When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.
Any such contract may be set aside either absolutely, or if the party who was entitled to avoid it has received any benefit there under, upon such terms ad conditions as the Court may deem, just (Sec 19 A).
Only a party to the contract can avoid or rescind the contract. This right does not lie in the hands of a third party.
1) A’s son has forged B’s name on a promissory note. B, under threat of prosecuting A’s son, obtains a bond from A, for the amount of the forged note. If B sues on this bond, the Court may set it aside.
2) A, a money lender advances Rs 100 to B, an agriculturist and by undue influence, induces B to execute a bond for Rs 200 with interest at b6 per cent per month. Te Court may set the bond aside ordering B to repay Rs 100 with such interest as may seem just.
Distinction between coercion and undue influence:
1) Consent is obtained by threat of an offence. The person is forced to give his consent.
2) It is mainly of physical character.
3) It is of violent character.
1) Consent is obtained by the dominating will of the other.
2) Consent is given in good belief, but under moral influence
3) Confidence is reposed, but betrayed
4) It is of moral character.
5) It is most subtle in character.
However, in both coercion and undue influence, freedom of will does not exist. Both are equally effective.
Section 17 defines “fraud” as under: Fraud means and includes any of the following acts committed by (a) a party to a contract: or (b) with his connivance; or (c) by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract –
1) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;
2) the active concealment of a fact by one knowledge of belief of the fact;
3) a promise made without any intention of performing it;
4) any other act fitted to deceive;
5) any such act or omission as the laws specially declares to be fraudulent (Sec 17).
Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud unless the circumstances of the case are such that, regard being had to them, it is duty of the person keeping silence to speak, or unless his silence is, in itself equivalent to speech.
A concealment of any material fact is just as serious as a misrepresentation of it.
1) A sells, by auction to B a horse which A knows to be unsound. A says nothing to B about the horse’s unsoundness. This is not fraud.
2) B says to A: If you do not deny it, I shall assume that the horse is sound, A says nothing. Here A’s silence is equivalent to speech. Here, the relation between the parties would make it A’s duty to tell B if the horse is unsound.
3) A and B, being traders, enter upon a contract. A has private information of change in prices which would affect B’s willingness to proceed with the contract. A is not bound to inform B.
Essentials of fraud:
1) There must be an intention to deceive
2) The act must be done by a party to a contract, or with his connivance or by his agent
3) There must be a false representation of a fact, for example, suggestio falsi.
4) There must be an active concealment of a fact of which he has the knowledge and duty to disclose, for example, supressio veri.
5) There must be a false promise, for example, a promise made without any intention to perform.
6) Any other act or omission which the law considers it to be fraudulent or fitted to deceive which is done with the obvious intention to commit fraud.
7) The party so induced must have acted upon it and suffered loss