Write a critical note on Undue influence.

Question: Write a critical note on Undue influence. [BJS 1980]

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Answer

Undue influence is defined under Section 16 of The Indian Contract Act, 1872 which means one party uses its dominant position over the party and tries to obtain an advantage out of it by influencing. Such examples are the relationship of employer-employee, principle-agent relationship.

The first sub-section, defines undue influence as the use by one party to the contract of his dominant position for obtaining an unfair advantage over the other party.

The second sub-section, describes the various situations in which one party to a contract can be said to dominate the will of another.

The last sub-section raises a rebuttable presumption where a contract takes place between parties in such a position and the transaction is unconscionable.

The contracts entered into through undue influence are termed voidable and not void. For example, ‘A’ being in debt to ‘B’ the money-lender of his village, contracts a fresh loan on terms that appear to be unconscionable. The burden of proof lies on ‘B’ to prove that the contract was not induced by undue influence.

A person who claims that a contract is voidable needs to establish that the contract is vitiated by fraud, undue influence, misrepresentation, or any other circumstance, which would entitle a party to a contract to avoid it. A situation can also arise where the party has acted upon a voidable contract as being a valid one. Once this happens, that party is stopped from denying the validity later.

In the landmark case of Oriental Insurance Co. Ltd. v. Ram Moorjani [1999 (2) Bom LR 242], this question of voidability was under consideration. It was alleged by the defendant that the plaintiff exercised undue influence in obtaining an indemnity bond. But, the plaintiff defended by asserting that it was a practice so followed.

Now, there was no legal or statutory right with the plaintiff to obtain such an indemnity bond. The court also did not accept the argument of practice. It was authoritatively held that such practice needs to have the sanction of law. The practice can also be flowed out of mutual agreement concluded and entered into between the parties. Unless such requirements are not fulfilled, the undue influence remains. Thus, the contract was found vitiated. The indemnity bond so given under undue influence was found unenforceable.

Presumption of undue influence

But in certain cases presumption of undue influence is raised. The effect of the presumption is that once it is shown that the defendant was in a position to dominate the will of the plaintiff it will be presumed that he must have used his position to obtain an unfair advantage. It will be then for the defendant to show that the plaintiff freely consented. In a case of Chand Singh v. RamKaur, (1987) 2 PLR70; where a parda lady of 70 years, having three daughters, was supposed to have gifted her entire land to the defendant, who was the tenant of that land, it was held that from the position of his possession of the land he must have dominated the woman and burden lay upon him to show the circumstances of the gift. He was not able to do so, the gift deed was set aside.

Thus, all the principles suggest that their presumption is initially there that there was active undue influence played on the submissive party and burden of proof is on the domination party who must show the non-existence of undue influence, and if he fails to do for some reason, the case is bound to go against him in the court.

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Law of Contract Mains Questions Series: Important Questions for Judiciary, APO & University Exams

1. Law of Contract Mains Questions Series Part-I
2. Law of Contract Mains Questions Series Part-II
3. Law of Contract Mains Questions Series Part-III
4. Law of Contract Mains Questions Series Part-IV
5. Law of Contract Mains Questions Series Part-V
6. Law of Contract Mains Questions Series Part-VI
7. Law of Contract Mains Questions Series Part-VII
8. Law of Contract Mains Questions Series Part-VIII
9. Law of Contract Mains Questions Series Part-IX
10. Law of Contract Mains Questions Series Part-X