UNDUE INFLUENCE and BREACH OF CONTRACT

Experienced legal representation in reviewing, negotiating, drafting, improving and enforcing commercial business contracts.

CONTRACTS  |  REVIEW  |  DRAFT  |  NEGOTIATE  | ENFORCE

Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

Undue influence occurs when one party uses their position of power, trust, or authority over another to pressure or manipulate them into entering a contract that they otherwise would not have agreed to. Undue influence is about the improper use of influence that deprives a person of their free will and substitutes another's objective. A contract made through undue influence is voidable, such that the party forced to enter into the contract may seek to have the contract set aside by a court.

The key Supreme Court of Canada precedent on undue influence is Geffen v. Goodman Estate, [1991] 2 S.C.R. 353. This case is foundational for understanding the modern approach to undue influence in Canada, particularly in the context of inter vivos (between living persons) transactions, which includes contracts.

Geffen v. Goodman Estate established a number of key legal principles in relation to undue influence as it pertains to breach of contract:

• Two Categories of Undue Influence: The SCC clarified that undue influence can arise in two ways:

  • Actual Undue Influence: This requires proof that the dominant party actually exercised undue influence over the subservient party in the particular transaction. The claimant must demonstrate that there was coercion or improper pressure that vitiated their free will.

  • Presumed Undue Influence: This arises when certain relationships of trust and confidence exist between the parties, and the transaction is one that calls for an explanation (i.e., it is not readily explicable by the ordinary motives of people in the relationship).

If these two elements are met, a presumption of undue influence arises, and the onus shifts to the dominant party to rebut the presumption by proving that the transaction was the result of the weaker party's "full, free, and informed thought."

• Elements for Presumed Undue Influence:

  • Relationship of Dependence/Dominance: This can be a pre-existing relationship (like solicitor-client, doctor-patient, parent-child, or spiritual advisor-follower), or it can be a relationship where one party has a general ascendancy over the other due to factors like age, illness, or mental infirmity.

  • Manifest Disadvantage or Transaction Calling for Explanation: The transaction must be one that is not easily explained by the ordinary course of business or the nature of the relationship. It often involves a significant benefit to the dominant party or a substantial detriment to the weaker party.

• Rebutting the Presumption: To rebut the presumption, the dominant party must demonstrate that the weaker party entered into the contract after "full, free, and informed thought." Evidence to achieve this often includes:

  • Independent legal advice (ILA) being sought and truly understood by the weaker party.

  • The absence of haste in completing the transaction.

  • The weaker party having a full understanding of the nature and effect of the transaction.

  • The transaction being fair and reasonable in the circumstances.

Canada's appellate courts have consistently apply the principles set out in Geffen v. Goodman Estate, which have served to further refine undue influence as it applies to a breach of contract, including:

• The specific types of relationships that may give rise to a presumption of undue influence.

• What constitutes a "transaction calling for an explanation" in different contexts.

• The sufficiency of independent legal advice and what makes it truly "independent" and "informed."

• The interplay of undue influence with other equitable doctrines like unconscionability (which focuses on an inequality of bargaining power and an improvident transaction).

For knowledgeable and experienced legal representation in negotiating, drafting and reviewing business contracts, and where circumstances warrant, enforcing, or otherwise dealing with interpretation of, contracts, we welcome you to contact our law firm by email at Chris@NeufeldLegal.com or by telephone at 403-400-4092 / 905-616-8864.

 

A Lawyer's Approach to Business Contract Review: From the perspective of reviewing business contracts, for over 25 years now, as a business contract lawyer, the first thing that any business client needs to understand is that I am not prepared to assess the potential legal work and cost on a “sight unseen” basis. Prior to advising on the potential cost . . . Read more . . .

 

Caution re Free Business Contracts: I realize that I cannot stop business people from using freely available business contracts that they find on the Internet and modify for their own commercial purposes. Because irrespective the warnings that I might offer, there are enough people that will proceed with someone else’s business contract and . . . Read more . . .

 

Business Contract Lawyer Review: Given the significance of most business contracts to the commercial success of corporate enterprises, both from the perspective of attaining financial profitability and protecting (or limiting) legal liability, the significance of having an appropriate legal review of the particular business contract by an experienced and knowledgeable contract lawyer. Read more . . .

 

Shareholders Agreements versus Partnership Agreements: As a corporate business lawyer asked to review, draft and deal with the legalities of both unanimous shareholders agreements and partnership agreements, the distinction is all too often initially lost amongst my clients, such that it is worthwhile to identify the key differences. Read more . . .

 

What Constitutes a Breach of Contract? A breach of contract occurs when one party to a legally binding agreement fails to fulfill their obligations as specified in the contract without a valid legal excuse. The legal significance of a breach of contract is heavily reliant upon the particular factual circumstances and how those circumstances are addressed by the applicable law. Read more . . .