promising to give her the deed to the house she's promising to pay the hundred thousand dollars that's the offer the bargain she laid out in her offer and he has accepted that now he performs right gives her the warranty deed for the house she pays the hundred thousand dollars and voila now after that's done and he's safe he is now seeking to disaffirm he's suing to disaffirm the contract based on a defense of duress and so assuming all those elements are met as we just claimed that they were that he could show right that the three primary elements are LED that that he that there was an improper threat that part's pretty straightforward here that it fits on our first category right that that's it's a threat of a crime or a tort and and this is also a situation then where he's induced right the cause of him doing this is the threat and he didn't have enough and a reasonable alternative right because she was holding a gun he was at risk of death or serious bodily harm if he didn't just agree so he agreed so he seems to be able to make those out if he can then remember the contract is void we're calling it a void contract as the title there on shows on the screen so there it's the contract is considered void nobody uh Beau would not be able to firm if he wanted to right it can't be ratified so what about economic duress economic duress is it there's a little more Nuance to it as you would expect right the typical fact pattern is something like this although to be fair my example that I'm about to give us doesn't fit exactly this one but this kind of situation is common right I guess it is similar I think in some ways but here what I'm suggesting the typical fact pattern is is let's say somebody owes the other there's two parties they have an existing contract and one of the parties has yet to make the full payment for say whatever service is to be provided so if you've read cases like totem barge um or uh the rich willick case uh those are about Services one about uh things being transported under barge another about excavation work being done and in each case the the party that is going to be paying knows the party that provided the service is in a difficult Financial spot and so approaches them and says hey agree to say to accept last or who knows when we'll pay right agree to accept less or we may or may not ever pay so they're trying to pressure them because they know they're in a difficult Financial spot so and here with economic duress it's not void it's voidable just like lack of capacity so it's avoidable at the option of the victim of the duress so which means keep in mind that means that they could just affirm the contract or ratify and move forward and and if they're okay with it so here here's what I I was saying that assume there's an existing contract between the parties right like this one Herman we're going to assume here that Bob is running a some sort of uh like a chocolate shop or a business where he is selling Foods including chocolates and Hermann sells chocolates so Herman is is has there's a contract between Bob and Herman and Herman's promise to give him a thousand boxes of chocolates and Bob is gonna pay him three thousand dollars for those boxes and then Herman says I know you need those chocolates from the holidays I'm only gonna deliver them if you agree to buy 5 000 boxes of chocolates next year so here rather than the obligation being about money it's about Bob's need for chocolates right for chocolates for the holidays to have them in stock and Herman's source for those and he knows that Bob is dependent on him so he's saying you know what I'm not going to deliver those unless you agree to fight to buy five times as many for next year for next year now that so for the is so does he has no alternative right so there was a threat made Herman gave us the threat there and he leaves no alternative which is what I really need I really need those chocolates you promised for this year I don't have any other source to get them from especially given the time and then inducement fine but I agree to buy 5 000 boxes of chocolates from you next year did you just send me the Thousand I need for this year so we have this second contract that he's been induced into right this is the one for next year that Bob's promising to buy 5 000 chocolates and obviously Herman's gonna do them I didn't bother to put in a price there so the first contract then Herman says well you agreed to what I wanted so he's gonna perform he's gonna give him the Thousand the Thousand boxes of chocolates so he gives them that so he gives them that right and here then after Bob has those Bob's gonna Sue to try to disaffirm that second agreement he just entered into the one for the 5 000 boxes of chocolates for next year he's gonna use the argument of duress and it's not a threat of physical arm here it's economic right that he needs this for his business and that he's dependent on it and if he can show those things then he would be able to disaffirm it based on duress so that's what economic duress looks like so that's duress we looked at physical duras economic duress obviously the elements are the same but the way they play out is slightly different and physical duress being void and economic duress being voidable so what about undue influence so undue influence is frankly is waning in its significance because of the fact that as durasp has been expanded it to things like economic duress the need for something like undue influence is is waning it's waning and um there's also I think a problem with undue influence of it's harder to cabin in some ways right you are potentially Beginning To Tread on uh what are normal a negotiation bargaining tactics uh with this and and I brought that up with with duress but it's even more of a concern I think with undue influence so what we say with undue influence is if at at a basic level there's kind of two parts to it that it is unfair or excessive persuasion right one party rather than an improper threat right there's not an improper thread because we're under that's duress but undue influence we have unfair or excessive persuasion and then we have somebody who's susceptible to that excessive persuasion um and generally they're described as being in a weaker position that the person doing the excessive persuasion is generally considered to be in a more dominant or position to have uh some sort of Authority or power over the other person and the susceptible person the person being persuaded is Gen we require to death there's some weakness of mind or will and so you'll see it written out something like this although the elements are going to be more uh more specific than this or more extensive I should say it says it's the use of excessive pressure to persuade one vulnerable to such pressure to enter a contract that is against their best interest and so we generally look at that in four elements and that's how the restatement looks at it it says there's again inducement and this makes sense that there's got to be cause station that the excessive or unfair persuasion is what is causing the person to ascend so there's still inducement and again you could analytically think of that as being probably second that we first want to find that there is some sort of unfair persuasion going on but nonetheless I'm putting them in the order that that they often are listed even if analytically it may make sense to say well let's have unfair persuasion then we can say did that unfair persuasion induce or cause the victim to ascend um and the victim has to be someone who is unduly susceptibility unduly susceptible to the other party right to being dominated or persuaded by the other party and then the result must be inequitable it must be an inequitable result not just that they regret it later but in fact inequitable and we'll talk about well how do we decide if the resulting contract is actually inequitable and we'll look at the factors that the restatement gives us for that so we have inducement it's going to work the same as we said before that in terms of just straight up inducement we're asking about causation and we're just asking was this per is this unfair persuasion or undue persuasion is or excessive persuasion is that what caused the person to ascend so with unfair persuasion here I think is really helpful if you've read the odorizzi case which is about the school teacher who is um who signs a resignation uh be because of his arrest and the court goes in and lists the kinds of factors that should be considered uh when we're looking for unfair persuasion so these are the kinds of things that would constitute unfair persuasion but let it be said these are just the Court's list of here are the kinds of things there could be other things but I think these are helpful things to think about right unusual and inappropriate time meaning if there's a conversation happening about entering into a contract it is an is it unusual or an inappropriate time is it an unusual place is it is it an insistent demand that business be finished at once mean it's got to be done now and often that is coupled with the with the next one which is and that when you're saying it's got to be finished now you're saying well and if it's not here's the horrible thing that will happen here's the horrible consequences of delay and sometimes it you will find that there are multiple people so uh that show up to negotiate something to pressure the other party right that you have multiple people on your side you don't need that but that that could be another thing and that would and that would make someone more dominant so to speak because you have multiple people uh pressuring one person then the absence of third-party advisors to the servient party meaning that whoever is being pressured do they have anybody with them do they have an attorney do they have an accountant do they just have somebody there like a friend or a co-worker or a colleague someone to uh to be their Advocate and depending on the situation um and this is I think similar right this one is similar to these right but a kind of a particular form of that which is to say we need to finish now if we don't finish business now this is what's going to happen and also that uh there's no time if the person says uh but I want to talk to my uh to my financial advisor or my accountant or my attorney no no no time we've got to do it now those kinds of things are unfair persuasion so undue susceptibility well how do we know if somebody's unduly susceptible to uh to uh un undue influence how do we know that so here well generally courts will talk about one of two things and perhaps both but you don't need both so you could have a weakness of mind and uh meaning that and and there it could be something like mental incompetence um but it doesn't it doesn't have to be right we're not requiring somebody to prove mental incompetence because if they could prove mental incompetence then they wouldn't need undue influence right as a defense but here that certainly if you are in a position where you are suffering emotionally or mentally physically maybe because of events that have occurred uh because of sickness because of other things then that is an indication that you are in a susceptible position because you're you're run down you're worn out you're not mentally in a good place you're emotionally drained whatever it is that means you're more likely to be be pressured right and malleable so the other thing you will see when we talk about there being a Serbian part in a dominant party in the dominant parties is pressuring the Serbian party there is often a relationship of trust or trust or dependence you'll see it described sometimes as just quote special relationship um but I think generally um the the ones that are listed here I would say do fall under the heading of quote special relationship but but they don't have to necessarily the relationship could be just one of trust or dependence so for instance just think for instance like if you are uh have been admitted to the hospital uh then there even if we're not talking about your doctor being there you are still in a relationship of trust you are dependent on the nurses there for your care right and if you are uh and if even if you are in your own home and very sick and someone's taking care of you the same thing right regardless of whether they're actually a doctor that kind of thing there could still be dependence and sometimes the one thing to think about too would be let's say you inherit a business a family business uh and you don't have a lot of experience uh and say you inherit it after your mother passed away and you inherit that business you're taking it over and you're relying on some of the other people in that business in order to make wise decisions about how to run it there too even even though there may not be any formal special relationship they are aware and you are aware that in many ways you are dependent on them because of the circumstances they are the experts they have knowledge and although you now own the business and are running it you don't know everything and so the you are in a position where they you are unduly susceptible to being pressured by them so what about an inequitable result an inequitable result we said the restatement gives us some a look at this right it says here are the factors right it says to consider these factors because it just because if the resulting contract is fine it's it's fair then okay you know maybe it wasn't a great situation but in the end no harm no foul right so what we're looking and saying are what are The Economic Consequences that's probably the most obvious like oh yeah of course like you know is it very one-sided so Divergence from prior course there what it what what the restatements getting it is saying like if the victim appeared to have one course and then all of a sudden change their mind after talking to this person that's an indication that this the results not quite right here right that they were diverted so in inequity and value of exchange so that whatever is being exchanged kind of you know in many ways tied it closely not maybe not certainly not tied but closely related to number one um and then the appropriateness of any change in light of the length and the nature of relationship so there if the change was made at uh the you know at the request of somebody like a change to a contract or business relationship and it one of the reasons ways we might judge that is to say well does that make sense in light of the fact that you just met the person uh you've not known them at all now you're just catering to their whims so that's those are the things the restatement tells us to look at so let's look at an example here so Bob is sick okay Bob is sick that's that's my attempt to make Bob look sick so thanks for taking care of me while I'm sick Bo I don't I don't know what I do without you I feel terrible so here now Bo shows up in the bathroom right Bob is trying to clean up get in the tub he's he's not feeling well he said oh there you are you know how I've been asking about your car what oh wait how are you in the bathroom with me uh why are you in the bathroom with me oh I'm fine I don't mind being in the bathroom with you uh how about uh 800 for the car eight eight hundred dollars I don't know I feel terrible I can't think straight how about we maybe talk about it later oh I'm talking about now so uh how about 785 instead well let's agree now and then I'll get back to making you some soup for dinner yo fine that works I'm gonna finish my path have some of that soup and then lie down oh please no more talking no oh of course but uh just to confirm we we have a deal on the car right yes we have a deal please go so there right so Bo is showed up in the bathroom right it's pressuring Bob and now they're entering into this agreement right Bob is promising his car I'm gonna deliver my car to you and Bo is saying I'll pay you 785 for the car so they have a contract and now Bob sees all better now Bob goes I don't know why I agreed with Bob but I'm certainly not gonna sell my car so Bob's saying I'm not gonna perform right I'm not going to perform so he's breaching right or he repudiated the agreement um but he's breached and then Bo is suing him because he's not following through on their agreement and then Bob raises his defense right Bob says I I have a defense against your breach of contract claim which is undue influence right so he's raising it and remember what he's got to show he's saying I was induced into this right so well let's start with the with the what we'll do in order we'll Doom in order so is there inducement was this the cause was and was his will overcome right he was pressured to know yes right that that the facts are clear that that was the cause right he wasn't thinking about selling his car apparently it's something maybe Beau had mentioned before but it wasn't something they were talking about at the moment and so he brings it up then we would say is there undo unfair persuasion or undue persuasion or excessive persuasion and here we have all those factors to think about well there weren't multiple persuaders there was certainly a situation where what one Bo is there he is taking care of Bob Bob is not feeling well he didn't he said at the beginning of our example he didn't know what he'd do without bow he needed Beau to take care of him Beau was taking care of him he was dependent on Bo in that way and Bo barges into the bathroom and he starts so it's not an appropriate place not an appropriate time and he will not let it go right he keeps insisting and trying to confirm it and he twists every time Bob is saying something he bow acts like oh no no I'm fine talking to you in the bathroom or I don't mind this or that like just keep going right just to confirm and so and Bo keeps being insistent right so he meets that element and we can look and say yes it is the case that Bob right that Bob here is um that he was susceptible right because he he if we look he had quote weakness of mine weakness of mine in the sense that he was sick he wasn't feeling well he wasn't thinking clearly he he was just tired and exhausted and felt like garbage then you could also say although it's not a quote special relationship it still it was a relationship of dependence or trust in that Bob was dependent on Beau and Bo you know bringing up whoa I'll make your dinner if you confirm all this for me kind of thing like hinting not threatening but just hinting that I mean I'm the one getting your dinner together that kind of thing so all of that looks like yeah Bob was susceptible and then you would say well what about the it was the result inequitable and I think this is an example of where Bomb It deviated from any prior course he had he did not intend to sell his car right if you're saying what was his prior course to keep his car and not do anything else then he deviated from that and Bo is like lowballing him we don't know how much it's worth but he gives one number and then he comes back already with last before Bob says anything and so there is a situation where it appears to be inequitable so assuming that is all true and Bob can successfully carry the burden prove those elements then the contract will be disaffirmed right it will serve as a defense had any money been paid or the car been given we would have restitution right that Bo would have to give back Bob's car if Bo had driven it he would have to give money to account for any use or depreciation of that car and then Bob would give back whatever money to Beau but only if I mean again if Bo had driven it Etc or damaged it in some way Bob didn't have to give him back to the money if the damage or the wear and tear is more than the money that was paid so but that's how it would unfold so that's undue influence uh so those are our defenses to formation right their defense to formation we've got four of them right now and uh we'll keep building out that list as we go and that's it for now I do hope it's helpful as always please like And subscribe if you haven't already I very very much appreciate your support uh have a great day bye