Contract Act 1872 - Free Consent - Undue Influence

By Asok Nadhani

5.4 Undue Influence (s.16)

i.     Compelling to enter into contract : Undue influence means compelling a Party to enter into a contract through dominating position. 

ii.    Dominating Position : A contract is said to be induced by undue influence where one of the parties is in a position to dominate the will of the other and uses his position to obtain unfair advantage over the other.

iii.   Deemed to dominate: A person is deemed to be in a position to dominate the will of the another, in the following cases:

a.     Apparent authority : When he holds real or apparent authority over the other,

Ex. A advances money to his son B during his minority. Upon B’s corning of age, A influences B and gets a bond from B for a greater amount than the sum due in respect of the advance. The contract is voidable at the option of B as it is induced by undue influence.

b.    Fiduciary relation : When he stands in a fiduciary relation (relation of trust & confidence),

Ex. A parentless minor girl was living with her cousin brother who was in the position of her loco parents. The cousin brother got a deed executed by her in his favour.

The agreement is voidable as it was induced by undue influence.

c.     Mental capacity : Where he makes a contract with a person whose mental capacity is affected (e.g., a medical attendant and his patient).

Ex. A is enfeebled by age and illness. B, his medical attendant, uses his personal Influence over him and induces him to pay an unreasonable fee for his professional services.  A can avoid payment of extra fees on the plea of undue influence.

5.4.1 Presumption of Undue Influence

a.     Undue influence presumed : In the following relationship, undue influence is presumed :

Parent & Child, Guardian & Ward, Trustee & Beneficiary, Preacher & Disciple, Doctor & Patient, Solicitor & Client, Fiance & Fiancee etc.

b.     No presumption of undue influence : However, there is no presumption of undue influence between :

Husband & Wife (if the wife is not pardanashin), Landlord & Tenant, Debtor & Creditor. In such cases, the undue influence has to be proved.

c.     Presumption rebutted : Such presumption can be rebutted if it is proved that:

-        Full disclosure of fact : Full disclosure of the fact was made to the party alleged to have been unduly influenced, at the time of entering into the contract.

Ex. X being in debt to Y, the money lender of his village, contracts a fresh loan on terms which appears to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.

-        Price not inadequate : The Price was not extremely inadequate.

-        Independent advice : The influenced party had independent and competent advice before making the agreement based on full knowledge of facts.

5.4.2 Legal consequences of Undue Influence (Secs. 19 & 19A)

i.      Agreement Voidable : When a contract is entered by any party induced by undue influence, the agreement is voidable at the option of the Party who was influenced. Any such contract may be set aside absolutely, or if the Party has received any benefit, upon such terms and conditions as the court may seem just & equitable. Court may cancel the contract and form a new contract with revised terms and conditions.

Ex. A, a money lender gives a loan of Rs.500 to B, a poor farmer and B asked to execute a bond of Rs.1000 in favour of A. A then asks for payment of Bond. B may ask the court may set the bond aside, order A to repay B only Rs.500 with such interest as may deem fit.

ii.    Onus of Proof :

a.     On the Plaintiff : To avoid a contract on ground of undue influence, the burden of proof of undue influence lies on the plaintiff to prove that the other Party was in a position to dominate his will and actually used his influence to get plaintiff’s consent on contract and the contract was unconscionable (unreasonable).

Ex. A, a poor farmer, already owes money to B, a money lender. A takes fresh loan from B on terms which appear to be unreasonable. A Pleads the contract was influenced. B has to prove that the contract was not induced by undue influence.

b.    On the Dominating person : When a person is in a position to dominate and the transaction, on the face of it or on evidence produced appears to be unconscionable, the burden of proof that the contract was not undue influenced lies upon the dominating person. But the other party in order to save himself may counter prove that:

(a)   Disclosed material facts : He had disclosed all material facts,

(b)   No strong relationship : There is no strong relationship between parties,

(c)   Competent and independent advice : He had given enough time and opportunity to other party to receive competent and independent advice.

iii.   Contracts with Pardanashin Women

a.     Presumption of inducement : A contract with Pardanashin woman (woman who observes complete seclusion from men & not just who wears veils) is presumed to have been induced by undue influence, due to her peculiar situation. The law throws a special cloak of protection around her.

b.    Independent Advise : Any person who has entered into a contract with a Pardanashin woman has to prove that no undue influence was used and she had independent advice, understood the contents and exercised her free will.

5.4.3 Distinction between Coercion and Undue Influence

i.          Undue Influence / moral influence : In coercion, the essence is threat (committing or threatening to commit), whereas, in case of undue influence, the essence is dominating position. In coercion, the consent is given under threat while in Undue Influence, the consent is given under moral influence.

ii.        Physical force / mental pressure : Coercion is of a nature of physical force, whereas Undue Influence is of a nature of mental pressure.

iii.       Third Party / Parties to contract : Coercion may be exercised by or directed to a third party whereas Undue Influence is exercised between the Parties to the contract.

iv.       No relationship / dominating position: In Coercion, relationship between the Parties is immaterial whereas in Undue Influence, one party is in dominating position over the other.

v.         Criminal Act / Civil Act : Coercion involves a Criminal Act under the Indian Penal Code, but Undue Influence does not involve Criminal Act.

vi.       Party to set aside contract  / court to set aside contract: In Coercion the aggrieved party has the option to set aside the contract, whereas in case of undue influence only the court has the discretion to set aside the contract absolutely or upon such terms and conditions as deemed fit.

vii.      Compel to enter into a contract  / obtain unfair advantage: The purpose of exercising coercion is to compel the other party to enter into a contract, whereas, undue influence is exercised to obtain an unfair advantage.

For more details, refer to Mercantile law, by Asok Nadhani, BPB Publications, www.bpbonline.com, bpbpublications@gmail.com