Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Undue Influence

What it is:

Undue influence occurs when one party to a transaction is able to influence the decisions of another party to the transaction.

How it works (Example):

Anybody who's ever had a pushy girlfriend or boyfriend knows what undue influence feels like. Let's say John Doe for whatever reason lands in jail for a night. He calls his girlfriend, Jane Smith, to bail him out. She does so only on the condition that John signs a contract agreeing to purchase 40% of her pizza parlor business for $100,000.

John, wanting to get out of jail and not lose Jane Smith's affections, signs the contract. He does not do so with reasonable care because he is being pressured by the other party, which happens to have the upper hand over John.

Undue influence is often claimed in estate disputes; disappointed heirs often argue that the deceased wrote a will or created a trust under undue influence from a beneficiary of the will or trust.

Why it Matters:

Undue influence gives one party an advantage over another. In some cases, a party that is the victim of undue influence may be able to void a contract he or she signed while under the effects of that influence.