Undue Influence

Undue influence refers to an illegal pressure exerted on a person to influence a legal decision that does not meet his long-term goals and needs, but is beneficial to the other party (or the third party). It often occurs when one party uses the power, authority, status, and higher education in an unfair way. 

The contract signed under undue influence may be terminated as the party is not independent in the exercise of his will. In this position the second party can obtain an unfair advantage over the other. A contract may be deemed void if the disadvantaged party proves undue influence. 

Undue Influence explained

When a situation occurs wherein one party understands that it has no choice but to agree to an agreement, we can talk about undue influence. For example, the party exercising the persuasion can be a doctor and a patient can act as a purported victim. 

If a person is subject to undue influence, another party should prove that it didn’t dominate the will of the other. In some situations, the dominated party, based on previous interactions, can be deemed to be in a position of authority. 

Example

For instance, Michael is Harry’s therapist. Michael also started investing in real estate located in the city. Harry is talking with Michael about how the apartments in the complex that Michael is invested in developing are being offered for people to buy. At the moment, Harry doesn’t want to buy an apartment and doesn’t feel he can afford it. But his friends are now involved in the home buying process and he is under a lot of stress because he feels that he’s left behind. 

Michael takes advantage of his position and makes Harry believe that it’s a good decision for him to invest in the project because it will benefit him in the long run. Harry may suffer a financial loss caused by this investment, but it will do good to Michael and the value of his investment. This is a clear example of undue influence. 

Undue Influence in financial markets

Undue influence is widespread in the financial markets. It arises when someone tries to manipulate a person by leveraging information to persuade him to make an agreement or when someone influences board members for them to make decisions in a certain way. The ways of protecting yourself from undue influence include using a third-party counsel or a mediator when making a deal.