This article is written by Vihanka Narasimhan, a law student at Jindal Global Law School, O.P. Jindal University. This article is an attempt to highlight the differences between coercion and undue influence with respect to the Indian Contract Act, 1872.

It has been published by Rachit Garg.

Introduction 

Section 2(h) of The Indian Contract Act, 1872 defines the term contract as “An agreement enforceable by law is a contract.”  In layman’s terms one can say that a contract is formed when two or more people perform a promise or an act in return for consideration or something in return. A contract can be defined as the creation of legal obligations between the contracted parties. This is done to ensure relief in case of breach of such contract by one or both the parties. One of the essential elements of a contract is free consent without which a contract ceases to be valid.   

Essentials of a valid contract 

A contract can be either oral or written. To form a contract, there are many aspects which have to be fulfilled. The essential elements are explained as follows: –

1. Offer and acceptance

An offer can be defined as a proposal from one party to the other which lays down specific conditions to ensure the enforceability of a contract.  On the other hand, agreement to the specific conditions of a proposal is known as acceptance. Offer and acceptance can be regarded as the nascent stages of the formation of a contract.

2.  Consideration

Consideration can be simply defined as something in return. It can be either in cash or kind. to make a contract enforceable, a contract must include a consideration for the fulfilment of the promise or the services offered by the other party. It is very important to note that the consideration offered should be lawful.  

3.  Lawful object and certainty

The Indian Contract Act, 1872 states that to qualify as a legally binding contract, an agreement should not be illegal. This implies that the agreement should not be against the law or against public policy as such an agreement becomes invalid and ceases to exist. The concept of ‘Certainty‘ on the other hand can be understood as the terms of the contract which are certain and not impossible to fulfil. In case these components of the contract are missing they are simply unenforceable.

 4.  Intention to create a legal obligation 

One of the essential elements of the formation of a contract is the intention to create legal obligation so as to seek remedy in case of breach. Agreements which are domestic or social are not regarded as a valid contract as they lack the desire to form legal relations.  

 5.  Capacity 

Capacity to contract can be defined as the capability of entering into a contract by both the parties. According to the Indian Contract Act, the following persons do not have the capacity to enter into a contract: –

  • A person with unsound mind;
  • A minor;
  • A person expressly disqualified by law. 

6. Free consent of the parties

Under Section 13 of the India Contract Act, 1872 consent is said to be given when “Two or more persons are said to consent when they agree upon the same thing in the same sense.”

The concept of free consent is based on the principle of consensus ad idem which implies meeting of minds. In a nutshell, a contract should be free of any kind of coercion, fraud, misrepresentation or undue influence.     

Example – ‘A’ holds ‘B’ at gunpoint and threatens him to transfer his property below the market price. Here, ‘A’ is using intimidation tactics which is clearly establishing the fact that there is a lack of free consent. 

In this article, we are going to discuss free consent with respect to coercion and undue influence and the similarities and differences between them.

Why is free consent important between two contracting parties

Under Section 14 of the Indian Contract Act, 1872, the term ‘free consent’ has been defined as a contract which does not result from coercion, misrepresentation, undue influence or mistake. The term consent defined under Section 13 is different to the term free consent in this Section. The latter is  based on the principle of consensus ad idem. According to the Cambridge dictionary, this maxim has been defined as “agreement between different people or groups about the exact meaning of a contract that is necessary before the contract is considered to be legally acceptable.” 

This implies that,for a contract to be enforceable, not only must it be consensual but the consent given by the parties should be free and voluntary.

Coercion 

The term coercion has been explained under Section 15 of the Indian Contract Act, 1872. The provision states that- 

Coercion is the committing, or threatening to commit, any act forbidden by the Indian Penal Code,1860 or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatsoever, with the intention of causing any person to enter into an agreement.”  

In simple language, coercion can be defined as an act which uses threat or physical force to force a will of a person into entering into a contract.

How is consent obtained by coercion

To create coercion, a person must show that they were forced to enter into a contract that he would not otherwise have and the onus to prove lies on such person only. Hence, it can be observed that the key elements of coercion are as follows: –

  • Committing or threatening to commit an act punishable by the law.
  • Unlawful detention of someone or someone’s property.

It is also crucial to note that the burden of proof lies on the aggrieved party.

Illustrations and examples

  1. “A” threatens to kill “B” if he does not sign the business contract.
  2. “A” threatens to break “B”’s leg if he does not sell his car to him.
  3. “X” threatens “Y” to burn his house in case “Y” marries C.

Key judicial pronouncements 

Chikham Amiraju v. Chikham Seshamma (1912)

Facts of the case

This case concerns a family where a man threatens his wife and son that he would commit suicide if they do not make a  transfer of certain properties in favour of his brother.

Issue involved in the case

Whether a threat to suicide amounts to coercion?

Judgement of the Court

In this situation, the Madras High Court was of the opinion that there was no free consent and deemed the contract invalid under Section 15 of the Indian Contract Act.

Askari Mirza v. Bibi Jai Kishori (1912) 

Facts of the case

Contrary to the above case, this case focused on the threat of criminal prosecution. The case revolves around a minor who enters into an agreement in consideration of the other party abandoning the prosecution. 

Issue involved in the case

Whether the above situation amounts to coercion?

Judgement of the Court

The Court was of the view that such an act is not forbidden under the Indian legal system and the contract was held valid.

Undue influence 

The term undue influence has been explained under Section 16 of the Indian Contract Act, 1872. The provision provides that undue influence can be said to take place in situations wherein a contracting party is in a dominating position with the other party. It is important that the dominating position gives an unfair advantage to obtain consent from the other party. This Section is based on the Doctrine of Equity. The provision has also stated situations wherein a person is said to dominate the will of the other. They are as under: –

  •  When one contracting party has real or apparent authority over the other.
  •  When one contracting party has a fiduciary relationship with the other.
  • When one contracting party enters into a contract with the other in case of temporary or permanent damage to mental capacity.

How is consent obtained by undue influence

The main theme in undue influence is having a fiduciary relationship amongst the contracting parties. According to Merriam-Webster, a fiduciary relationship can be defined as “a relationship in which one party places special trust, confidence, and reliance in and is influenced by another who has a fiduciary duty to act for the benefit of the party.”

In simple language, the key elements of undue influence are as follows: –

  • Either of the contracting parties is in the position to dominate the will of the other.
  • The party that is in a dominating position should use it to their own advantage.

In a nutshell, when two or more people enter into a contract, the person who is in a position to dominate the will of the other party has the burden to prove that the consent is free and has not been a consequence of undue influence. In case he fails to do so then the contract becomes voidable at the option of the party whose consent has been obtained through such means. 

Illustrations and examples 

  1. A son compels his father to transfer all his property to him.
  2. An employer exerts undue influence on his employee and makes them sell their watch at a very cheap price. 

Key judicial pronouncements 

Ragunath Prasad Sahu v. Sarju Prasad Sahu (1924)

Facts of the case

This case concerns a father and a son who are equal heirs to joint family property. A dispute arises amongst them wherein the father sued the son, consequent to which the son had to mortgage the disputed property at Rs. 10,000 at the rate of 24% at a compound interest which increased tenfold over 11 years. The son contended in the court that the lender had taken advantage of his situation and used his undue influence on him. 

Issue involved in the case

Whether there was undue influence or not? 

Judgement of the Court

The Bombay High Court observed that undue influence could not be established merely on the grounds of unconscionableness but also on the grounds of some relationship of dominance. As there was no relationship of dominance the case was dismissed.

Subhas Chandra Das Mushib v. Ganga Prasad Mushib (1967)

Facts of the case

This case deals with a man and his grandson wherein he gifts a portion of his property to him. The main contention was that as there is a fiduciary relationship between them it was an unconscionable transaction. 

Issues involved in the case

Whether there was undue influence or not? 

Judgement of the Court

The Supreme Court of India in the case was of the opinion that a mere relation of the contracting parties to each other cannot form the sole basis of undue influence.

Similarities between consent obtained by coercion and undue influence

 Key similarities between coercion and undue influence are as follows: –

  1. Both coercion and undue Influence take place as a result of pressure from the other contracting party.
  2. Both coercion and undue influence take away free consent of one of the contracting parties.

Difference between consent obtained by coercion and undue influence 

 The main distinction between coercion and undue influence are as follows: –

  1. Coercion falls under the ambit of Section 15 of the Indian Contract Act, 1872 which defines it as “the committing or threatening to commit, any act forbidden by the IPC or the unlawful detaining, or threatening to obtain, any property to the prejudice of any person whatever with the intention of causing any person to enter into an agreement” whereas undue influence falls under the ambit of Section 16 of the Indian Contract Act, 1872 which is defined as “an influence exercised by one party over the other party, where the relationship between them is such that one party is in a position to dominate the will of the other for an unfair advantage.” 
  2. Another difference which can be isolated is that coercion is a criminal offence which is punishable under the law (in India through Indian Penal Code, 1860 whereas undue influence is not a criminal offence and simply makes the contract voidable.
  3. Coercion is the result of the use of physical force by one contracting party on the other wherein the parties have no relationship however undue influence is the result of the use of psychological force by one contracting party on the other who have a fiduciary relationship.

Difference between Coercion and Undue Influence

BasisCoercionUndue Influence
MeaningCoercion can be defined as an act where force is used as a tool for making a party who is generally unwilling to come into a contract.Undue influence can be defined as an act of influencing the will of a person by another.
Nature of offenceIt is regarded as a criminal offence.It is not regarded as a criminal offence.
Legal provisionsIt is covered under Section 15 of the Indian Contract Act, 1872.It is covered under Section 16 of the Indian Contract Act, 1872.
Relationship of contracting partiesThere is no established relationship between the contracting parties.There is an already established relationship between the contracted parties i.e., a fiduciary relationship.
ActionsThreat, physical violence or force.Psychological pressure and/or subjecting a person to a social pressure or dilemma.
AimCoercion is generally used as a tool to force a person to enter into a contract with the other party, usually for the benefit of the other party.Undue influence is used as a tool in case one of the contracting parties has an ill intention to take advantage of the other parties’ position.
Burden of proofLies with the aggrieved partyLies with the party who is in a dominating position
Example“A” threatens to kill “B” if “C” does not sell his property to him. Here, “A” is forcing “C”.A teacher tells his student to sell him his car for a very low price in return for full marks in the final examination.

Conclusion 

At first glance the terms coercion and undue influence seem interchangeable. This is due to the fact that they both serve as a restriction which goes against the fundamental basis of the contract i.e., free consent of the parties involved in a contract. To sum it up, coercion can be said to involve the use of brute force whilst undue influence is a result of psychological pressure. One thing which is obvious is that in both cases, the contract results to be voidable in case there is no free consent.

References

  1. Section 2(h) of The Indian Contract Act, 1872
  2. Section 13 of the Indian Contract Act, 1872
  3. https://dictionary.cambridge.org/dictionary/english/consensus-ad-idem 
  4. https://www.merriam-webster.com/legal/fiduciary%20relationship 
  5. https://www.merriam-webster.com/legal/fiduciary%20relationship 
  6. Section 15 of the Indian Contract Act, 1872
  7. Section 16 of the Indian Contract Act, 1872

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