Short essay on Undue Influence of free consent

Undue influence implies unfair and improper conduct or pressure on the mind of the other party so that it enters into an agreement which is not fair to itself. It creates a mental or moral fear as against physical fear, created by coercion. Consequently, the party on whom undue influence is exercised is indirectly compelled to enter into the transaction.

Definition :

Sec. 16 (1) defines undue influence as follows:

“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 the position to obtain an unfair advantage over the other.”

From the above definition, following characteristics of undue influence are clear:

(1) Relations between parties are such that one party is in a position to dominate the will of the other.

(2) Party dominating the will uses that position to obtain an unfair advantage over the other. Sec. 16 (2) provides that a person is deemed to be in a position to dominate the will of another:

(a) Where he holds a real or afferent authority over the other as in relationship between teacher and servant.

(b) Where he stands in fiduciary relation to the other. It implies a relationship of mutual trust and confidence. In the following cases undue influence is presumed:

(i) Religious Guru and Chela,

(ii) Doctor and Patient,

(iii) Solicitor (Lawyer) and Client,

(iv) Parent and Child, and

(v) Trustee and Beneficiary, etc.

However, in the following cases, there is no presumption of undue influence:

(i) Landlord and Tenant,

(ii) Creditor and Debtor, and

(iii) Husband and Wife. However, if the wife is Pardanashin, the presumption will arise. In the above three cases, undue influence shall have to be proved.

Example:

An old Hindu woman gifted away the whole of her property to her religious guru with a view to secure benefits to her soul in the next world. The Court held that the gift was invalid. [Mannu Singh v. Umadat].

It should be noted that illustration:

(a) Given in Section 16 is wrong in as much as a minor cannot ratify a contract entered into by him during his minority. Therefore, a bond from B for a greater amount than the sum due in respect of advances is invalid and not merely voidable on account of undue influence. Almost every author has reproduced this example in his book.

(c) Where a contract is made with a person whose mental capacity is (temporarily or permanently) affected by reason of age, illness, or mental or bodily distress.

Example:

An old man of 85 years is induced by his neighbour to pay an unreasonable sum for helping him during his illness. The neighbour has employed undue influence in this case.

Consequences of undue influence :

If an agreement is induced by undue influence, it is voidable at the option of the party whose consent

Burden of Proof :

Sec. 16 (3) provides that 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 the evidence adduced, to be unconscionable, the burden of providing that such contract was not induced by undue influence shall lie upon the person Who was in a position to dominate the will of another. Thus in the example given above, burden of proving that the transaction was not entered into by undue influence will be on the neighbour.

Whether charging high rate of interest amounts to undue influence :

The mere fact that the rate of interest is high does not imply that the transaction is unfair.

Example:

A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business and the contract in not induced by undue influence.

Where the rate of interest is so high that the Court considers it unconscionable, i.e., shockingly unfair, the burden of proof that undue influence was not exercised will be on the creditor.

Example:

An old Hindu widow borrowed Rs. 1,500 from a money lender at 100% interest per annum for the purpose of enabling her to establish her claim for maintenance. In the above case, the money lender must prove that contract was not induced by undue influence. [Ranee Annapurna v. Swaminathan],

Thus to claim relief, it is necessary to show that the creditor was in a position to dominate the will of the borrower and the transaction is unfair.

In deciding cases of undue influence, the Court has to consider four different questions, connected with each other, namely: (1) whether a transaction is a righteous transaction, i.e., whether it is a transaction which a right minded person might be expected to do. (2) whether it was improvident, i.e., whether it shows so much improvidence as to suggest the idea that the executant was not a master of himself and not in a state of mind to weigh what he was doing, (3) whether it was a matter which required legal advice, and (4) whether the intention to execute the document originated with the executant or the execute [Thrasia v. Varkey Mathai],