Undue Influence under Indian Contract Act 1872

Undue influence is a concept that deals with the validity of consent in a contract. Section 16 of the Indian Contract Act, 1872 defines it as 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 a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

In other words, undue influence occurs when one party exploits his superior position or influence over another party to persuade him to enter into a contract that is not beneficial or fair to him. The party who exercises undue influence is called the influencer, and the party who is influenced is called the influenced.

There are three essential elements of undue influence:

The existence of a relationship between the parties that enables one party to dominate the will of another. This may be due to real or apparent authority, fiduciary relation, mental incapacity, age, illness, distress or any other factor that gives one party an advantage over another.
The actual exercise of undue influence by the dominant party over the other. This means that the dominant party must use his position to obtain an unfair advantage over the other, such as by inducing him to enter into a contract that is unconscionable, oppressive, unjust or unreasonable.
The resulting unfairness or detriment to the influenced party. This means that the contract must be prejudicial or harmful to the interests of the influenced party, such as by causing him loss, damage, hardship or inconvenience.

In other words, undue influence occurs when one party influences or forced another party to enter into a contract that is not in their best interest, by taking advantage of their trust, authority, or vulnerability.

What is a position to dominate the consent?

The question arises when does undue influence arise? Undue influence can arise in various situations where there is an imbalance of power or influence between the parties.

Section 16(2) of the Indian Contract Act, 1872 provides some examples of such situations:

When one party has a real or apparent authority over the other, such as a guardian, trustee, lawyer, doctor, teacher, etc.
When one party has a fiduciary relation with the other, such as a partner, agent, director, etc.
When one party makes a contract with a person whose mental capacity is temporarily or permanently affected by age, illness, or mental distress.

These are not exhaustive categories, and undue influence can also arise in other relationships where one party can dominate the will of the other, such as a parent and child, husband and wife, creditor and debtor, etc.

What are the effects of undue influence?

A contract induced by undue influence is voidable at the option of the party whose consent was so obtained. This means that the aggrieved party can either affirm or rescind the contract. If they choose to rescind the contract, they must restore any benefit received under it. If they choose to affirm the contract, they lose their right to challenge it later.

However, if the party who obtained undue influence can prove that the contract was made in good faith and without any intention to take advantage of the other party's position, then the contract will not be voidable.

How to prove undue influence?

The burden of proof lies on the party who alleges that the contract was induced by undue influence. They must show that:

There was a relationship between them and the other party that gave rise to a position of dominance.
The dominant party actually exercised their influence over them.
The dominant party obtained an unfair advantage from the contract.

However, there are some cases where undue influence is presumed by law. These are:

A transaction with a pardanashin woman.
A gift made by a spiritual adviser to himself or his relatives.
A gift made by a person who is seriously ill or dying to his physician or nurse.

In these cases, the burden of proof shifts to the dominant party to show that there was no undue influence and that the contract was made with free consent.

The court will look into the facts and circumstances of each case to determine whether there was an unfair advantage or not. Some factors that may be considered are:

The nature and terms of the contract.
The age, health, education and financial status of the parties.
The relationship and degree of trust between the parties.
The presence or absence of independent advice or legal representation.
The conduct and behavior of the parties before, during and after the contract.

Case history of undue influence

There are many cases where the courts have applied the doctrine of undue influence to set aside contracts that were induced by it. Some examples are:

Raghunath Prasad v. Sarju Prasad: In this case, a father transferred his property to his son for nominal consideration. The son was managing his father's affairs and had considerable influence over him. The court held that there was undue influence and set aside the transfer.
Mahboob Begum v. Habib Khan: In this case, a widow executed a deed of gift in favour of her brother-in-law, who was her legal adviser and manager of her property. The deed was executed without any independent advice or adequate consideration. The court held that there was undue influence and cancelled the deed.
Central Inland Water Transport Corporation Ltd. v. Brojo Nath Ganguly: In this case, two employees were forced to sign an agreement to retire voluntarily in exchange for some benefits. The agreement was made under duress and threat of termination. The court held that there was undue influence and declared the agreement void.

Conclusion

Undue influence is a legal concept under Indian contract Act, 1872. The concept of Undue Influence protects parties from entering into contracts that are against their will or interest. It applies when one party uses their position of power or trust to coerce or persuade another party to make a contract that gives them an unfair advantage. A contract induced by undue influence is voidable at the option of the aggrieved party unless it is proved that it was made in good faith and without any intention to exploit. Undue influence can be proved by direct evidence or by presumption in certain cases.