When "Trust" Becomes a Legal Risk
Undue influence in business and family-company transactions and how to protect agreements when trust, dependency and vulnerability collide.
Gilles van de Wall
Undue influence is one of the most misunderstood doctrines in contract law. It is not simply regret. It is not merely a bad bargain. It is not enough to say that one party was persuasive, experienced or dominant in negotiations.
The law becomes concerned where influence is used improperly and the affected party real freedom of choice is seriously impaired.
The core test
In Preller v Jordaan, the Appellate Division explained the essential requirements for undue influence. The party seeking to avoid the contract must show influence, a weakening of resistance, improper or unconscionable use of that influence, prejudice and causation.
The doctrine is therefore evidence heavy. The court will consider the relationship, dependency, advice received, fairness of the transaction, pressure applied, timing, emotional context, and whether the affected party had a real chance to make an independent decision.
Where the risk arises in business
Corporate and commercial entities should not treat undue influence as a purely family-law or personal-law concept. It can arise in business settings, including:
family-owned companies where one family member dominates another;
shareholder exits during illness, bereavement or financial distress;
transactions involving elderly founders or dependent relatives;
advisor-led transactions where the client relies heavily on the advisor;
business rescue, settlement or debt arrangements concluded under intense dependency.
In Isaacs v Potgieter, the High Court considered undue influence in the context of a property transfer and emphasised the importance of trust, dependency and the affected party's ability to exercise an independent will.
How to protect the transaction
Insist on independent legal advice where vulnerability is apparent.
Record that the party had time to consider the agreement.
Avoid private pressure or emotional leverage.
Make sure the transaction has a rational commercial basis.
Keep full records of meetings, drafts, explanations and approvals.
Disclose conflicts and record board approval where company interests are involved.
The governance point
Undue influence risk is often a symptom of poor governance. If a deal depends on secrecy, pressure, dependency or a weakened will, the risk is not only contractual. It may also become a director-duty, reputational and family-business governance problem.
Build Well. Govern Wisely. Build With Confidence.