UNDUE INFLUENCE IN CONTRACTS

When one party is in the position to dominate the will of the other party and the person having the influence used his position to take an unfair advantage over the other party, the other party induced his influence and entered into a contract. Such kinds of contracts or agreements are said to be entered by using undue influence and are voidable. Undue influence is defined in section 16 of the Indian contract act, 1872. A contract is an agreement that is enforceable by law. To become enforceable it should fulfill the essentials required in a contract which are mentioned in section 10 of the Indian contract act. One of the essential elements is free consent which is also known as consensus ad idem. It means the meeting of minds. The consent must be given without using force, authority, misrepresentation, fraud, or mistake.

For example Devananth, a spiritual advisor tells his follower, X to donate his property worth crores of rupees to his trust so that his soul may attain salvation. X signs the document and makes a gift to the trust. Here the consent of X was obtained by inducing him. Hence the consent is obtained from undue influence and the contract is voidable on the part of the aggrieved party.

Definition

Section 16 of the Indian contract act defines undue influence as

Section 16(1) : A contract is said to be induced by “undue influence” where the relations subsisting between the parties are such that one of the parties is in the position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

Section 16(2) : In particular and without prejudice to the generality of the foregoing principle, a person deemed to be in a position to dominate the will of another –

16(2)(a) : Where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or

16(2)(b) : Where he makes a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

Section 16(3) : Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.

Essentials of Undue influence

  • There should be some kind of relation between the contracting parties.
  • The party should be in a position to dominate the will of other party.
  • The party must have used his position or authority intending to take unfair advantage by obtaining the will of the other party.
  • The aggrieved party must have agreed by the blindly believing the other party or reluctantly.

Relation which involves domination

One party is able to dominate the will of the other, where there is active trust and confidence between the parties or the parties are not on equal footing. Undue influence varies from situation to situation. So there are no defined laws setting limits to the equitable jurisdiction of a court to relieve undue influence.

Position in Authority

Real or Apparent Authority

A party may influence the other party’s decision which may not be in the best interest of the person influenced. The authority can be real or apparent. A person in authority includes an employer and employee, an income tax officer with an assessee; a magistrate or police officer concerning an accused person. The expression of apparent authority includes cases in which a person has no real authority, but is able to approach the other with a show or color of authority.

Fiduciary Relationship

When two persons are in a fiduciary relationship with each other, it is assumed that one person is in a position to dominate the will of the other. A fiduciary relationship is one where a person has confidence or trusts another, whatever the basis of the origin of this feeling. In such situations, the person with trust and faith in another person and his decisions may be influenced by another person. For example lawyer and client, doctor and patient, spiritual advisor and follower, parent, and child, etc

Mentally enfeebled persons

A person whose mental capacity is affected may not be able to think rationally. When such a person contracts with another person who has exercised his influence and authority, the contract is induced by undue influence. A person’s mental capacity may be affected, either temporarily or permanently due to age, illness, etc.

Relationships that raise the presumption of Undue influence

 In some relations where undue influence is presumed such as 1) parent and child, 2)guardian and ward, 3) religious adviser and disciple, 4)trustee and beneficiary, 5) doctor and patient, 6) solicitor and client. The relationship between the parties is such that one of them is, because of confidence reposed in him by the other, able to take the unfair advantage over the other then the presumption of undue influence applies.

There are some relations where there is no presumption of undue influence. The relations like landlord and tenant, creditor and debtor, husband and wife. In husband and wife relations the wife should not be a pardanashin otherwise the presumption will arise.

Undue influence vs coercion

  Undue influence

  • The consent is given by the aggrieved party as the other is in the position to dominate his will.
  • It is defined in section 16 of the Indian contract act.
  • Undue influence is moral. It involves moral or mental force.
  • There should be some relation between both the parties to induce.
  • There is no involvement of any criminal acts.

Coercion

  • The consent is given under the threat of an offense i.e., committing or threatening to commit an act forbidden by the Indian penal code or detaining or threatening to detain property unlawfully.
  • It is defined in section 15 of the Indian contract act.
  • Coercion is physical. It involves the use of physical or violent force.
  • There is no need for a prior relationship between the parties.
  • It involves a criminal act.

 Effects of undue influence

When the consent to an agreement is obtained by undue influence the agreement becomes voidable at the option of the aggrieved party. The contract in which consent is obtained by undue influence is not binding. It is not legally enforceable.

Conclusion

From the above information, we can conclude that the presence of undue influence is a hurdle to a valid contract. A contract is an agreement that is enforceable by law. A contract becomes legally binding when all the essentials mentioned in section 10 of the Indian contract act are fulfilled. One of such essential element is free consent. Consent is said to be free when it is not obtained by coercion, undue influence, fraud, misrepresentation, or mistake. Even though the consent of the party is obtained from undue influence, it is the option of the aggrieved party to make the agreement legally binding or not.

Reference

  1. Contract & Specific Relief by Avtar Singh
  2. Elements of Mercantile law by N D Kapoor

Aishwarya Says:

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