Free consent - Undue Influence

Undue Influence : Sec.16 (1): A contract is said to be induced by undue influence where the relations subsisting between the parties are such that one of the parties in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. 

           

A person is deemed to be in a position to dominate the will of another –

(a) where he holds a real or apparent authority over the other – e.g. relationship between doctor and patient, master and servant.

(b) where he stands in a fiduciary relation (relation of trust and confidence) to the other – e.g. between father and son, solicitor and client, trustee and beneficiary and promoter and company.

(c) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by age, illness or mental or bodily distress – e.g. relationship between medical attendant and his patient.

The principle applies to every case where influence is acquired and abused, where confidence is reposed and betrayed.  Contracts entered into by undue influence are voidable at the option of the person whose consent is so obtained.

Examples :

(1) During minority of his son (B), A advanced money to him - upon B’s coming of age, misuses parental influence – obtains a bond from B for a greater amount than the sum due in respect of the advance – Held, A employs undue influence.

(2) Mannu Singh Vs. Umadat Pandey – spiritual guru induced his devotee to gift him the whole of his property in return for promise of salvation (nirvana) – Held, the consent of the devotee was given under undue influence.

(3) Ranee Annapurni Vs. Swaminath – poor Hindu widow was persuaded by money-lender to agree to pay 100% rate of interest on money borrowed – She needed the money to establish her right to maintenance – Held, consent obtained by undue influence and the Court reduced the rate of interest to 24%.

(4) Inche Nariah Vs. Sheikh Ali Bin Omar  - Illiterate elderly woman made gift of practically whole of her property to her nephew who managed her affairs – Held, the gift should be set aside on ground of undue influence.

(5) Niko Devi Vs. Kripa  - A minor female child who had lost her parents was living with her cousin brother who was in position of loco-parents (in the place of parents) – Deed executed by her in favour of latter – Held, there was undue influence. 

(6) A applies to banker for a loan at a time when there is stringency in the money market – 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 ordinary course of business and contract is not induced by undue influence.

(7) William Vs. Bayley  - son forged his father’s signature on several promissory notes and paid them into his banking account – When truth came to light, the manger of the bank threatened prosecution of the son and imprisonment – to avert this threat, father agreed to give an equitable mortgage to the bank on his property in return for the promissory notes – Held, the negotiation proceeded upon an understanding that the agreement to give security for the promissory notes would relieve the son from the consequences of the criminal act – fears of father were stimulated and operated on to an extent to deprive him of free agency and to exhort an agreement for the benefit of bankers – Held voidable at the option of the father.

In order to avoid a contract on ground of undue influence, the plaintiff has to establish that –

• the other party was in a position to dominate his will.
• The other party actually used his influence to obtain the plaintiff’s consent to the contract, and
• The transaction is unconscionable (unreasonable so as to shock the conscience)

Relationships which raise presumption of undue influence :

·         Parent and child

·         Guardian and ward

·         Trustee and beneficiary

·         Religious adviser and disciple

·         Doctor and patient

·         Solicitor and client, and

·         Fiancé and fiancée.

Raghunath Vs. Sarju Prasad – Father and son equal owners of a vast joint family property – both quarrelled over it – Father instituted criminal proceedings against the son – In order to defend himself, the son borrowed money from the plaintiff at 24% compound interest and mortgaged his properties – In eleven years, the amount payable magnified more than eleven fold – Defendant contended that plaintiff/lender taking unconscionable advantage of his mental distress and exercised undue influence  - defendant failed to prove that the lender was in a position to dominate his will – Borrower got no relief.

However, no presumption of undue influence in following cases and burden of proof lies on the party claiming as such -

• Landlord and tenant
• Creditor and debtor

i.            Husband and wife (wife should not be pardanashin otherwise the presumption will arise)

Rebuttal of presumption – the presumption of undue influence can be rebutted on following grounds –

(a)    full disclosure of facts is made by the influencing party to the party alleged to have been influenced.

(b)   The price is adequate – inadequacy of consideration is only an evidence of undue influence.

(c)    The weaker party was in receipt of independent advice, before making the promise – the advise must be shown to be competent and based on knowledge of all relevant facts

Lloyds Bank Vs. Bundy – contractor borrowed money from bank – he could not pay it in time and bank pressed for payment or security – Borrower suggested that his father  might mortgage the family’s only residential house – bank visited the father and obtained his signatures upon ready-made papers – contractor still could not pay – bank sought to enforce the mortgage – Held, bank exploited the vulnerability of the father, caused by his desire to help his son, to such an extent that he charged his house to his ruin for a very short moratorium (suspension/freeze/halt) which was a highly inadequate consideration for the mortgage. 

Contract with pardanashin woman is presumed to be induced by indue influence – a woman who observes complete seclusion because of custom of particular community to which she belongs.

Kalibaksh Singh Vs. Ram Gopal Singh – about two months before her death, a Hindu widow (who was a pardanashin woman) gifted half of her landed properties to the son of her paramour, who was also the manager of her estate – Held, she had no independent advice, and gift was the result of the influence the manager had over the lady – Gift voidable at her option.

However, where a woman goes to Court to give evidence, settles rents with tenants and collects rents, communicates in matters of business with men other than members of her family, she is not a pardanashin woman (Shaikh Ismail Vs. Amir Bibi).

Difference between coercion and undue influence –

Coercion	Undue Influence
1. The consent is given under the threat of an offence (i.e. committing or threatening to commit an act forbidden by IPC or detaining or threatening to detain the property unlawfully)	1. Consent is given by a person who is so placed in relation to another that the other person is in a position to  dominate his will.
2. Coercion is mainly of physical nature. It involves physical or violent force.	2. Undue influence is of moral character.  It involves moral force or mental pressure.
3. There must be an intention of causing any person to enter into a contract.	3. The influencing party must use his position to obtain unfair advantage over the other party.
4. It involves a criminal act.	4. No criminal act is involved.

Any statement - wrongly made by one party to the contract - during the course of negotiations - with a view to induce the other party to enter into a contract – is called misrepresentation.  May be made either –

• innocently or unintentionally – called misrepresentation.
• Intentionally or deliberately or wilfully with intention to deceive or defraud the other party – called fraud