Undue Influence.

An aged parent may entrust all. business affairs to a trusted child; an invalid may rely on a nurse; a client may follow implicitly whatever an attor­ney recommends. The relationship may be such that for practical purposes the one person is helpless in the hands of the other. When such a confidential relationship exists, it is apparent that the parent, the invalid, or the client is not in fact exercising a free will in making a contract suggested by the child, nurse, or attorney, but is merely following the will of the other person. Because of the great possibility that the person dominating the other will take unfair advantage, the law presumes that the dominating person exerts undue influence upon the other person whenever the dominating person obtains any benefit from a contract made with the dominated person. The contract is then voidable and may be set aside by the dominated person unless the domi­nating person can prove that at the time the contract was made no unfair advantage had been taken.

The class of confidential relationships is not well-defined. It ordi­narily includes the relationships of parent and child, guardian and ward, physician and patient, attorney and client, and any other relationship of trust and confidence in which one party exercises a control or influence over another.

FACTS:

Studley and Bentson made a contract by which the latter agreed to transfer to the former certain property in consideration of the promise of Studley to provide a home and take care of Bentson for life. The contract was prepared by a third person, and its effect was explained to Bentson by the president of the bank where he deposited his money. Bentson died, and the ad­ministratrix of his estate sued to set aside the contract, claiming undue influence.

DECISION:

Judgment for Studlcy. The fact that Studley and Bentson had been friends and that the latter had confidence in the former did not make the relationship a confidential relationship so as to cast on Studley the burden of sustaining the validity of the contract. [Johnson v Studiey, 80 Cal App 538, 252 P 638 (1926)]

Whether undue influence exists is a difficult question for the court (otdinarily the jury) to determine. The law docs not regard every "influence" as undue. Thus, nagging may drive a person to make a contract, but that is not ordinarily regarded as undue influence. Persuasion and argument are not in themselves undue influence.

An essential element of undue influence is that the person making the contract does not exercise free will. In the absence of a recognized type of confidential relationship, such as that between parent and child, the courts are likely to take the attitude that the person who claims to have been domi­nated was merely persuaded and consequently there was no undue influence.

Duress.

A party may enter into a contract to avoid a threatened danger. The danger threatened may be a physical harm to person or property, called physical duress; or it may be a threat of financial loss, called economic duress.

(a) Physical Duress. A person makes a contract under duress when there is such violence or threat of violence that the person is deprived of free will and makes the contract to avoid harm. The threatened harm may be directed at a near relative of the contracting party as well as against a con­tracting party. If a contract is made under duress, the resulting agreement is voidable at the victim's election.

Agreements made to bring an end to mass disorders or violence are ordinarily not binding contracts because they were obtained by duress.

FACTS:

Rollins was a prisoner in a state prison. There was an uprising of the prisoners accom­panied by violence and the holding of prison personnel as hostages. The director of the De­partment of Corrections promised Rollins and others immunity from prosecution if they would stop. They did so and were later indicted and prosecuted for the crimes committed in the course of the uprising. Rollins and the others raised the defense that a promise of immunity had been made to them. The prosecution claimed that the promise of immunity was not binding because it had been obtained by duress. The trial court refused to enforce the promise of immunity.

DECISION:

The promise of immunity was not bind­ing because it had been obtained under duress. The threat of continuing the uprising and the danger to the hostages constituted duress which made the promise of immunity voidable by the promisor. [Rhode Island v Rollins, 116 Rl 1528, 359 A2d 315 (1976)]

(b) Economic Duress. The economic pressure on a contracting party may be so great that it will be held to constitute duress. Economic duress oc­curs when the victim is threatened with irreparable loss for which adequate recovery could not be obtained by suing the wrongdoer.

FACTS:

Loral was awarded a $6 million con­tract by tlie United States Navy for the produc­tion of radar sets. To perform this contract, Loral required 40 precision-gear component parts. Loral advertised for bids on these parts and let a subcontract to Austin to supply 23 gear parts. In the following year Loral was awarded a second Navy contract. Austin de­clared that it would not make further deliveries under its subcontract unless Loral agreed to a price increase, both as to parts already delivered and parts to be delivered and also unless Loral gave Austin a subcontract under the second Navy contract for all 40 component gear parts. Loral did not want to increase the prices under the original contract and wished to let subcon­tracts for parts under the second Navy contract on the basis of individual subcontracts for each part with the lowest bidder thereon. Loral com­municated with 10 manufacturers of precision gears but could find none that could supply gears in time to perform its contract with the Navy. Loral then agreed to the price increase in connection with the first Navy contract and awarded Austin the subcontract for all 40 parts under the second Navy contract. After perfor­mance of the contracts was completed, Austin sued Loral for the balance due under the con­tracts. Loral sued Austin to recover the amount of the price increase on the theory that such increase had been agreed to under economic duress.

DECISION:

Judgment for Loral. The circumstances showed that Loral could not have obtained the goods from other sources and was therefore exposed to the peril of a costly default under the first contract unless Loral agreed to Austin's terms. Loral had communicated with the 10 manufacturers that it knew were competent to do the precision work required under the Navy contract. Loral was not required to take a chance with any unknown manufacturer. The contract modification which Austin obtained by its economic duress could be avoided by Loral and Loral could recover any money which it had lost as the result thereof. [Austin Instrument, Inc. v Loral Corp. 29 NY2d 124, 324 NYS2d 22, 272 NE2d 533 (1971)]

Generally, a threat of economic loss or pressure caused by economic conditions does not constitute duress which makes a contract voidable. The fact that the plaintiff drove a hard bargain does not give rise to the defense of economic duress. When money is in fact owed a creditor, a threat by the creditor to sue the debtor to collect the amount owed does not constitute unlawful duress as it is merely a statement of what the law entitles the credi­tor ro do.1

c) Adhesion contracts. Pressure on a contracting party that is not as extreme as physical duress or economic duress may still be sufficient to justify the conclusion that there was no genuine assent freely given and that accord­ingly the basic element of a voluntary agreement was lacking and that what appears to be a contract is merely a voidable transaction. Such a situation is frequently described as involving a contract of adhesion. Such a contract is one that is offered by a dominant party to a party with inferior bargaining power on a "take-it-or-leave-it basis and the weaker person can not go else­where to obtain the goods or services desired and therefore must deal on the terms dictated by the superior party or do without.

With the rise of the concept of unconscionability16 and the adoption of consumer protection laws the need to apply the adhesion contract concept has diminished greatly. In most cases it is held that the concept is not applicable either because there is not a gross inequality of bargaining power or because the goods or services could be obtained elsewhere.