Restat 2d of Contracts, § 177

• Restatement of the Law, Second, Contracts
• Chapter 7- Misrepresentation, Duress and Undue Influence
• Topic 2- Duress and Undue Influence
• § 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.
(2)  If a party's manifestation of assent is induced by undue influence by the other party, the contract is voidable by the victim.
(3)  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.

Comment:

a.  Required domination or relation.  The rule stated in this Section protects a person only if he is under the domination of another or is justified, by virtue of his relation with another in assuming that the other will not act inconsistently with his welfare. Relations that often fall within the rule include those of parent and child, husband and wife, clergyman and parishioner, and physician and patient. In each case it is a question of fact whether the relation is such as to give undue weight to the other's attempts at persuasion. The required relation may be found in situations other than those enumerated. However, the mere fact that a party is weak, infirm or aged does not of itself suffice, although it may be a factor in determining whether the required relation existed.

b.  Unfair persuasion.  Where the required domination or relation is present, the contract is voidable if it was induced by any unfair persuasion on the part of the stronger party. The law of undue influence therefore affords protection in situations where the rules on duress and misrepresentation give no relief. The degree of persuasion that is unfair depends on a variety of circumstances. The ultimate question is whether the result was produced by means that seriously impaired the free and competent exercise of judgment. Such factors as the unfairness of the resulting bargain, the unavailability of independent advice, and the susceptibility of the person persuaded are circumstances to be taken into account in determining whether there was unfair persuasion, but they are not in themselves controlling. Compare § 173.

Illustrations:

1. A, who is not experienced in business, has for years been accustomed to rely in business matters on the advice of his friend, B, who is experienced in business. B constantly urges A to make a contract to sell to C, B's confederate, a tract of land at a price that is well below its fair value. A is thereby induced to make the contract. Even though B's conduct does not amount to misrepresentation, it amounts to undue influence because A is justified in assuming that B will not act in a manner inconsistent with his welfare, and the contract is voidable.

2. A, an elderly and illiterate man, lives with and depends for his support on B, his nephew. B tells A that he will no longer support him unless A makes a contract to sell B a tract of land. A is thereby induced to make the proposed contract. Even though B's conduct does not amount to duress, it amounts to undue influence because A is under the domination of B, and the contract is voidable by A.

c.  Undue influence by a third person.  If a party's assent has been induced by the undue influence of a third person rather than that of the other party to the contract, the contract is nevertheless voidable by the victim, unless the other party has in good faith either given value or changed his position materially in reliance on the transaction. The rule is similar to that for misrepresentation (see Comment c to § 164) and duress (see Comment b to § 175). Compare Illustration 1.

This Section is based on former § 497. See 13 Williston §§ 1625-27B (3d ed. 1970).

Comment a.  The existence alone of a confidential relationship between parties to a transaction does not raise a presumption of undue influence. Brecht v. Schramm, 266 N.W.2d 514 (Minn. 1978) (agreement transferring house from 79-year-old woman in poor health to niece who had cared for her and had held power of attorney -- no undue influence found despite presence of confidential relationship); Herbolsheimer v. Herbolsheimer, 46 Ill. App.3d 563, 5 Ill. Dec. 134, 361 N.E.2d 134 (1977) (will contest). Compare Dobbins v. Hupp. 562 S.W.2d 736 (Mo. App. 1978).

Comment b.  Illustration 1 is based on Illustration 1 to former § 497; see also Odorizzi v. Bloomfield School Dist., 246 Cal. App.2d 123, 54 Cal Rptr. 533 (1966); Eldridge v. May, 129 Me. 112, 150 A. 378 (1930); Webber v. Phipps, 95 N.H. 1, 56 A.2d 538 (1948); Dobbins v. Hupp, 562 S.W.2d 736 (Mo. App. 1978) (contractual joint wills between elderly brother and sister; sister very dependant upon brother who dominated their farm partnership; sister's will denied probate as procured by undue influence). Illustration 2 is based in part on Illustration 3 to former § 497; see also Wilkie v. Sassen, 123 Iowa 421, 99 N.W. 124 (1904); Agner v. Bourn, 281 Minn. 385, 161 N.W.2d 813 (1968); but cf. Brecht v. Schramm, supra.

ALR Annotations:

Circumstances justifying delay in rescinding land contract after learning of ground of rescission. 1 A.L.R.3d 542.

Digest System Key Numbers:

Contracts 95, 98