Is a contract signed under pressure valid?

The legal position

Duress. Duress is the obtaining of agreement by illegitimate means. It includes threats of violence to the person and threats to seize or damage property. It also includes economic duress, which consists of threats of such serious economic consequences that the victim had no practical alternative but to agree. A contract procured by duress is voidable at the option of the victim. The right to avoid it is lost if the victim subsequently affirms the contract or waives the right.

Commercial pressure alone does not amount to duress. Hard bargaining, deadlines and offers made on a "take it or leave it" basis are features of ordinary commerce. In determining whether consent was vitiated, the court will consider four matters. The first is whether the party protested at the time. The second is whether an alternative course, such as an adequate legal remedy, was available. The third is whether the party received independent advice. The fourth is whether the party took steps to avoid the contract once the pressure was removed.

Undue influence. Undue influence arises where one party has acquired influence or ascendancy over another and takes unfair advantage of it. It may be proved directly (actual undue influence). In certain relationships the law presumes influence: parent over child, guardian over ward, trustee over beneficiary, legal adviser over client, doctor over patient, and spiritual adviser over follower. In other relationships of trust and confidence, influence may be established on the evidence. Where such a relationship exists and the transaction is not readily explicable by it, as in the case of a substantial gift, the burden shifts to the stronger party to show that the transaction was freely entered into. A transaction at full value and on fair terms is unlikely to be set aside. The relationships of husband and wife and of banker and customer do not of themselves give rise to the presumption. Independent advice, properly given and acted upon, is ordinarily the answer to an allegation of undue influence. Delay or acquiescence may bar relief.

Unconscionable bargains. A contract may also be challenged as an unconscionable bargain where it is an improvident transaction between parties of grossly unequal bargaining position and the stronger party cannot show that it was fair. How far the law of Trinidad and Tobago recognises this broader principle, where neither duress nor undue influence can be proved, is unsettled.

Practical implications

Economic duress may arise in several situations:

• A supplier refuses to deliver unless a higher price is agreed at a late stage, where the buyer has no alternative source and its own contractual commitments depend on delivery.
• A contractor threatens to abandon the works unless additional payment is made, knowing that the owner (the "employer" in a building contract) cannot engage a replacement in time.
• A debtor exploits a creditor's known financial difficulty to extract agreement to accept a substantially reduced sum in settlement.

Undue influence frequently arises within families. An elderly parent who relies on an adult child to manage the parent's affairs may be persuaded to transfer property, or to guarantee the child's business borrowing, without independent advice. In such a case the parent must establish the relationship of trust and confidence on the evidence, since the automatic presumption protects a child from a parent, not a parent from a child.

A transaction that a party has come to regret is not, for that reason alone, a transaction procured by duress. The question is whether the pressure was illegitimate and left no practical choice.

Recommended steps

At the time the pressure is applied, the party subjected to it should record a written protest, stating that it signs or pays under protest and why. Records of the threats should be preserved, including messages, correspondence and the names of witnesses.

Once free of the pressure, the party should act promptly. It should notify the other party in writing that the agreement is avoided, and should not perform the agreement or accept benefits under it without expressly reserving its position.

A person asked to enter into a significant transaction for the benefit of someone who has influence over that person should first obtain independent legal advice. A person or institution that stands to benefit from such a transaction, such as a bank taking a guarantee from a relative of its borrower, should require the other party to obtain independent advice. Doing so protects the transaction as well as the party giving the guarantee.