Undue influence in contract law occurs when one party uses their power or trust to pressure another into an agreement against their will. This undermines free consent, making the contract voidable. It's crucial to understand how this differs from lack of capacity.

Several factors contribute to undue influence, including special relationships, vulnerability of the influenced party, and unfair contract terms. Remedies like rescission, restitution, and damages aim to restore fairness and protect the influenced party's interests.

Undue Influence in Contract Law

Definition of undue influence

• Occurs when one party to a contract uses their position of power or trust to exert pressure on the other party causing them to enter into a contract against their will or better judgment (elderly person pressured by caregiver to change their will)
• Type of coercion that invalidates a contract undermines the free and voluntary consent of one of the parties (employee pressured by boss to sign non-compete agreement)
• When proven, the contract is voidable at the option of the party who was unduly influenced allows them to cancel the contract and be restored to their original position (influencer must return any benefits received)

Factors in undue influence

• Special relationship of trust or confidence between the parties
  • Family relationships (parent pressuring adult child to co-sign a loan)
  • Fiduciary relationships (attorney convincing client to invest in their own business venture)
  • Spiritual advisor-advisee relationships (religious leader influencing member to donate large sum of money)
• Vulnerability of the influenced party due to factors
  • Age, illness, or mental impairment (elderly person with dementia)
  • Lack of education or business sophistication (immigrant with limited English skills)
  • Emotional distress or financial hardship (recently widowed spouse)
• Use of persuasion, pressure, or manipulation by the influencing party
  • Persistent solicitation or persuasion (repeated phone calls and visits)
  • Isolation from family and friends (preventing contact with loved ones)
  • Exploitation of fears, affections, or vulnerabilities (threatening to withdraw care or support)
• Unfairness of the resulting contract
  • Terms that are one-sided or grossly unfair to the influenced party (extremely low sale price for valuable asset)
  • Significant departure from the influenced party's prior expressed intentions or interests (sudden change in long-standing estate plan)

Undue influence vs capacity to contract

• Undue influence is distinct from lack of capacity the influenced party may have the legal capacity to contract but still be subject to improper pressure (elderly person with sound mind pressured to change will)
• Factors that contribute to a lack of capacity can also make a party more vulnerable to undue influence (mental impairment or young age)
• In some cases, both lack of capacity and undue influence may be present providing alternative grounds for invalidating a contract (person with intellectual disability pressured to sign contract)

Remedies for undue influence

• Rescission: The influenced party may choose to rescind the contract and be restored to their pre-contract position
  • Requires the influenced party to return any benefits received under the contract, if possible (return money or property received)
• Restitution: The court may order the influencing party to return any benefits obtained under the contract to prevent unjust enrichment (return profits earned from unfair contract)
• Reformation: In rare cases, the court may reform the contract to reflect the terms that would have been agreed upon absent the undue influence (modify price or other terms to be fair)
• Damages: The influenced party may be entitled to compensatory damages for any losses suffered as a result of the undue influence (costs incurred in reliance on the contract)