USA

173 When Abuse of a Fiduciary Relation Makes a Contract Voidable

If a fiduciary makes a contract with his beneficiary relating to matters within the scope of the fiduciary relation, the contract is voidable by the beneficiary, unless

  • it is on fair terms, and
  • all parties beneficially interested manifest assent with full understanding of their legal rights and of all relevant facts that the fiduciary knows or should know.

Topic 2 - Duress and Undue Influence

174 When Duress by Physical Compulsion Prevents Formation of a Contract

If conduct that appears to be a manifestation of assent by a party who does not intend to engage in that conduct is physically compelled by duress, the conduct is not effective as a manifestation of assent.

175 When Duress by Threat Makes a Contract Voidable

1. If a party's manifestation of assent is induced by an improper threat by the other party that leaves the victim no reasonable alternative, the contract is voidable by the victim.

2. If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the duress either gives value or relies materially on the transaction.

176 When a Threat Is Improper

1. A threat is improper if

  • what is threatened is a crime or a tort, or the threat itself would be a crime or a tort if it resulted in obtaining property,
  • what is threatened is a criminal prosecution,
  • what is threatened is the use of civil process and the threat is made in bad faith, or
  • the threat is a breach of the duty of good faith and fair dealing under a contract with the recipient.

2. A threat is improper if the resulting exchange is not on fair terms, and

  • the threatened act would harm the recipient and would not significantly benefit the party making the threat,
  • the effectiveness of the threat in inducing the manifestation of assent is significantly increased by prior unfair dealing by the party making the threat, or
  • what is threatened is otherwise a use of power for illegitimate ends.

177 When Undue Influence Makes a Contract Voidable

1. Undue influence is unfair persuasion of a party who is under the domination of the person exercising the persuasion or who by virtue of the relation between them is justified in assuming that that person will not act in a manner inconsistent with his welfare.

If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.

If a party's manifestation of assent is induced by one who is not a party to the transaction, the contract is voidable by the victim unless the other party to the transaction in good faith and without reason to know of the undue influence either gives value or relies materially on the transaction.