Undue Influence in Contract Law

This assignment analyzes a scenario where Karl and Maria signed a contract with their daughter, Joan, potentially influenced by undue pressure from her position of trust. The case involves false representations, the existence of a parent-child relationship, and Frank's failure to provide independent legal advice, creating an environment for unconscionable conduct. The assignment explores how these factors support Karl and Maria's right to terminate the contract based on undue influence.

Running Head: Law 1
Law

Law 2
Answer 1
Case facts: Vera is the famous painter, and she painted various landscape scenes which are of
high artistic merit. She recently painted one more landscape scene and named it Dawn. This
painting is considered one of the best paintings of the Vera.
Later, Vera appointed Siddo as an agent for the purpose of selling her painting. She expects
$40000 sale price for her painting, and instruct Siddo not to sell the painting for less than
$32000, without taken written approval from her.
Part A
Issue: painting is sold by Siddo to Queenie for $20000 only?
Law: Law imposed number of duties on agents, and agent owned these duties not only towards
the principle but towards third party also. There is fiduciary relationship between agent and
principle, breach of duty can be considered as breach of trust. Some of the duties of agent are
stated below:
 Agent is under obligation to follow the instructions given by principle and also the terms
related to his authority. In other words, agent must not act out of the scope of his
authority. However, if any specific instructions are given to agent by principle, then agent
must follow those instructions. In case agent fails to follow the instructions given by the
principle then it is considered as breach of duty.
 Agents are under obligation to perform their work with reasonable care and skills. I case
law Mitor Investments Pty Ltd v General Accident Fire and Life Assurance Corp Ltd and
Australian Insurance Brokers (WA) Pty Ltd [1984] WAR 365. In this case, insurance

Law 3
brokers were appointed by the owner of the hotel. Owner appointed insurance brokers for
the purpose of insuring the hotel against damaged caused by storm, tempest and flood.
Broker after receiving instructions from the owner of the hotel, conduct insurance with
General Accident Fire and Life Assurance Corp Ltd. Insurance was taken by brokers
against the flood, but insurance policy did not include damage caused by sea.
Hotel was damaged because of cyclone and owner file claim against the insurance
company. Claim made by owner was failed because policy does not include damage
caused by sea. Later, owner of the hole sue insurance brokers for failed to follow the
instructions given by the owner and also for negligence (Rasmuson, 2001).
It must be noted that principle is also liable for the acts done by agent, and some of these
liabilities are stated below:
 Principle is under obligation towards the third party to fulfill the promise made by the
agent.
 If agent fails to act within the scope of his/her authority then principle is liable towards
the third party, but this liability arises only when agent act in the ordinary course of
agency.
However, principle has right to sue agent for damages in case agent fails to follow the
instructions given by principle, act with due care and skill.
There is general rule that agents are not liable towards the third party, but this general rule has
some exceptions also. As per this exception if agent acts out of the scope of their authority or act
as they were principle then in such case agents are also liable towards the third party (Us Legal,
n.d.).

Law 4
Application: presently, Vera gives instruction to Siddo to not sell her painting for less than
$32000 without her written approval. Siddo fails to follow the instructions given by Vera and sell
the painting for $20000 to Queenie. Siddo is under obligation to perform his functions as per the
instructions given by Vera and with due care, but Siddo fails to fulfill his obligations. Therefore
Siddo is liable towards both Queenie and Vera.
Conclusion: In this case, Siddo is liable towards both Queenie and Vera and following are the
remedies which are available to the parties:
Vera can claim damages against siddo for fails to perform his duty with due care and skill, and
also for not following the mandatory instructions of principle.
Both siddo and Vera are liable towards the Queenie, and Vera is bound to sell the painting to
Queenie for $20000.
Part B
Issue: Siddo purchased painting from Vera for $32000 and sell the same to Elly for $38000?
Law: there is fiduciary relationship between agent and principle, and both own fiduciary duty
towards each other. In case Hospital Products Ltd v United States Surgical Corporation (1984–
85) 156 CLR 41, Court held that number of cases are there which highlight the fiduciary
relationship between specific classes of people, and these peoples are fiduciary responsible
towards each other. This can be understood through example, principle and agent, doctor and
patient, etc.

Law 5
It must be noted that, agents are liable to act in good faith and in the best interest of their
principle. However, it is the duty of agent not to make any secret profit in the ordinary course of
agency.
It must be noted that agent are not liable only towards the principle, but law imposed various
obligations on agent towards the third party also. One of those obligations is warranty related to
authority, and as per this warranty when agent perform their actions on behalf of the principle
then they provide implied warranty to the third party that they have authority to act in particular
matter.
In case such authority is not given by the principle to the agent, then third party can sue the agent
for breach of warranty. However, third party can only sue agent under this issue and not the
principle. Third party has no right to sue the agent under this issue if they already had
information related to lack of authority (McCarthy, 2004).
Principle is liable towards the third party in following situations:
 Vicarious liability. This can be understood through case law Sweeney v Boylan Nominees
Pty Ltd t/as Quirks Refrigeration (2006) 226 CLR 166. In this case, Court stated that if
employee commit any civil wrong then employer is also vicariously liable for the acts of
the employee.
 If agent commit any tort while acting as an agent, then principle is liable for such tort.
Principle can sue agent also for breach of fiduciary duty and following rights are available to
principle:

Law 6
 Principle can claim for amount of profit which is secretly made by the agent in the
ordinary course of agency.
 Principle can refuse the agent’s claim related to commission and indemnity against the
liability, if agent acted against as the principle them and not as an agent (Pant, 2001).
Application: in the present case, siddo purchased painting from Vera for $32000 and sell that
panting to Elly for $38000. In this Siddo share fiduciary relationship with Vera, and he breaches
his fiduciary duty by making secret profits. Siddo make as secret profit of $6000 by selling the
painting of Vera.
However, Siddo also breach warranty related to authority towards the Elly by acting that he has
authority to sell the painting for $38000.
Conclusion: siddo breach fiduciary duty own towards the Vera, and warranty related to
authority, and following remedies are available to the parties:
Vera has right to claim $ 6000, that is the amount of secret profit made by Siddo by selling the
painting of Vera to Elly, and she also has right to refuse the claim made by Siddo related to
commission and indemnity.
Elly can claim for damages, because Siddo breach warranty related to Authority by acting out of
the scope of his authority.
Part C
Issue: Isobel purchased painting made by Vera from Siddo for $32000, and she is extremely
happy from this purchase. She believes that she purchased the painting in discount, and because
of this belief she gave extra $3000 to Siddo for himself?

Law 7
Law: if third party gives any amount to the agent then such amount is considered as
consideration or commission. In case any consideration or other valuable thing is received by the
agent from the third party without the knowledge of the principle then agent is liable towards the
principle for:
 Civil wrong
 Under both State and Commonwealth legislation.
Principle has right to refuse the agent’s claim related to commission and indemnity against the
liability, if agent acted against as the principle them and not as an agent (BP, 2007).
Application: in the present case, Isobel belief that she gets the painting in discount and under
this belief paid extra $3000 to Siddo. This amount can be considered as commission, and it is not
in the knowledge of Vera. Therefore, Siddo is liable towards the Vera under Civil wrong.
Conclusion: in this case, secret commission of $3000 is made by the Siddo from Isobel, and this
commission is not in the knowledge of Vera. Therefore, Siddo is liable towards Vera under civil
wrong and Vera can refuse the claim made by Siddo related to compensation and indemnity.

Law 8
Answer 2
Case facts: Joan purchased car for her business from Frank’s Used Cars Pty Ltd, and before
purchasing the car she explain all her requirements to the Frank. She purchased second-hand
Swift sedan for $49,000, and paid $4000 as deposit amount. For further amount she requested
loan from the Frank’s company.
Before purchasing the statement, frank made clear statement to Joan that company will give 12
months services for car and no major repairs is demanded by the car.
For the purpose of given security for the loan, Joan approached her parents that is Karl and
Maria. Joan’s parents joined her 12 months ago in Poland. Karl has good language of English but
Maria does not have any knowledge related to English language.
Joan told her parents that amount of loan is only $25000, and time period of loan will not extend
beyond 3 months. She further stated that for repaying the loan she contacted with bank, and bank
is agreed to provide her finance within the period of 3 months. In reality, she did not contacted
with any bank for providing finance. Frank was completely aware about the conversation held
between Joan and her parents. Karl and Maria agreed to provide guarantee, and copy of
guarantee is given to them.
After the period of 6 months, car needs major repair and Joan fails to make payment as per the
contract. Frank send warning letter to Karl and Maria.
Joan
Issue: legal position of Joan in this case?

Law 9
Law: rights and obligations of party are determined through terms of the contract, and these
terms can be considered as essential feature of the contract. There are two forms of the terms that
are warranty and condition. Whether term is warranty or condition, it is determined through
intention of the parties at the time of making the contract. This can be understood through case
law Tramways Advertising Pty Ltd v Luna Park (N.S.W) Ltd (1938) (SR) (NSW) 632. Court
stated that, for the purpose of determining whether term is condition or warranty, Court consider
the whole contract. Court also consider the importance of the term which means if promise is of
such important nature that promisee would not enter into the contract without such promise then
such terms was considered as condition.
Condition is the term which directly relates with the root of the contract, and if party fails to
perform this condition then it results in cancellation of the contract. However, warranty is the
term which is not directly relates with the roots of the contract. In other words, warranties are
subsequent to the principle terms of the contract.
It must be noted that warranties are less important in comparison of conditions, and breach of
warranties can only right to claim for damages (ACL, n.d.).
Application: in this case, frank made statement to the Joan that car does not demand major
repairs in next 12 months, and on the basis of this statement Joan purchased the car from Frank.
Therefore, this statement can be considered as condition of the contract. In next 6months from
the date of purchase, car demands major repair which can be considered as breach of condition.
Therefore, Joan has right to claim for damages or terminate the contract, or both.
Conclusion: in this case, there is breach of condition and Joan has right to claim for damages or
terminate the contract, or both.

Law 10
Frank (Frank’s Used Cars Pty Ltd)
Issue: legal rights available to frank in this case?
Law: in case breach of contract is of repudiator or anticipatory in nature, such breach can be
considered as discharge of contract. However, it is necessary for discharge the contract by breach
that breach must be of serious nature. In case of discharge of contract by breach, innocent party
can cancel the contract.
Repudiatory breach is considered as breach, when party of the contract is not willing to perform
the obligations of the contract, and they show their willingness for not performing the contract by
their express or implied conduct. For the purpose of determining whether occurrence of
repudiation was objective in nature, test was introduced by the Court (ACL, n.d.).
It must be noted that, right to terminate the contract is only exercised by the innocent party when
they established that breach is of serious nature, and in case breach is not of serious nature then
party have no right to terminate the contract and party can only claim for damages. Therefore, it
is clear that seriousness of breach gives right to innocent party to terminate the contract. DTR
Nominees v Mona Homes (1978) 19 ALR 223 and Hong Kong Fir Shipping v Kawasaki [1962] 1
All ER 474 was the case in which Court states that innocent party also has option to continue the
contract rather than terminating the contract, if beneficial obligations under the contract was
continued.

Law 11
Application: in the present case, Joan fails to pay the installments of loan and amount of
interest, and this can be considered as serious breach of the obligation. Therefore, it can be
considered as breach as breach of contract by repudiation.
Conclusion: Frank has right to terminate the contract because breach of obligation is of serious
nature.
Karl and Marie
Issue: what are the legal rights of Karl and Maria in this case?
Law: undue influence is occurred when any transaction take place between the parties in which
there is equality of power, and it results in contract between the weaker party and dominant
party. It is necessary for applicability of this doctrine that dominant party affects the consent of
the weaker party. Consent of the weaker party is unduly influenced by the dominant party.
Undue influence includes the state when weaker party trusts the dominant party or depends on
dominant party. Some special relations are there in which undue influence can be present such as
parent and child; solicitor and client, etc. in this burden of proof is on the dominant party.
Application: in this case, Joan’s parents sign the contract because they trust their daughter, and
in this undue influence are present because relationship of parent and child exists in this case.
Joan wrongly influenced her parents and also makes false representation.
Frank is also liable in this case, because he fails to provide independent legal assistance to Joan’s
parents and include in unconscionable conduct.
Conclusion: Karl and Maria can terminate the contract on this basis.

Law 12
References:
ACL. Performance and termination. Viewed at:
https://www.australiancontractlaw.com/law/termination.html. Accessed on 9th September 2017.
ACL. Terms of Contract. Viewed at: https://www.australiancontractlaw.com/law/scope-
terms.html. Accessed on 9th September 2017.
ACL. Undue Influence. Viewed at: https://www.australiancontractlaw.com/law/avoidance-
undue.html. Accessed on 9th September 2017.
BP, (2007). Secret Commissions - misleading & deceptive and possibly a crime. Viewed at:
https://www.bartier.com.au/insights/pssst-secret-commissions-misleading-deceptive-and-
possibly-a-crime/. Accessed on 9th September 2017.
DTR Nominees v Mona Homes (1978) 19 ALR 223 and Hong Kong Fir Shipping v Kawasaki
[1962] 1 All ER 474.
G E Dal Pont, Law of Agency (Butterworths, 2001).
Hospital Products Ltd v United States Surgical Corporation (1984–85) 156 CLR 41.
McCarthy, L. (2004). Vicarious Liability In The Agency Context. Queensland University of
Technology.
Mitor Investments Pty Ltd v General Accident Fire and Life Assurance Corp Ltd and Australian
Insurance Brokers (WA) Pty Ltd [1984] WAR 365.
Rasmusen, E. (2001). Agency Law And Contract Formation. Viewed at:
http://www.law.harvard.edu/programs/olin_center/papers/pdf/323.pdf. Accessed on 9th
September 2017.
Sweeney v Boylan Nominees Pty Ltd t/as Quirks Refrigeration (2006) 226 CLR 166.
Tramways Advertising Pty Ltd v Luna Park (N.S.W) Ltd (1938) (SR) (NSW) 632.
US Legal. Rights, Duties, And Liabilities Between Principal And Third Parties. Viewed at:
https://agency.uslegal.com/rights-duties-and-liabilities-between-principal-and-third-parties/.
Accessed on 9th September 2017.