Section 16 (1) defines undue influence as under: “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”.
The exercise of some form of pressure over the other which is irregular so as the extinguish one’s own judgment and un-conscientious use thereof, is use of ‘undue influence’ which often happens when parties stand to each other in special relationship.
Presumptions as to undue influence:
When is a person deemed to be in a position to dominate the will of another?
Section 16 (2) of the Act provides an answer: A person is deemed to be in a position to dominate the will of another –
1) where he holds a real or apparent authority over he other; or
2) where he stands in a fiduciary relation to the other; or
3) where, he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or body distress.
1) A, having advanced money to his son B, during his minority, upon B’s coming of age, obtains by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence.
2) A, a man enfeebled by diseases or age, is induced, by B’s influence over him as his medical attendant, to agree to pay to B unreasonable sum for his professional services. B employs undue influence.
Relationships of father and son, guardian and ward, husband and wife, doctor and patient, trustee and beneficiary, patient and medical adviser, solicitor and client, trustee and the cestue-que trust, pardanashin women, would plainly fall within the ambit of undue influence. Pardanashin women are also open to undue influence. It applies to all variety of fiduciary relations in which dominion may be exercised by one person over another. Every relation of trust and confidence is a fiduciary relation. The test to be applied is whether one party is able to dominate the will of the other. Age and capacity are important elements to determine whether consent was free. A sale deed executed by an old, blind, illiterate and tribal woman in favor of Responding on whom she was totally dependent, without any considerations was held to be obtained by exercise of undue influence.
Essentials: The transaction is caused by undue influence and is unconscionable when –
1) one of the parties is in a position to dominate the wall of the other;
2) the dominating party uses that position to obtain unfair advantage over the other;
3) the act of undue influence must range under one or the other heads of coercion of fraud
In case of inadequacy of consideration, it can be established that the consent was not freely given, though the contract cannot be avoided.
Burden of Proof: 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 proving that such a contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other.
1) A, being in debt to B, the moneylender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not influenced by undue influence. In cases of such unconscionable bargains, presumptions is raised that the consent was not free.
2) 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 is not induced by undue influence.
The burden of proof that the agreement was not caused by undue influence will rest heavily on the party benefiting by the agreement. It should be noted that mere hardship caused or un-conscionableness, for example, catching bargain, is not sufficient unless it is proved by the party claiming undue influence that the other party was in a position to dominate the will of the other. After this has been done, then the question arises whether that position has been used to obtain unfair advantage. Once this has been established, then the burden of proof that the agreement was not caused by undue influence will rest heavily on the party benefiting by the agreement.