C. Undue Influence
| Author | John D. McCamus |
| Profession | Professor of Law. Osgoode Hall Law School, York University |
| Pages | 382-404 |
Page 382
The equitable doctrine of undue influence provides a basis for setting aside a gift or a transaction where the transfer of value has been induced by an "unconscientious use by one person of power possessed by him over another."72If applicable, the doctrine enables the influenced party to obtain an equitable rescission of the gift or transaction. The types of circumstances giving rise to claims of undue influence have been traditionally divided into two categories. The first, so-called actual undue influence, arises when the plaintiff is able to establish the use of such power by the defendant on a particular occasion. The second category,
Page 383
undue influence arising by presumption, is engaged when the plaintiff is able to establish that the nature of the relationship between the parties is such that the use of such power on a particular occasion should be presumed. The second category can be further subdivided. First, there are situations in which the relationship is of a recognized type of relationship, such as solicitor and client, with respect to which the presumption invariably arises. Second, in the context of a relationship not so recognized, a court may hold that the particular nature of the relationship between the parties is such that a presumption should arise. In recent English case law,73these three types of undue influence have been referred to as Types 1 (actual undue influence), 2A (the recognized list of relationships) and 2B (presumption arising from the particular circumstances). In a recent decision,74the House of Lords has suggested that presumptive due influence is merely a subspecies of a broader category of "relationship" undue influence75in which one party has a measure of influence over the other that may be abused. Such a relationship may be established on the basis of an evidential presumption but need not be. In their Lordships’ view, even if the presumption is not, for some reason, available to the influenced party, it may nonetheless be possible to establish that such a relationship did exist and was abused. We shall classify this non-presumptive relational undue influence as Type 3 and return to a consideration of this category after examining Types 1, 2A and 2B.
The plaintiff’s claim for a rescission on the basis of undue influence can be defeated by the defendant on a showing that the gift or transaction was an exercise of independent will by the plaintiff. In the 2A and 2B cases, of course, the presumption has the effect of shifting the evidential76burden to the defendant to do so. Normally, but not invariably, the defendant will attempt to establish the fact of independence by demonstrating that the plaintiff has received independent legal advice with respect to the gift or transaction in question. Although the main features of the law of undue influence are reasonably well settled, a number of controversies have emerged in recent years, raising interesting questions relating to the test for the existence of undue influence, the role of independent legal advice and the nature of the remedies available once undue influence is found.
Page 384
The doctrine of actual undue influence is essentially equity’s version of the common law doctrine of duress. Duress at common law, as we have seen, enables recovery of a payment made or the setting aside of a transaction where either has been induced by the making of a dire threat of some kind, such as a threat of physical violence to the person or to a near relative.77Actual undue influence was recognized by courts of equity to arise in the context of threats that would not engage the common law doctrine. Thus, for example, gifts and transactions have been set aside in circumstances where a caregiver on whom an elderly person has become dependent threatens to abandon that person78and in circumstances where a threat has been made to prosecute an individual or a close relative of the individual for a criminal offence.79In such cases, provided that it can be shown that the gift or transaction resulted from the threat, a decree of rescission will be available.
The decision of the English Court of Appeal in BCCI v. Aboody80 indicates, however, that an explicit threat is not necessary to support a finding of actual undue influence. In that case, the defendants were husband and wife and were also the shareholders and directors of a family company that was essentially operated by the husband. The wife’s practice was to sign, without inquiry, corporate documents placed before her by her husband on the assumption that the husband would operate the company for their mutual benefit. In the course of executing a series of personal guarantees and a charge on property she owned to secure the company’s indebtedness, the lending bank arranged for the wife to receive independent legal advice from a solicitor. In the course of her meeting with the solicitor, the husband barged into the room and, after an angry exchange with the solicitor, his wife signed the document. Although the case was treated by the trial judge as one of actual undue influence, perhaps on the basis of the direct evidence of the husband’s bullying manner, the case demonstrates that a rather fine line may exist between circumstances of actual undue influence and cases in which the past history of the relationship is such as to give rise to a presumption of a lack of independence.
In Aboody, the Court of Appeal went on to hold that in a case of actual undue influence, it was necessary to find not only the presence
Page 385
of influence but, as well, the existence of a manifestly disadvantageous transaction. On the facts, the court held that no such disadvantage inhered in the arrangements entered into by the wife and, accordingly, that the doctrine of actual undue influence did not apply. The court reached the conclusion that manifest disadvantage must be shown in reliance on the decision of the House of Lords in National Westminster Bank plc v. Morgan,81a case that held that manifest disadvantage must be shown in order to establish a presumption of undue influence. In the later decision of the House of Lords in CIBC Mortgages plc v. Pitt,82however, the Court of Appeal was overruled on this point on the basis that actual undue influence is a species of fraud and accordingly "[l]ike any other victim of fraud, a person who has been induced by undue influence to carry out a transaction which he did not freely and knowingly enter into is entitled to have that transaction set aside as of right."83It is of some importance, as will be seen, to note that the decision of the House of Lords in Pitt indicates that the effect of actual undue influence is to vitiate consent. Once consent is vitiated, the transaction falls, whether or not the transaction itself can be said to be disadvantageous in some sense. Thus, if, as a result of actual undue influence, an elderly person sells his or her home to a party exercising actual undue influence, the transaction may be set aside, whether or not the contract price is a fair one.
If the plaintiff can establish a presumption of undue influence, relief will be available unless the presumption can be rebutted by the defendant. In a 2A case, the presumption arises by virtue of the fact that the relationship between the parties is of a kind prescribed in a defined list of relationships that give rise to the presumption. The list includes the relationships of solicitor and client,84doctor and patient,85trustee and beneficiary,86parent
Page 386
and child,87and religious advisor and follower.88The prescribed list does not include husband and wife,89employer and employee or banker and customer, though, as will be seen, in the particular circumstances of relationships such as these, a 2B presumption may apply.
A 2B presumption arises where the history of a particular relationship between two parties can be characterized as establishing a relationship of "trust and confidence." The test for the kinds of circumstances giving rise to the presumption and the difficulty inherent in applying the test are illustrated in Geffen v. Goodman Estate.90 In
Geffen, the dispute arose in the context of conflict among four siblings, the three Geffen brothers and their sister, Goodman, concerning the disposition of their mother’s estate. Goodman had a history of mental illness and, in order to provide her with needed support, the mother had initially made a will leaving her entire estate to her daughter for life, with the remainder to be divided equally among all her grandchildren. When the mother died, it was discovered that she had made a second will in which she transferred her home outright to the daughter, made small bequests to her brothers and left the rest of the estate to the daughter for life, with the remainder to her children only. The brothers were disappointed with this change, which had the effect of excluding their children from any interest in the estate. They were also concerned that the sister might make an unwise disposition of the house, given her psychological history, and effectively divest herself of a necessary means of support.
In these circumstances, the four siblings retained counsel to give advice as to whether or not the second will was valid. Having been satisfied that it was, a suggestion was made to the effect that Goodman might transfer title to the house immediately to the grandchildren...
To continue reading
Request your trial