undue influence

UNDUE INFLUENCE

UNDUE INFLUENCE

The term ‘undue influence’ means the improper or unfair use of one’s superior power in order to obtain the consent of a person who is in a weaker position.

ACCORDING TO SECTION 16 OF INDIAN CONTRACT ACT 1872

“When the relations between the two parties are such that one party is in a position to dominate the other party, and uses such influence to obtain an unfair advantage of the other party it will be undue influence.”

The section also further describes how the person can abuse his authority in the following two ways:

  • When a person holds real or even apparent authority over the other person. Or if he is in a fiduciary relationship with the other person.
  • He makes a contract with a person whose mental capacity is affected by age, illness or distress. The unsoundness of mind can be temporary or permanent.

EXAMPLE: A sold his gold watch for only Rs 500/- to his teacher B after his teacher promised him good grades. Here the consent of A is not freely given; he was under the influence of his teacher.

TYPES OF UNDUE INFLUENCE

There are two main types, with both of them potentially resulting in the conflict becoming voidable.

PRESUMED UNDUE INFLUENCE

This is when there is a presumption that the parties’ relationship fundamentally impacted the contract’s formation. This presumption applies when there is a relationship of trust between the two parties. Once the presumption is risen, the ‘dominant’ party has to prove the influence did not lead to the contract’s creation. Common examples where the presumption arises are:

  • A parent/child relationship when the child is under the age of 18.
  • The relationship between a solicitor and their client.
  • A doctor/patient relationship.

Furthermore, other relationships can also lead to a presumed undue influence depending on the facts of the case.

EXPRESS OR ACTUAL UNDUE INFLUENCE

In these circumstances, the influence that occurred ‘actually’ exists. This means that the weaker party has to actually prove that the dominant party influenced them into agreeing the contract. Keep in mind, that the influence cannot merely be that other party having greater economic power as they are a larger business or stating that they will sign with another party.

CASES FALL UNDER CATEGORY OF UNDUE INFLUENCE

  • Relationship- For a case to fall in this category, it is not mandatory that the parties are related to each other by blood relation, marriage or through adoption but what is necessarily required is that one party must be in a superior position and be able to dominate the will of the other. It does not restrict itself to strict fiduciary relationships but applies to all varieties of relationships. However, only the existence of such relationships is not able to prove undue influence but there must be an exercise of the dominance.
  • Dominating Position- In this category of undue influence, the circumstance under which the contract was made is taken in the account along with their relationships. The existence of dominating position along with its use is mandatory to invoke an action. If once dominance is established, unless any contrary object appears, it is presumed that there was a use in the particular instance.   
  • Real and Apparent Authority- In this type of influence, there is a real authority like a police officer or an employer who uses his dominance for his enrichment. Apparent authority is pretending real authority without its existence.
  • Fiduciary Relationship- This type of relationship is solely based on the existence of trust between the parties for each other. It is such that one of the parties naturally reposes its confidence in the other one and with an increase in that confidence gradually, one party starts influencing the other. This type of relationship usually exists between doctor and patient, lawyer and client, parent and child, teacher and student and beneficiary of a trust (cestui que trust) etc. An example of such type of case was in Mannu Singh v. Umadat Pande where a guru influenced his disciple to take his property in gift by promising to secure benefits to him in the next world. The court set the gift aside as it was not formed with free consent.
  • Parent and Child- As parent fulfill every need of their children and want them to act on their supervision, there is an inherent influence on children from their childhood and that follows throughout their life. Thus, when any benefit is transferred to the parent or any third-party on the expense of the child, it is considered as jealousy on the part of a parent by the courts of equity. Thus in every case, children’s age is always taken into account to determine the extent of parental influence. In Lancashire Loans Ltd v. Black, when a girl just before her marriage entered in a money lending transaction as surety for her mother, it was held to be entered under undue influence.
  • Affecting Mental Capacity- It is an established law from Inder Singh v. Dayal Singhthat, “undue influence arises when one party taking the advantage of the temporary or permanent advantage of another’s mental condition executes a contract. But, a mere distressed state of mind cannot amount to undue influence until the defendant has used this opportunity to his advantage. Similarly, instigating a person to enter into a contract who has just attained his majority amounts to undue influence under this category due to lack of plaintiff’s experience.

EFFECT OF UNDUE INFLUENCE

If the consent of a party is induced by undue influence, the contract is voidable at the option of the party whose consent has been so caused.

Section 19 A of the Act states the effect of undue influence as when consent to an agreement is caused by undue influence the agreement is voidable at the option of the party whose consent was so caused. Any such contract may be set aside either absolutely or if the party who was entitled to avoid has received any benefit there under, upon such terms and conditions as the court may seem just.

For example: A, a money-lender, advanced Rs. 100 to B, an agriculturist, and by undue influence, induced B to execute a bond for Rs. 200 with an interest at 6 percent per month. The court may set the bond aside; ordering B to repay Rs. 100 with such interest as may seem just.

BURDEN OF PROOF

When a party to a contract decides to avoid the contract on the ground of undue influence, he will have to prove that

  1. The other party was in a position to dominate his will. It may be remembered that mere proof of nearness of relations is not sufficient for the court to assume that one person was in a position to dominate the will of the other; the dominating position of the stronger party has to be proved.
  2. The other party actually used his influence to obtain an unfair advantage. The aggrieved party has not only to prove the dominating position of the struggler party but he has also to show that the stronger party had actually used his position and influenced his will to obtain an unfair advantage over him

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