This article is written by Ravi Shankar Pandey, a 1st-year law student of Dr. Ram Manohar Lohia National Law University, Lucknow. The article mainly discusses Undue Influence along with its types under the Indian Contract Act, 1872.

Introduction

Section 13 of the Indian Contract Act (ICA) defines consent as the meeting of minds of the parties i.e. consensus ad idem (when they are in agreement on the same thing in the same sense). Section 14 further qualifies consent as an important ingredient of a valid binding contract as has been mentioned in Section 10 by stating that “Consent is free unless it is caused by Coercion (Section 15), Undue Influence (Section 16), Fraud (Section 17), Misrepresentation (s 18) or Mistake (s 20-22). A contract entered under influence of the defendant is enforceable at the option of the plaintiff (the party whose consent was so caused) and voidable under Section 19A of ICA.

What is undue influence?

Section 16 of ICA states that ‘a contract is said to be induced by undue influence where the will of the party consenting is able to be dominated by the other one due to the existence of the relation subsisting between them’. One party influence the other while the contract is formed to get an unfair advantage over the other. It further qualifies that a person is able to dominate the will of the other if he:

  1. Has a real or apparent authority arising out of fiduciary relations (relationship of trust) between them, or
  2. Forms the contract with a person whose mental capacity, due to illness or age or due to mental distress is temporarily or permanently affected.

The burden of proof to prove that the contract was not affected from undue influence lies with the defendant i.e. the person who was in a position to dominate the will of the other. In addition, this section mentions that it will not affect Section 111 of the Evidence Act, 1872 which talks about good faith in the transaction between the parties.

The Principle of equity

The doctrine of Equity which was established by English Courts of King’s Bench, the Exchequer and the Court of Common Pleas talks after unjust enrichment and is applicable in every case where there is the acquirement of influence and its abuse and where there is reposition or betrayal of confidence. Thus, every contract which involves undue influence comes under the ambit of the principle of equity.

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Types of undue influence

The judgement in Allcard v. Skinner[1] classified the cases on undue influence in two parts- those in which there is a charge against donee or where there is an abuse of opportunities which a person got through his duty. The court in above case further elaborated on the ratio of the judgement and stated that “in the former case the remedy is given on the principle that no one should be allowed to retain any benefit that he gets through his fraudulent or illegal activities and in later cases it is based on the grounds of public policy so that it can prevent the abuse of influence between the parties by preventing relation between them”.

There are two conditions which are needed to be proved by the person seeking damages[2]:

  1. That the relation between parties is such that one is able to influence the decision and will of the other, and secondly
  2. That the donee or the defendant has abused his position to enrich himself.

But here, a joint discussion of all the cases would be feasible and will prevent the confusion in understanding them. Mainly, all the cases of undue influence fall under the following categories.

  • 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.[3]
  • 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.   
  • Unfair Advantage- In Ganesh Narayan Nagarkar v. Vishnu Ramchandra Saraf[4], it was stated by the court that, “unfair advantage is the advantage or enrichment which is obtained through unrighteous or unjust means”. It comes into existence when the bargain favours the person who enjoys influence and which proves unfair to others.
  • 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[5] 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 fulfil 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[6], 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 Singh[7] that, “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.

Illustration- A entered a contract with B, who is a minor and is unable to understand the complex terms of the contract. Unless A proves that the contract was entered in good faith and with adequate consideration, it will amount to undue influence

The threat to prosecute

This is a different case for undue influence wherein one party, to get some enrichment in its favour, threats to prosecute the other party. Even when there was no instigation to cause a direct threat, taking an undertaking of something from the party who wants to avoid prosecution suffices the elements of the case if the desire to avoid prosecution is known to whom the undertaking is given. This doctrine applies to every case where a person gives the undertaking in order to avoid prosecution was in substance influenced to act in such a manner. However, where there is further consideration, undue influence may not be applicable. As in Flower v. Saddler[8], when a debtor secured his debt, as the other party indebted wanted to avoid prosecution. In addition, a threat to prosecute is considered contrary to public policy in some cases.

The doctrine of inequality in bargaining power

This doctrine deals with those cases in which one party took advantage of others bargaining power and necessity and pressurizes it to enter into the contract. This doctrine is applied in the cases of contracts as an independent principle. In Lloyds Bank Ltd v. Bundy[9], the bank was held liable as there was the existence of a special relationship of confidence which was vested in them by the father of the person in regard to his debt.

The doctrine was further discussed in the case of Central Inland Water Transport Corporation Limited v. Brojo Nath Ganguly[10] when petitioner’s services were terminated by giving a three-month notice under the terms of the contract through which he was employed which as alleged, was arbitrary under Article 14 and was bad in law. The court held that “a contract which was entered between the parties who are not at the same footing in their bargaining power will be not enforced by the court”.

Contract with a pardanashin women

Pardanashin’ means hidden behind the veil or a screen. It refers to a woman who practices seclusion. The ground on which this doctrine is established is that “such women are less conscious and can be easily influenced with very little external manifestation. This rule is not limited to an only veiled woman but is also extended to those women who are not technically pardanashin but are illiterate, old or sick. But, this principle also applies to men as in Daya Shanker v. Bachi[11], who by their physical or mental capacity are prone to easy influence and after inducement tends to enter into contract or transactions relating to purchasing and sale of the property. The principle on which the protection by law is accorded to a pardanashin women is based on equity and good conscience.[12]

Who can plea against undue influence?

As held in M Venkatasubbaiah v. M Subbamma[13], the plea of undue influence has to be from the party or from its legal representatives[14] who have executed the document or formed the contract under such influence from the other party. Any third party is not allowed to claim adversity or lack of consensus in any manner even if he feels so. But, a contract is fit to be set aside if there was undue influence by any other (third party) party[15] other than that in the contract. Similarly, a party to the contract can lose its rights under the contract if it was in conspiracy with a third party[16], was an agent or principle of the third party by the aid of which it was able to exercise his influence over the contract.

Effects of undue influence

Under Section 19A of the Contract Act, an agreement induced by undue influence is voidable at the option of that party whose consent was taken by influencing him/her. Performance of such agreements may be avoided absolutely or on prescribing certain terms and conditions.

Conclusion

While concluding, it may be said that undue influence is one of the ways under which there is inadequate consent as defined under Section 13 of the Act. In addition, the formation of a contract by misusing one’s influence violates the principle of equity. Thus, in fiduciary and other relationships where one party enjoys real of apparent authority or influence, one must ascertain that the contract he/she has made is free from any external manifestation. However, such contracts are voidable at the option of the party whose consent was so taken under Section 19A and cannot be enforced in Court of law.

[1] [1186-90] All ER Rep 90.

[2] Ladli Parshad Jaiswal v Kamal Distillery Co Ltd AIR 1963 SC 1249.

[3] M Rangasamy v Rengammal AIR 2003 SC 3120.

[4] (1907) ILR Bom 439.

[5] (1890) ILR 12 All 523.

[6] [1933] All ER Rep 201.

[7] AIR 1924 Lah 601.

[8] [1885] 10 QBD 572.

[9] [1974] 3 All ER 797.

[10] AIR 1986 SC 1571.

[11] AIR 1982 All 376.

[12] Tara Kumari v Chandra Mauleshwar Prasad Singh AIR 1931 PC 303.

[13] AIR 1956 AP 195.

[14] Govind v Savitri AIR 1918 Bom 93.

[15] Badiatannessa Bibi v Ambica Charan Ghose AIR 1914 Cal 223.

[16] Poosathurai v Kannapa Chettiar AIR 1920 PC 65.

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