First Principles of Business Law

3. Undue influence

3.1. Obtaining consent by means of a controlling influence

In many relationships, one person is in a position of dominance or power over another and, as a result, the subordinate person places their trust and confidence in them. Because of this trust and confidence, the dominant person may acquire a controlling influence over the decision making of the other person.  For example, a parent generally enjoys the trust and confidence of their child and therefore exercises a controlling influence over the child's decisions.

If a person with a controlling influence over another advises them to enter into a legal transaction, the person receiving the advice might be unable to independently judge what is in their own best interest. If the dominant party has used their controlling influence improperly, then the situation is described as 'undue influence'.

In such circumstances, the transaction is voidable and may be set aside as void ab initio by a court, at the request of the person who was influenced. Following such an order, the parties can ask to be restored to the position they were in prior to the transaction (restitutio in integrum). and the affected transaction can be set aside as void ab initio.