Law of Contract: Undue Influence

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Johnny is an old man. He has two children, Joe and Victoria. Johnny has informed everyone that when he dies, the property is to be shared equally among Joe and Victoria. He stays with Victoria and is totally dependent on her to look after him. Johnny loves his daughter and does whatever she tells him to do. Two months ago, Johnny transferred all his property to Victoria. He passed away a few days ago. Joe claims that the contract is voidable. Discuss. Answer:

The issues that arise in this case are:

1) Whether there is a relationship between Johnny and Victoria?

2) Whether Victoria used her dominant position to transfer all of Johnny’s property to her?

3) Whether Joe has the right to set aside/ rescind the contract?

4) Whether this presumption can be rebutted?

Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contacting by any law to which he is subject according to section 11 of Contracts Act 1950. Section 10 (1) of Contracts Act 1950 states that all agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation and mistakes according to Section 14 of Contracts Act 1950. A voidable contract is one where one party has a choice of either continuing with the contact or rescinding the contract: section 2 (j). Rescission ab initio means termination of contract on the original date of the contract. Section 20 provides that when consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and the conditions as the court may seem just. Undue influence is where the consent has been obtained by some form of pressure applied improperly on the victim, the contract becomes voidable. The contract is said to be vitiated for lack of consent. The burden of proving that such undue influence has been exercised normally lies on the person seeking to rescind the contract. In this case, the burden of proving undue influence falls upon Joe.

Section 16(1) provides that a contract is said to be induced by “undue influence” where a. There is a relationship between the parties and one of the parties is in a position to dominate the will of the other b. The dominant party uses that position to obtain an unfair advantage over the other Based on Section 16(1) Joe must show that at the time:

a. At the time of the contract, there was already a close relationship between Johnny and Victoria and that in the relationship Victoria was in a dominant position. Rosli  Darus V. Mansor Hj.Saad 

Rosli lost his adoptive father when he was 11. Since then, the Mansor Hj. Saad i.e. brother of Rosli’s adoptive mother has been living together with him in the same house, providing food, clothing and expenses to the Rosli. Rosli’s adoptive mother died when Mansor was 22. Since then, Mansor has continued his role as guardian to the Rosli.Mansor testified that Rosli always listened to his advice and instructions. Rosli transferred his land to the Mansor. The court held that, the defendant was in loco parentis(refers to an individual who assumes parental status and responsibilities for another individual, usually a young person, without formally adopting that person) .Rosli was unemployed,without parents and was totally dependent on the defendant for his daily subsistence. Mansor could dominate the will of the plaintiff if he wanted to. 

b. Victoria made use of her dominant position to obtain the gift or the contract from Johnny.  ...
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