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Under California law, a party cannot successfully invoke the doctrine of "undue influence" to escape an apparent contract unless that party proves two things: (1) that she had a lessened capacity to make a free contract; and (2) that the other party applied its excessive strength to her to secure her agreement. In combination, the elements of undue susceptibility in the subservient person and excessive pressure by the dominating person make the latter's influence undue.
Ms. Olam applied for and received a loan from Congress Mortgage in the amount of $187,000. The 1992 loan is secured by two single-family homes located in San Francisco and owned by Ms. Olam. These properties are referred to as the "Athens Property" and the "Naples Property" because they are located on Athens Street and Naples Street, respectively. At the end of court-sponsored, voluntary mediation, both Ms. Olam and Congress Mortgage signed a memorandum of understanding (MOU) that stated that it was "intended as a binding document." Subsequently, Ms. Olam contended that the consent she apparently gave was not legally valid, and that the MOU was unenforceable. Ms. Olam stated that she never read the 1992 loan documentation and that she simply signed where Congress Mortgage's agent told her to sign. Ms. Olam contended that she could not afford the monthly payments on the 1992 loan. Eventually she defaulted. Thereafter, Congress Mortgage initiated foreclosure proceedings on both the Athens and Naples Properties.
Did the parties enter into an enforceable contract at the conclusion of their mediation?
The court applied the substantive law of California to resolve the issue. The parties expressly waived their mediation privilege; and the court, after conducting California's two-stage balancing analysis, compelled the mediator to testify. Congress Mortgage’s motion to enforce the MOU was granted, because Ms. Olam failed to prove either of the necessary elements of undue influence; that is, that either she was rendered unduly susceptible by her alleged physical and emotional distress or she was unduly pressured to sign the MOU.